[Federal Register: August 3, 2004 (Volume 69, Number 148)]
[Proposed Rules]
[Page 46631-46863]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03au04-15]
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Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Parts 403, 411, 417, and 423
Medicare Program; Medicare Prescription Drug Benefit; Proposed Rule
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 403, 411, 417, and 423
[CMS-4068-P]
RIN 0938-AN08
Medicare Program; Medicare Prescription Drug Benefit
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would implement the new Medicare
Prescription Drug Benefit. This new voluntary prescription drug benefit
program was enacted into law on December 8, 2003, in section 101 of the
Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA). The addition of a prescription drug benefit to Medicare
represents a landmark change to the Medicare program that will
significantly improve the health care coverage available to millions of
Medicare beneficiaries. The MMA specifies that the prescription drug
benefit program will become available to beneficiaries beginning on
January 1, 2006. Please see the executive summary in the SUPPLEMENTARY
INFORMATION section for further synopsis of this rule.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on October 4, 2004.
ADDRESSES: In commenting, please refer to file code CMS-4068-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of three ways (no duplicates,
please):
1. Electronically. You may submit electronic comments to http://www.cms.hhs.gov/regulations/ecomments
(attachments should be in
Microsoft Word, WordPerfect, or Excel; however, we prefer Microsoft
Word).
2. By mail. You may mail written comments (one original and two
copies) to the following address only: Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Attention: CMS-4068-
P, P.O. Box 8014, Baltimore, MD 21244-8014.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to one of the following addresses. If you
intend to deliver your comments to the Baltimore address, please call
telephone number (410) 786-7197 in advance to schedule your arrival
with one of our staff members.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by mailing your
comments to the addresses provided at the end of the ``Collection of
Information Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Lynn Orlosky (410) 786-9064 or Randy
Brauer (410)786-1618 (for issues related to eligibility, elections,
enrollment, including auto-enrollment of dual eligible beneficiaries,
and creditable coverage).
Wendy Burger (410) 786-1566 (for issues related to marketing and
user fees).
Vanessa Duran-Scirri (214) 767-6435 (for issues related to benefits
and beneficiary protections, including Part D benefit packages, Part D
covered drugs, coordination of benefits in claims processing and
tracking of true-out-of-pocket costs, pharmacy network access
standards, plan information dissemination requirements, and privacy of
records).
Craig Miner, RPh. (410) 786-1889 or Tony Hausner (410) 786-1093
(for issues of pharmacy benefit cost and utilization management,
formulary development, quality assurance, medication therapy
management, and electronic prescribing).
Mark Newsom (410) 786-3198 (for issues of submission, review,
negotiation, and approval of risk and limited risk bids for PDPs and
MA-PD plans; the calculation of the national average bid amount;
determination and collection of enrollee premiums; calculation and
payment of direct and reinsurance subsidies and risk-sharing; and
retroactive adjustments and reconciliations.)
Jim Owens (410) 786-1582 (for issues of licensing and waiver of
licensure, the assumption of financial risk for unsubsidized coverage,
and solvency requirements for unlicensed sponsors or sponsors who are
not licensed in all States in the region in which it wants to offer a
PDP.)
Terese Klitenic (410) 786-5942 (for issues of coordination of Part
D plans with providers of other prescription drug coverage including
Medicare Advantage plans, state pharmaceutical assistance programs
(SPAPs), Medicaid, and other retiree prescription drug plans; also for
issues related to eligibility for and payment of subsidies for
assistance with premium and cost-sharing amounts for Part D eligible
individuals with lower income and resources; for rules for states on
eligibility determinations for low-income subsidies and general state
payment provisions including the phased-down state contribution to drug
benefit costs assumed by Medicare).
Frank Szeflinski (303) 844-7119 (for issues related to conditions
necessary to contract with Medicare as a PDP sponsor, as well as
contract requirements, intermediate sanctions, termination procedures
and change of ownership requirements; employer group waivers and
options; also for issues related to cost-based HMOs and CMPS offering
Part D coverage.)
John Scott (410) 786-3636 (for issues related to the procedures PDP
sponsors must follow with regard to grievances, coverage
determinations, and appeals.)
Tracey McCutcheon (410) 786-6715 (for issues related to
solicitation, review and approval of fallback prescription drug plan
proposals; fallback contract requirements; and enrollee premiums and
plan payments specific to fallback plans.)
Jim Mayhew (410) 786-9244 (for issues related to the alternative
retiree drug subsidy.)
Joanne Sinsheimer (410) 786-4620 (for issues related to physician
self-referral prohibitions.)
Brenda Hudson (410) 786-4085 (for issues related to PACE
organizations offering Part D coverage.)
Julie Walton (410) 786-4622 or Kathryn McCann (410) 786-7623 (for
issues related to provisions on Medicare supplemental (Medigap)
policies.)
For general questions: Please call (410) 786-1296.
SUPPLEMENTARY INFORMATION:
Executive Summary. Generally, coverage for the prescription drug
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benefit will be provided under private prescription drug plans (PDPs),
which will offer only prescription drug coverage, or through Medicare
Advantage prescription drug plans (MA-PDs), which will offer
prescription drug coverage that is integrated with the health care
coverage they provide to Medicare beneficiaries under Part C of
Medicare. PDPs must offer a basic prescription drug benefit. MA-PDs
must offer either a basic benefit or broader coverage for no additional
cost. If this required level of coverage is offered, the PDP or MA-PD
plan may also offer supplemental benefits through enhanced alternative
coverage for an additional premium. All organizations offering drug
plans will have flexibility in the design of the prescription drug
benefit. Consistent with the MMA, this proposed rule provides for
subsidy payments to sponsors of qualified retiree prescription drug
plans.
We intend to implement the drug benefit to permit and encourage a
range of options for Medicare beneficiaries to augment the standard
Medicare coverage for drug costs above the initial coverage limit
($2250 in 2006) and below the annual out-of-pocket threshold ($5100 in
2006). In addition to the coverage established by the statute for low-
income beneficiaries, we seek comments on the best way to support
options for expanding beneficiaries' drug coverage. Potential options
include facilitating coverage through employer plans, MA-PD plans and/
or high-option PDPs, as well as through charity organizations and State
pharmaceutical assistance programs. We specifically seek comments on
ways to maximize the continued use of non-Medicare resources (private
contributions, employer/union contributions, state contributions,
health plan contributions, and other sources) that currently provide at
least partial coverage for three-fourths of Medicare beneficiaries. See
sections II.C, II.J, and II.P, and II R of this preamble for further
details on these issues. We are also considering establishing a CMS
demonstration to evaluate possible ways of achieving such extended
coverage, and we welcome all suggestions in this regard.
Throughout the preamble, we identify options and alternatives to
the provisions we propose. We strongly encourage comments and ideas on
our approach and on alternatives to help us design the Medicare
Prescription Drug Benefit Program to operate as effectively and
efficiently as possible in meeting the needs of Medicare beneficiaries.
Although this proposed rule specifies most of the requirements for
implementing the new prescription drug program, readers should note
that we are also issuing a closely related proposed rule that concerns
Medicare Advantage plans, which will usually combine medical and
prescription drug coverage. In addition, although this proposed rule
specifies requirements related to PDP regions it does not designate
those regions. Regional boundary decisions will be made through a
separate process. Additional non-regulatory guidance on this and other
topics will also be forthcoming.
We have considered and, in some places, have identified how this
proposed rule intersects with other Federal laws, such as the Health
Insurance Portability and Accountability Act (HIPAA) of 1996
Certification of Creditable Coverage and the HIPAA Privacy Rule. We are
interested in learning how this proposed rule may interact with other
legal obligations to which the PDP sponsors and MA-PD plans may be
subject and intend to make appropriate changes in the final rule to
address such issues.
Submitting Comments: We welcome comments from the public on all
issues set forth in this rule to assist us in fully considering issues
and developing policies. Comments will be most useful if they are
organized by the section of the proposed rule to which they apply. You
can assist us by referencing the file code [CMS-4068-P] and the
specific ``issue identifier'' that precedes the section on which you
choose to comment.
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. After the close of the
comment period, CMS posts all electronic comments received before the
close of the comment period on its public Web site. Comments received
timely will be available for public inspection as they are received,
generally beginning approximately 3 weeks after publication of a
document, at the headquarters of the Centers for Medicare & Medicaid
Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday
through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an
appointment to view public comments, phone 410-786-7197.
Copies: To order copies of the Federal Register containing this
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also available from the Federal Register online database through GPO
Access, a service of the U.S. Government Printing Office. The Web site
address is: http://www.access.gpo.gov/fr/index.html.
I. Background
(If you choose to comment on issues in this section, please include the
caption ``Background'' at the beginning of your comments.)
A. Medicare Prescription Drug, Improvement, and Modernization Act of
2003
Section 101 of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173) amended Title XVIII
of the Social Security Act (the Act) by redesignating Part D as Part E
and inserting a new Part D, which establishes the Voluntary
Prescription Drug Benefit Program. (For ease of reference, we will
refer to the new prescription drug benefit program as Part D of
Medicare and the Medicare Advantage Program as Part C of Medicare.) We
believe that the new Part D benefit constitutes the most significant
change to the Medicare program since its inception in 1965. The
addition of outpatient prescription drugs to the Medicare program
reflects Congress' recognition of the fundamental change in recent
years in how medical care is delivered in the U.S. It recognizes the
vital role of prescription drugs in our health care delivery system,
and the need to modernize Medicare to assure their availability to
Medicare beneficiaries. This proposed rule is designed to ensure broad
participation in the new benefit both by organizations that offer
prescription drug coverage and by eligible beneficiaries. In
conjunction with complementary improvements to the Medicare Advantage
program, these changes should significantly increase the coverage and
choices available to Medicare beneficiaries. Effective January 1, 2006,
the new program
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establishes an optional prescription drug benefit for individuals who
are entitled to or enrolled in Medicare benefits under Part A and/or
Part B. Beneficiaries who qualify for both Medicare and Medicaid (full-
benefit dual eligibles) will automatically receive the Medicare drug
benefit. The statute also provides for assistance with premiums and
cost sharing to eligible low-income beneficiaries.
In general, coverage for the new prescription drug benefit will be
provided through private prescription drug plans (PDPs) that offer
drug-only coverage, or through Medicare Advantage (MA) (formerly known
as Medicare+Choice) plans that offer integrated prescription drug and
health care coverage (MA-PD plans). PDPs must offer a basic drug
benefit. MA-PDs must offer either a basic benefit or broader coverage
for no additional cost. If this required level of coverage is offered,
the PDP or MA-PD plan may also offer supplemental benefits through
enhanced alternative coverage for an additional premium.
All organizations offering drug plans will have flexibility in
terms of benefit design, including the authority to establish a
formulary to designate specific drugs that will be available within
each therapeutic class of drugs, and the ability to have a cost-sharing
structure other than the statutorily defined structure, subject to
certain actuarial tests. The plans also may include supplemental drug
coverage such that the total value of the coverage offered exceeds the
value of basic prescription drug coverage. The specific sections of the
Act that address the prescription drug benefit program are the
following:
1860D-1 Eligibility, enrollment, and information.
1860D-2 Prescription drug benefits.
1860D-3 Access to a choice of qualified prescription drug coverage.
1860D-4 Beneficiary protections for qualified prescription drug
coverage.
1860D-11 PDP regions; submission of bids; plan approval.
1860D-12 Requirements for and contracts with prescription drug plan
(PDP) sponsors.
1860D-13 Premiums; late enrollment penalty.
1860D-14 Premium and cost-sharing subsidies for low-income individuals.
1860D-15 Subsidies for Part D eligible individuals for qualified
prescription drug coverage.
1860D-16 Medicare Prescription Drug Account in the Federal
Supplementary Medical Insurance Trust Fund.
1860D-21 Application to Medicare Advantage program and related managed
care programs.
1860D-22 Special rules for employer-sponsored programs.
1860D-23 State pharmaceutical assistance programs.
1860D-24 Coordination requirements for plans providing prescription
drug coverage.
1860D-41 Definitions; treatment of references to provisions in Part C.
1860D-42 Miscellaneous provisions.
Specific sections of the MMA that also relate to the prescription
drug benefit program are the following:
Sec. 102 Medicare Advantage Conforming Amendments
Sec. 103 Medicaid Amendments
Sec. 104 Medigap
Sec. 109 Expanding the work of Medicare Quality Improvement
Organizations to include Parts C and D.
B. Organizational Overview of Part 423
The regulations set forth in this proposed rule will be codified in
the new 42 CFR part 423--Prescription Drug Benefit Program. There are a
number of places in which statutory provisions in Part D incorporate by
reference specific sections in Part C of Medicare (the Medicare
Advantage program). The MA regulations appear at 42 CFR part 422. Since
the same organizations that offer MA coordinated care plans will also
be required to offer MA-PD plans, we believe it is appropriate to adopt
the same organizational structure as part 422. MA coordinated care
plans (defined in Sec. 1851(a)(2)(A)) are a type of Medicare Advantage
plan. For example, requirements relating to eligibility, election, and
enrollment would be set forth in subpart B of new part 423, just as
they now are set forth in subpart B of part 422. Therefore, wherever
possible, we have modeled the proposed prescription drug regulations on
the parallel provisions of the part 422 regulations.
The major subjects covered in each subpart of part 423 are as
follows:
Subpart A, General Provisions: Basis and scope of the new part 423,
Definitions and discussion of important concepts used throughout part
423, and sponsor cost-sharing in beneficiary education and enrollment-
related costs (user fees).
Subpart B, Eligibility, Election, and Enrollment: Eligibility for
enrollment in the Part D benefit, enrollment periods, disenrollment,
application of the late enrollment penalty, approval of marketing
materials and enrollment forms, and the meaning and documentation of
creditable coverage. (Please note that other, related topics, are
discussed in the following subparts: Subpart P, eligibility and
enrollment for low-income individuals; Subpart S, provisions relating
to the phase-down of state contributions for dual-eligible drug
expenditures; Subpart F, calculation and collection of late enrollment
fees; Subpart C, plan disclosure; Subpart Q, eligibility and enrollment
for fallback plans; and Subpart T, the definition of a Medicare
supplemental (Medigap) policy.)
Subpart C, Benefits and Beneficiary Protections: Prescription drug
benefit coverage, service areas, network and out-of-network access,
formulary requirements, dissemination of plan information to
beneficiaries, and confidentiality of enrollee records. (Please note
that actuarial valuation of the coverage offered by plans, as well as
the submission of the bid, is discussed in subpart F. Access to
negotiated prices is discussed in subpart C, while the reporting of
negotiated prices is discussed in subpart G. Formularies are discussed
in subpart C, while the appeals of formularies are discussed in subpart
M. Incurred costs toward true out-of-pocket (TrOOP expenditures) are
discussed in subpart C, while the procedures for determining whether a
beneficiary's Part D out-of-pocket costs are actually reimbursed by
insurance or another third-party arrangement are discussed in subpart
J. Information that plans must disseminate to beneficiaries is
discussed in subpart C, while Part D information that CMS must
disseminate to beneficiaries is discussed in subpart B.)
Subpart D, Cost Control and Quality Improvement Requirements for
Prescription Drug Benefit Plans: Utilization controls, quality
assurance, medication therapy, and fraud, waste and abuse, as well as
rules related to identifying enrollees for whom medication therapy
management is appropriate, consumer satisfaction surveys, and
accreditation as a basis for deeming compliance.
Subpart E, Reserved.
Subpart F, Submission Of Bids and Monthly Beneficiary Premiums;
Plan Approval: Bid submission, the actuarial value of bid components,
review and approval of plans, and the calculation and collection of
Part D premiums.
Subpart G, Payments To PDP Sponsors and MA Organizations Offering
MA-PD Plans for All Medicare Beneficiaries for Qualified Prescription
Drug Coverage: Data submission, payments and reconciliations for direct
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subsidies, risk adjustment, reinsurance, and risk-sharing arrangements.
Subpart H, Reserved.
Subpart I, Organization Compliance With State Law and Preemption By
Federal Law: Licensure, assumption of financial risk, solvency, and
State premium taxes.
Subpart J, Coordination Under Part D With Other Prescription Drug
Coverage: Applicability of Part D rules to the Medicare Advantage
program, waivers available to facilitate the offering of employer group
plans, and procedures to facilitate calculation of true out-of-pocket
expenses and coordination of benefits with State pharmaceutical
assistance programs and other entities that provide prescription drug
coverage. (Please note that subpart C discusses, in more detail,
coordination of benefits and the determination of which incurred
beneficiary costs will be counted as TrOOP expenditures. Provisions
relating to disenrollment for material misrepresentation by a
beneficiary are discussed in subpart J and also referenced in subpart
B.)
Subpart K, Application Procedures and Contracts With PDP Sponsors:
Application procedures and requirements; contract terms; procedures for
termination of contracts; reporting by PDP sponsors.
Subpart L, Effect of Change of Ownership or Leasing of Facilities
During Term of Contract: Change of ownership of a PDP sponsor; novation
agreements; leasing of a PDP sponsor's facilities.
Subpart M, Grievances, Coverage Determinations and Appeals:
Coverage determinations by sponsors, exceptions procedures, and all
levels of appeals by beneficiaries.
Subpart N, Medicare Contract Determinations and Appeals:
Notification by CMS about unfavorable contracting decisions, such as
nonrenewals or terminations; reconsiderations; appeals.
Subpart O, Intermediate Sanctions: Provisions concerning available
sanctions for participating organizations.
Subpart P, Premiums and Cost-Sharing Subsidies for Low-Income
Individuals: Eligibility determinations and payment calculations for
low-income subsidies.
Subpart Q, Guaranteeing Access to a Choice of Coverage (Fallback
Plans): Definitions; access requirements; bidding process; contract
requirements.
Subpart R, Payments to Sponsors of Retiree Prescription Drug Plans:
Provisions for making retiree drug payments to sponsors of qualified
retiree prescription drug plans.
Subpart S, Special Rules for States--Eligibility Determinations for
Subsidies and General Payment Provisions: State/Medicaid program's role
in determining eligibility for low-income subsidy and other issues
related to the Part D benefit.
In addition, in subpart T, this proposed rule also provides changes
to: Part 403 relating to Medicare supplemental policies (Medigap), part
411 relating to exclusions from Medicare and limitations on Medicare
payment (the physician self-referral rules), part 417 relating to cost-
based HMOs, part 460 relating to PACE organizations, and part 442
relating to Medicaid amendments.
II. Provisions of the Proposed Rule
A. General Provisions
(If you choose to comment on issues in this section, please include the
caption ``General Provisions'' at the beginning of your comments.)
1. Overview
Section 423.1 of subpart A specifies the general statutory
authority for the ensuing regulations and indicates that the scope of
part 423 is to establish requirements for the Medicare prescription
drug benefit program. Section 423.4 of subpart A provides definitions
for terms that appear in multiple sections of part 423 and whose
meaning we believe should be featured prominently in order to aid the
reader.
Consistent with the MMA statute, we are in many cases proposing
procedures that parallel those now in effect under the Medicare
Advantage program (for example the regulations concerning PDP and MA-PD
plan contract and appeal requirements). We anticipate receiving at
least two categories of comments on such provisions: (1)
Recommendations for changes that would impact only the proposed Part D
provisions (based for example on underlying differences between the MA
and Part D programs); and (2) recommendations for changes that would
impact both the MA and Part D provisions. Our goal is to maintain
consistency between these two programs wherever possible; thus we will
evaluate the need for parallel changes in the MA final rule when we
receive comments on provisions that affect both programs.
2. Discussion of Important Concepts and Key Definitions (Sec. 423.4)
a. Introduction
For the most part, the definitions in the proposed rule are taken
directly from section 1860D-41 of the Act. The definitions set forth in
subpart A apply to all of part 423 unless otherwise indicated, and are
applicable only for the purposes of part 423. For example, ``insurance
risk'' applies only to pharmacies that contract with PDP sponsors under
part 423. Definitions that have a more limited application are not
included in subpart A, but instead are set forth within the relevant
subpart of the regulations. For example, in subpart F, we have included
all the definitions related to bids and premiums. The detailed
definitions and requirements related to prescription drug coverage are
included in subpart C, but because of their direct relevance to the
bidding process they are also referenced in subpart F.
Following our discussion of important concepts, we provide brief
definitions of terms that occur in multiple sections of this preamble
and part 423. We believe that it is helpful to define these frequently
occurring terms to aid the reader but that these terms do not require
the extended discussion necessary in our section on important concepts.
b. Discussion of Actuarial Equivalence, Creditable Prescription Drug
Coverage, PDP Plan Regions, Service Area, and User Fees
i. Discussion of the Meaning of Actuarial Equivalence
The concept of actuarial equivalence is applied in different
contexts in Title I of the MMA, including: Determinations related to
creditable coverage (subpart B), determinations related to the value of
drug coverage and bid components (subpart F); and determinations
related to subsidy payments for employer or union sponsors of qualified
retiree health plans that include prescription drugs (subpart R). In
very general terms, actuarial equivalence refers to a determination
that, in the aggregate, the dollar value of drug coverage for a set of
beneficiaries under one plan can be shown to be equal to the dollar
value for those same beneficiaries under another plan. Given the
various uses for this term in the Part D context, we propose the
following relatively general definition:
``Actuarial equivalence'' means a state of equivalent values
demonstrated through the use of generally accepted actuarial principles
and in accordance with section 1860D-11(c) of the Act and Sec.
423.265(c)(3) of this part.
This concept is discussed in further detail below and in those
sections of this preamble, such as section II.F, where actuarial
equivalence comes into play.
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According to section 1860D-11(c) of the Act, we will develop
processes and methods using generally accepted actuarial principles and
methodologies for determining the actuarial valuation of prescription
drug coverage. Although the statute sets forth specific requirements
for actuarial equivalence and valuation, there is no formal definition
of actuarial equivalence. Also, in each of the contexts described
above, we must address the question of whether actuarial equivalence is
determined from the perspective of the plan, or the beneficiary.
In the sections dealing with actuarial equivalence throughout this
proposed rule, we have tried to avoid being overly prescriptive, in
order to maintain flexibility to adjust and refine the needed valuation
processes as we gain more experience with the administration of the new
benefit. Thus, we fully expect to provide additional guidance in the
future on these provisions.
ii. Discussion of the Meaning of Creditable Prescription Drug Coverage
The types of coverage considered creditable prescription drug
coverage in proposed 42 CFR 423.4 are discussed in the preamble to
subpart B.
In the preamble to subpart T, we discuss in more detail the effect
of Part D on Medigap policies, one of the forms of drug coverage that
may be creditable if it meets the actuarial equivalence test.
iii. Prescription Drug Plan Regions
Prescription drug plan regions are areas in which a contracting PDP
plan must provide access to covered Part D drugs. Although we have
included specifications for regions in Sec. 423.112, the regions
themselves are not set forth in this proposed rule. To the extent
feasible, we intend that the PDP regions will be consistent with the
regions established for the MA program (see Sec. 422.455 of the MA
proposed rule). In establishing the regions for both programs, we will
use the results of a market survey that includes the examination of
current insurance markets. MMA specifically states that there will be
no fewer than 10 regions and no more than 50 regions, not including the
territories. For a further discussion of the PDP regions, see section
II.C of this preamble.
iv. Service Area
Medicare beneficiaries are eligible to enroll in a PDP or an MA-PD
plan only if they reside in the PDP's or MA-PD plan's ``Service Area.''
As noted above, for PDPs, this is the Region established by CMS
pursuant to proposed Sec. 423.112, within which the PDP is responsible
for providing access to the Part D drug benefit in accordance with the
access standards in proposed Sec. 423.120. Under the MA program, an MA
plan's Service Area is defined in Sec. 422.2. For coordinated care
plans, the definition of ``service area'' expressly includes the
condition that the service area is an area in which access is provided
in accordance with access standards in Sec. 422.112.
Prior to this rulemaking, we had not considered how this access
requirement in the MA plan Service Area definition would apply to a
jail or prison within the boundaries of a plan Service Area.
Beneficiaries incarcerated there clearly would not have access to
services as required under Sec. 422.112. Such an area thus would not
meet the coordinated care plan definition of ``Service Area,'' which
requires that such access standards be met. This issue never arose
under the MA program because there would be no reason for an individual
to enroll in an MA plan while incarcerated, since services typically
are all covered by the jail or prison and the prisoner could always
enroll in an MA plan without penalty upon being released.
We have however, considered this issue in the context of Part D
benefits. If a prison or jail is located within the boundaries of a PDP
region, or an MA PDP-plan Service Area, a Medicare-eligible individual
incarcerated there technically would reside within the service area,
and be eligible to enroll to receive Part D benefits. Under this
scenario, such an individual then would have to pay a penalty for not
enrolling while in prison if he or she enrolled in Part D upon being
released.
We do not believe this to be an equitable result, as the
beneficiary would face the choice of paying for services he or she
would not be receiving, or paying a penalty at a later time. We also do
not believe that it would be appropriate for a PDP or MA-PD plan to
receive monthly Part D payments for such an individual, since drugs
typically would be covered for the individual by the prison or jail.
Such payments would represent an unwarranted ``windfall'' for services
the PDP or MA-PD would not have to deliver.
In focusing on this situation, we have decided to propose that for
purposes of enrolling in Part D with a PDP, or under an MA-PD plan, the
definition of Service Area that governs eligibility to enroll is the
area within which the Part D access standards under Sec. 423.120 are
met.
Beneficiaries in jail or prison do not have access to pharmacies
available as required under Sec. 423.120. Therefore, such
beneficiaries would not be considered to be in a PDP or MA-PD plan's
Service Area for purposes of enrolling in Part D. Incarcerated
individuals accordingly would not be assessed a late penalty when they
enroll in Part D (either with a PDP or MA-PD plan) upon being released.
We note that the analysis above would apply equally to a
beneficiary who lives abroad, and does not reside within the boundaries
of any PDP Region or MA-PD Service Area.
v. Sponsor Cost-Sharing in Beneficiary Education and Enrollment Related
Costs--User Fees (Sec. 423.6)
The last section of subpart A proposes regulations implementing the
user fees provided for in section 1857(e)(2) of the Act, as
incorporated by section 1869D-12(b)(3)(D) of the Act. These fees are
currently required of MA plans for the purpose of defraying part of the
ongoing costs of the national beneficiary education campaign that
includes developing and disseminating print materials, the 1-800
telephone line, community based outreach to support State health
insurance assistance programs (SHIPs), and other enrollment and
information activities required under section 1851 of the Act and
counseling assistance under section 4360 of the Omnibus Budget
Reconciliation Act of 1990 (Pub. L. 103-66).
The MMA expands the user fee to apply to PDP sponsors as well as MA
plans. The expansion of the application of user fees recognizes the
increased Medicare beneficiary education activities that we would
require as part of the new prescription drug benefit. In 2006 and
beyond, user fees would help to offset the costs of educating over 41
million beneficiaries about the drug benefit through written materials
such as a publication describing the drug benefit, internet sites, and
other media.
In fiscal year 2006 and thereafter, the MMA authorizes up to
$200,000,000 to be spent on beneficiary education and enrollment
activities reduced by the fees collected from MA organizations and PDP
sponsors in that fiscal year. In each year, the total amount of
collected user fees could not exceed the estimated costs in the fiscal
year for carrying out the enrollment and dissemination of information
activities in the MA and Part D prescription drug programs or the
applicable portions (described below) of $200,000,000, whichever is
less.
Finally, these user fee provisions would establish the applicable
aggregate
[[Page 46637]]
contribution portions for PDP sponsors and MA organizations. There are
two calculations. First, we calculate the PDP sponsors' applicable
portion as a group; their portion is the estimate of the total
proportion of expenditures under Title 18 that are attributable to
expenditures made to PDP sponsors for prescription drugs under Part D.
The applicable portion of the user fee for MA organizations would be
equal to the total expenditures for Medicare Part C, as well as for
payments under Part D that are made to MA organizations, as a percent
of Title 18 expenditures. Then, we calculate the fees charged to
individual PDP sponsors and MA plans.
c. Definitions of Frequently Occurring Terms
Full-benefit dual eligible beneficiary means an individual who
meets the criteria established in Sec. 423.772 (subpart P), regarding
coverage under both Part D and Medicaid.
Insurance risk means, for a participating pharmacy, risk of the
type commonly assumed only by insurers licensed by a State and does not
include payment variations designed to reflect performance-based
measures of activities within the control of the pharmacy, such as
formulary compliance and generic drug substitutions, nor does it
include elements potentially in the control of the pharmacy (for
example, labor costs or productivity).
MA means Medicare Advantage, which refers to the program authorized
under Part C of the Act.
MA-PD plan means an MA plan that provides qualified prescription
drug coverage.
Medicare prescription drug account means the account created within
the Federal Supplementary Medical Insurance Trust Fund for purposes of
Medicare Part D.
Part D eligible individual means an individual who is entitled to
or enrolled in Medicare benefits under Part A and/or Part B.
Prescription drug plan or PDP means prescription drug coverage that
is offered under a policy, contract, or plan that has been approved as
specified in Sec. 423.272 and that is offered by a PDP sponsor that
has a contract with CMS that meets the contract requirements under
subpart K.
PDP region means a prescription drug plan region as determined by
CMS under Sec. 423.112.
PDP sponsor means a nongovernmental entity that is certified under
this part as meeting the requirements and standards of this part for
that sponsor.
d. Financial Relationships Between PDP Sponsors, Health Care
Professionals and Pharmaceutical Manufacturers
The financial relationships that exist between or among PDP
sponsors, health care professionals (including physicians and
pharmacists), and/or pharmaceutical manufacturers may be subject to the
anti-kickback statute and, if the relationship involves a physician,
the Stark statute. These financial relationships could potentially
implicate the anti-kickback and physician self-referral statutes,
therefore, they should be structured appropriately to comply with legal
requirements. Nothing in this regulation should be construed as
implying that financial relationships described in the regulations meet
the requirements of the anti-kickback statute or physician self-
referral statute or any other applicable Federal or State law or
regulation. All such relationships must comply with these laws.
Therefore, PDPs are not prevented from paying pharmacists, for
instance, for medication therapy management, provided that the PDPs do
not violate anti-kickback and physician self-referral laws.
B. Eligibility and Enrollment
1. Eligibility To Enroll (Sec. 423.30)
The MMA established section 1860D-1 of the Act, which includes the
eligibility criteria an individual must meet in order to obtain
prescription drug coverage by enrolling in a PDP plan or an MA-PD plan.
In accordance with section 1860D-1(a)(3) of the Act, a ``Part D
eligible individual'' is defined as an individual who is entitled to or
enrolled in Medicare benefits under Part A or enrolled in Part B. In
order to enroll in a PDP plan, the individual must reside in the plan's
service area, and cannot be enrolled in an MA plan, other than an MSA
plan or private fee-for-service plan that does not provide qualified
prescription drug coverage. This residency requirement flows from the
statute's direction for us to use enrollment rules similar to MA (which
has such a requirement) and the drug benefit's basic structure, which
designates regions within which PDPs are to provide services.
Section 1860D-1(b)(1)(B)(i) requires that we adopt a residency
requirement similar to the Part C residency requirements under section
1851(b)(1)(A) of the Act, which stipulates that a beneficiary is
eligible to enroll in a plan only if the beneficiary resides in the
plan's service area. Because a PDP's service area may consist only of
one or more PDP regions, individuals who reside outside of the United
States would be ineligible to enroll in a PDP or MA-PD plan.
Consequently, these individuals are ineligible to enroll in Part D.
Under section 1860D-1(b)(1)(B)(i) of the Act, which incorporates
into Part D section 1851(b)(1)(A) of the Act, the Secretary may provide
exceptions to the general rule that an individual is eligible to enroll
in a PDP serving the geographic area in which the individual resides.
We note also that section 1860D-1(b)(1)(B) of the Act directs us to
adopt enrollment rules ``similar to,'' but not necessarily identical
to, those under Part C, giving us some flexibility to modify the Part C
enrollment rules as appropriate. We believe that incarcerated
individuals should be ineligible to enroll in a PDP. We therefore
provide in Sec. 423.4 of the proposed rule that a PDP's service area
would exclude areas in which incarcerated individuals reside (that is,
a correctional facility).
Were we not to adopt these rules, individuals who are incarcerated
or who live outside of the U.S. and who fail to enroll in a PDP or MA-
PD when first eligible, or remain enrolled thereafter, would face a
late enrollment penalty if they later decide to enroll in Part D. In
accordance with section 1860D-13(b) of the Act and Sec. 423.46 of the
proposed rule, individuals are subject to a late penalty if there is a
continuous period of eligibility of at least 63 days, beginning after
the termination of the individual's initial enrollment period, during
which the individual was not enrolled in a PDP or MA-PD plan. Thus, in
order to avoid such a penalty, these individuals would have to enroll
in a PDP or MA-PD, but would not be able to avail themselves of the
plan's services while they are incarcerated or outside of the plan's
service area. Under our proposed rule, individuals residing outside the
U.S. and incarcerated individuals would be ineligible to enroll in a
PDP. Thus, there would not be a continuous period of eligibility of at
least 63 days during the time of the individuals' residency abroad or
incarceration. Consequently, these individuals would not need to enroll
in Part D in which they would not be able to receive services or
benefits in order to avoid the late penalty.
Generally, a Part D eligible individual enrolled in an MA plan that
does not provide qualified prescription drug coverage (that is, an MA-
PD plan) may not enroll in a PDP; however, there are two exceptions.
Section 1860D-1(a)(1)(B) of the Act permits a Part D eligible
individual who is enrolled in either a MA private fee-for-service plan
(as defined in section 1859(b)(2) of the
[[Page 46638]]
Act) that does not provide qualified prescription drug coverage or an
MSA plan (as defined in section 1859(b)(3) of the Act) to enroll in a
PDP. We have provided for these exceptions in Sec. 423.30(b) of the
proposed rule.
Except as provided above, in accordance with section 1860D-
1(a)(B)(i) of the Act and as provided in 423.30(c) of the proposed
rule, a Part D eligible individual who is enrolled in an MA-PD plan
must obtain prescription drug coverage through that plan. In order to
enroll in an MA-PD plan, a Part D eligible individual must also meet
the eligibility and enrollment requirements of the MA-PD plan as
provided in 42 CFR 422.50 through 422.68 of proposed regulations.
As discussed in Sec. 423.859, section 1860D-3(a)(1) of the Act
requires the Secretary to ensure that each Part D eligible individual
will have available a choice of enrollment in at least two qualifying
plans, at least one of which must be a PDP. If this choice is not
available, in accordance with section 1860D-2(b) of the Act, a fallback
prescription drug plan will be made available and individuals will be
eligible to enroll in that fallback plan if eligible for Part D. As
discussed in Sec. 423.855 of the proposed rule, a fallback
prescription drug plan is a prescription drug plan offered by an
eligible fallback entity that provides only standard prescription drug
coverage (without supplemental benefits), provides access to negotiated
prices, and meets the requirements for PDP sponsors (except as
otherwise indicated), and other requirements specified by CMS.
2. Part D Enrollment Process (Sec. 423.34)
Section 1860D-1(b)(1) of the Act requires that we establish a
process for the enrollment, disenrollment, termination, and change of
enrollment of Part D eligible individuals in prescription drug plans.
The statute further requires that this process use rules similar to,
and coordinated with, the enrollment, disenrollment, termination, and
change of enrollment rule for MA-PD plans under certain provisions of
section 1851 of the Act. As such, we have incorporated, where possible,
the MA enrollment and disenrollment requirements provided under 42 CFR
422.50-422.80. In accordance with section 1860D-1(b)(1)(C) of the Act,
we would establish a process to automatically enroll a full benefit
dual-eligible individual (as defined under section 1935(c)(6) of the
Act) who has failed to enroll in a PDP or MA-PD plan by either the end
of the individual's initial enrollment period or upon becoming dual
eligible after his/her initial enrollment period. Prior to this
automatic enrollment process, a widespread education and information
campaign (described later in this subpart at Sec. 423.48) will equip
full benefit dual eligible individuals with information designed to
explain options and encourage these individuals to take an active role
in their enrollment rather than wait to be automatically enrolled.
An full benefit dual eligible individual who fails to enroll in a
PDP or MA-PD would be automatically enrolled into a prescription drug
plan that has a monthly beneficiary premium equal to or below the
subsidy amount available to low-income beneficiaries in accordance with
section 1860D-14(a)(1)(A) of the Act. This premium may not exceed the
low-income benchmark premium amount established under section 1860D-
14(b)(2) of the Act. The calculation of the low-income benchmark
premium is further described in Sec. 423.780(a) of the proposed rule.
Section 1860D-1(b)(1)(c) of the Act also directs us to enroll full
benefit dual eligible individuals who fail to elect a PDP or MA-PD plan
on a random basis if more than one PDP within an area has a monthly
beneficiary premium equal to or below the low-income benchmark premium.
To ensure that each full benefit dual eligible individual will have
access to at least one PDP in each region, section 1860D-14(b)(3) of
the Act provides that the premium subsidy amount for eligible
individuals (including full benefit dual eligible individuals) cannot
be less than the lowest monthly beneficiary premium for a PDP in a
region. A more detailed discussion of the premium subsidy is found at
Sec. 423.780 of the proposed rule.
Two major issues require resolution because the statutory
provisions are inherently contradictory in their requirements. The
first is how to provide qualified prescription drug coverage to those
full benefit dual eligible individuals who are in an MA-only plan and
who have failed to enroll in a PDP or MA-PD plan. The second issue is
how to provide qualified prescription drug coverage to a full benefit
dual eligible enrolled in the Medicare Advantage program when the
premium for the MA-PD plan(s) offered by an individual's MA
organization exceeds the low income benchmark premium. We discuss each
of these issues below and request comments on how best to reconcile
these conflicting provisions.
A literal reading of section 1860D-1(b)(1)(C) of the Act would seem
to preclude automatic enrollment of full benefit dual eligible
individuals into MA-PD plans. The language requires automatic
enrollment into a ``prescription drug plan'' whose premium meets the
aforementioned requirements. However, section 1860D-1(a)(1)(B)(ii) of
the Act precludes Part D eligible individuals enrolled in MA (not MA-
PD) plans (other than those in some private fee-for-service or MSA
plans) from enrolling in PDPs. To reconcile this apparent conflict, we
propose that that the reference in section 1860D-1(b)(1)(C) of the Act
to ``prescription drug plans'' be interpreted as including both PDPs
and MA-PD plans, thereby allowing automatic enrollment of an MA full
benefit dual eligible into a MA-PD plan offered by the same MA
organization offering his or her MA plan if the basic premium for such
plan does not exceed the low-income benchmark premium amount.
General principles of statutory interpretation require us to
reconcile two seemingly conflicting statutory provisions whenever
possible, rather than allowing one provision to effectively nullify the
other provision. Consequently, when a statutory provision may
reasonably be interpreted in two ways, we have an obligation to adopt
the interpretation that harmonizes and gives full effect to competing
provisions of the statute. The rationale for automatic enrollment is to
ensure that full-benefit dual eligible individuals receive outpatient
drug coverage under Part D because Medicaid will no longer provide
medical assistance for covered Part D drugs to such individuals. For
full benefit dual eligible individuals enrolled in MA plans, we believe
this objective is best accomplished by enrolling them in one of the MA-
PD plans offered by their MA organization.
To the extent that the MA-only portion of the MA-PD plan parallels
the coverage under a full benefit dual eligible individual's MA plan,
enrolling the individual in the MA-PD plan would be similar to
permitting the individual to remain enrolled in the MA plan while
simultaneously enrolling the individual in a PDP. In other words,
enrolling the individual in a MA-PD plan offered by the same MA
organization is, in effect, simply adding qualified prescription drug
coverage to the individual's MA benefits. For this reason, we believe
the reference to ``prescription drug plans'' in section 1860D-
1(b)(1)(C) of the Act should be interpreted as requiring enrollment of
a full benefit dual-eligible into a plan that will provide the
individual with Part D drug benefits in addition to any other benefits
the individual receives under
[[Page 46639]]
Medicare, whether through Medicare Part A and/or Part B, or through
enrollment in the Medicare Advantage program under Part C. We believe
this interpretation promotes the policies underlying sections 1860D-
1(b)(1)(C) and 1860D-1(a)(1)(B)(ii) of the Act, giving full effect to
both statutory provisions. However, in the above situation, if the
basic premium for the MA-PD plan exceeds the low-income benchmark
premium amount, under section 1860D-1(b)(1)(C) of the Act, we could not
permit automatic enrollment of a full-benefit dual eligible into that
MA-PD plan.
One possible solution for an MA full benefit dual eligible enrolled
in an MA organization in which all of its MA-PD premiums exceed the
allowable amount might be to allow that individual to remain in the MA
plan and to automatically enroll him or her into a PDP that meets the
premium requirements. However, according to section 1860D-1(a)(1)(A) of
the Act, only a part D eligible individual who is not enrolled in an MA
plan may enroll in a PDP, thereby precluding this option.
Another possibility would be to involuntarily withdraw MA full
benefit dual eligible individuals from their MA plan, which would
default them to Original Medicare and then automatically enroll them
into a PDP. However, there is no statutory authority to involuntarily
disenroll the individual from his or her MA plan. In fact, we believe
doing so would violate section 1851(c)(3)(B) of the Act, which provides
that an individual who makes an MA election is considered to have
continued to have made this election until he or she voluntarily
changes the election, or the plan is discontinued or no longer serves
the individual's service area.
Enrolling an MA full dual eligible individual whose MA
organization's MA-PD plan premiums exceed the benchmark amount into a
MA-PD plan offered by another MA organization whose premiums are equal
to or below the benchmark would be problematic as well since this would
violate section 1851(c)(3)(B) of the Act. In addition, this would not
be possible if the monthly premium amount of any available MA-PD plan
is greater than the low-income benchmark premium amount. Similarly, we
believe that requiring these full benefit dual eligibles to disenroll
from the Medicare Advantage program so that we may automatically enroll
them into less expensive PDPs would violate section 1851(c)(3)(B) of
the Act.
One last option would be to allow the beneficiary to go without
outpatient prescription drug coverage unless the beneficiary chooses a
MA-PD plan on his or her own accord. We do not see this as a reasonable
option because it appears to violate section 1860D-1(b)(1)(C) of the
Act and would leave a vulnerable beneficiary without outpatient drug
coverage. While the statute prescribes an automatic enrollment process
for full benefit dual eligibles who fail to elect a PDP or MA-PD plan,
it is important to note that such full benefit dual eligible
individuals may decline the enrollment or change the enrollment if they
so choose. One option for such a process could be to provide notice to
the individual to allow him or her to choose another option. Since the
statute affords full benefit dual eligible individuals a special
election period, they would be able to make a change in their election
of PDP or MA-PD plans. Furthermore, while automatic enrollment of these
individuals could be restricted to plans with premiums at or below the
low-income benchmark premium, these dual eligible individuals would not
be restricted to electing only such plans. However, if they select a
high premium plan, they would be responsible for paying the difference
between the premium and the low-income subsidy amount.
In implementing the automatic enrollment process for full benefit
dual eligible individuals, we are considering which entity is best
suited to perform the automatic and random enrollment function. The
options include CMS or the State performing this function, or a
contracted entity or entities on their behalf. If we (or a contractor
on our behalf) performed the auto assignment, we would expect
consistent, clear oversight of the process, thus making the process
uniform nationally; this might also reduce the need to transmit data
from CMS to the States. However, this would be highly dependent on
receiving timely, accurate Medicaid eligibility data from States and
would also make us responsible for a new national workload of
indeterminate size. An alternative is for States (or their contracted
entities) to be responsible for performing the automatic enrollment.
This approach may be appropriate because States have experience with
random assignments through their Medicaid programs and have more
immediate access to changes in Medicaid eligibility. We would define
random assignment, establish standards for notification, and so forth,
to ensure consistency. If we were to pursue this option, we could
consider this function as necessary for the proper and efficient
administration of the State plan. We would need to provide States with
accurate and timely Part D data. States could be compensated for this
effort through Federal financial participation (FFP) in their
administrative expenses or through contractual or other arrangements.
We invite comment on the most appropriate method of performing
automatic assignment of dual eligibles and the appropriate entity to do
so.
3. Part D Enrollment Periods (Sec. 423.36)
a. General Enrollment Periods
The MMA directs us to establish three coverage enrollment periods:
(1) The initial enrollment period; (2) the annual coordinated election
period; and (3) special enrollment periods (SEPs). Generally, in
accordance with section 1860D-1(b)(2)(B) of the Act, the initial
enrollment period for Part D is the same as the initial enrollment
period established for Part B. Specifically, this period is the seven-
month period that begins three months before the month an individual
first meets the eligibility requirements for Part B and ends three
months after that first month of eligibility. However, if an
individual's initial enrollment period for Part B ends prior to May 15,
2006, his or her initial enrollment period under Part D will be
extended to May 15, 2006. In addition, as part of the implementation of
the Part D program, and in accordance with section 1860D-1(b)(2)(A) of
the Act, we would establish an initial enrollment period for Part D
from November 15, 2005, until May 15, 2006, for those individuals who
are already eligible to enroll in a Part D plan as of November 15,
2005.
Examples:
------------------------------------------------------------------------
Month individual first entitled to part Initial enrollment period for
A or enrolls in part B part D
------------------------------------------------------------------------
June 1, 2005........................... November 15, 2005-May 15, 2006.
November 1, 2005....................... November 15, 2005-May 15, 2006.
December 1, 2005....................... November 15, 2005-May 15, 2006.
[[Page 46640]]
January 1, 2006........................ November 15, 2005-May 15, 2006.
February 1, 2006....................... November 15, 2005-May 31, 2006.
May 1, 2006............................ February 1, 2006-August 31,
2006.
June 1, 2006........................... March 1, 2006-September 30,
2006.
------------------------------------------------------------------------
In accordance with section 1860D-1(b)(1)(B)(iii) of the Act, the
annual coordinated election period for Part D is concurrent with the
annual coordinated election period for the Medicare Advantage program
under section 1851(e) of the Act. It is during this annual period in
which all PDP plans must open enrollment to Medicare beneficiaries. For
coverage beginning in 2006, the annual coordinated election period
begins on November 15, 2005, and ends on May 15, 2006. As a result, the
initial enrollment period for individuals who are eligible to enroll in
a Part D plan as of November 15, 2005 and the annual coordinated
election period will run concurrently during this time frame. The
annual coordinated election period for MA and MA-PD plans will also
occur during this time. In accordance with section 1851(e)(3)(B)(iv) of
the Act, Sec. 423.36(b)(2) of our proposed rule provides that, for
2007 and subsequent years, the annual coordinated election period would
be November 15 through December 31 for coverage beginning on January 1
of the following year.
b. Special Enrollment Periods
The MMA also establishes special enrollment periods (SEPs). Special
enrollment periods allow an individual to disenroll from one PDP and
enroll in another PDP. Special enrollment periods are available as
follows:
(i) Involuntary Loss, Reduction, or Non-notification of Creditable
Coverage
As discussed below in Sec. 423.56, Part D eligible individuals who
fail to enroll in Part D during their initial enrollment period will
not be subject to late penalties if they had creditable prescription
drug coverage during the time they were not enrolled in Part D. Part D
eligible individuals who involuntarily lose creditable prescription
drug coverage, such as the loss of employment and associated health
benefits, or the loss of coverage due to the death of a spouse, would
have an SEP to enroll in a Part D plan, in accordance with section
1860D-1(b)(3)(A) of the Act. Pursuant to section 1860D-1(b)(3)(A)(iii)
of the Act, this SEP does not apply when the individual loses
creditable coverage because of his or her failure to pay premiums for
that coverage, since this would be considered a voluntary loss of
coverage for purposes of this section.
The SEP would also apply if the individual was never informed that
the coverage that he or she had was not creditable or if current
creditable coverage was reduced so that it was no longer creditable
coverage under this part. In cases where the coverage is reduced, the
SEP applies only when the current creditable coverage is reduced by the
issuer or group through which the individual has such coverage.
Therefore, if the covered individual voluntarily reduces the coverage,
for example, to reduce his or her premium costs, this SEP would not
apply because that action is voluntary.
(ii) Erroneous Enrollment
Section 1860D-1(3)(B) of the Act provides for an SEP for an
individual who has been subject to enrollment errors, similar to those
provided for both Part A and Part B under section 1837(h) of the Act.
We are using the same language provided for this SEP at Sec.
423.36(c)(3) of the proposed rule as provided under Sec. 407.32, which
establishes a special enrollment period for enrollment errors for Part
B. Specifically, Sec. 407.32 refers to misrepresentation, inaction, or
error by the Federal government that affects an individual's enrollment
rights.
(iii) Individuals With Medicaid Coverage
Section 1860D-1(b)(3)(D) of the Act provides an SEP for an
individual who is eligible for both Medicare and full benefits under a
State's Medicaid program, as those individuals are described in section
1935(c)(6) of the Act. This would be available to individuals who are
determined full benefit dual eligible after the initial enrollment
period. This would also provide these individuals who have been
automatically assigned to a plan the opportunity to change PDPs or MA-
PDs at any time.
(iv) Individuals Age 65
During the Part D eligible individual's initial enrollment period,
the individual has several options available, including remaining in
original Medicare and enrolling in a PDP or enrolling in an MA-PD plan.
Section 1860D-1(b)(3)(E) of the Act provides an SEP to an individual
who enrolls in a MA-PD plan upon first becoming eligible for benefits
under Part A at age 65 and then discontinues that enrollment and elects
coverage under original Medicare and a PDP at any time during the 12-
month period beginning on the effective date of the MA-PD plan
election. This specific provision applies only to an individual who
elects an MA-PD plan during his or her initial enrollment period, as
defined under section 1837(d) of the Act, which surrounds his or her
65th birthday. This SEP will only apply to individuals who elect an MA-
PD plan, and does not pertain to individuals who elect an MA-only plan.
(v) Exceptional Circumstances
Finally, in addition to providing for special enrollment periods as
mentioned above, section 1860D-1(b)(3)(C) of the Act authorizes us to
establish SEPs in exceptional circumstances. CMS has historically
included in regulation those SEPs that have been specifically named in
the statute and established the SEPs for exceptional circumstances in
our manual instructions rather than through regulation. While we intend
to continue establishing these exceptional SEPs through this process,
we seek public input on other SEPs that should be considered through
our manual process.
In addition to those SEPs established by the MMA, we intend to
apply certain SEPs established under the MA program. The SEPs that will
be included from the MA program under this section will include the
following conditions--
(1) The PDP terminates its service area or is terminated in the
area in which the individual resides;
(2) The individual moves out of the plan's service area; or
(3) The individual demonstrates to us, in accordance with
guidelines that we establish, that the PDP offering the plan
substantially violated a material provision of its contract with regard
to the individual or the organization, its agent, representative, or
the PDP materially misrepresented the plan's
[[Page 46641]]
provisions in marketing the plan to the individual.
There is a disconnect issue between the enrollment period provided
for individuals eligible to enroll in a Part D plan at section 1860D-
1(b)(1)(iii) of the Act and the open enrollment periods provided for MA
eligible individuals under section 1851(e)(2) of the Act that we
believe can be addressed through a special election period. Section
1851(e)(2) of the Act provides for an open enrollment period for MA
eligible individuals in which they may change their election once.
Beginning in 2006, this period is limited to 6 months from January
through June and in 2007, to 3 months, from January through March. The
MMA, at Section 102 (a)(6), further limits individuals' elections
during this open enrollment period to a specific ``type'' of plan.
Specifically, an individual who is enrolled in an MA-PD plan may elect
another MA-PD plan or elect original Medicare and a PDP, but cannot
elect an MA-only plan. However, there is no corresponding enrollment
period that would allow the individual to elect a PDP during this time.
We propose to remedy this situation by establishing an SEP for these
individuals under our aforementioned authority to establish SEPs for
exceptional circumstances.
In addition, section 1851(e)(2)(D) of the Act provides for a
continuous open enrollment period for institutionalized individuals
throughout the year. We also propose establishing an SEP for this
through our exceptional circumstance authority in our manual
instructions.
4. Effective Dates of Coverage and Change of Coverage (Sec. 423.38)
Section 1860D-1(b)(1)(B)(iv) of the Act authorizes us to apply the
effective date requirements provided under the MA program at section
1851(f) of the Act. The three enrollment periods provided under Part D
are the initial enrollment period, the annual coordinated election
period, and special enrollment periods. The effective dates for these
enrollment periods are as follows:
a. Initial Enrollment Period
In accordance with section 1851(f)(1) of the Act, as incorporated
into Part D under section 1860D-1(b)(1)(B)(iv) of the Act, an
enrollment made during the initial enrollment period will generally be
effective the first day of the calendar month following the month in
which the individual enrolled in Part D. An enrollment made prior to
the month of entitlement to or enrollment in Medicare benefits under
Part A and/or Part B is effective the first day of the month the
individual is entitled to or enrolled in Part A or Part B. Since the
Part D provisions are not effective until January 1, 2006, we would
clarify that in no case may enrollment in Part D be effective prior to
this date. We are also clarifying that initial enrollments made between
November 15 and December 31, 2005, will be effective January 1, 2006.
An enrollment made during or after the month of entitlement to or
enrollment in Medicare benefits under Part A and/or Part B is effective
the first day of the calendar month following the month in which the
enrollment in Part D is made. We have reflected these provisions in
Sec. 423.38(a) of our proposed rule.
b. Annual Coordinated Election Period
In accordance with section 1851(f)(2) of the Act, as incorporated
into Part D under section 1860D-1(b)(1)(B)(iv) of the Act, an
enrollment made during the annual coordinated election period is
effective as of the first day of the following calendar year, that is,
January 1st. We have reflected this provision in Sec. 423.38(b) of the
proposed rule.
c. Special Enrollment Period
A special enrollment period is effective in a manner that we
determine to ensure continuity of health benefits coverage. We have
reflected this provision in Sec. 423.38(c) of the proposed rule.
5. Coordination of Beneficiary Enrollment and Disenrollment Through
PDPs (Sec. 423.42)
Section 1860D-1(b)(1)(A) of the Act authorizes us to establish a
process for enrollment in and disenrollment from prescription drug
plans. We have outlined the coordination of enrollment and
disenrollment through PDP organizations in the regulations at Sec.
423.42. A Part D eligible individual who wishes to make, change, or
discontinue an enrollment during applicable enrollment periods may do
so by filing an enrollment with the PDP directly. We envision a paper
enrollment form process and recognize the opportunity for other
possible mechanisms that may prove secure, convenient for
beneficiaries, and valuable to the efficient administration of the
program. We request comments on other possible enrollment mechanisms
that address data security and integrity, privacy and confidentiality,
authentication, and other pertinent issues.
We have added a provision at Sec. 423.42(e) of the proposed rule
that would ensure that beneficiaries are not disenrolled from their PDP
at the end of the calendar year. We are including this provision to
clarify that beneficiaries will remain enrolled in their PDP without
having to actively re-enroll in that PDP at the beginning of the
calendar year.
6. Disenrollment by the PDP (Sec. 423.44)
Section 1860D-1(b)(1)(B) of the Act generally directs us to use
disenrollment rules similar to those established under section 1851 of
the Act. We are applying the provisions of section 1851(g)(3) of the
Act that provide authority for the basis of terminations for MA plans.
We codify these in 42 CFR 422.74. The disenrollment provisions for PDPs
are outlined in Sec. 423.44 of our proposed rules, including the basis
for disenrollment--both optional and required--and guidance for notice
requirements.
Specifically, a PDP is required to disenroll an individual who
dies, who no longer resides in the PDP's service area, loses
entitlement or enrollment to Medicare benefits under Part A and is no
longer enrolled in Part B, or who knowingly misrepresents to the PDP
that he or she has received or expects to receive reimbursement for
covered Part D drugs through third-party coverage. A PDP is also
required to disenroll an individual if the PDP's contract is
terminating.
We are particularly interested in receiving comments about the
requirement to disenroll individuals from a PDP if they no longer
reside in the service area. Under the MA rules at 42 CFR 422.74,
individuals who are out of the service area for more than 6 months will
be disenrolled, unless the MA plan offers visitor or traveler benefits.
We recognize the inherent difference between PDPs and MA plans (in
particular, the range of services each provides) and that it may not be
reasonable to apply the disenrollment requirements established under MA
in the same way for PDPs. For example, while we have a limit on the
length of time an MA enrollee may be out of the service area, this
limit may not be necessary as long as there are specific assurances
from the PDP that individuals will have access to PDP benefits while
out of the area (provided the individual remains in the United States).
For example, a regional PDP may either have a corporate or other
relationship with a PDP in another region or have a network of
pharmacies in other regions (or nationwide) that would provide access
to prescription drugs outside of the region on the same basis as in-
network pharmacies within the enrollee's region of residence. We
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would appreciate any comments on this area.
In addition to providing requirements for disenrollments that are
required by the PDP, we also provide under Sec. 423.44(d) of our
proposed rule that PDPs may disenroll individuals who do not pay
monthly premiums or whose behavior is disruptive. However, we believe
there are important beneficiary implications for those PDPs who
disenroll individuals for these reasons. An individual who is
disenrolled for failure to pay monthly PDP premiums, disruptive
behavior, or misrepresentation of third party reimbursement will not be
provided an SEP permitting him or her to enroll in another PDP. Since
the individual generally will not be able to enroll in either a PDP or
an MA-PD until the next annual coordinated election period, he or she
may be subject to late enrollment penalties under Sec. 423.46 of the
proposed rule.
We plan to establish re-enrollment guidelines under the MA program
for optional disenrollment for nonpayment of premium and disruptive
behavior. We recognize, however, that this policy may not be
appropriate for PDPs. If the individual is prohibited from re-enrolling
in each of the MA plans available in an area, original Medicare is
always available to provide and deliver services to that that
individual. Under the PDP infrastructure, if the individual was
prohibited from re-enrolling in each PDP available, there is no other
option available. We would appreciate comments regarding the
applicability of prohibiting re-enrollment in a PDP.
As with the MA program, PDP sponsors will be required to provide
proper notice to the beneficiary and afford him or her due process in
accordance with the procedures outlined in our manual instructions. For
example, a PDP that wishes to disenroll a beneficiary for disruptive
behavior must receive prior approval from CMS and must demonstrate to
CMS'' satisfaction that it has made a good faith effort to resolve the
issue prior to requesting the disenrollment. CMS reviews these requests
on a case-by-case basis, taking into account all of the facts and
circumstances of a particular case, prior to making its decision. PDP
sponsors must apply their policies for optional disenrollment for
failure to pay premiums and disruptive behavior consistently among
individuals enrolled in their plans, unless we permit otherwise, and
must do so consistent with applicable laws regarding discrimination on
the basis of disability.
7. Late Enrollment Penalty (Sec. 423.46)
Section 1860D-13(b) of the Act establishes late enrollment
penalties for beneficiaries who fail to maintain creditable
prescription drug coverage for a period of 63 days following the last
day of an individual's initial enrollment period and ending on the
effective date of enrollment in a PDP or MA-PD. The calculation of the
amount of the penalty is described in Sec. 423.286(d)(3) of our
proposed rule. Specifically, the penalty amount for a Part D eligible
individual for a continuous period of eligibility is the greater of an
amount that CMS determines is actuarially sound for each uncovered
month in the same continuous period of eligibility that is subject to
this penalty; or 1 percent of the base beneficiary premium for each
uncovered month in the period. An uncovered month is any month in which
individual does not have creditable coverage at any time during that
month. Because Part D is a voluntary benefit, it is susceptible to
selection bias, where predominantly sicker beneficiaries, with higher
than average prescription drug expenses enroll, and healthier, less
expensive beneficiaries defer participation. Such a dynamic would make
the initial premium levels higher than Congress expected at the time of
MMA's enactment. Left unchecked, the selection bias would be
exacerbated, potentially resulting in what has been called an insurance
``death spiral.'' To ensure the affordability of the Part D benefit and
the stability of the associated premium, we believe there is a strong
public policy value in creating an incentive for immediate, widespread
enrollment in this new, heavily subsidized benefit.
The process for documenting creditable coverage is discussed in
Sec. 423.56 of the proposed rule.
8. Part D Information That CMS Provides to Beneficiaries (Sec. 423.48)
As provided under section 1860D-1(c)(1) of the Act, we would
conduct activities designed to broadly disseminate information about
Part D coverage to individuals who were either eligible or
prospectively eligible for Part D benefits. This information would be
made available to beneficiaries at least 30 days prior to their initial
enrollment period as provided under Sec. 423.38 of our proposed rule.
The information dissemination activities for Part D would be similar
to, and coordinated with, the information dissemination activities that
we currently perform for Medicare beneficiaries under sections 1851(d)
and 1804 of the Act.
As required under section 1860D-1(c)(3) of the Act, we would
include the following comparative information with respect to qualified
prescription drug coverage provided by PDPs and MA-PD plans as part of
our dissemination of Part D information and our efforts to promote
informed beneficiary decisions--
Benefits and prescription drug formularies;
Monthly beneficiary premium;
Quality and performance;
Beneficiary cost-sharing; and
Results of consumer satisfaction surveys.
We would not provide information on quality and performance or
consumer satisfaction surveys during--
(1) The first plan year; or
(2) The next plan year if it were impracticable to obtain that
information, or if the information were not available.
As stated in section 1860D-1(c)(4) of the Act, we would also
provide information to beneficiaries regarding the methodology we will
use for determining late enrollment penalties, as provided in Sec.
423.286(d) of our proposed rule.
In carrying out the annual dissemination of Part D information, we
anticipate conducting a significant public information campaign to
educate beneficiaries about the new Medicare drug benefit and to ensure
the broad dissemination of accurate and timely information. We would
place an emphasis on ensuring that low-income individuals eligible for
or currently enrolled in Part D benefits were aware of the additional
benefits available to them and how to receive those benefits. In order
to maximize the enrollment of Part D eligible individuals, this public
information campaign would include outreach, information, mailings, and
enrollment assistance with and through appropriate State and Federal
agencies--including State health insurance assistance programs
(SHIPs)--and would coordinate with other Federal programs providing
assistance to low-income individuals. In addition, we would undertake
special outreach efforts to disadvantaged and hard-to-reach
populations, including targeted efforts among historically underserved
populations, and coordinate with a broad array of public, voluntary,
and private community organizations serving Medicare beneficiaries.
Materials and information would be made available in languages other
than English, where appropriate.
We would require, as described in Sec. 423.48 of our proposed
rule, that each organization offering a prescription drug plan or MA-PD
plan provide us
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annually with the information to disseminate to individuals who are
currently or prospectively eligible for Part D benefits. This
information would enable beneficiaries to make informed decisions
regarding their Part D coverage options. Organizations offering a
prescription drug plan or MA-PD plan would be required to provide this
information in a format and to use standard terminology that we would
specify in further operational guidance.
Under the recently implemented Medicare Prescription Drug Discount
Card and Transitional Assistance Program (42 CFR parts 403 and 408), we
took the unprecedented step of establishing a price comparison Web site
available through http://www.medicare.gov to provide beneficiaries with
information about drug card sponsors' negotiated drug prices in actual
dollars--including dispensing fee information--for the purpose of
comparing negotiated prices across approved card programs. The prices
and fees on the price comparison Web site reflect an estimate of the
maximum prices beneficiaries will experience at the point of sale. The
Web site also includes information about generic substitutes. In the
interest of broadly disseminating information that promotes informed
decision-making among Part D enrollees and prospective Part D
enrollees, as required under section 1860D-1(c) of the Act, we propose
extending the price comparison requirements to PDP sponsors and MA
organizations offering MA-PD plans and making comparative information
about Part D plans' negotiated prices available to beneficiaries
through http://www.medicare.gov. Our drug card experience shows that
providing drug price information can significantly reduce prices and we
believe that information about negotiated drug prices will assist
beneficiaries in deciding which Part D plan will offer them the
greatest financial advantage. We propose building on our experience in
implementing the drug discount card price comparison Web site as we
develop requirements for the Part D price comparison Web site, and we
are seeking comments on how to provide information in the drug benefit
to help achieve maximum drug savings.
Since the introduction of http://www.medicare.gov in 1998, CMS has
substantially increased the amount of personalized information
available to Medicare beneficiaries, making it one of the government's
most comprehensive and customer-oriented sites available to the public.
The Web site hosts twelve separate database applications to help
individuals make their own health care decisions. The most significant
ones are: the Medicare Personal Plan Finder (which contains costs,
benefits, quality, satisfaction and disenrollment measures), Nursing
Home Compare (which contains basic characteristics, staffing
information and inspection results), the Prescription Drug and Other
Assistance Programs application (which contains the most extensive,
nationally complete listing of the Medicare-approved discount drug
cards, including price comparisons, as well as other government and
private programs designed to help with prescription drug costs), and
the Medicare Eligibility Tool (which assists users in determining when
they are eligible, how to enroll and what they need to consider when
joining Medicare). Other tools providing customized results include:
the Participating Physician and Supplier Directories, Home Health and
Dialysis Facility Compare, Your Medicare Coverage, Helpful Contacts,
Publications, and Frequently Asked Questions. By updating all
information on the Web site at least once a month, the information
provided to Medicare beneficiaries via http://www.medicare.gov is the
most reliable and consistent information available.
Much of the information available through http://www.medicare.gov
is also available via the 1-800-MEDICARE helpline. 1-800-MEDICARE is a
major information channel for providing the most personalized and
reliable information to people with Medicare. As a result of the
Medicare Modernization Act (MMA), we are receiving the largest call
volume ever for 1-800-MEDICARE. The beneficiary can call 1-800-MEDICARE
to find out the most reliable information on public and private
programs that offer discounted or free medication, programs that
provide help with other health care costs, and Medicare health plans
that include prescription coverage. The caller can always talk to a
live person at 1-800-MEDICARE to get the facts they need. When a
beneficiary calls 1-800-MEDICARE, we can send them a personalized
brochure that allows them to look at discount cards based on their drug
needs and their preferences about how to get their medicines, and their
enrollment forms. We can also give the beneficiary personalized
brochures containing information on their health plan choices, nursing
homes and Medicare participating physicians in their area. 1-800-
MEDICARE is available 24 hours a day, 7 days a week, to provide the
one-on-one service that our Medicare beneficiaries need to make
appropriate health care decisions.
9. Approval of Marketing Materials and Enrollment Forms (Sec. 423.50)
Section 1860D-1(b)(1)(B)(vi) of the Act directs CMS to use rules
similar to those established under section 1851 of the Act to review
PDP's marketing materials and application forms. While all entities
with which CMS does business with are required to adhere to all Federal
laws, with regard to marketing, it is important to refer here to
section 1140 of the Act, prohibiting the misuse of symbols, emblems, or
names in reference to Social Security or Medicare. While we have not
reiterated this provision in our proposed rule, we believe that it is
important to provide such reference in this discussion.
We are generally replicating the marketing provisions established
under Sec. 422.80 for MA plans as appropriate for PDPs. Therefore,
Sec. 423.50(a) of our proposed rule would provide guidance for our
review of marketing materials, definition of marketing materials,
deemed approval, and standards for PDP marketing.
While we generally replicated MA provisions, we recognize that the
differences between PDPs and MA plans may require different marketing
requirements. For example, while we prohibit enrollment forms from
being accepted in provider offices or other places where health care is
delivered under the MA rules at 42 CFR 422.80, this may not be
appropriate to extend to relationships between PDP sponsors and
pharmacies with respect to marketing a PDP. We invite comment regarding
the applicability of the MA marketing requirements to PDPs.
We are proposing to add Sec. 423.50(a)(3) in order to establish a
program that recognizes consistent compliance with marketing guidelines
by providing for streamlined approval of marketing materials submitted
by PDP sponsors that have demonstrated such compliance. Called the
``File and Use'' program, organizations that have demonstrated to us
that they continually meet a specified standard of performance will
have certain types of marketing materials (such as advertising
materials or other materials that do not describe plan benefits) deemed
to be approved by us if they are not disapproved within five days of
submission to us for prior approval. Thus, under these circumstances,
organizations only need submit material for our approval five days
prior to their distribution.
The advantages of File & Use are that the organization can decrease
the time it takes to begin using certain marketing materials and
improve planning and
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budgeting for publication of these materials. Since PDPs will be new to
the CMS marketing review process, we intend to not allow PDPs to
qualify for the File & Use program until they have been in the program
for a specified period of time, as determined by us, and establish
consistent compliance with marketing guidelines.
We are also aware that the ability to provide additional products
(for example, financial services) to Medicare beneficiaries could
provide additional tools to help beneficiaries manage their expenses
and financial security, and could be a strong incentive for potential
PDP sponsors to participate in Part D. We ask for comments on the
advisability of allowing such products to be provided in conjunction
with PDP services and the appropriate limitations on such activities.
We note that in accordance with HIPAA privacy rules, the PDP sponsor
may have to obtain beneficiary authorization to market certain
products.
10. Information Provided to PDP Sponsors and MA Organizations
Section 1860D-1(b)(4)(A) of the Act authorizes us to provide PDP
sponsors and MA organizations with information about Part D eligible
individuals so that their organizations may facilitate the marketing
and enrollment of beneficiaries in their PDP and MA-PD plans and is
intended solely for these purposes. That information is intended to
assist in the outreach to individuals to ensure participation in the
Part D program, as well as to reduce costs to those plans.
While the statute provides us with broad authority to share
information with PDPs and MA organizations, we have operational
questions, especially regarding any potential adverse impact on
beneficiaries. To the extent we were to share such information with PDP
sponsors and MA organizations, should beneficiaries be given the
ability to choose not to have their information shared with these
entities? To the extent that such information is shared for purposes of
marketing, should PDP sponsors and MA organizations be able to use this
information to contact beneficiaries only through written
communications, or should telephone contacts be permitted, and, if so,
under what circumstances? We also have questions as to whether such
information should be provided by CMS upon request, or only at
specific, scheduled times during the year (for example, just prior to
the Annual Coordinated Election Period). Further, we would like to know
what specific information we could provide to PDP or MA organizations
that would facilitate their marketing and enrollment activities. The
new authority provided in section 1860D-1(b)(4)(A) of the Act gives us
the ability to permit plans to interact with prospective enrollees on a
different basis. At the extreme, plans would be permitted to market
directly to Medicare beneficiaries, based on contact information we
provide, using approved materials, but otherwise bypassing CMS. At the
other extreme, current rules regarding the marketing activities of MA
plans would remain unchanged. Because Part D is an entirely new,
voluntary benefit that would not otherwise be available to
beneficiaries absent positive enrollment, there arguably exists a
compelling difference in beneficiary interests relative to marketing
under Part D (including both PDP and MA-PDs) versus under Part C (for
purposes of MA only). We therefore encourage input from the public on
these specific concerns and the provision in general.
While this section and discussion may appear to raise HIPAA Privacy
rule issues with regards to disclosure of information between CMS and
PDPs sponsors or MA-PD organizations, the statute explicitly provides
for these activities. Therefore, the Privacy Rule, including the
disclosure of protected health information, does not apply to the uses
provided for by this section.
11. Procedures To Determine and Document Creditable Status of
Prescription Drug Coverage (Sec. 423.56)
Section 1860D-13(b)(6) of the Act identifies certain entities,
which we describe in this section of our proposed rule, that must
disclose whether the prescription drug coverage that they provide to
their members who are Part D eligible is creditable coverage.
Section 1860D-13(b)(4)(A)-(G) of the Act lists seven forms of
creditable coverage: Coverage under a PDP or under an MA-PD; Medicaid;
a group health plan (including coverage provided by a federal or a
nonfederal government plan and by a church plan for its employees); a
State pharmaceutical assistance program; veterans' coverage of
prescription drugs, prescription drug coverage under a Medigap policy;
and military coverage (including Tricare). Many of these terms are
defined elsewhere in Federal regulations; some of them are under the
jurisdiction of other Federal agencies. However, the definition of a
Medicare supplemental (Medigap) policy, is under CMS' jurisdiction.
This term is being clarified in subpart T of this regulation to
coordinate with implementation of the Medicare prescription drug
benefit.
In addition to the forms of creditable coverage identified in
section 1860D-13(b)(4)(A)-(G) of the Act, section 1860D-13(b)(4)(H) of
the Act provides the Secretary with the flexibility to identify ``other
coverage'' that could be considered to be creditable coverage. In 42
CFR 423.56, we propose expanding the list of types of creditable
coverage to include health insurance policies sold in the individual
market (with the exception of policies that meet the definition of
excepted benefits under section 2791 of the Public Health Service (PHS)
Act, 42 U.S.C. 300gg-91). This category would include any policies that
included prescription drug coverage, whether as part of a more
comprehensive policy or as an independent ``stand-alone'' drug policy,
that may have been sold to Medicare beneficiaries. Such stand-alone
policies do not meet the definition of an excepted benefit under the
Federal statute, even though States may regulate them as ``limited'' or
``supplemental'' benefit plans. It would also include comprehensive
individual market policies with drug coverage that may have been sold
to individuals before they became eligible for Medicare.
It is important to include these policies as creditable coverage.
There are a variety of reasons why Medicare beneficiaries may have had
individual market coverage, instead of Medigap coverage, after becoming
eligible for Medicare. For example, as discussed in the preamble for
subpart T, certain policies which will be regulated as Medigap policies
after January 1, 2006, do not meet the definition of a Medigap policy
prior to that date. Therefore they do not come within the scope of the
statutory list of types of creditable coverage. Similarly, if an
individual purchased a policy with prescription drug coverage before
becoming eligible for Medicare, under title XXVII of the PHS Act, 42
U.S.C. 300gg, et seq., the individual has a guaranteed right to
continue to renew the policy. Again, while the policy might have met
the definition of a Medigap policy had it been marketed and sold to
Medicare beneficiaries, it does not meet those criteria, and does not
come within the scope of the statutory list.
We believe it is appropriate to give beneficiaries credit for this
coverage, which does not fall within the scope of any of the types of
creditable coverage listed in the statute, but which clearly fits
within Congress' intent to provide credit for prior prescription drug
coverage, and require that the individuals be informed of whether
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their drug coverage is creditable and of the choices they will need to
make relative to Part D enrollment.
We are also adding coverage provided by the medical care program of
the Indian Health Service, Tribe or Tribal organization, or Urban
Indian organization (I/T/U) which is described under the Indian Health
Improvement Act, 25 U.S.C. 1601 et seq. As a result of adding
individual market and Indian Health Service coverage to the list of
creditable coverage, beneficiaries with both of these types of drug
coverage would receive notice of whether this coverage is creditable.
We invite comments as to whether there are still more forms of coverage
that we should consider creditable coverage.
As discussed above in Sec. 423.46 of the proposed rule, upon
becoming eligible for Part D, beneficiaries must decide whether to
enroll in Part D, or forego that opportunity and face a possible
financial penalty should they later decide to enroll. Beneficiaries who
decide not to enroll in Part D because they have creditable
prescription drug coverage would not face such a penalty if they later
decide to enroll in Part D. According to section 1860D-13(b)(5) of the
Act, an enrollee who would otherwise be subject to a late enrollment
penalty may avoid the penalty if his or her previous coverage met the
standards of ``creditable prescription drug coverage''. Under section
1860D-13(b)(5) of the Act, previous coverage will only meet those
standards ``* * * if the coverage is determined (in a manner specified
by the Secretary) to provide coverage of the cost of prescription drugs
the actuarial value of which (as defined by the Secretary) to the
individual equals or exceeds the actuarial value of standard
prescription drug coverage * * *''
We are interpreting ``to the individual'' in this case as being to
the average individual under the plan, as opposed to the sponsor of the
plan. We believe that the relevant concern in this case is whether the
beneficiary has been in a risk pool that on average provided benefits
of equal value to Part D. Consequently, for purposes of determining
creditable coverage, we are proposing to evaluate the actuarial value
of the alternative coverage by means of a single test applied to all
coverage: Will the expected plan payout on average under the coverage
be at least equal to the expected plan payout under the standard
benefit? For example, we propose to require sponsors of group health
plans to determine the actuarial equivalency of each group health plan
to the standard if, on average, the actuarial value of enrollee drug
coverage under the plan as a whole is at least equal to the actuarial
value of standard prescription drug coverage under Part D. (This
approach set forth in Subpart R of this proposed rule concerning
payments to sponsors of retiree prescription drug plans.) In other
words, the calculation of actuarial equivalence would be based on the
average plan payout across all benefit packages and all participants
and beneficiaries receiving coverage under the sponsor's group health
plan. We seek comments on our assumption that this approach is both
familiar to employers (and unions) and imposes minimum burden on
sponsors.
We are also proposing that any entity seeking to offer creditable
prescription drug coverage must attest to this actuarial equivalence
(or non-equivalence) in their notice to Medicare beneficiaries and in a
submission to CMS, and must maintain documentation of the actuarial
analysis and assumptions supporting the attestation. In other words, we
would not require CMS approval of this analysis, but would require that
it be submitted to CMS and made available to participants upon request.
In coordination with the provisions regarding the late enrollment
penalty in Sec. 423.46 of our proposed rule, we would establish a
process under which these entities would disclose the creditable status
of their prescription drug coverage to us and to each part D eligible
beneficiary enrolled in such coverage.
We intend to describe the process for providing this disclosure,
including guidance on the content, placement, and timing of the
disclosure. The content of this notice and its timely receipt will be
important components in the decision making process for beneficiaries,
as the creditable status of the beneficiary's drug coverage will have a
direct impact on the assessment of late enrollment penalties associated
with Part D premiums. Equally important is the notification to the
beneficiary of any subsequent changes in the creditable status of his
or her coverage. Because beneficiaries have a limited time in which to
make decisions about their Part D coverage without facing a penalty, it
is important that the notice of creditable status be provided in a
timely and conspicuous manner. However, we are also concerned about the
potential administrative burden imposed by this requirement and are
therefore soliciting comments on the format, placement, and timing of
such a notice.
There are several approaches we will consider. One approach would
be to incorporate the required disclosure into materials these entities
routinely disseminate to their Part D eligible beneficiaries. We could
provide standard language to be inserted into such materials. We would
benefit from comments regarding the types of materials that could
provide an appropriate vehicle for this purpose and ways to ensure that
the notice is conspicuous and readily identified by recipients,
particularly in those instances where the coverage is not creditable.
Another approach would be to require each entity to issue a separate
notice to each Part D eligible enrollee. This type of notice would be
most conspicuous and would therefore increase the likelihood that
beneficiaries would become aware of the creditable status of their
prescription drug coverage. Because beneficiaries are subject to
financial penalties for the failure to maintain creditable coverage
when they enroll in Part D, a separate notice may better inform
beneficiaries and ensure that they take appropriate action to avoid
such penalties.
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), Pub. L. 101-93, requires that certain entities that offer
health coverage provide covered individuals with a document, called a
``certificate of creditable coverage,'' that establishes the time
period during which the coverage was in effect. Implementing
regulations provide a model ``Certification of Creditable Coverage.''
Those regulations require that a certificate be produced and
disseminated to individuals when their coverage ends. We have
considered requiring that information about the creditable status of
prescription drug coverage be included in this certification. However,
since the certification required under HIPAA is not required to be
provided until after such coverage has ended (or upon request), it
would arrive too late to assist beneficiaries in deciding whether to
enroll in Part D. However, the HIPAA certification may serve as a
useful model and we invite comments about the administrative burden
associated with producing and disseminating a similar notice of
creditable status to beneficiaries.
The timing and frequency of these notices is also a key
consideration. The initial notice of creditable status could be
coordinated with the first Annual Coordinated Enrollment Period for
Part D, which begins November 15, 2005, to ensure that beneficiaries
have this information when making decisions regarding their Part D
coverage. Another option would be to coordinate this disclosure with
the end of the first Part
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D initial enrollment periods and the annual coordinated election
period, both of which end May 15, 2006. Beneficiaries would also need
to know about any change in the creditable status of existing coverage
before such a change becomes effective so that they have sufficient
time to decide whether to obtain Part D coverage. If a beneficiary's
creditable drug coverage ends or is changed to the extent that it is no
longer creditable, the beneficiary has a Special Enrollment Period
(SEP) during which the beneficiary can enroll in Part D without
financial penalty. Thus, we believe that such notice should be
provided, at a minimum, at these two important times, as well as upon
the beneficiary's request.
We invite comments on how best to ensure that beneficiaries receive
timely and adequate notice of the creditable status of their
prescription drug coverage without imposing a significant
administrative burden on entities that provide such coverage. We also
note that the statute requires entities to disclose the creditable
status of this coverage to us, and we invite comments on the possible
methods of providing such disclosure. Given the importance of knowing
whether coverage constitutes ``creditable coverage,'' we would like to
receive feedback regarding whether it would be a significant
administrative burden for group health plans and other sponsors to
include in disclosures an indication of the value of their drug
benefit, the total amount of the annual premium for their drug benefit,
and the amount of the annual drug benefit premium that the beneficiary
will be required to pay.
Section 1860D-13(b)(6)(C) of the Act provides that an individual
who was not adequately informed that his or her prescription drug
coverage was not creditable may apply to CMS to have such coverage
treated as creditable coverage for purposes of not having the late
penalty imposed. We envision establishing a process in which an
individual could apply for reconsideration of the late enrollment
penalty based upon not being adequately informed. In this process, we
would instruct beneficiaries as to the type of information that should
be submitted as well as where the beneficiaries should submit the
information. The process could also include CMS, or an entity with
which CMS may contract, receiving and reviewing information related to
the reconsideration, including validating that the entity in which the
individual had previously been covered had provided the required
disclosure. We appreciate comment on this process.
C. Voluntary Prescription Drug Benefit and Beneficiary Protections
1. Overview and Definitions (Sec. 423.100)
Subpart C of part 423 implements sections 1860D-2, 1860D-4(a),
1860D-4(b), 1860D-4(i), 1860D-4(k), 1860D-11(a), 1860D-21(a), 1860D-
21(c)(3), and 1860D-21(d)(2) of the Social Security Act. This subpart
sets forth requirements regarding--
The benefits offered by PDP sponsors and MA organizations
that offer qualified prescription drug coverage.
The establishment of prescription drug plan service areas.
Access standards with regard to covered Part D drugs.
Information dissemination by PDP sponsors and MA
Organizations offering qualified prescription drug coverage.
Disclosure to beneficiaries of pricing information for
generic versions of covered Part D drugs.
Privacy, confidentiality, and accuracy of PDP sponsors'
beneficiary records.
Section 423.100 of our proposed rule also includes definitions for
terms that are frequently used in this subpart. Generally, we clarify
the definitions in Sec. 423.100 in the relevant parts of section II.C
of this preamble. However, we believe that additional clarification is
needed with regard to the terms ``covered Part D drug'' and
``dispensing fee'' in order to provide necessary context for the Part D
benefit requirements in this subpart. We are providing that
clarification below.
a. Covered Part D Drug
The definition of a covered Part D drug in Sec. 423.100 of our
proposed rule closely follows the statutory definition in section
1860D-2(e) of the Act. According to this definition, a covered Part D
drug must be available only by prescription, approved by the Food and
Drug Administration (FDA), used and sold in the United States, and used
for a medically accepted indication (as defined in section 1927(k)(6)
of the Act). A covered Part D drug would include prescription drugs,
biological products, and insulin as described in specified paragraphs
of section 1927(k) of the Act and vaccines licensed under section 351
of the Public Health Service Act. The definition also includes
``medical supplies associated with the injection of insulin (as defined
in regulations of the Secretary).'' We propose to define those medical
supplies to include syringes, needles, alcohol swabs, and gauze.
In accordance with section 1860D-2(e)(2) of the Act, the definition
of a covered Part D drug would specifically exclude drugs or classes of
drugs, or their medical uses, which may be excluded from coverage or
otherwise restricted under Medicaid, with the exception of smoking
cessation agents. In accordance with section 1927(d)(2) of the Act, the
drugs or classes of drugs that may currently be excluded or otherwise
restricted under Medicaid include--(1) Agents when used for anorexia,
weight loss, or weight gain; (2) agents when used to promote fertility;
(3) agents when used for cosmetic purposes or hair growth; (4) agents
when used for the symptomatic relief of cough and colds; (5)
prescription vitamins and mineral products, except prenatal vitamins
and fluoride preparations; (6) nonprescription drugs; (7) outpatient
drugs for which the manufacturer seeks to require that associated tests
or monitoring services be purchased exclusively from the manufacturer
or its designee as a condition of sale; (8) barbiturates; and (9)
benzodiazepines. We are concerned that the aforementioned exclusion of
outpatient drugs for which the manufacturer seeks to require that
associated tests or monitoring services be purchased exclusively from
the manufacturer (or its designee) as a condition of sale (item 7
above) may prove too narrow to address inappropriate tying
arrangements. We may consider expanding this exclusion and solicit
public comments on how to reduce the risk of abusive tying
arrangements.
The definition of a covered Part D drug would also exclude any drug
for which, as prescribed and dispensed or administered to an
individual, payment would be available under Parts A or B of Medicare
for that individual (even though a deductible may apply). By including
the language ``as so prescribed and dispensed or administered,''
section 1860D-2(e)(B) makes a distinction between what would be paid
for under Part D as opposed to Part B. This language indicates that
Congress was aware that some covered Part D drugs could qualify for
payment under Part B in some circumstances and Part D in other
circumstances, depending on the way those drugs were dispensed or
administered. Dispensation or administration should be interpreted to
include the setting, personnel, and method involved, and not simply the
route of administration.
One goal of Part D is to fill any gaps in existing Part B coverage
of drugs. Part B has a limited and specific drug benefit covering drugs
furnished ``incident to'' a physician's service (for example, certain
injectable drugs that are not usually self-administered and furnished
incident to
[[Page 46647]]
a physician office visit); drugs furnished as a supply to covered items
of durable medical equipment; certain oral drugs (immunosuppressive,
and certain oral anti-cancer and anti-emetic drugs); certain
immunizations; and several other drugs and biologicals. Part D cannot
pay for these drugs because payment is available under Part B.
Section 1860D-2(e)(2)(B) of the Act that specifies that a drug
prescribed to a Part D eligible individual that would otherwise qualify
as a Part D drug cannot be considered a covered Part D drug if payment
for such drug ''* * * is available (or would be available but for the
application of a deductible) under part A or B for that individual.''
We interpret this to mean that if payment could be available under Part
A or B to the individual for such drug, then it will not be covered
under Part D. This will be the case even if a beneficiary has Part A,
but not Part B or vice versa, since, as we explain in section F of this
preamble and at Sec. 423.265(c) of the Act, PDP sponsors must offer a
uniform benefit package in order to carry out Congress's intent in
section 1860D-13(a)(1)(F) of the Act. If Part B covered drugs were
included in the Part D benefit package only for those enrollees without
Part B, but not for others, it would not be possible for PDP sponsors
to offer uniform benefit packages for a uniform premium to all
enrollees. In addition, we believe that payment for a drug under Part A
or B is available to any individual who could sign up for Parts A or B,
regardless of whether they actually enrolled. All individuals who are
entitled to premium-free Part A are eligible to enroll in Part B. This
includes individuals who are entitled to Part A based on age,
disability, and ESRD. All individuals who are entitled to Part B only
are age 65 or older and, in almost all instances, not eligible for
premium-free Part A. However, they are eligible to buy into Part A for
a premium. Thus, for all Part D eligible individuals, drugs covered
under Parts A and B are available if they choose to pay the appropriate
premiums.
We believe that the phrase ``for that individual'' in 1860D-
2(e)(2)(B) of the Act is intended to capture the fact that under local
medical review policies (LMRPs), a drug that might be covered under
Part B for an individual in one area of the country might not be
covered in another area of the country. Thus, what is covered ``under
Part B for that individual'' may be, as discussed earlier, different in
different geographic regions. Under this reading, in a region where a
drug is covered under Part B, it would be considered ``available'' to
``that individual'' whether he or she had elected to enroll in Part B
or not.
The Part D drug coverage described in this proposed rule does not
alter the coverage or associated rules for drugs that are currently
covered by Medicare prior to the MMA, such as those included in the
following list, which offers examples but is not meant to be
exhaustive--
1. Drugs furnished incident to a physician's service that are not
usually self-administered by the patient.
2. Drugs used in immunosuppressive therapy furnished to a
beneficiary who receives an organ transplant for which Medicare makes
payment.
3. Drugs administered to ESRD patients and separately billed by
dialysis facilities. These would include erythropoetin (EPO), both when
administered in the dialysis facility or furnished to an ESRD patient
for self-administration.
4. Drugs taken orally during cancer chemotherapy provided that they
have the same active ingredients as chemotherapy drugs and are used for
the same indications as chemotherapy drugs which would be covered if
they were not self-administered and were administered as incident to a
physician's professional service, and certain oral drugs prescribed for
use as an acute antiemetic as part of an anticancer chemotherapeutic
regimen if the drug is administered by a physician.
5. Blood clotting factors for hemophilia patients competent to use
such factors to control bleeding without medical supervision, and items
related to the administration of those factors.
6. Supplies (including drugs) necessary for the effective use of
covered durable medical equipment, including those which must be put
directly into the equipment and furnished to a beneficiary via the
equipment (for example, amphotericin B, an anti-fungal agent,
administered with an infusion pump, or inhalation drugs furnished to a
beneficiary via a nebulizer).
7. Pneumococcal pneumonia vaccines, hepatitis B vaccines, and
influenza virus vaccines.
We intend to ensure that the Part D benefit ``wraps around'' Part B
drug benefits to the greatest extent possible. For example, Part D
would cover immunosuppressive drugs furnished to Medicare beneficiaries
who did not have their transplant paid for by Medicare (e.g., a
beneficiary who had his or her transplant paid for by a private insurer
when he or was employed, and the beneficiary has now enrolled in Part
B). Part D could pay for these immunosuppressive drugs for these
beneficiaries since Part B is prohibited by statute from paying for
them. Therefore, we are soliciting comments concerning any drugs that
may require specific guidance with regard to their coverage under Part
D, and any gaps that may exist in the combined ``Part D & B'' coverage
package.
b. Dispensing Fees
The Medicare Modernization Act (MMA) does not define the term
``dispensing fee,'' although the terms ``dispensing fee'' and
``dispense'' appear several times throughout the Act. Section 1860D-
2(d)(1)(B) states that negotiated prices available under Part D,
``shall take into account negotiated price concessions * * * and
include any dispensing fees for such drugs.'' Sections 1860D-15(b)(3)
and (e)(1)(b) of the Act provide that reinsurance and risk corridor
payments will be based on allowable costs that include ``costs directly
related to the dispensing of covered part D drugs during the year.''
The costs used in calculating the retiree drug subsidy also include the
``costs directly related to the dispensing of covered part D drugs
during the year'' as provided in section 1860D-22(a)(3)(C)(ii) of the
Act. Section 1860D-2(e)(1)(B) of the Act specifically includes the
medical supplies associated with the injection of insulin (as defined
in our proposed rule); this is the only reference to supplies
associated with drug administration in the Part D drug benefit
provisions of the MMA.
Because the statute is ambiguous on the meaning of ``dispensing
fee,'' in this proposed rule we are not proposing a specific definition
of ``dispensing fee,'' but instead are offering three different options
we believe would be reasonable, permissible definitions of the term. We
invite comments on each of the definitions proposed below.
Option 1: The dispensing fee would include only those activities
related to the transfer of possession of the covered Part D drug from
the pharmacy to the beneficiary, including charges associated with
mixing drugs, delivery, and overhead. The dispensing fee would not
include any activities beyond the point of sale (that is, pharmacy
follow-up phone calls) or any activities for entities other than the
pharmacy.
Option 1 would differentiate between ``dispensing'' a covered Part
D drug and ``administering'' one in order to restrict the scope of
these fees to include only those charges for pharmacy services related
to the preparation and delivery of a covered Part D drug. Under option
1, the dispensing fee could not include
[[Page 46648]]
any charges associated with administering the drug once the drug has
already been transferred to the beneficiary. Thus, for example, the fee
would not include any professional fees (such as skilled nursing
services), durable medical equipment (such as an external infusion pump
or an IV pole), supplies (such as tubes and dressings), or even follow-
up telephone calls from the pharmacy to the patient to check on the
patient's progress with the drug.
Option 2: The dispensing fee would include the activities included
in Option 1, but in addition would include amounts for the supplies and
equipment necessary for the drugs to be provided in a state in which
they can be effectively administered.
Option 3: The dispensing fee would include the activities in Option
2, but in addition would include activities associated with ensuring
proper ongoing administration of the drugs, such as the professional
services of skilled nursing visits and ongoing monitoring by a clinical
pharmacist.
Our proposed options 2 or 3 would also frame the definition so that
supplies, equipment, and the professional services associated with
administering the drug would be limited to cases where: (a) A typical
patient with the condition at issue could not receive the benefit of
the medication in the absence of the associated supplies, equipment or
professional services, and (b) the patient is receiving home infusion
therapy.
We believe that option 1 represents the best reading of the
statute, since it would limit dispensing fees to a transfer of
possession of the drug and would not include any fees associated with
administering the drug. In addition, where Congress wished for CMS to
include the cost of supplies under Part D, it specifically directed CMS
to do so (by requiring that the supplies associated with the injection
of insulin be included in the definition of covered Part D drug).
However, we also recognize that options 2 or 3 would eliminate
current gaps in coverage relative to home infused drugs. We have
limited options 2 and 3 to cases of home infusion because this is the
only circumstance we know of where the additional services associated
with administering the drug would not already be covered under Medicare
Part A or B and would be necessary to ensure effective delivery of the
drug. (For example, infusion therapy provided in a hospital outpatient
setting or in a physician office could be covered under Part B.
Infusion therapy by a hospice could be covered as part of the hospice
benefit, if a patient meets the conditions for hospice care.) However,
there may be related issues with respect to the administration of other
drugs (for example, vaccines and injectable long-acting antipsychotic
drugs), and we solicit comments regarding any implications for our
proposed options for defining dispensing fees.
Home infusion therapy equipment, supplies, and services typically
are used in order to administer medications to patients using
intravenous, subcutaneous, and epidural routes. Drug therapies commonly
administered via infusion include antibiotics, chemotherapy, pain
management, parenteral nutrition and immune globulin. Generally, home
infusion therapy includes coordinating the varied services a patient
might need in order to receive infusion in the home. For example, a
home infusion company might provide, or facilitate the provision of,
skilled nursing services, durable medical equipment (such as an
external infusion pump or an IV pole), supplies (such as tubes and
dressings), education of the patient, pharmacy services (including
mixing the drugs if necessary), and delivery services. A home infusion
company might also call the patient periodically to monitor care. Based
on our research, home infusion is covered under the medical benefits of
most commercial insurers and MA plans as a cost-effective alternative
to inpatient care for administering drugs that cannot be self-
administered for treatment of acute or chronic medical conditions in
patients who are sufficiently ill to be unable to visit an outpatient
clinic or physician's office to receive the necessary therapy. Home
infusion providers generally bill private insurance plans for these
services by billing separately for the drug, and also charging a per
diem for other services. The per diem charge represents the average
daily expense associated with non-pharmaceutical expenses (including
nursing services), such as equipment, supplies, labor, and non-nurse
clinical services involved in the compounding, preparation, delivery,
administration, and monitoring for a given drug therapy.
While Parts A and B pay for some home infusion therapies (through,
for example, the drugs and supplies that are provided incident to the
provision of a home infusion pump), in other cases home infusion
therapies would not be covered by Medicare Parts A and B (for example,
when the drug is administered in the home through an intravenous drip
and not a pump). In addition, infusion therapy policies may vary from
region to region based on local DMERC coverage policies.
Options 2 and 3 would therefore allow us to include in the Part D
dispensing fee items and services that might be considered essential in
order to effectively utilize the drug benefit. However, it would also
extend the definition of dispensing fee beyond the mere transfer of
possession of the drug. Also, to the extent that professional services
are included in the definition of dispensing fees, we are concerned
about double billing with regard to some of the skilled nursing costs
associated with home infusion. In many cases these skilled nursing
costs are separately billable to Part A, Medicaid, or supplemental
insurance, and we are concerned about Part D supplanting these other
sources of payment. In addition, as discussed in subpart D of this
preamble, PDP sponsors and MA organizations offering MA-PD plans will
be required to offer quality assurance and medication therapy
management programs. These programs could be used for pharmacies to
follow up with patients and ensure that patients are properly
administering their drugs or adhering to their drug regimens. We are
concerned about beneficiaries being charged for quality assurance
services as part of the dispensing fee, when such charges might have
already been included in the cost of the premium.
Finally, we note that any definition we adopt for purposes of Part
D would not carry over to Part B of the Medicare program. Section
1842(o)(2) of the Act gives the Secretary discretionary authority to
pay a dispensing fee to a licensed pharmacy that furnishes certain
covered Part B drugs and biologicals to Medicare beneficiaries. While
the term ``dispensing fee'' is not defined in section 1842(o)(2) of the
Act, the considerations under Medicare Part B, a more comprehensive
health insurance product that has separate payment mechanisms for
durable medical equipment and professional services, are different from
those under Part D. In addition, the Secretary is not required to pay
any dispensing fee under section 1842(o)(2) of the Act, while in Part
D, the dispensing fee is included in the negotiated price of a drug.
c. Long-Term Care Facility
We request comments regarding our definition of the term long-term
care facility in Sec. 423.100, which we have interpreted to mean a
skilled nursing facility, as defined in section 1819(a) of the Act, or
a nursing facility, as defined in section 1919(a) of the Act. We are
[[Page 46649]]
particularly interested in whether intermediate care facilities for the
mentally retarded or related conditions (ICF/MRs), described in Sec.
440.150, should explicitly be included in this definition given
Medicare's special coverage related to mentally retarded individuals.
It is our understanding that there may be individuals residing in these
facilities who are dually eligible for Medicaid and Medicare. Given
that payment for covered Part D drugs formerly covered by Medicaid will
shift to Part D of Medicare, individuals at these facilities will need
to be assured access to covered Part D drugs. Our proposed definition
limits our definition to skilled nursing and nursing facilities because
it is our understanding that only those facilities are bound to
Medicare conditions of participation that result in exclusive contracts
between long-term care facilities and long-term care pharmacies.
However, to the extent that ICF/MRs and other types of facilities
exclusively contract with long-term care pharmacies in a manner similar
to skilled nursing and nursing facilities, we would consider modifying
this definition.
2. Requirements Related to Qualified Prescription Drug Coverage (Sec.
423.104)
Under section 1860D-11(e)(2)(A) of the Act, we may approve as PDP
sponsors or MA organizations offering MA-PD plans only those entities
proposing to offer qualified prescription drug coverage in accordance
with our requirements. As provided in section 1860D-2(a)(1) of the Act
and Sec. 423.104(d) of our proposed rule, qualified prescription drug
coverage may consist of either standard prescription drug coverage or
alternative prescription drug coverage. Alternative prescription drug
coverage may include supplemental benefits, and this coverage is
referred to as ``enhanced alternative coverage'' (these concepts are
discussed in detail below).
We would review and approve current and potential PDP sponsors'
proposed prescription drug plans and current and potential MA
organizations' proposed MA-PD plans consistent with the rules described
in section II.F.6 of this preamble. We will further articulate
requirements regarding the approval of qualified prescription drug
coverage in written policy guidelines and other CMS instructions.
Section 1860D-1(b)(1) of the Act provides that we establish an
enrollment process for prescription drug plans that uses rules similar
to, with limited exceptions, those governing enrollment in an MA plan
under various subsections of 1851 of the Act, including portions of
1851(g). Section 1851(g)(1) of the Act provides that an MA organization
must accept without restrictions individuals who are eligible to elect
enrollment in its MA plan. Accordingly, section Sec. 423.104(b) of our
proposed rule provides that a PDP sponsor offering qualified
prescription drug coverage would be required to offer its plan to all
Part D eligible individuals residing in the plan's service area. We
note that, unlike a local MA-PD plan, a prescription drug plan is not
eligible for a capacity waiver as described in 42 CFR 422.60(b) of our
proposed rule.
a. Standard Prescription Drug Coverage
As provided under section 1860D-2(b) of the Act and codified in
Sec. 423.104(e) of our proposed rule, ``standard prescription drug
coverage'' would consist of coverage of covered Part D drugs subject to
an annual deductible; 25 percent coinsurance (or an actuarially
equivalent structure) up to an initial coverage limit; and catastrophic
coverage after an individual incurs out-of-pocket expenses above a
certain threshold. In 2006, the annual deductible would be $250, the
initial coverage limit would be $2,250, and the out-of-pocket threshold
would be $3600. Once a Part D enrollee reached the annual out-of-pocket
threshold, his or her nominal cost-sharing would be equal to the
greater of: (1) 5 percent coinsurance, or (2) a copayment of $2 for a
generic drug or a preferred multiple source drug and $5 for any other
drug, or an actuarially equivalent structure. (See Table C-1 for a
summary version of standard prescription drug coverage benefits for
2006.)
A multiple source drug is defined under section 1927(k)(7)(A)(i) of
the Act as a drug for which there are two or more drug products that
are (1) rated as therapeutically equivalent by the Food and Drug
Administration (FDA), (2) are pharmaceutically equivalent and
bioequivalent, as defined in section 1927(k)(7)(C) of the Act, and as
determined by the FDA, and (3) are sold or marketed in a State during
the relevant time period. Section 423.100 of our proposed rule provides
definitions for therapeutically equivalent and bioequivalent drugs
based on the definitions provided in sections 1927(k)(7)(A) of the Act
and section 505(j)(8) of the Food, Drug, and Cosmetic Act,
respectively. The term therapeutically equivalent refers to drugs that
are rated as therapeutic equivalents under the Food and Drug
Administration's most recent publication of ``Approved Drug Products
with Therapeutic Equivalence Evaluations.'' Section 423.4 of our
proposed rule defines a generic drug as a drug for which an application
under section 505(j) of the Federal Food, Drug, and Cosmetic Act is
approved. To clarify, generic drugs are both bioequivalent and
therapeutically equivalent to an innovator drug. Section 423.100 of our
proposed rule also clarifies that a preferred drug refers to a covered
Part D drug on a prescription drug plan or MA-PD plan's formulary for
which beneficiary cost-sharing is lower than for a non-preferred drug
on the formulary.
According to section 1860D-2(b)(4)(C) of the Act, and as defined in
Sec. 423.100 of the proposed rule, beneficiary costs for covered Part
D drugs are only considered incurred (for purposes of applicability
toward beneficiary spending against the annual out-of-pocket limit) if
they are--
1. Incurred against any annual deductible, any applicable cost-
sharing for costs above the annual deductible and up to the initial
coverage limit, and any applicable cost-sharing for costs above the
initial coverage limit and up to the out-of-pocket threshold;
2. Incurred by the Part D enrollee (or by another person on behalf
of that individual); paid on behalf of a low-income individual under
the Part D subsidy provisions described in Sec. 423.782 of the
proposed rule; or paid on behalf of the enrollee under a State
Pharmaceutical Assistance Program (SPAP) described in Sec. 423.454 of
the proposed rule; and
3. Incurred with respect to covered Part D drugs that are either
included in a prescription drug plan or MA-PD plan's formulary or
treated as being included in a plan's formulary as a result of a
coverage determination, redetermination, or appeal under Sec. Sec.
423.566, 423.580, and 423.600 of our proposed rule.
As a point of clarification, we also propose that beneficiary costs
incurred under the following circumstances count as incurred costs
consistent with the definition of that term in Sec. 423.100 of our
proposed rule (with plans explicitly accounting for such price
differentials in the actuarial valuation of their coinsurance in their
bids):
Any differential between a network retail pharmacy's
negotiated price and a network mail-order pharmacy's negotiated price
for an extended (for example, 90-day) supply of a covered Part D drug
purchased at a retail pharmacy, as described in section II.C.4.a of
this preamble, and
Any differential between an out-of-network pharmacy's
usual and customary price for a covered Part D
[[Page 46650]]
drug purchased in accordance with the out-of-network access rules
described in section II.C.5 of this preamble and the plan allowance for
that covered Part D drug.
Section 1860D-2(b)(4)(C)(ii) of the Act provides that any costs for
which a Part D individual is reimbursed by insurance or otherwise, a
group health plan, or another third-party payment arrangement do not
count toward incurred costs; only costs paid by a Part D enrollee, or
on behalf of a Part D enrollee by another person, would count as
incurred costs. This provision thus creates a distinction between all
enrollee out-of-pocket expenditures and those that are counted toward
the out-of-pocket threshold (incurred costs).
In Sec. 423.100 of our proposed rule, we define the terms
``person,'' ``insurance or otherwise,'' ``group health plan,'' and
``third-party payment arrangement'' in such a way as to strike what we
believe to be an appropriate balance between: (1) allowing certain
individuals or charitable organizations to provide financial assistance
to Part D enrollees that would be counted toward those enrollees'
incurred costs, and (2) reducing incentives for current employers,
other insurers, and government programs to reduce their current levels
of coverage and replace that coverage with Part D wrap-around benefits,
thereby requiring Medicare to pay for drug costs that were previously
borne by other payers. We propose defining ``person'' in such a way
that other individuals, such as family members, could pay for covered
Part D drug cost-sharing on behalf of Part D enrollees. The term
``person'' is also defined more broadly than a human being based on
legal definitions of the term that include corporate entities or
organizations. This definition of ``person'' is consistent with other
statutory definitions of the term ``person,'' including 1 U.S.C. 1,
which provides that in interpreting an Act of Congress, unless the
context indicates otherwise, the term ``person'' includes corporations,
companies, associations, firms, partnerships, societies, and joint
stock companies, as well as individuals.
We believe that bona fide charities unaffiliated with employers or
insurers could not be excluded from financially assisting Part D
enrollees with covered Part D drug expenditures and having those
expenditures count toward enrollees' incurred costs. Although allowing
such financial contributions to count toward incurred costs could
increase Medicare expenditures by allowing more beneficiaries to
qualify, and to qualify sooner, for coverage above the out-of-pocket
threshold, we expect that the number of people who are both assisted by
charitable organizations and have expenditures high enough to qualify
for protection against high out-of-pocket expenditures would be small.
Since there will be many Part D eligible beneficiaries with incomes
higher than the low-income subsidy eligibility limits described in
Sec. 423.782 of our proposed rule, we believe it is a desirable goal
to allow appropriate charitable assistance to count toward enrollees'
incurred costs. This interpretation is consistent with (1) our
interpretation of the term ``person'' and (2) our interpretation of the
terms ``insurance or otherwise,'' ``group health plan,'' and ``third-
party payment arrangement'' (as discussed subsequently in this preamble
section). In addition, we note that any arrangements pursuant to which
a charitable organization pays a Medicare beneficiary's cost-sharing
obligations must comply with the Federal fraud and abuse laws,
including the anti-kickback statute, section 1128B(b) of the Act, as
well as the civil monetary penalty provision at section 1128A(a)(5) of
the Act. We are considering whether assistance in paying enrollees'
out-of-pocket cost-sharing obligations provided through prescription
drug patient assistance program sponsored by pharmaceutical
manufacturers would be allowed under the aforementioned Federal fraud
and abuse laws.
We have defined the term ``insurance or otherwise'' consistent with
our policy goal of reducing incentives for current employers, other
insurers, and government programs to reduce their current levels of
coverage and replace that coverage with Part D wrap-around benefits.
The use of the term ``insurance or otherwise'' in section 1860D-
2(b)(4)(C)(ii) of the Act suggests that the Congress understood that
programs other than insurance programs would be helping beneficiaries
pay for covered Part D drugs.
Section 1860D-24 of the Act, which extends the coordination of
benefits provisions required for SPAPs to other types of plans--
including Medicaid programs, Section 1115 waiver demonstrations, group
health plans, FEHBP, military coverage (including TRICARE), and ``such
other health benefit plans or programs that provide coverage or
financial assistance for the purchase or provision of prescription drug
coverage on behalf of Part D eligible individuals as the Secretary may
specify''--appears to support our proposed definition of ``insurance or
otherwise,'' in Sec. 423.100 of our proposed rule, as a plan (other
than a group health plan) or program that provides, or pays the cost
of, medical care (as defined in section 2791(a)(2) of the Public Health
Service Act). We note that our definition of ``insurance or otherwise''
does not modify the definition of ``health plan'' at 45 CFR 160.103 of
the HIPAA Administrative Simplification Regulations, or any
interpretation thereof issued by the Department of Health and Human
Services.
Therefore, ``insurance or otherwise'' would include the following
programs and entities:
Government programs and entities (for example, Department
of Veterans Affairs (VA), Department of Labor Federal Workers'
Compensation Program, and Federally Qualified Health Centers (FQHCs);
Government insurers (for example, Medicaid 1115
demonstrations and the State Children's Health Insurance Program
(SCHIP); and
Government-sponsored funds (for example, black lung
benefits, Ryan White CARE Act funds, and State special funds that
assist certain individuals with their medical costs, such as a special
fund for AIDS patients).
Because costs for covered Part D drugs paid by insurance or otherwise
on behalf of a Part D enrollee do not, as previously discussed, count
as incurred costs, any Part D wrap-around coverage provided to
beneficiaries by these entities would not count toward incurred costs.
Wrap-around coverage provided to Part D enrollees by group health plans
and other third-party payment arrangements would also not count as
incurred costs. We have defined the term ``group health plan'' to have
the same meaning as in 42 CFR 411.101. In addition, we have defined the
term ``third party payment arrangements'' to mean any contractual or
similar arrangement under which a person has a legal obligation to pay
for covered Part D drugs.
We request comments regarding the treatment of health savings
account (HSAs) vis-[agrave]-vis our definition of ``group health
plan,'' ``insurance or otherwise,'' and ``third party payment
arrangements.'' Our strong preference is not to treat HSAs as group
health plans, insurance or otherwise, or third party payment
arrangements and therefore to allow HSA contributions to count toward
incurred costs, since we see these funds as essentially analogous to a
beneficiary's bank account. We also seek comments on how to treat FSAs,
health reimbursement accounts (HRAs), and Medicare savings accounts
(MSAs), relative to our definitions of group
[[Page 46651]]
health plan, insurance or otherwise, and third party payment
arrangements.
In proposing this policy, an assessment was made of the need for
coordination of the Part D benefit with the Department of Health and
Human Services' programs, including the Indian Health Service (IHS) and
AIDS drug assistance programs. The IHS is the agency that fulfills the
Secretary's unique relationship to provide health services to American
Indians and Alaska Natives (AI/ANs) based on the government-to-
government relationship between the United States and tribes. The
Department has a long history of recognizing AI/AN beneficiaries' dual
eligibility for services both from the HIS and from other Department
programs. We expect many AI/AN beneficiaries will qualify for full and
partial low-income subsidies under Part D. For those not receiving a
full or partial subsidy, the IHS may wish to pay for premiums to
eliminate any barriers to Part D benefits.
For AI/ANs not eligible for the low-income subsidies and enrolled
in a prescription drug plan or MA-PD plan, the costs of covered Part D
drugs obtained at an I/T/U pharmacy or a non-IHS retail pharmacy
(through an appropriate IHS contract health services referral) will be
applied to meet the beneficiary's deductible under qualified
prescription drug coverage. These payments will not count as incurred
costs towards meeting the out-of-pocket threshold, however. This will
ensure that an IHS beneficiary receives a benefit for IHS expenditures
between the deductible and the out-of-pocket limit. Once the deductible
is met, the IHS will benefit from Part D coverage because the I/T/U
pharmacy will be reimbursed for 75 percent of spending (on average)
between the deductible and the initial coverage limit. We seek comments
on how I/T/U pharmacies and IHS beneficiaries will achieve maximized
participation in Part D benefits.
We also assessed the role of the Ryan White CARE Act, and in
particular the AIDS Drug Assistance Program (ADAP), which addresses the
pharmaceutical needs of the neediest HIV/AIDS population. The
implementation of Part D will enable approximately one-half of the ADAP
enrollees who are potentially eligible for Part D to qualify for full
Medicare low-income subsidies, and an additional 30 percent may qualify
for partial low-income subsidies. In addition, for those not receiving
a full or partial subsidy, the Part D benefit would pay--depending on
the cost-sharing structure employed by the particular prescription drug
plan or MA-PD plan--75 percent, on average, of an enrollee's covered
Part D drug expenditures between the deductible and initial coverage
limit. Although ADAP may realize savings with the implementation of
Part D, these may be offset by the increased costs of picking up
expenses no longer covered by Medicaid for the dual eligible
population.
To ensure coordination of benefits for the HIV/AIDS population, the
ADAP program may wish to pay for this population's premiums to
eliminate any barriers to Part D benefits. ADAP may also subsidize
costs incurred toward a Part D plan's deductible or cost-sharing for
those patients unable to afford these costs. It should be noted,
however, that when ADAP does subsidize these costs, they would not
count as incurred costs and thus may make it less likely that an
eligible person would incur costs above the annual out-of-pocket
threshold and thus qualify for catastrophic cost-sharing.
ADAPs and other Ryan White ``titled'' programs are eligible to
participate in what is known as the 340B Drug Pricing program and are
encouraged to do so. Under Section 340B of the Public Health Service
Act, discounted outpatient drugs are available to certain Federally-
funded grantees, such as Federally qualified health centers (FQHCs),
AIDS drug assistance programs, and certain disproportionate (DSH)
hospitals. Upon successful registration, these covered entities are
eligible to purchase outpatient prescription medications from drug
wholesalers and pharmaceutical manufacturers at significantly reduced
prices. All but three ADAPs, which have State-based programs,
participate in 340B. About one-half of these States purchase their
drugs directly and receive an upfront discount. The other half operate
under the rebate model and receive a rebate from manufacturers. Studies
have indicated that the States receiving an upfront discount benefit
more fully from the 340B program than those States receiving a rebate.
States are encouraged to move toward the model of purchasing their
drugs directly, as they can realize more savings than States using the
rebate model.
We welcome comments on how to maximize the savings for people in
need of HIV/AIDS medications under the 340B program. In particular, is
it feasible for ADAP programs to participate with prescription drug
plans so that the drugs offered to individuals with HIV/AIDS can be
offered at 340B prices? In addition, because it is of critical
importance for Medicare beneficiaries with HIV/AIDS to comply with
their drug regimens, we are soliciting comments regarding the
coordination of ADAP and Medicare Part D benefits.
We note that nothing precludes an insurer, group health plan, or
other third party arrangement from paying for a Part D enrollee's
deductible costs; while these payments will not count as incurred costs
vis-[agrave]-vis the out-of-pocket threshold, they will not prevent a
Part D enrollee from receiving a benefit for expenditures between the
deductible and the out-of-pocket limit. In addition, these entities are
not precluded from paying for a Part D enrollee's cost-sharing above
the out-of-pocket threshold once a beneficiary has accumulated incurred
costs in excess of the out-of-pocket threshold. Please refer to section
II.J of this preamble for a detailed discussion regarding the
collection of information regarding third-party reimbursement for
covered Part D drugs for the purpose of determining enrollees' incurred
costs.
Section 1860D-2(b) of the Act provides that, beginning in 2007, the
annual deductible, initial coverage limit, out-of-pocket threshold, and
beneficiary cost-sharing after the out-of-pocket threshold is met are
to be adjusted annually. In accordance with section 1860D-2(b)(6) of
the Act and as provided in Sec. 423.104(e)(5)(iv) of our proposed
rule, these amounts would be increased over the previous year's amounts
by the annual percentage increase in average per capita aggregate
expenditures for covered Part D drugs for the 12-month period ending in
July of the previous year. The amounts for the annual deductible,
initial coverage limit, out-of-pocket threshold, and catastrophic cost-
sharing amounts would be rounded to the nearest $5, $10, $50, and
$0.05, respectively, as required by sections 1860D-2(b)(1)(B),
(b)(3)(B), (b)(4)(B)(ii), and (b)(4)(A)(ii) of the Act, and codified in
Sec. Sec. 423.104(e)(1)(ii), (e)(3)(ii), (e)(5)(iii)(B), and
(e)(5)(i)(A)(2) of our proposed rule.
We anticipate that in the first several years after the
implementation of Part D, determining the annual percentage increase
will be difficult and will require the use of alternative sources of
data. We request comments regarding possible alternative data sources
we could use to determine the annual percentage increase in the first
several years of the Part D program. We will provide further detail
regarding the methods and data sources we would use to determine this
annual percentage increase in operational guidance to PDP sponsors and
MA organizations offering
[[Page 46652]]
MA-PD plans prior to the deadline for bid submissions.
Table C-1.--Standard Prescription Drug Coverage Benefits for 2006
----------------------------------------------------------------------------------------------------------------
Beneficiary
Cost-sharing percentage out-of-pocket Plan payment Plan payment
costs percentage
----------------------------------------------------------------------------------------------------------------
Annual Deductible ($0-$250 in spending 100..................... $250 0 $0
on covered Part D drugs covered under
the plan).
Initial Benefit ($251-$2,250 in 25\1\................... 500\2\ 75\1\ 1,500
spending on covered Part D drugs
covered under the plan).
No coverage of costs ($2,251-$5,100 100..................... 2,850 0 0
\3\ in spending on covered Part D
drugs covered under the plan).
Catastrophic Coverage (after the The greater of: (1) 5; .............. 95 ..............
enrollee has incurred out of-pocket or (2) $2 for a generic
costs on covered Part D drugs covered or preferred multiple
by the plan greater than $3,600; this source drug/$5 for
is generally equivalent to $5,100 \3\ other drugs \1\.
in covered spending).
----------------------------------------------------------------------------------------------------------------
\1\ Entities have the option of substituting a cost-sharing structure that is actuarially equivalent.
\2\ $500 is the maximum out-of-pocket costs if coverage is based on 25 percent coinsurance. Under an actuarially
equivalent cost-sharing structure, the maximum out-of-pocket costs and the maximum plan payment for any Part D
enrollee could be higher or lower.
\3\ This figure may, in fact, be higher to the extent that a Part D enrollee is reimbursed for out-of-pocket
costs for covered Part D drugs covered under his/her plan by a group health plan, insurance or otherwise, or
other third party arrangement.
We have interpreted the provisions of section 1860D-2(b) of the Act
to provide for two distinct types of standard prescription drug
coverage--``defined standard coverage'' and ``actuarially equivalent
standard coverage.'' Defined standard coverage basically constitutes
standard prescription drug coverage as defined in the statute--with 25
percent coinsurance for costs above the deductible but below the
initial coverage limit and cost-sharing for costs above the annual out-
of-pocket limit equal to the greater of: (1) A copayment (for 2006, and
adjusted annually as specified earlier in this preamble) of $2 for a
generic or preferred multi-source covered Part D drug, or $5 for other
drugs; or (2) 5 percent coinsurance. Actuarially equivalent standard
coverage is used to describe standard coverage with actuarially
equivalent alternatives to these cost-sharing requirements and
consistent with section 1860D-2(b) of the Act.
Section 1860D-2(b)(2)(A)(ii) of the Act provides that PDP sponsors
and MA organizations offering actuarially equivalent standard
prescription drug coverage would be permitted to substitute cost-
sharing requirements (including tiered structures tied to plan
formularies or particular pharmacies in a plan's network) for costs
above the annual deductible and up to the initial coverage limit,
provided that those alternative cost-sharing requirements were
actuarially equivalent to an average expected coinsurance of 25 percent
for costs above the annual deductible and up to the initial coverage
limit. Alternative cost-sharing arrangements under actuarially
equivalent standard coverage could include reducing cost-sharing to $0
for generic or preferred covered Part D drugs, as provided under
section 1860D-2(b)(5) of the Act, as long as the cost-sharing structure
is actuarially equivalent to an average expected coinsurance of 25
percent for costs above the annual deductible and up to the initial
coverage limit. Plans with cost-sharing arrangements that are
actuarially more generous than standard prescription drug coverage
would be considered enhanced alternative coverage, as defined in
section II.C.2.b.ii of this preamble. (Section II.F.2 of this preamble
explains the methodology for determining actuarial equivalence).
Based on our interpretation of section 1860D-2(b)(5) of the Act, we
also propose allowing plans offering actuarially equivalent standard
coverage to establish cost-sharing of an amount that is actuarially
equivalent to the expected cost-sharing under Sec. 423.104(e)(5)(i)
(taking into account both 5 percent coinsurance and $2/$5 copayments
for costs above the out-of-pocket threshold required under defined
standard coverage). As previously discussed, section 1860D-2(b)(5) of
the Act indicates that plans cannot be prevented from reducing to $0
the cost-sharing applicable to preferred or generic drugs. While this
provision only references reductions based on the need to retain a
standard benefit, we propose requiring that any alternative cost-
sharing structure for costs in the catastrophic range (whether under
actuarially equivalent standard coverage or enhanced alternative
coverage) be actuarially equivalent to standard prescription drug
coverage's structure of 5 percent coinsurance or $2/$5 copayments. Our
proposed requirement would function in the same manner as the
requirement for actuarial equivalence to alternatives to the 25 percent
coinsurance structure for costs above the deductible and below the
initial coverage limit, as discussed in further detail in section
II.F.4.b of this preamble. Any such alternative cost-sharing
arrangements would be reviewed, along with the rest of a plan's benefit
design, to ensure that they do not discriminate against certain Part D
eligible individuals.
b. Alternative Prescription Drug Coverage
Section 1860D-2(c) of the Act and Sec. 423.104(f) provide that a
PDP sponsor offering a prescription drug plan or an MA organization
offering an MA-PD plan may offer an alternative prescription drug
benefit design, provided that the PDP sponsor or MA organization
applies for and receives our approval for the proposed alternative. In
order to receive approval to offer an alternative prescription drug
benefit design, a PDP sponsor offering a prescription drug plan or an
MA organization offering an MA-PD plan would have to meet the
requirements related to actuarial equivalence described in section
1860D-2(c)(1) of the Act and discussed in further detail
[[Page 46653]]
below (as well as in section II.F.3 of this preamble). It is important
to note that, in modifying the standard coverage design to offer
alternative prescription drug coverage per the following requirements,
plans would have to use defined standard coverage (and not actuarially
equivalent standard coverage) as a fixed point of comparison. Because
numerous variants of actuarially equivalent standard coverage are
possible, it would not be feasible to use actuarially equivalent
standard coverage as a point of comparison for alternative prescription
drug coverage.
As provided under section 1860D-2(c)(2) of the Act and codified in
Sec. 423.104(f)(1) of our proposed rule, any alternative prescription
drug benefit design would be required to include a deductible that was
no greater than the deductible offered under standard prescription drug
coverage. Section 1860D-2(c)(3) of the Act requires that alternative
coverage provide the coverage required under section 1860D-2(b)(4),
which specifies the requirements for coverage to protect beneficiaries
against high out-of-pocket expenditures. As provided in Sec.
423.104(f)(2) of our proposed rule, we are interpreting this
requirement to mean that prescription drug plans and MA-PD plans must
provide coverage above the out-of-pocket threshold that is at least as
generous as that provided under defined standard coverage. In other
words, plans could--at their option--reduce cost-sharing below that
included under defined standard coverage (the greater of 5 percent
coinsurance or $2/$5 copayments).
In addition, section 1860D-2(c)(1)(B) of the Act and Sec.
423.104(f)(3) of our proposed rule would require that the actuarial
value of alternative prescription drug coverage's unsubsidized coverage
is at least equal to the actuarial value of unsubsidized defined
standard coverage. Section 1860D-2(c)(1)(C) of the Act and Sec.
423.104(f)(4) of our proposed rule would require that, under
alternative prescription drug coverage, the plan payout at the dollar
value of the initial coverage limit under standard coverage, for an
individual whose total spending exceeds that limit, is at least equal
to that provided under defined standard coverage.
i. Basic Alternative Coverage
Beyond the required parameters for alternative coverage discussed
above, we are interpreting the provisions of section 1860D-2(c) of the
Act, together with section 1860D-2(a)(1) of the Act, as providing for
two forms of alternative coverage--either ``basic alternative
coverage'' or ``enhanced alternative coverage.'' Basic alternative
coverage would refer to alternative coverage that is actuarially
equivalent to defined standard prescription drug coverage, as described
in section II.C.2.a of this preamble. Enhanced alternative coverage
would refer to alternative coverage that exceeds defined standard
coverage by offering supplemental benefits and is discussed in section
II.C.2.b.ii of this preamble.
Within the parameters for alternative prescription drug coverage
described above, a PDP sponsor offering a prescription drug plan or an
MA organization offering an MA-PD plan with a basic alternative
prescription drug benefit design could theoretically--by combining
features such as a reduction in the deductible, changes in cost-sharing
(for example, benefit designs that use tiered copayments or coinsurance
in an actuarially equivalent manner to the 25 percent cost-sharing
above the deductible and below the initial coverage limit under defined
standard coverage), and a modification of the initial coverage limit--
still be able to maintain an actuarial value of coverage equal to
defined standard prescription drug coverage.
Although basic alternative prescription drug coverage within the
parameters described above is allowed, it is unclear because of
utilization effects whether PDP sponsors and MA organizations could, in
fact, offer coverage that meets the statutory requirements other than
by modifying cost-sharing as already allowed under actuarially
equivalent standard coverage. We invite comments on whether there are
basic alternative benefit designs that go beyond actuarially equivalent
standard coverage.
ii. Enhanced Alternative Coverage
Section 423.104(g) of our proposed rule would permit PDP sponsors
and MA organizations offering an MA-PD plan to provide qualified
prescription drug coverage that includes supplemental benefits. Because
the actuarial value of any prescription drug coverage benefit package
that includes supplemental benefits would exceed that of standard
coverage, such coverage must always be alternative drug coverage as
described in section II.C.2.b of this preamble. Thus, we refer to any
Part D benefit package that includes supplemental benefits as
``enhanced alternative coverage.''
Enhanced alternative coverage would include basic prescription drug
coverage and supplemental benefits. The requirements for the
supplemental benefits that may be included in enhanced alternative
coverage are found in section 1860D-2(a)(2) of the Act and Sec.
423.104(g)(1)(ii) of our proposed rule. These supplemental benefits
would supplement basic prescription drug coverage, providing for a
package of benefits that exceeds the actuarial value of defined
standard coverage. Supplemental benefits could consist of:
Reductions in cost-sharing (for example, a reduction in
the deductible, a reduction in the coinsurance percentage or copayments
applicable to covered Part D drugs obtained between the annual
deductible and the initial coverage limit, or an increase in the
initial coverage limit described in Sec. 423.104(e)(2), provided these
reductions in cost-sharing increase the actuarial value of the benefits
provided above the actuarial value of basic prescription drug
coverage); and/or
Coverage of drugs that are specifically excluded as
covered Part D drugs under section 1860D-2(e)(2)(A) of the Act and
Sec. 423.100 of our proposed rule.
We propose interpreting ``value'' to mean the total value as
described in section 1860D-2(c)(1)(A) of the Act. We request comments
on this interpretation.
Under section 1860D-2(a)(2)(B) of the Act, and proposed in Sec.
423.104(g)(2), a PDP sponsor would not be permitted to offer a
prescription drug plan that provided enhanced alternative coverage in a
particular service area unless it also offered a plan that provided
only basic prescription drug coverage in that same area. Section 1860D-
2(a)(3) of the Act defines basic prescription drug coverage as either--
(a) Standard prescription drug coverage (as described in proposed
Sec. 423.104(e) and in section II.C.2.a of this preamble) with access
to negotiated prices; or
(b) Basic alternative drug coverage (as described in Sec. 423.100
and section II.C.2.b.i of this preamble) with access to negotiated
prices.
Similarly, as provided under section 1860D-21(a)(1)(A) and codified
in Sec. 423.104(g)(3)(i) of our proposed rule, beginning on January 1,
2006, an MA organization could not offer an MA coordinated care plan,
as defined in 42 CFR 422.4 of our proposed rule and section
1851(a)(2)(A) of the Act, in a service area unless that plan, or
another MA plan offered by the same organization in the same service
area, includes required prescription drug coverage. As defined in Sec.
423.100, required prescription drug coverage, for the purposes of an MA
organization
[[Page 46654]]
offering an MA-PD plan, would include either: (1) Basic prescription
drug coverage, or (2) enhanced alternative coverage, provided there is
no MA monthly supplemental beneficiary premium applied under the plan.
Such enhanced alternative coverage could be provided without a monthly
supplemental beneficiary premium only if a plan applied a credit
against the otherwise applicable premium of rebate dollars available
under section 1854(b)(1)(C) of the Act. Rebate dollars represent the
dollars available for supplemental (and other) benefits when an MA
plan's risk-adjusted non-drug bid is under the risk-adjusted non-drug
monthly benchmark amount. In other words, to the extent that an MA-PD
plan chose to provide enhanced alternative coverage for no additional
premium through the application of rebate dollars, such enhanced
alternative coverage would constitute required coverage for the
purposes of meeting the requirement in section 1860D-21(a)(1)(A) of the
Act.
This provision is similar in intent to the restrictions on the
offering of enhanced alternative coverage by PDP sponsors found in
Sec. 423.104(g)(2) of our proposed rule. As previously mentioned, PDP
sponsors are required to offer at least one plan offering basic
prescription drug coverage in all areas they serve in order to offer
any plan that enhances or supplements that basic coverage. The
objective of both of these requirements is to assure that PDP sponsors
and MA PD organizations offer at least one option for Part D coverage
for a premium at the cost of basic prescription drug coverage.
As a note of clarification, provided a PDP sponsor offers at least
one plan in a service area that provides basic prescription drug
coverage only, it can offer as many plans that offer enhanced
alternative coverage as it wishes. Similarly, an MA organization that
offers at least one MA-PD plan that meets the aforementioned test of
providing required prescription drug coverage is free to offer plans
that provide other types of enhanced alternative coverage for which
they can charge a monthly supplemental beneficiary premium, as well as
plans that offer no qualified prescription drug coverage.
As provided under section 1860D-21(a)(1)(B)(i) of the Act and
codified in our proposed rule at Sec. 423.104(g)(3)(ii)(A), an MA
organization could not offer prescription drug coverage (other than
that required under Parts A and B of Medicare) to enrollees of an MSA
plan. Under section 1860D-21(a)(1)(B)(ii) and Sec.
423.104(g)(3)(ii)(B) of our proposed rule, an MA organization also
could not offer prescription drug coverage (other than that required
under Parts A and B of Medicare) under another type of MA plan--
including a private fee-for-service plan--unless the drug coverage it
provided under that MA plan consisted of qualified prescription drug
coverage and met our requirements regarding required prescription drug
coverage as articulated previously in this preamble section.
c. Negotiated Prices
Section 1860D-2(d)(1) of the Act requires, as implemented under
Sec. 423.104(h) of our proposed rule, that a PDP sponsor or MA
organization offering an MA-PD plan provide beneficiaries with access
to negotiated prices for covered Part D drugs. As required by section
1860D-2(d)(1)(B) of the Act, negotiated prices would have to take into
account negotiated price concessions for covered Part D drugs such as
discounts, direct or indirect subsidies, rebates, and direct or
indirect remunerations, and would include any applicable dispensing
fees. Access to negotiated prices would have to be provided even when
no benefits would otherwise be payable on behalf of an enrollee due to
the application of a deductible, the initial coverage limit, or other
cost-sharing. We are interpreting the reference to the lack of payable
benefits due to the application of the initial coverage limit as
referring to that portion of covered Part D drug expenditures between
the initial coverage limit and the out-of-pocket threshold. In that
expenditure range, a beneficiary enrolled in standard prescription drug
coverage would be responsible for 100 percent cost-sharing, and the
plan would pay no benefits. We are also interpreting the phrase ``or
other cost-sharing'' as a reference to plan designs that may include,
as a part of their formulary design, access to negotiated prices on
certain drugs but at a tier within their formulary in which the plan
would pay no benefits and the beneficiary would be responsible for 100
percent cost-sharing (in other words, a negotiated price would be
available and the drug would be on the plan's formulary, but the
beneficiary would be responsible for 100 percent of that drug's
negotiated price).
As required under section 1860D-2(d)(1)(C) of the Act, prices
negotiated with manufacturers for: (1) Covered Part D drugs by either a
prescription drug plan or an MA-PD plan; or (2) a qualified retiree
prescription drug plan, as described in Sec. 423.882 of our proposed
regulation on the Medicare retiree drug subsidy program, with respect
to covered Part D drugs provided on behalf of part D eligible
individuals would not be taken into account in making ``best price''
determinations under the Medicaid program. Under current Medicaid best
price policy, the largest discount a pharmaceutical manufacturer
negotiates in the private market must be passed along to the Medicaid
program; however, prices negotiated with manufacturers for covered Part
D drugs would not be factored into these calculations as provided under
Sec. 423.104(h)(2) of our proposed rule.
Section 423.104(h)(3) would require, as stated in the provisions of
section 1860D-2(d)(2) of the Act, that PDP sponsors offering a
prescription drug plan and MA organizations offering an MA-PD plan
disclose to us all aggregate negotiated price concessions--including
discounts, direct or indirect subsidies, and direct or indirect
remunerations--they obtain from each pharmaceutical manufacturer that
are passed through to the Medicare program in the form of lower
subsidies or to beneficiaries in the form of: (1) Lower monthly
beneficiary premiums, and/or (2) lower covered Part D drug prices at
the point of sale. We note that plans may fulfill this requirement
through the data submission requirements articulated in proposed Sec.
423.336(c)(1) and Sec. 423.343(c)(1) and discussed in further detail
in section II.G.4 of this preamble. In other words, we should be able
to determine the proportion of total aggregate price concessions that
are passed through to either the Medicare program or to beneficiaries
based on the cost data plans would be required to submit to CMS.
As provided under section 1860D-2(d)(2) of the Act and Sec.
423.104(h)(3)(ii) of our proposed rule, information on negotiated
prices reported to CMS for the purposes of ascertaining the level of
pass-through would be protected under the confidentiality provisions
applicable to Medicaid pricing data under section 1927(b)(3)(D) of the
Act. We note, however, that these confidentiality protections would not
preclude audit and evaluation of negotiated price concession
information by the HHS Office of the Inspector General (OIG) and, in
fact, that such audits and evaluations may be necessary for carrying
out the requirements of section 1860D-4(d)(1) of the Act.
We would specify in operational guidance the format and frequency
of these reports. As discussed in section II.G.4 of this preamble, we
are proposing to require plans to ensure that price concessions are
accounted for separately
[[Page 46655]]
from any fair market value administrative fees pharmaceutical
manufacturers may pay PDP sponsors or MA organizations. For a more
detailed discussion of data submission requirements, please refer to
section II.G.4 of this preamble.
As provided under section 1860D-2(d)(3) of the Act and codified in
Sec. 423.104(h)(4) of our proposed rule, we would be authorized to
conduct periodic audits--either directly or through contracts with
other organizations--of the financial statements and records of PDP
sponsors and MA organizations pertaining to the prescription drug plans
and MA-PD plans they offer. As required in section 1860D-2(d)(3) of the
Act, this auditing would be performed with the ultimate goal of
protecting the Medicare program against fraud and abuse, as well as
ensuring proper disclosures and accounting under Part D. Section
423.504(d) of our proposed rule includes additional requirements with
respect to auditing of PDP sponsors as a safeguard against fraud and
abuse. These fraud and abuse protections incorporate those protections
applicable to MA organizations under section 1857(d)(2)(B) of the Act
and are discussed in detail in section II.K.6.a of this preamble.
3. Establishment of Prescription Drug Plan Service Areas (Sec.
423.112)
Section 1860D-11(a)(1) of the Act requires that a prescription drug
plan's service area encompass an entire PDP region, as established by
us under Sec. 423.112(b), and Sec. 423.112(a) of our proposed rule
codifies that requirement. However, as provided under Sec. 423.112(e)
of our proposed rule, a prescription drug plan can be offered in more
than one PDP region (provided the plan encompasses the entire PDP
region for each region where offered), as well as nationally.
Section 1860D-11(a)(2) of the Act provides us with the authority to
establish PDP regions, and such PDP regions must be established in a
manner that is consistent with the establishment of MA regions under 42
CFR 422.445 of our proposed rule. Section 1860D-11(a)(2)(B) stipulates
that PDP regions must be, to the extent practicable, consistent with MA
regions as established under section 1858(a)(2) of the Act. As provided
under Sec. 423.112(b)(2), however, if we determine that access to Part
D benefits would be improved by establishing PDP regions that are
different than MA regions, we may establish PDP regions that vary from
MA regions. Section 423.112(d) of our proposed rule would allow us to
revise the PDP regions we establish as necessary.
In accordance with section 1860D-14(a)(3)(F) of the Act, residents
of United States territories are not eligible for the Part D subsidies
otherwise provided to low-income individuals. Such territorial
residents, however, would be eligible for financial assistance for
prescription drug expenses under section 1935(e) of the Act. Note that
a new section 1935 of the Act was added by section 103 of the Medicare
Modernization Act (MMA) through a redesignation of the current section
1935 as section 1936. The U.S. territories, unlike the 50 United States
and the District of Columbia, may continue to receive federal Medicaid
grants under section 1108 of the Act to compensate them for drug
coverage provided to Part D eligible individuals under specific
conditions. For this reason, section 1860D-11(a)(2)(C) of the Act and
Sec. 423.112(c) of our proposed rule stipulate that CMS designate a
separate PDP region (or regions) for the U.S. territories.
We intend to initially designate both PDP and MA regions by January
1, 2005. In accordance with section 1858(a)(2)(C)(i) of the Act, there
will be between 10 and 50 PDP regions within the 50 States and the
District of Columbia and at least one PDP region covering the United
States territories. The PDP regions, like the MA regions, will become
operational in January 2006.
We conducted a public meeting on July 21, 2004, in order to obtain
broad public comment on the methodology we should use in establishing
both the PDP regions and MA regions for MA regional plans, which would
operate as preferred provider organizations (PPOs). The information on
that meeting is available at https://www.cms.hhs.gov/medicarereform/mmaregions.
Using the feedback from that meeting and other research, we
are considering a number of issues, including: how we should design PDP
regions in order to ensure that all beneficiaries have access to
prescription drug plans; how best to ensure access to prescription drug
plans through the design of PDP regions that are the same as (or, if
necessary, different than) MA regions; how to design a PDP region (or
regions) in the U.S. territories; and how we can best discuss with the
public the development of both the PDP and MA regions. Separate
guidance on the designation of regions will be forthcoming.
Whereas Sec. 423.112 provides that a prescription drug plan's
service area must encompass one or more PDP regions, an MA-PD plan's
service area would consist of either: (1) one or more MA regions (for a
regional MA plan), or (2) one or more MA local areas (for a local MA
plan). ``MA region'' is defined in 42 CFR 422.455(b) of our proposed
rule as a region within the 50 States and the District of Columbia as
established by CMS. As provided in Sec. 423.112(b)(2) of our proposed
rule, we will attempt to establish PDP regions that coincide with MA
regions to the extent practicable. ``Local MA area'' is defined in 42
CFR 422.252 of our proposed rule as a payment area consisting of county
or equivalent area that we specify.
4. Access to Covered Part D Drugs (Sec. 423.120)
a. Pharmacy Access Standards
As required by section 1860D-4(b)(1)(C) of the Act, prescription
drug plans and MA-PD plans would be required to secure the
participation in their pharmacy networks of a sufficient number of
pharmacies that dispense drugs directly to patients (other than by mail
order) to ensure convenient access to covered Part D drugs by plan
enrollees. To achieve that goal, we are authorized to establish access
rules that are no less favorable to enrollees than rules for convenient
access established in the statement of work solicitation
(MDA906-03-R-0002) by the Department of Defense (DoD) on March
13, 2003, for purposes of the TRICARE Retail Pharmacy program.
Consistent with the TRICARE standards, Sec. 423.120(a)(1) of our
proposed rule would require that prescription drug plans and MA-PD
plans establish pharmacy networks in which:
In urban areas, at least 90 percent of Medicare
beneficiaries in the plan's service area, on average, live within 2
miles of a retail pharmacy participating in the prescription drug
plan's or MA-PD plan's network;
In suburban areas, at least 90 percent of Medicare
beneficiaries in the plan's service areas, on average, live within 5
miles of a retail pharmacy participating in the prescription drug
plan's or MA-PD plan's network; and
In rural areas, at least 70 percent of Medicare
beneficiaries in the plan's service area, on average, live within 15
miles of a retail pharmacy participating in the prescription drug
plan's or MA-PD plan's network.
For the purposes of meeting these access standards, as also
provided in DoD's statement of work of solicitation MDA906-03-
R-0002--
Urban would be defined as a five-digit ZIP Code in which
the population
[[Page 46656]]
density is greater than 3,000 persons per square mile;
Suburban would be defined as a five-digit ZIP Code in
which the population density is between 1,000 and 3,000 persons per
square mile; and
Rural would be defined as a five-digit ZIP Code in which
the population density is less than 1,000 persons per square mile.
We are interpreting the access standard under Sec. 423.120(a)(1)
such that a prescription drug plan or regional MA-PD plan would have to
meet or exceed the access standards across each region in which it
operates, and a local-MA-PD plan would have to meet or exceed the
access standards in its local service area. In other words, a
prescription drug plan or regional MA-PD that operates in a multi-
region or national service area could not meet the access standards
proposed in Sec. 423.120(a)(1) by applying them across the entire
geographic area serviced by the plan; instead, it would have to meet
the standards in each region of its multi-region or national service
area. We believe that such an interpretation maximizes plan flexibility
while assuring the best possible access to pharmacies for Part D
enrollees, and we request comments on our proposed approach.
While prescription drug plans and MA-PD plans would not be
precluded from including non-retail pharmacies (for example,
institution-based pharmacies) in their networks under our proposed
rule, we interpret the access requirements in section 1860D-4(b)(1)(C)
of the Act as requiring prescription drug plans and MA-PD plans to
count only retail pharmacies as part of their networks for the purpose
of meeting the access standard in Sec. 423.120(a)(1). We would
consider a retail pharmacy to be any licensed pharmacy from which
covered Part D enrollees could purchase a covered Part D drug without
being required to receive medical services related to that particular
covered Part D drug from a provider or institution affiliated with that
pharmacy. In other words, prescription drug plans and MA-PD plans
could--and would be encouraged to--include non-retail pharmacies (for
example, hospital and clinic pharmacies) in their networks; however,
given the limited populations served by such non-retail pharmacies,
plans could not count these pharmacies toward our pharmacy access
requirements.
We recognize, however, that prescription drug plans and MA-PD plans
operating in rural areas with high concentrations of American Indian/
Alaska Native (AI/AN) individuals may have a difficult time meeting our
access standards if they cannot count pharmacies that are operated by
the Indian Health Service, Indian tribes and tribal organizations, and
urban Indian organizations (hereinafter referred to as ``I/T/U
pharmacies'') toward their pharmacy access requirements. We are
considering allowing prescription drug plans and MA-PD plans to count
I/T/U pharmacies toward their network access requirements, provided:
(1) Such pharmacies are under contract with the plan; and (2) it would
be impossible or impracticable for the plan to meet the access standard
in rural areas of its service area without the inclusion of an I/T/U
pharmacy (or pharmacies) in that count because there is not a
sufficient number of non-I/T/U pharmacies in those areas willing or
able to contract with the PDP sponsor or MA organization in accordance
with its terms and conditions. We invite comments on this proposed
exception to our pharmacy access rules, including any impact it might
have on pharmacy access for non-AI/AN Part D enrollees residing in
those areas.
Section 423.120(a)(1) of our proposed rule would not in any way
preclude PDP sponsors or MA organizations offering an MA-PD plan from
contracting with pharmacies outside their plans' service areas,
provided that the plans meet the pharmacy access requirements within
their service areas. Such a feature would be of particular benefit to
beneficiaries who spend significant amounts of time outside their
prescription drug plan's or MA-PD plan's service area (for example,
``snowbirds'') and could make a particular prescription drug plan or
MA-PD plan more attractive to them. In addition, the fact that
beneficiaries would have access to network pharmacies outside their
plan's service area would obviate the need for out-of-network access
(discussed in greater detail in section II.C.5 of this preamble) to
covered Part D drugs in many cases. Thus, contracting with pharmacies
outside a plan's service area could ultimately represent a cost-savings
both to plans and beneficiaries, particularly if a plan enrolls a high
proportion of beneficiaries who regularly travel outside the plan's
service area.
Section 1860D-4(b)(1)(C)(iv) of the Act provides that, in
establishing rules for convenient access to network pharmacies, we may
include standards with respect to access to long-term care pharmacies
for Part D enrollees who reside in skilled nursing facilities and
nursing facilities (hereinafter referred to as ``long-term care
facilities''), as well as for American Indian/Alaska Native (AI/AN)
Part D enrollees who obtain their prescription drugs at I/T/U
pharmacies. We recognize that given their specialized missions and the
narrowly defined subsets of beneficiaries they serve, access to long-
term care and I/T/U pharmacies should be preserved. Such access would
greatly enhance Part D benefits for enrollees in long-term care
facilities, as well as for AI/AN enrollees.
As discussed in section II.C.5 of this preamble, we expect that the
out-of-network access requirement articulated in Sec. 423.124(a)(2)
would assure access to covered Part D drugs provided by long-term care
pharmacies for Part D enrollees residing in long-term care institutions
that do not contract with their prescription drug plans or MA-PD plans.
Since it is generally the case that long-term care facilities contract
with a single long-term care pharmacy, Part D enrollees residing in a
long-term care facility could not reasonably be expected to access
their covered Part D drugs at another pharmacy if their facility's
long-term care pharmacy is not part of their plan's network.
However, we are also considering whether to use the authority
provided under section 1860D-4(b)(1)(C)(iv) of the Act to require
prescription drug plans and MA-PD plans to approach some or all long-
term care pharmacies in their service areas with at least the same
terms available under their plans' standard pharmacy contracts. Given
Federal nursing home regulations, nursing facilities contract with a
long-term care pharmacy to provide prescription drugs and services to
their residents. In the absence of direct collaboration between a plan
and a Part D enrollee's long-term care pharmacy, it would be difficult
for nursing facilities to meet Federal pharmacy management standards.
We are concerned, however, that to the extent that we require plans
to solicit long-term care pharmacies in their service areas to join
their networks, plans may be forced to negotiate preferential
contracting terms and conditions (relative to the terms they would
offer any other pharmacy willing to participate in its network) with a
number of long-term care pharmacies in order to meet our requirement.
We also expect that long-term care pharmacies will be concerned
about appropriate reimbursement for services (for example, clinical
consultations, emergency medication access with 24-hour-a-day
deliveries, specialized packaging, and IV and infusion therapies) that
they currently provide long-term care facility residents. It is
[[Page 46657]]
possible that recognition of appropriate services would be addressed by
provisions arranged by prescription drug plans and MA-PD plans and
network pharmacies, with any resulting dispensing charges reflected in
permissible dispensing fees. Section II.C.1 of this preamble discusses
several options for defining the term ``dispensing fees.'' However, it
is our goal to balance convenient access to long-term care pharmacies
with appropriate payment for dispensing fees of efficient facilities.
To the extent that we require plans to contract with long-term care
pharmacies, it is our goal to assure that long-term care pharmacies
charge reasonable dispensing fees to plans (and indirectly to CMS
through the direct subsidy paid to prescription drug plans and MA-PD
plans). We welcome comments regarding how to balance convenient access
to long-term care pharmacies with appropriate payment to long-term care
pharmacies under the provisions of the MMA.
Alternatively, we would not require that plans contract with long-
term care pharmacies and would, instead, strongly encourage PDP
sponsors and MA organizations offering MA-PD plans to negotiate with
and include long-term care pharmacies in their plans' pharmacy
networks. We seek public comment regarding the advantages and
disadvantages of these two approaches.
Similarly, we are considering two options for assuring access to I/
T/U pharmacies by AI/AN Part D enrollees per the provisions of section
1860D-4(b)(1)(C)(iv) of the Act. There are currently 201 I/T/U
pharmacies serving 107,000 senior and disabled AI/ANs in 27 States. In
some areas, I/T/U pharmacies may be the only facilities capable of
providing medication therapy management services to certain AI/AN
beneficiaries due to language and cultural barriers. I/T/U pharmacies
are unique in several different ways, including that they purchase
drugs off the Federal Supply Schedule (FSS); can only serve AI/ANs; may
have less experience than retail pharmacies (or none at all) with
point-of-sale technology; are not typically well integrated into
commercial pharmacy networks; generally stock a more limited range of
drugs than would be required under a Part D formulary; and always waive
co-pays.
One approach to assuring access to I/T/U pharmacies under Part D
would be to use our authority under Section 1860D-4(b)(1)(C)(iv) of the
Act to require that PDP sponsors and MA organizations approach any I/T/
U pharmacies in their plan service areas with at least the same terms
available under the plan's standard pharmacy contract. We are aware,
however, that contracting with I/T/U pharmacies is potentially more
complex than contracting with retail pharmacies given that there are a
number of provisions in the standard contracts of commercial health
plans that would likely need to be modified or deleted given statutory
or regulatory restrictions to which I/T/U pharmacies are subject, as
well as the particular circumstances of I/T/U pharmacies. Some examples
of standard contract clauses that could be problematic for I/T/U
pharmacies include:
Prohibitions on waiving copays;
Required provision of all drugs on a plan's drug
formulary;
Requirements that providers bill and/or receive funds
electronically to participate in the network;
Requirements that claims be submitted within a specific
timeframe;
Requirements that plans serve all patients without
discrimination;
Requirements that providers carry private malpractice
insurance;
Requirements that providers be licensed in the state in
which they provide services; and
Requirements that binding arbitration be used in the event
that any dispute arises with regard to performance or interpretation of
any terms of the agreement and the parties are unable to resolve the
dispute in an informal fashion.
We expect that, to the extent that we require plan inclusion of I/
T/U pharmacies in plan networks, we would provide plans with a model
addendum to their standard contracts (should we require them) that
would take the special circumstances of I/T/U pharmacies into account.
Such an addendum could also be useful for facilitating the inclusion in
prescription drug plan or MA-PD plan pharmacy networks of other types
of pharmacies (Federally Qualified Health Centers, for example, which
are subject to some of the same limitations described above for I/T/U
pharmacies that make many standard contract clauses impracticable).
A requirement that plans contract with I/T/U pharmacies could
potentially expand plans' market share in areas with high
concentrations of AI/ANs. Plans may also benefit from cost-savings as a
result of doing business with I/T/U pharmacies given I/T/U pharmacies'
heavy reliance on the dispensing of generic drugs. Also, given that
IHS/tribal government subsidies of Part D cost-sharing on behalf of
beneficiaries will not, as discussed in section II.C.2.a of this
preamble, count toward incurred costs, most IHS beneficiaries would
almost never incur costs above the out-of-pocket limit; this would
likely provide plans with additional cost-savings. On the other hand,
we recognize that there is some potential for increased administrative
costs for prescription drug plans and MA-PD plans given the need to
modify standard contracts (should we require them) and, given the
limited electronic capabilities of most I/T/U pharmacies, the
processing of paper claims. In addition, the AI/AN population is one
with which commercial health plans have little, if any, experience.
Given these potential administrative costs, we are reluctant to require
contracts with I/T/U facilities if that requirement discourages PDP
sponsors and MA organizations from offering plans in service areas with
large concentrations of AI/ANs.
Another option for assuring access to I/T/U pharmacies under Part D
would be not to require that plans contract with I/T/U pharmacies and,
instead, to strongly encourage PDP sponsors and MA organizations
offering MA-PD plans to negotiate with and include I/T/U pharmacies in
their plans' pharmacy networks. We are concerned, however, that--in the
absence of a contracting requirement--plans may make assumptions
regarding the administrative costs (whether real or perceived) of
contracting with I/T/U pharmacies and may not actively solicit the
inclusion of these pharmacies in their networks. It is our
understanding that I/T/U pharmacies are not currently well integrated
in commercial pharmacy networks. The lack of I/T/U pharmacies in Part D
plan networks would render enrollment in Part D of little use to AI/AN
beneficiaries who rely primarily on I/T/U facilities for their health
care. We encourage comments regarding these two approaches, their
advantages and disadvantages, and their ramifications for AI/AN
enrollees who are eligible to enroll in Part D.
As noted earlier, federally qualified health centers (FQHCs) and
rural pharmacies face many of the same barriers to inclusion in
commercial plan networks as do I/T/U pharmacies. Beneficiaries served
by FQHCs and rural pharmacies are often served in those settings
because of their financial and geographic circumstances. Plans may have
to contract with these pharmacies in order to meet the access
requirements in Sec. 423.120(a)(1) of our proposed rule--particularly
in rural areas. However, to the extent that they are able to meet the
access requirements without doing so, we are concerned about
compromised access to network pharmacies by low-
[[Page 46658]]
income beneficiaries who rely on FQHC and rural pharmacies for their
health care. We solicit comments on permissible ways for us to assure
Part D enrollees' access to FQHC and rural pharmacies, among others.
As stated above, we have proposed three options for defining
``dispensing fees.'' Two of these options take into account some of the
costs associated with administering infused covered Part D drugs to the
beneficiary. Based on our research, most commercial health plans cover
home infusion drugs and services under their medical benefits, given
the cost-savings resulting from averted hospitalizations. However,
because prescription drug plans do not offer a medical benefit under
which to experience cost-savings, we do not believe that prescription
drug plans would have an incentive to include home infusion pharmacies
in their networks. We are considering using the authority in section
1860D-4(b)(1)(C) of the Act to require that both MA-PD plans and
prescription drug plans contract with a sufficient number of home
infusion pharmacies in their service area to provide reasonable access
for Part D enrollees. Such a requirement would be allowed under Section
1860D-4(b)(1)(C) of the Act because the rules established with respect
to convenient access to network pharmacies for Part D enrollees would
be at least as favorable to enrollees as those used under the TRICARE
Retail Pharmacy program. We seek public comment regarding the
advantages and disadvantages of such an approach, how such a
requirement could be structured, and any other issues we should
consider.
We recognize that some beneficiaries may prefer to obtain their
prescription drugs from mail-order pharmacies. While prescription drug
plans and MA-PD plans could not offer a mail-order-only option to their
beneficiaries or count mail-order pharmacies as part of their networks
for the purpose of meeting the access standard in Sec. 423.120(a)(1),
prescription drug plans and MA-PD plans would be permitted, as provided
under Sec. 423.120(a)(2), to offer a home delivery option via a mail-
order pharmacy. Any such home delivery option would be in addition to
the retail pharmacies in a plan's network.
As provided under section 1860D-21(c)(3) of the Act and codified in
Sec. 423.120(a)(3)(i) of our proposed rule, we are authorized to waive
the pharmacy access standards in Sec. 423.120(a)(1) in the case of an
MA-PD plan that provides access (other than via mail order) to
qualified prescription drug coverage through pharmacies owned and
operated by the MA organization that offers the plan. However, in order
for the pharmacy access standards to be waived, the MA-PD plan in
question would be required to have a pharmacy network that, per our
determination, provides comparable pharmacy access to its enrollees. We
would evaluate whether such a plan's network provides comparable access
to covered Part D drugs to its enrollees using the same considerations
we currently use to evaluate MA plans' other provider networks under 42
CFR 422.112 of our proposed rule.
Similarly, Sec. 423.120(a)(3)(ii) would codify section 1860D-
21(d)(2) of the Act, which provides that if a private fee-for-service
MA plan offering qualified prescription drug coverage provides coverage
for drugs, including covered Part D drugs, purchased from all
pharmacies--regardless of whether they are network pharmacies under
contract with the MA plan, and provided that beneficiaries are not
charged any cost-sharing above and beyond what they would be charged
under standard prescription drug coverage--the pharmacy access
requirements at Sec. 423.120(a)(1) would also be waived.
As provided under section 1860D-4(b)(1)(A) of the Act and
implemented in Sec. 423.120(a)(4)(i), PDP sponsors and MA
organizations offering an MA-PD plan would be required to permit the
participation in their plan networks of any pharmacy that was willing
to accept the plan's terms and conditions. However, it is unreasonable
to assume that a PDP sponsor or MA organization could establish a
network using a uniform set of terms and conditions throughout a
service area. Modification of contracting terms and conditions might be
necessary, for example, to assure access in remote rural areas or for
beneficiaries who obtain their drugs from long-term care pharmacies.
Varying terms and conditions might also be required in order for the
sponsor to provide a cost effective benefit through rebates and price
concessions. The cost estimates for Part D assume that PDP sponsors and
MA organizations offering an MA-PD plan would be able to achieve
savings from retail prices through formulary and network design. Thus,
the requirement at Sec. 423.120(a)(4)(i) of our proposed rule does not
mandate a single set of terms and conditions for participation in a
pharmacy network.
We seek comment on whether, in order to guarantee that any pharmacy
willing to meet a PDP sponsor's or MA organization's contracting terms
and conditions could participate in a plan's pharmacy network, we
should require that PDP sponsors and MA organizations offering an MA-PD
plan make available to all pharmacies a standard contract for
participation in their plans' networks. That requirement would not
preclude PDP sponsors and MA organizations from negotiating terms and
conditions different from those in the standard contract with a subset
of pharmacies. These varying terms and conditions would therefore not
have to be made available to all pharmacies. We note that, if required,
it is our expectation that these standard contracts would require
network pharmacies (except for pharmacies--long-term care, I/T/U, and
rural pharmacies, for example--for which paper claims are the norm
given technology access or coordination of benefits issues) to maintain
systems to adjudicate drug claims at the point-of-sale.
As stipulated under section 1860D-4(b)(1)(E) of the Act and Sec.
423.120(a)(4)(ii) of our proposed rule, pharmacies could not be
required to accept insurance risk as a condition of participation in a
PDP sponsor's or MA organization's pharmacy network. As defined in
Sec. 423.4, ``insurance risk'' in relation to a network pharmacy
refers to risk of the type commonly assumed only by insurers licensed
by a State. Insurance risk does not include payment variations designed
to reflect performance-based measures of activities within the control
of a pharmacy, such as formulary compliance and generic drug
substitutions, nor does it include elements potentially in the control
of the pharmacy (for example, labor costs, productivity).
Section 423.120(a)(5) of our proposed rule, based on section 1860D-
4(b)(1)(B) of the Act, clarifies that a PDP sponsor or MA organization
offering an MA-PD plan would have the option of reducing cost-sharing
for its enrolled beneficiaries below the level that would otherwise
apply for covered Part D drugs dispensed through network pharmacies. We
interpret this provision as not restricting PDP sponsors and MA
organizations offering MA-PD plans from varying cost-sharing not only
based on type of drug or formulary tier, but also on a particular
pharmacy's status within the plan's pharmacy network--in essence
authorizing distinctions between ``preferred'' and ``non-preferred''
pharmacies. We believe that the statute allows these within network
(preferred versus non-preferred pharmacy) distinctions to be made
despite the ``any willing provider''
[[Page 46659]]
provision at Sec. 423.120(a)(4)(i) of our proposed rule.
While these within network distinctions are allowed, the statute
also requires that any such tiered cost-sharing arrangements in no way
increase our payments to PDP sponsors or MA organizations. We are
therefore proposing that tiered cost-sharing arrangements based on
within-network distinctions could be included in plans' benefits
subject to the same actuarial tests that apply for tiered cost-sharing
structures based on formulary. Thus, a reduction in cost-sharing for
preferred pharmacies could be offered through higher cost-sharing for
non-preferred pharmacies or as alternative prescription drug coverage.
For further discussion of actuarial equivalence, please see section
II.F.4 of this preamble.
We recognize the possibility that plans could effectively limit
access in portions of their service areas by using the flexibility
provided in Sec. 423.120(a)(5) of our proposed rule to create a
within-network subset of preferred pharmacies. In other words, in
designing its network, a plan could establish a differential between
cost-sharing at preferred versus non-preferred pharmacies--while still
meeting the access standards in Sec. 423.120(a)(1) of our proposed
rule--that is so significant as to discourage enrollees in certain
areas (rural areas or inner cities, for example) from enrolling in that
plan. Our intent is to use the authority provided under section 1860D-
11(e)(2)(D) of the Act to review, as part of the bid negotiation
process described in Sec. 423.272 of our proposed rule, the design of
proposed prescription drug plan and MA-PD plan designs to ensure that
they are not likely to substantially discourage enrollment by certain
part D eligible individuals. Such a review would preclude the approval
of bids submitted by plans that attempt to use strategies such as that
outlined above to limit enrollment in portions of their service areas
that are more difficult or costly to serve.
We recognize that some beneficiaries may prefer to purchase their
prescription drugs at a community pharmacy rather than through a mail-
order pharmacy and that community pharmacies typically dispense only
30-day supplies of prescription drugs at a time. Section 1860D-
4(b)(1)(D) of the Act would require PDP sponsors and MA organizations
offering an MA-PD plan to allow their enrollees to receive benefits at
a network retail pharmacy instead of a network mail-order pharmacy, if
they so choose. Such benefits could include an extended supply (for
example, 45-day, 60-day, 90-day supply) of covered Part D drugs that is
typically available only through a network mail-order pharmacy.
However, because mail-order pharmacies are often able to provide lower
prices to individuals than retail pharmacies, it is possible that the
negotiated price for an extended supply (for example, a 90-day supply)
of a covered Part D drug would be more costly at a network retail
pharmacy than through the network mail-order pharmacy assigned to the
enrollee by their prescription drug plan or MA-PD plan. Thus, as
provided under Sec. 423.120(a)(6) of the proposed rule, a plan
enrollee who chooses to obtain an extended supply of a covered Part D
drug through a network retail pharmacy would be responsible for any
differential between the network retail pharmacy's and the network
mail-order pharmacy's negotiated price for that covered Part D drug.
Since any such differential costs would be associated with benefits
covered under a Part D plan, we seek comments on our proposal that this
price differential be counted as an incurred cost against the annual
out-of-pocket threshold consistent with the definition of ``incurred
cost'' in Sec. 423.100. Under this approach, plans would be required
to explicitly account for such price differentials in the actuarial
valuation of their coinsurance in their bids. In addition, any such
differential would also count toward the deductible for covered Part D
expenditures between $0 and the plan's deductible.
b. Formulary Requirements
To the extent that a PDP sponsor or MA organization uses a
formulary to provide qualified prescription drug coverage to Part D
enrollees, it would be required to meet the requirements of Sec.
423.120(b)(1) and section 1860D-4(b)(3)(A) of the Act to use a
pharmaceutical and therapeutic (P&T) committee to develop and review
that formulary. As a note of clarification, we interpret the
requirement at section 1860D-4(b)(3)(A) of the Act that a formulary be
``developed and reviewed'' by a P&T committee as requiring that a P&T
committee's decisions regarding the plan's formulary be binding on the
plan. However, we request comments on this interpretation. In addition,
it is our expectation that P&T committees will be involved in designing
formulary tiers and any clinical programs implemented to encourage the
use of preferred drugs (e.g., prior authorization, step therapy,
generics programs).
The majority of members comprising the P&T committee would be
required to be practicing physicians and/or practicing pharmacists. In
addition, at least one practicing pharmacist and one practicing
physician member would have to be experts in the care of elderly and
disabled individuals. However, we would also encourage that plans
select P&T committee members representing various clinical specialties
in order to ensure that all disease states are adequately considered in
the development of plan formularies. Section 423.120(b)(1)(ii) of the
proposed rule also provides that at least one practicing pharmacist and
one practicing physician members on a plan's P&T committee be
independent experts. We interpret the statutory language at section
1860D-4(b)(3)(A)(ii) of the Act requiring certain members of the P&T
committee to be ``independent and free of conflict with respect to the
sponsor and plan'' to mean that such P&T committee members must have no
stake, financial or otherwise, in formulary determinations. In other
words, these individuals would be required to be independent and free
of conflict with respect not only to a PDP sponsor and its prescription
drug plan or an MA organization and its MA-PD plan, but also with
respect to pharmaceutical manufacturers. In addition, we solicit public
comment with respect to the appropriateness of strengthening the
statutory requirement in section 1860D-4(b)(3)(A)(ii) of the Act by
requiring, in our final regulations, that more than just one pharmacist
and one physician on the P&T committee be independent and free of
conflict.
When developing and reviewing the formulary, the P&T committee
would be required, under Sec. 423.120(b)(1)(iii) and in accordance
with section 1860D-4(b)(3)(B) of the Act, to base clinical decisions on
the strength of scientific evidence and standards of practice,
including assessing peer-reviewed medical literature (for example,
randomized clinical trials, pharmacoeconomic studies, outcomes research
data, and such other information as the committee determined
appropriate). We note that the Public Health Service has developed
guidelines for the treatment of HIV disease and related opportunistic
infections that may also be useful to plan's P&T committees; these
guidelines can be found at http://www.aidsinfo.nih.gov/guidelines/.
Pharmacoeconomic studies may be considered in clinical decision making
by a P&T committee with respect to formulary development. It is our
expectation, however, that any cost considerations will be balanced
with
[[Page 46660]]
clinical considerations in the development and revision of a plan's
formulary. The P&T committee would also take into account whether
including a particular covered drug in the formulary (or in a
particular formulary tier) had any therapeutic advantages in terms of
safety and efficacy, per Sec. 423.120(b)(1)(iv) of our proposed rule.
Section 423.120(b)(1)(v) of our proposed rule would require that any
decisions made by the P&T committee regarding development or revision
of a plan's formulary be documented in writing.
As provided under section 1860D-4(b)(3)(C)(ii) of the Act, we will
request the U.S. Pharmacopeia (USP) to develop a model set of
guidelines that consists of a list of drug categories and classes that
may be used by PDP sponsors and MA organizations to develop formularies
for their qualified prescription drug coverage, including their
therapeutic categories and classes. We expect that the model categories
and classes developed by USP will be defined so that each includes at
least one drug that is approved by the FDA for the indication(s) in the
category or class. That is, no category or class would be created for
which there is no FDA approved drug and which would therefore have to
include a drug based on its ``off label'' indication. However, this
would not preclude physicians and other prescribers from prescribing
drugs for off label indications, though we strongly encourage
prescribers to clearly document and justify off-label use in their Part
D enrollees' clinical records. Additionally, the USP model guidelines
would not preclude PDP sponsors or MA organizations from assigning an
FDA approved drug to a category or class based on an off label use for
that drug, provided the FDA has not made a determination that the drug
is unsafe for that use. In addition to developing these initial model
guidelines, the USP will revise its classification periodically to
reflect changes in therapeutic uses of covered Part D drugs and any
additions of new covered Part D drugs. As explained below, PDP sponsors
and MA organizations will have some flexibility in developing
formularies for prescription drug plans and MA-PD plans.
We expect that the development of these guidelines will require USP
to conduct outreach to beneficiary groups and major industries affected
by the development of model guidelines. We specifically envision USP
conducting multiple consultations and a public meeting with related
health care industries and providers (including national
representatives of pharmacies); Medicare physicians and other
practitioners, including pharmacists; other provider groups, including
long-term care providers; the managed care industry; the health
insurance industry; pharmacy benefit managers (PBMs); and Medicare
beneficiary advocacy groups). These consultations would be conducted
with the goal of researching current best practices in formulary
development and existing commercial and other standards (for example
Medicaid, the Medicare Prescription Drug Discount Card), as well as
obtaining informed recommendations concerning the development of the
Part D model guidelines. The goal of the public meeting would be to
solicit comments on a draft of the model guidelines, which would be
developed on the basis of the aforementioned consultations, as well as
USP's research and recommendations. As our work with USP gets underway,
we will provide further detail on the USP classification in upcoming
operational guidance to entities wishing to become PDP sponsors or MA
organizations offering MA-PD plans. Also, we wish to make clear that
any guidelines established by the USP are applicable only to Part D
benefits. They do not require the Secretary to make any decisions or
take any actions with regard to classifying or categorizing drugs for
any purpose other than implementing the Part D benefit.
Although the USP will develop guidelines, under section 1860D-
4(b)(3) of the Act PDP sponsors and MA organizations would have the
flexibility to develop their own classification schemes. The USP
listing would simply serve as a model set of guidelines. As specified
in 1860D-11(e)(2)(D)(ii) of the Act, if the therapeutic classifications
within a plan's formulary conform to the USP classification model, we
could not determine, based on the formulary's therapeutic
classifications, that the plan violates the provision at 1860D-
11(e)(2)(d)(i) of the Act and Sec. 423.272(b)(2) that prohibits the
design of a plan and its benefits (including any formulary and tiered
formulary structure) that substantially discourages enrollment by
certain Part D eligible individuals. It is important to note, however,
that even if a plan's formulary classifications conform to the USP
classification model, its overall formulary design could still be found
to substantially discourage enrollment by certain Part D individuals
(for example, based on particular drugs selected for inclusion in the
formulary and/or proposed cost-tiering structure). If, on the other
hand, a PDP sponsor or MA organization offering an MA-PD plan designs
its formulary using therapeutic classes and categories that vary from
the USP classification model, CMS would evaluate the submitted
formulary design to ensure that the proposed therapeutic classification
system does not substantially discourage enrollment by certain Part D
eligible individuals. We invite comments regarding standards and
criteria that we could use to determine that a PDP sponsor or MA
organization's formulary classification system that is not based on the
model classification system does not in fact discriminate against
certain classes of Part D eligible beneficiaries.
Section 1860D-4(b)(3)(C) of the Act and Sec. 423.120(b)(2) require
the inclusion of ``drugs'' in each therapeutic category and class of
covered Part D drugs in a plan's formulary, although not necessarily
all drugs within such categories and classes. We interpret this
requirement to mean that a PDP sponsor or MA organization's formulary
would be required to include at least two drugs within each therapeutic
category and class of covered Part D drugs within the PDP sponsor or MA
organization's formulary (unless there is only one drug in a particular
therapeutic class or category, in which case the inclusion of only one
drug would be required). Section 423.120(b)(2) of our proposed rule
would also require that the drugs included in each therapeutic class or
category include a variety of strengths and doses to the extent this is
feasible. We believe that the inclusion of at least two drugs in each
therapeutic class or category (except for those classes or categories
that include only one drug) strikes an appropriate balance between
providing plans with the necessary leverage to negotiate with
manufacturers for significant discounts on covered Part D drugs and
ensuring sufficient drug choice for beneficiaries. We note, however,
that it is our expectation that plans' formularies will provide Part D
enrollees a comprehensive benefit--one that covers an amount and
variety of drugs sufficient to treat all disease states. In addition,
given that discounts on commonly used generic drugs are typically made
available to enrollees under current industry practice and produce
cost-savings both for plans and enrollees, we expect that prescription
drug plan and MA-PD plan formularies will include a wide range of
generic drugs.
As elaborated above, we will evaluate the formularies of plans
using a classification system different from the USP model guidelines
to ensure that the formulary does not discriminate against certain
classes of beneficiaries. We also
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intend to strictly enforce rules regarding plans' P&T committees, as
described above, as well as coverage determination, reconsideration,
and appeals processes, to ensure that Part D enrollees are able to
access the drugs they need.
Within the aforementioned parameters, it is certainly possible that
a prescription drug plan or MA-PD plan could develop a formulary that
employs a number of strategies--for example, financial incentives to
encourage use of generics, tiered cost-sharing and other mechanisms
that create strong incentives for manufacturers to negotiate favorable
prices for covered Part D drugs, prior authorization procedures,
therapeutic interchange, step therapy, and use of mail order--to
produce cost-savings both for plans and for Medicare. While we are open
to these types of strategies as a way to minimize costs for enrollees
and for the Medicare program, it is possible that certain vulnerable
populations (enrollees in long-term care facilities or those suffering
from mental illness or chronic diseases such as AIDS, for example) may
be negatively impacted financially if they do not have access to a wide
range of drugs in certain therapeutic classes and categories. We seek
comments on ways to balance plans' flexibility to use some of the
mechanisms described above to maximize covered Part D drug discounts
and lower enrollee premiums with the needs of certain special
populations of Part D enrollees.
One such population is Part D enrollees residing in long-term care
facilities. Given the changes in Medicaid drug coverage introduced by
the MMA, we believe it is particularly important to ensure that the
drug needs of institutionalized Part D enrollees--most of whom are
dually eligible for Medicare and Medicaid--are met. The
institutionalized population is generally more sensitive to and less
tolerant of many medications. Long-term care pharmacies typically
provide an open formulary to prescribing physicians that allows
immediate access to a wide variety of medications in many different
dosages and delivery forms. We request comments regarding any special
treatment (for example, offering certain classes of enrollees an
alternative or open formulary that accounts for their unique medical
needs, and/or special rules with respect to access to dosage forms that
may be needed by these populations but not by other Part D enrollees),
we should consider requiring of plans with respect to special
populations, as well as suggestions regarding the particular special
populations for whom we may want to make allowances.
Under Sec. 423.120(b)(3) of our proposed rule and in accordance
with section 1860D-4(b)(3)(C)(iii) of the Act, PDP sponsors and MA
organizations could not change therapeutic categories and classes in a
formulary other than at the beginning of a plan year, except as we
would permit to take into account new therapeutic uses and newly
approved covered Part D drugs. Section 423.120(b)(4) of our proposed
rule specifies that, in accordance with section 1860D-4(b)(3)(F) of the
Act, PDP sponsors and MA organizations offering MA-PD plans would
periodically be required to evaluate and analyze treatment protocols
and procedures related to their formularies to ensure that their plan
members were receiving the best possible care for conditions related to
their use of covered Part D drugs. We invite comments as to minimum
timeframes for periodic evaluation and analysis of protocols and
procedures related to a plan's formulary by PDP plans and MA
organizations offering MA-PD plans (for example, quarterly, annually).
In addition, section 1860D-4(b)(3)(E) of the Act requires that PDP
sponsors and MA organizations provide ``appropriate notice'' to us,
affected enrollees, authorized prescribers, pharmacists, and pharmacies
regarding any decision to either: (1) Remove a drug from its formulary,
or (2) make any change in the preferred or tiered cost-sharing status
of a drug. Section 423.120(b)(5) would implement that requirement by
defining appropriate notice as at least 30 days prior to such change
taking effect during a given contract year. We interpret the statutory
term ``affected enrollee'' as referring to a plan enrollee who is
currently taking a covered Part D drug that is either being removed
from a plan's formulary, or whose preferred or tiered cost-sharing
status is changing. In other words, plans would not be required to
notify all enrollees regarding formulary changes during a contract
year--only those directly affected by changes with respect to a
particular covered Part D drug. We note that plans would still be
required to provide at least two drugs within each therapeutic category
and class of covered Part D drugs within the PDP sponsor or MA
organization's formulary (unless there is only one drug in a particular
therapeutic class or category), even if they choose to remove a covered
Part D drug from their formularies in the middle of a contract year. In
addition, we refer the reader to section II.M.5 of this preamble, which
discusses formulary exceptions procedures and may be important for
enrollees of plans whose formularies change mid-year.
We recognize that both current and prospective enrollees of a
prescription drug plan or an MA-PD plan will need to have the most
current formulary information by the time of the annual coordinated
election period described in Sec. 423.36(b) in order to enroll in the
Part D plan that best suits their particular covered Part D drug needs.
To this end, and as provided under Sec. 423.120(b)(6) of our proposed
rule, PDP sponsors and MA organizations would be prohibited from
removing a covered Part D drug or from changing the preferred or tiered
cost-sharing status of a covered Part D drug between the beginning of
the annual coordinated election period described in Sec. 423.36(b)(2)
and 30 days subsequent to the beginning of the contract year associated
with that annual coordinated election period. We believe this
requirement will prevent situations in which prescription drug plans or
MA-PD plans change their formulary early in the contract year, without
providing appropriate notice, as described in Sec. 423.120(b)(5), to
new enrollees. Given that we are proposing that plans provide at least
30 days notice to affected enrollees prior to making formulary changes,
it seems reasonable to require, as we propose doing in Sec.
423.120(b)(6), that all marketing materials distributed during the
annual coordinated election period reflect the formulary a plan will
offer at the beginning of the contract year for which it is enrolling
Part D eligible individuals.
As discussed in sections II.C.6.c and II.C.6.d of this preamble,
PDP sponsors and MA organizations can get information regarding
formulary changes to beneficiaries via an Internet Web site, as well as
via explanations of benefits sent to enrollees who utilize their Part D
benefits. However, other methods (for example, notification by mail)
will have to be used to provide notice to CMS, all affected enrollees,
authorized prescribers, pharmacists, and pharmacies about impending
formulary changes.
Each PDP sponsor and MA organization offering qualified
prescription drug coverage would also be required to establish policies
and procedures to educate and inform health care providers and
enrollees about its formulary, according to the provisions of Sec.
423.120(b)(7) and section 1860D-4(b)(3)(D) of the Act. As required
under section 1860D-4(b)(3) of the Act, the requirements regarding the
development and application of formularies discussed in this preamble
section may
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be met by a PDP sponsor or MA organization directly, or through
contracts or other arrangements between a PDP sponsor or MA
organization and another entity or entities.
c. Use of Standardized Technology
In accordance with the requirements of section 1860D-4(b)(2)(A) of
the Act, Sec. 423.120(c) of our proposed rule would require that PDP
sponsors and MA organizations issue (and reissue, as appropriate) a
card or other technology that enrollees could use to access negotiated
prices for covered part D drugs. Section 1860D-4(b)(2)(B)(i) of the Act
mandates that we develop, adopt, or recognize standards relating to a
standardized format for a card or other technology for accessing
negotiated prices to covered Part D drugs. These standards would be
compatible with the administrative simplification requirements of Title
XI of the Act and could be based on standards developed by a standard
setting organization.
As provided under section 1860D-4(b)(2)(B)(ii) of the Act, we will
consult with the National Council for Prescription Drug Programs
(NCPDP) and other standard setting organizations, as appropriate, to
develop these standards. Given that NCPDP is recognized as the industry
standard for current prescription drug programs, and we relied on its
standards in developing requirements for discount card sponsors' cards
under the Medicare Prescription Drug Discount Card and Transitional
Assistance Program, we are proposing basing our card standards on
NCPDP's ``Pharmacy ID Card Standard.'' This standard is based on the
American National Standards Institute ANSI INCITS 284-1997 standard
titled Identification Card--Health Care Identification Cards, which may
be ordered through the Internet at http://www.ansi.org. We will provide
further operational guidance regarding our standards for a card (or
other technology) to entities wishing to become PDP sponsors or MA
organizations in time for these entities to use the standards (and have
their cards approved for use by us) beginning January 1, 2006. It is
our intent, however, that these standards require that plans use
something other than an enrollee's social security number as an
identifier on their cards.
5. Special Rules for Access to Covered Part D Drugs at Out-of-Network
Pharmacies (Sec. 423.124)
Section 1860D-4(b)(1)(C)(iii) of the Act requires us to establish
pharmacy access standards that include rules for adequate emergency
access to covered Part D drugs by Part D enrollees. We reviewed the
definition of an ``emergency medical condition'' (see Sec.
422.113(b)(1)(i) of our proposed rule) under the MA program to
determine whether the ``prudent layperson'' standard was an appropriate
standard for ascertaining whether the need for a covered Part D drug
constitutes an emergency. However, we do not believe that the
definition of an emergency medical condition, or a variation thereof,
is entirely appropriate to prescription drugs. To the extent that a
physician (or other prescriber) prescribes a covered Part D drug, we
consider that covered Part D drug to likely be medically necessary. The
issue of urgency or emergency is difficult to determine from a clinical
perspective, however.
Given the inherent difficulties in establishing emergency access
standards for covered Part D drugs, we propose to meet the requirements
of section 1860D-4(b)(1)(C)(iii) by establishing a broader out-of-
network access requirement. As provided in Sec. 423.124(a) of our
proposed rule, we would require that PDP sponsors and MA organizations
offering MA-PD plans assure that their enrollees have adequate access
to drugs dispensed at out-of-network pharmacies when they cannot
reasonably be expected to obtain covered Part D drugs at a network
pharmacy. We expect that out-of-network access would be guaranteed
under at least the following four scenarios:
In cases in which a Part D enrollee meets all of the
following: is traveling outside his or her plan's service area; runs
out of or loses his or her covered Part D drug(s) or becomes ill and
needs a covered Part D drug; and cannot access a network pharmacy;
In cases in which a Part D enrollee cannot obtain a
covered Part D drug in a timely manner within his or her service area
because, for example, there is no network pharmacy within a reasonable
driving distance that provides 24-hour-a-day/7-day-per-week service;
In cases in which a Part D enrollee resides in a long-term
care facility and the contracted long-term care pharmacy does not
participate in his or her plan's pharmacy network; and
In cases in which a Part D enrollee must fill a
prescription for a covered Part D drug, and that particular covered
Part D drug (for example, an orphan drug or other specialty
pharmaceutical typically shipped directly from manufacturers or special
vendors) is not regularly stocked at accessible network retail or mail-
order pharmacies.
We believe that enrollees under the aforementioned circumstances could
not reasonably be expected to access a network pharmacy and must
therefore be assured access to an out-of-network pharmacy as provided
under Sec. 423.124(a) of our proposed rule. We request comments on our
proposed out-of-network access requirements.
We are aware that routine access to out-of-network pharmacies by
Part D enrollees may undermine a plan's cost-savings incentives.
However, provided adequate access is assured under Sec. 423.124(a),
PDP sponsors and MA organizations offering MA-PD plans would have some
flexibility to design their out-of-network coverage policies. PDP
sponsors and MA organizations offering MA-PD plans may therefore
establish reasonable rules to assure that enrollees use out-of-network
pharmacies appropriately. For example, PDP sponsors and MA
organizations offering MA-PD plans could limit the amount of covered
Part D drugs dispensed at an out-of-network pharmacy, require the use
of mail order pharmacies as appropriate for extended out-of-area
travel, and/or require a plan notification process for individuals who
fill their prescriptions at out-of-network pharmacies.
As a point of clarification, enrollees would not be permitted to
access prescription drugs that were not considered covered Part D drugs
due to application of the prescription drug plan's or MA-PD plan's
formulary at an out-of-network pharmacy. Enrollees who require a
covered Part D drug that is not on their prescription drug plan or MA-
PD plan's formulary would be required to use the coverage determination
process described in Sec. 423.566 of our proposed rule.
Both the enrollee and his or her prescription drug plan or MA-PD
plan would be financially responsible for covered Part D drugs obtained
at an out-of-network pharmacy as described in Sec. 423.124(a) of our
proposed rule (in other words, when an enrollee cannot reasonably be
expected to access his or her covered Part D drugs at a network
pharmacy), though we note that paper claims may have to be filed and
payment reconciled after the drug purchase instead of (as would be the
case with most, if not all, network pharmacies), at the point of sale.
Section 423.124(b)(1) of our proposed rule would require that the Part
D enrollee be liable for any cost-sharing, including a deductible, that
would have otherwise applied had the covered Part D drug been obtained
at a network pharmacy. Such cost-sharing would be applied relative to
the plan allowance for that
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covered Part D drug, which we propose defining in Sec. 423.100 as the
amount prescription drug plans and MA-PD plans use to determine their
payment and Part D enrollees' cost-sharing for covered Part D drugs
purchased at out-of-network pharmacies in accordance with the
requirements of proposed Sec. 423.124(b). We request comments on how
to further define the term ``plan allowance.'' Our understanding is
that it is current industry practice to define the plan allowance as
the lowest of the contractual discount offered to pharmacies in a
plan's standard contract (as described above, we are soliciting public
comment regarding whether we should require PDP sponsors and MA
organizations to offer a standard contract to all pharmacies), maximum
allowable cost (MAC), or the pharmacy's usual and customary price
(described below).
Thus, for example, if the beneficiary would have been liable for 25
percent coinsurance at a network pharmacy, he or she would pay 25
percent of the plan allowance for that covered Part D drug. If, on the
other hand, the beneficiary would have been liable for a $10 copay at a
network pharmacy, he or she would still pay $10 at the out-of-network
pharmacy.
In addition to this cost-sharing, and as provided under proposed
Sec. 423.124(b)(2), the enrollee would be responsible for any
difference in price between the out-of-network pharmacy's usual and
customary (U&C) price and the plan allowance for that covered Part D
drug. The term ``usual and customary price'' refers to the price that a
pharmacy would charge a customer who does not have any form of
prescription drug coverage. Thus, for example, if an out-of-network
pharmacy's U&C price for a covered Part D drug were $100, the plan's
allowable cost (including beneficiary cost-sharing) for that covered
Part D drug were $90, and the negotiated price for the covered Part D
drug at the beneficiary's network pharmacy were also $90, a beneficiary
obtaining a drug at the out-of-network pharmacy would pay the cost-
sharing that would have otherwise applied at a network pharmacy (for
example, 25 percent of the $90 plan allowance), plus the $10
difference--a total of $32.50, in this case (compared to $22.50 at the
network pharmacy). We request public comments regarding our definition
of usual and customary price. We are concerned that, given our proposed
out-of-network access policy, pharmacies may increase their U&C prices
to increase their total reimbursement. This would be prejudicial not
only to beneficiaries in need of out-of-network access, but also to
uninsured individuals purchasing drugs at retail pharmacies, and we
seek feedback on permissible ways to prevent such an outcome.
When an enrollee purchases a covered Part D drug at an out-of-
network pharmacy consistent with Sec. 423.124(a) of our proposed rule,
the cost-sharing he or she pays relative to the plan allowance ($22.50
in the example above) counts as an incurred cost against his or her
annual out-of-pocket threshold because such out-of-network access to a
covered part D drug is a covered benefit under those circumstances. As
with the price differential that a beneficiary could incur by
purchasing an extended supply (for example, 90-day) of covered Part D
drugs purchased at a retail pharmacy rather than a mail-order pharmacy
(discussed in section II.C.4.a of this preamble), the price
differential between out-of-network pharmacies' U&C costs and the plan
allowance would also be counted as an incurred cost against a
beneficiary's annual out-of-pocket threshold. We seek comments on our
proposal that this price differential be counted as an incurred cost
against the out-of-pocket threshold consistent with the definition of
``incurred cost'' in Sec. 423.100 of the proposed rule. Under this
approach, plans would be required to explicitly account for such price
differentials in the actuarial valuation of their coinsurance in their
bids. In addition, any such differential would also count toward the
deductible for covered Part D expenditures between $0 and the plan's
deductible.
The plan in the example above would be responsible for payment of
the plan allowance for the covered Part D drug minus the applicable
beneficiary cost-sharing--$67.50, in this case--which is the same
amount as the plan would have paid for that covered Part D drug at the
network pharmacy. Given our proposed rules regarding financial
responsibility for out-of-network access to covered Part D drugs, plans
would in effect be financially held harmless for out-of-network use by
their enrollees under Sec. 423.124(a) of our proposed rule. We believe
this is necessary in order to curb unnecessary use of out-of-network
pharmacies and to ensure that plans can achieve cost-savings for both
beneficiaries and the Medicare program. We welcome public comments
regarding our proposed payment rules for covered Part D drugs obtained
at out-of-network pharmacies when enrollees cannot reasonably obtain
those drugs at a network pharmacy.
6. Dissemination of Plan Information (Sec. 423.128)
Section 423.128 of our proposed rule would establish beneficiary
protection requirements concerning the dissemination of Part D
information by PDP sponsors and MA organizations to enrollees in, and
individuals eligible to enroll in, a prescription drug plan or MA-PD
plan. Part D information disseminated by PDP sponsors and MA
organizations to current or prospective Part D enrollees would
constitute marketing materials, as described in Sec. 423.50(b) of the
proposed rule, and must be approved by us. For more information
regarding the approval of marketing materials, please refer to section
II.B.9 of this preamble).
As explained in greater detail below, we note that--with the
exception of the drug-specific information dissemination requirements--
many of the requirements of Sec. 423.128 of the proposed rule
duplicate information dissemination requirements contained in Sec.
422.111 of our proposed rule that are applicable to all MA plans,
including MA-PD plans. We have proposed applying the requirements of
Sec. 423.128 to MA-PD plans to ensure that Part D eligible enrollees
have access to comparable drug-specific information from both
prescription drug plans and MA-PD plans. We solicit comments on how
best to coordinate the requirements of Sec. 423.128 and Sec. 422.111
of our proposed rule for MA-PD plans.
a. Content of Plan Description
Sections 423.128(a) and (b) of our proposed rule complies with the
stipulation in section 1860D-4(a)(1) of the Act that requirements for
the dissemination of Part D information be similar to the information
dissemination requirements for MA organizations under section
1852(c)(1) of the Act and as interpreted in Sec. 422.111(b) of our
proposed rule.
In order to ensure that individuals who are either eligible for, or
enrolled in, a plan offering qualified prescription drug coverage
receive the information they need to make informed choices about their
Part D coverage options, PDP sponsors and MA organizations offering an
MA-PD plan would be required to disclose, to each enrollee in a plan
offering qualified prescription drug coverage, a detailed description
of that plan. This description would be provided in a clear, accurate,
and standardized form at the time of enrollment and annually, at a
minimum, after enrollment. The information provided would be similar to
the information MA plans must disclose to
[[Page 46664]]
their enrollees under Sec. 422.111(b) of our proposed rule. The plan
description would include information about:
The service area;
Benefits offered, including information on cost-sharing
requirements (for example, tiered or other copayment level applicable
to a drug or class of drugs, deductibles, coinsurance), cost-sharing
requirements for subsidy eligible individuals, and how a beneficiary
may obtain further information about those cost-sharing requirements;
How any formulary used by the plan works, the process for
obtaining an exception to a prescription drug plan's or MA-PD plan's
tiered cost-sharing structure, and how to obtain a copy of the
formulary as well as information about formulary changes;
Access to network pharmacies;
Out-of-network coverage provided by the plan;
Grievance, coverage determination, exceptions,
reconsideration, and appeals procedures;
A description of the plan's quality assurance program,
including the medication therapy management program required under
Sec. 423.153(d) of our proposed rule; and
Disenrollment rights and responsibilities.
b. Disclosure of Information Upon Request
In addition, according to section 1860D-4(a)(2) of the Act and as
codified in Sec. 423.128(c) of our proposed rule, a beneficiary who is
eligible to enroll in a PDP sponsor's prescription drug plan or an MA
organization's MA-PD plan would have the right to obtain, upon request,
more detailed plan information. This information would be similar to
that which MA organizations are required to disclose to their enrollees
upon request under sections 1852(c)(2)(A), (B), and (C) of the Act and
42 CFR 422.111(c) and (f) of our proposed rule, and would include:
General coverage information (for example, enrollment
procedures; grievance, coverage determination, reconsideration,
exceptions, and appeals procedural rights; the potential for the PDP
sponsor or MA organization contract termination or service area
reduction; benefits; premiums; formulary; service area; and quality and
performance indicators);
The procedures the organization would use to control
utilization of services and expenditures;
The number of disputes and their disposition in the
aggregate; and
The financial condition of the PDP sponsor or MA
organization.
c. Provision of Specific Information
As required under section 1860D-4(a)(3) of the Act and Sec.
423.128(d) of our proposed rule, PDP sponsors and MA organizations
offering an MA-PD plan would be required to have in place a mechanism
for providing, on a timely basis, specific information to current and
prospective enrollees upon request. Such mechanisms would include:
A toll-free customer call center;
An Internet Web site; and
Responses in writing upon beneficiary request.
As provided in Sec. 423.128(d)(1)(i) and (ii) of our proposed
rule, plans' customer call centers would be required to be open during
usual business hours and provide customer telephone service, including
to pharmacists, in accordance with standard business practices. We
strongly recommend, however, that plans provide some sort of 24-hour-a-
day/7 day-a-week access to their toll-free customer call centers in
order to provide timely responses to time-sensitive questions (for
example, on out-of-network pharmacy access) and request comments on
whether we should require the more stringent 24-hour-a-day/7-day-a-week
standard in our final regulations.
In addition, we are proposing requiring that plans maintain Web
sites as one means of disseminating information to current and
prospective Part D enrollees. The Internet has proved to be an
inexpensive and widely available source of information on health plans.
Almost all Federal Employees Health Benefits (FEHB) plans, most large
employer plans, and almost all managed care organizations maintain
websites for the convenience of enrollees. Such Web sites typically
contain information on drug formularies, preferred providers, plan
access and emergency procedures, claims procedures, and a wide array of
other useful information. Health plans have found that up-to-date
formulary and provider information can be conveyed to enrollees far
more quickly, reliably, and inexpensively via Internet than through
traditional paper processes. Survey evidence shows that roughly half of
the elderly routinely use the Internet. Even those who do not have
direct access usually have friends or family who can assist them in
obtaining information from the Internet. Libraries and senior support
and counseling groups are almost always able to provide Internet
Assistance. Thus, a great number of Medicare beneficiaries could
benefit from the existence of prescription drug plan and MA-PD plan Web
sites.
As provided in Sec. 423.128(d)(2)(i) of our proposed rule, PDP
sponsors and MA organizations offering MA-PD plans would be required to
include the detailed plan description information described in section
II.C.6.a of this preamble. In addition, per Sec. Sec.
423.128(d)(2)(ii) and (iii) of our proposed rule, plans would have to
post current versions of their formularies, update those formularies at
least weekly, and use the website as one mechanism to provide notice
(at least 30 days in advance, as discussed in section C.4.b of this
preamble) of upcoming formulary changes, including the removal of
covered Part D drugs from a formulary or changes to the tiered or
preferred status of covered Part D drugs. Plan websites would have to
be available both to current and prospective Part D enrollees. We note
that plans would continue to be required to make information available
to Part D eligible individuals in written formats as is currently the
case for MA plans, and the provision of plan information via the
Internet would simply be one additional mechanism for plans to
communicate with enrollees and potential enrollees.
Finally, prescription drug plans and MA-PD plans would be required
to respond to beneficiary requests for specific information in writing,
upon request. This requirement is codified in Sec. 423.128(d)(3) of
our proposed rule.
d. Claims Information
In accordance with the requirements of section 1860D-(4)(a)(4) of
the Act, and as codified in Sec. 423.128(e) of our proposed rule, PDP
sponsors would furnish to enrollees who receive covered Part D drugs an
explanation of benefits. Explanations of benefits would be required to
be written in a form easily understandable to beneficiaries.
As provided in Sec. Sec. 423.128(e)(1)-(5) of our proposed rule,
plans' explanations of benefits would have to include:
A listing of the item or service for which payment was
made, as well as the amount of such payment for each item or service;
A notice of the individual's right to request an itemized
statement;
Information regarding the cumulative, year-to-date amount
of benefits provided relative to the deductible, the initial coverage
limit, and the annual out-of-pocket threshold for that year;
A beneficiary's cumulative, year-to-date total of incurred
costs (to the extent practicable); and
Information about any applicable formulary changes.
[[Page 46665]]
We would require, under Sec. 423.128(e)(6) of our proposed rule,
that an explanation of benefits be provided at least monthly for those
utilizing their prescription drug benefits in a given month. This
proposed requirement is consistent with our policy regarding the
Medicare Summary Notice, which is provided monthly for beneficiaries
with Part A or Part B utilization. It is also consistent with the
standards followed by banking and other financial organizations, which
provide their clients with monthly statements provided there is
activity on their accounts.
A PDP sponsor or MA organization offering an MA-PD plan could
provide the notice of benefits electronically in cases in which a
beneficiary elected to receive notices in that form. If technically
feasible, a PDP sponsor or MA organization could also provide the
notice of benefits at the point of sale; this would allow the PDP
sponsor or MA organization to provide enrollees with additional
information (for example, this could facilitate the provision of
information regarding the availability of lower-cost generic
availability required under Sec. 423.132 of the proposed rule).
7. Public Disclosure of Pharmaceutical Prices for Equivalent Drugs
(Sec. 423.132)
Under Sec. 423.132(a) of our proposed rule, which codifies the
requirements of section 1860D-4(k)(1) of the Act, PDP sponsors offering
a prescription drug plan and MA organizations offering an MA-PD plan
would be required to ensure that pharmacies inform enrollees of any
differential between the price of a covered Part D drug to an enrollee
and the price of the lowest priced generic version of that drug and
available under the plan at that pharmacy. Under Sec. 423.132(b) of
our proposed rule, this information would have to be provided at the
time the plan enrollee purchases the drug, or in the case of drugs
purchased by mail order, at the time of delivery of that drug.
Disclosure of this information would not be necessary, however, if the
particular covered Part D drug purchased by an enrollee was the lowest-
priced generic version of that drug available at a particular pharmacy.
As provided under section 1860D-4(k)(2)(B) of the Act and Sec.
423.132(c) of our proposed rule, we are permitted to waive the
requirement that information on differential prices between a covered
Part D drug and generic equivalent covered Part D drugs be made
available to prescription drug plan enrollees at the point of sale (or
at the time of delivery of a drug purchased through a mail-order
pharmacy). Accordingly, we are proposing waiving the requirement in
Sec. 423.132(a) that information on lowest-priced generic drug
equivalents be provided to enrollees for covered Part D drugs purchased
by prescription drug plan and MA-PD plan enrollees when those covered
Part D drugs are purchased at:
Any pharmacy, when the individual is enrolled in an MA
private fee-for-service plan that offers qualified prescription drug
coverage and provides plan enrollees with access to covered Part D
drugs dispensed at all pharmacies, without regard to whether they are
contracted network pharmacies, and does not charge additional cost-
sharing for access to covered Part D drugs dispensed at all pharmacies;
Out-of-network pharmacies;
I/T/U network pharmacies; and
Network pharmacies located in any of the U.S. territories
(American Samoa, the Commonwealth of the Northern Mariana Islands,
Guam, Puerto Rico, and the Virgin Islands).
Section 1860D-21(d)(2) of the Act specifically requires us to waive
the public disclosure requirement for private fee-for-service MA plans
meeting the criteria described above. Section 423.132(c)(1) of our
proposed rule implements this waiver for private fee-for-service MA
plans that meet those criteria.
Our rationale for proposing waiver of the public disclosure
requirement for out-of-network pharmacies, as provided under Sec.
423.132(c)(2) of our proposed rule, is that such a requirement
necessitates a contract between a PDP sponsor or MA organization and a
pharmacy. Since, by definition, out-of-network pharmacies are not under
contract with a PDP sponsor or an MA organization, complying with the
public disclosure requirement would be impracticable.
We also propose waiving the requirement in Sec. 423.132(a) when
prescription drug plan enrollees obtain covered Part D drugs in I/T/U
pharmacies, as provided under Sec. 423.132(c)(3) of our proposed rule.
Because I/T/U pharmacies do not charge American Indians/Alaska Natives
(AI/ANs) for drugs obtained at I/T/U pharmacies, AI/ANs obtaining drugs
from these pharmacies would not benefit from the provision of
information about covered Part D drug price differentials. Furthermore,
because I/T/U pharmacies generally only stock the generic versions of
brand name drugs, AI/ANs obtaining drugs from these pharmacies would
already be receiving a generic equivalent of any brand name part D drug
prescribed to them.
We believe it is appropriate to waive the public disclosure
requirement for PDP sponsors when covered Part D drugs are provided in
network pharmacies located in the territories given that few PBMs and
health plans currently have contractual relationships with retail
pharmacies in the territories. Our goal in waiving this requirement, as
provided in Sec. 423.132(c)(4) of our proposed rule, would be to
reduce the administrative complexity of PDP sponsors and MA
organizations' contracts with participating retail pharmacies in the
territories, which we believe would enhance organizations' willingness
to offer qualified prescription drug coverage in the territories.
However, mail order drugs sent to residents of the territories would be
required to include information about the price differential between a
covered Part D drug and its lowest-priced generic version in the same
manner as such information would be provided to Part D enrollees in the
50 States and District of Columbia who obtain mail order drugs under
Part D.
Finally, as provided in Sec. 423.132(c)(5) of our proposed rule,
we propose waiving the public disclosure requirement in Sec.
423.132(a) under such circumstances as we deem to be impossible or
impracticable. We request comments on the appropriateness of the
circumstances we have proposed for waiver of the requirements in Sec.
423.132(c), as well as any additional circumstances we may wish to
consider. We note that a similar public disclosure requirement was
waived for endorsed discount card sponsors under the Medicare
Prescription Drug Discount Card (42 CFR 403 and 408) for covered
discount card drugs dispensed under several of the same circumstances
as those described above.
In Sec. 423.132(d)(1) of our proposed rule, we propose waiving the
requirement that information on differential prices between a covered
Part D drug and generic equivalent covered Part D drugs be made
available to prescription drug plan and MA-PD plan enrollees at the
point of sale when prescription drug plan enrollees obtain covered Part
D drugs in long-term care pharmacies. Long-term care pharmacies
generally provide drugs directly to the skilled nursing facilities and
nursing facilities where the patient resides, not directly to the
patient, under a medical benefit. They also engage in a significant
coordination of benefits effort that would require that at least some
claims be processed off-line, and not in real time. Given the manner in
which long-term care pharmacies provide prescription drugs to residents
of long-
[[Page 46666]]
term care facilities, as well as the way in which they process claims,
it would be impracticable for these pharmacies to provide beneficiaries
with information regarding covered Part D drug price differentials at
the point of sale. Although long-term care network pharmacies would be
exempt from the requirement that information about lower-priced generic
alternatives be provided at the point of sale, they would not be exempt
from the public disclosure requirement in Sec. 423.132(a) altogether.
We request comments regarding appropriate standards with regard to the
timing of such disclosure by long-term care pharmacies to the
institutionalized Part D enrollees they service. We note, as well, that
under Sec. 423.132(d)(2) of our proposed rule, we may modify the
timing of the public disclosure requirement under such other
circumstances as we deem compliance with that requirement to be
impossible or impracticable.
8. Privacy, Confidentiality, and Accuracy of Enrollee Records (Sec.
423.136)
To the extent that the prescription drug plan offered by a PDP
sponsor maintains medical records or other health information regarding
Part D enrollees, Sec. 423.136 of our proposed rule would require the
PDP sponsor to meet the same requirements regarding confidentiality and
accuracy of enrollee records as MA organizations offering MA plans must
currently meet under 42 CFR 422.118, according to the stipulations of
section 1860D-4(i) of the Act. PDP sponsors would therefore be required
to--
Abide by all Federal and State laws regarding
confidentiality and disclosure of medical records or other health and
enrollment information, including the Health Insurance Portability and
Accountability Act (HIPAA) of 1996 and the privacy rule promulgated
under HIPAA;
Ensure that medical information is released only in
accordance with applicable Federal or State law;
Maintain the records and information in an accurate and
timely manner; and
Ensure timely access by enrollees to records and
information pertaining to them.
Prescription drug plans would be considered covered entities under
the HIPAA Privacy Rule because they meet the definition of ``health
plan,'' as described in 45 CFR 160.103. The HHS Office for Civil Rights
(OCR) is responsible for implementing and enforcing the HIPAA Privacy
Rule. OCR has authority to investigate complaints, to conduct
compliance reviews, and to impose civil money penalties for HIPAA
Privacy Rules violations. Thus, any violations by an endorsed sponsor
with respect to its obligations under the Privacy Rule as a covered
entity are subject to such enforcement by OCR. OCR maintains a Web site
with frequently asked questions and other compliance guidance at http://hhs.gov/ocr/hipaa
.
D. Cost Control and Quality Improvement Requirements for Prescription
Drug Benefit Plans
1. Overview (Sec. 423.150)
Subpart D of part 423 implements provisions included in sections
1860D-4(c), 1860D-4(d), 1860D-4(e), 1860D-4(j), and 1860D-21(d)(3) of
the Act and sections 102(b) and 109 of Title I of the MMA. This subpart
sets forth the following requirements:
Cost and Utilization Management Programs, Quality
Assurance Programs, Medication Therapy Management Programs (MTMP), and
Programs to control fraud, abuse, and waste for PDP sponsors and MA
Organizations offering MA-PD plans that offer qualified prescription
drug coverage;
CMS consumer satisfaction surveys of PDP and MA-PD plan
enrollees.
Electronic prescription programs.
Compliance deemed on the basis of accreditation.
Accreditation organizations.
Procedures for the approval of accreditation as a basis
for deeming compliance.
2. Cost and Utilization Management, Quality Assurance, Medication
Therapy Management, and Programs To Control Fraud, Abuse, and Waste
(Sec. 423.153)
Section 423.153(a) of our proposed rule would require each PDP
sponsor or MA Organization offering a MA-PD plan that provides
qualified prescription drug coverage under a prescription drug plan to
establish a cost-effective drug utilization management program, a
quality assurance program, a MTMP, and a program to control fraud,
abuse, and waste as described in Sec. Sec. 423.153(b), 423.153(c),
423.153(d), and 423.153(e), respectively.
We have combined these requirements into one section of the
proposed regulation because each of these requirements would impact the
quality and cost of care provided to beneficiaries. Our intent is to
ensure that the prescription drug benefit would be provided using state
of the art cost management and quality assurance systems. We also
understand the overlapping nature of these requirements and that
provisions under one requirement might complement another requirement.
For example, drug utilization management early-refill edits used to
prevent stockpiling of medications could also identify potential
medication misuse by patients.
Although these requirements are similar in their underlying goals,
they can also be quite different. For example, drug utilization
management and quality assurance systems are generally considered to be
population based, while medication therapy management involves
targeted, direct patient care.
While we understand that some members of industry use various
quality assurance measures and systems for controlling utilization and
reducing medication errors, less information is available regarding
medication therapy management. Medication therapy management has been
used to describe a broad range of professional activities and
responsibilities. We are familiar with state Medicaid programs (for
example, Wisconsin, Mississippi) paying for cognitive services as part
of their prescription drug benefit, but we have less information about
current similar practices in the private sector. Therefore, our
regulatory approach for utilization management, quality assurance, and
controlling fraud, abuse, and waste will be different than our approach
for medication therapy management. We particularly ask for comments on
this section of the proposed regulation.
In general, and within the parameters described later in this
preamble and in regulation, PDP sponsors and MA Organizations offering
MA-PD plans would have flexibility to design drug utilization
management programs, quality assurance measures and systems, MTMPs, and
programs designed to control fraud, abuse, and waste.
a. Cost Effective Drug Utilization Management
Section 423.153(b) of our proposed rule would require each PDP
sponsor or MA Organization offering a MA-PD plan that provides
qualified prescription drug coverage under a prescription drug plan to
provide a cost-effective drug utilization management program. The
program would include incentives to reduce costs when medically
appropriate, such as through the use of multiple source drugs as
defined in section 1927(k)(7)(A)(i) of the Act. For example, plans
could utilize different dispensing fees that would encourage the use of
these multiple source drugs as opposed to more expensive single source
drugs. This should not be
[[Page 46667]]
confused with the practice of ``switching'' one branded drug product
with another similar branded drug product, commonly referred to as
``therapeutic substitution.'' Therapeutic substitution would always
require explicit prescriber notification and approval.
We believe that a cost-effective drug utilization management
program could also employ the use of prior authorization, step therapy,
tiered cost-sharing, and other tools to manage utilization. We are
aware that these are tools commonly used today to manage pharmacy
benefit costs for many commercial and State programs. We believe that
the competitive bidding and premium setting processes, combined with
the requirements for transparency and information availability, provide
powerful incentives for plans to innovate and adopt the best techniques
available. We invite comment on whether there are industry standards
for cost effective drug utilization management and whether CMS should
adopt any of these standards for PDPs and MA-PDs.
Although we have not included proposed regulations, we are
considering for the final rule a requirement that these tools should be
under the direction and oversight of a Pharmacy and Therapeutics
Committee to ensure an appropriate balance between clinical efficacy
and cost effectiveness. We seek comments on this issue. We also seek
comments on requiring the direct involvement of a Pharmacy and
Therapeutics Committee not only with cost containment measures, but
also with other areas of quality assurance and medication therapy
management. Again, although we have not included proposed regulations
requiring this standard, we are considering this standard for our final
rule.
In addition, appropriate drug utilization management programs would
have policies and systems in place to assist in preventing
overutilization and underutilization of prescribed medications. PDP
sponsors and MA Organizations offering MA-PD plans must inform
enrollees of program requirements and procedures in order to prevent
unintended interruption in drug therapy. For example, enrollees would
be made aware of how to proceed if special circumstances require their
prescriptions to be refilled before the targeted refill date.
b. Quality Assurance
Section 423.153(c) of our proposed rule would require each PDP
sponsor or MA Organization offering a MA-PD plan that provides
qualified prescription drug coverage under a prescription drug plan to
provide a quality assurance program. That program would include quality
assurance measures and systems for (1) reducing medication errors, (2)
reducing adverse drug interactions, and (3) improving medication use.
We are proposing that quality assurance programs include
requirements for drug utilization review, patient counseling, and
patient information record-keeping. We believe these requirements would
generally need to comply with section 4401 of the Omnibus
Reconciliation Act of 1990 as codified in 42 CFR 456.705 and section
1927(g)(2)(A) of the Act, and we are considering such specific
requirements for the final rule. Although these regulations were
written specifically for the Medicaid population, we understand that
they describe currently accepted standards for contemporary pharmacy
practice and our intent is to require plans to continue to comply with
contemporary standards. We solicit comment on whether the Medicaid
standards are in fact industry standards, whether they are appropriate
standards for part D, and if they are, how they should be adapted for
use in part D. Therefore, we have chosen not to add further
specification in the regulation text. We also understand that some
members of industry use additional quality assurance measures and
systems. We invite comments on whether there are industry standards,
above and beyond those mentioned above, that we might adopt.
Furthermore, PDP sponsors and MA Organizations offering MA-PD plans
will be required to have systems and measures established to ensure
that network pharmacy providers are complying with their quality
assurance requirements. We are requesting comments on the costs and
challenges associated with these systems and measures.
The elements that are currently viewed as desirable for quality
assurance systems are--(1) electronic prescribing (which will become a
requirement in the future as discussed later in this preamble); (2)
clinical decision support systems; (3) educational interventions, which
could be provided by QIOs or could rely on other mechanisms; (4) bar
codes; (5) adverse event reporting systems; and (6) provider and
patient education. We do not expect PDPs and MA-PD plans to adopt all
of these elements. However, we expect substantial innovation and rapid
development of improved quality assurance systems in the new
competitive and transparent market being created by the new Part D
benefit. We invite comments on which, if any, elements of a quality
assurance system should be contained in our program requirements. We
are particularly interested in best practices in quality assurance,
costs and benefits associated with each element, the challenges
involved in implementing quality assurance measures and systems, types
of data useful for reducing medication errors, associated costs and
challenges with collecting this data, and how this data could be best
communicated to providers and beneficiaries to improve medication use.
We note that the MMA does not define or explain the term
``medication error.'' Nevertheless, we believe a common definition is
important. In the future, we may require quality reporting that
includes error rates. We could use this information to evaluate plans.
In addition, we may publish this information for enrollees to use when
comparing and choosing their individual plans. Therefore, we
particularly invite comments on how we could evaluate PDPs and MA-PDs
based on the types of quality assurance measures and systems they have
in place, how error rates can be used to compare and evaluate plans,
and how this information could best be provided to beneficiaries to
assist them in making their choices among plans.
Medication error reduction programs and requirements have been
discussed in many venues and various definitions of ``medication
error'' have been used. For example, in its proposed rule requiring bar
codes on most human drug products, the Food and Drug Administration
adopted the following definition of a medication error:
Any preventable event that may cause or lead to inappropriate
medication use or patient harm while the medication is in the
control of the healthcare professional, patient, or consumer. Such
events may be related to professional practice; healthcare products,
procedures, and systems, including prescribing; order communication;
product labeling, packaging, and nomenclature; compounding;
dispensing; distribution; administration; education; monitoring; and
use. (See 68 FR 12500 (March 14, 2003)).
This definition of ``medication error'' is identical to that used
by the National Coordinating Council for Medication Error Reporting and
Prevention (NCC MERP). (See National Coordinating Council for
Medication Error Reporting and Prevention, ``What is a Medication
Error?'' (Undated)).
We are citing this definition in this preamble as one that we would
use initially in interpretive guidance. We believe that this definition
could be
[[Page 46668]]
applied to, and include, adverse drug events and interactions as they
pertain to quality assurance. As the state of industry practice
evolves, we may, from time to time, update this definition by manual
issuance. We invite comments on this definition.
c. Medication Therapy Management Programs
Section 1860D-4(c)(1)(C) of the Act requires PDP sponsors and MA
organizations offering MA-PD plans to establish a MTMP, and Sec.
423.153(d) would codify that requirement. As stated earlier, neither
we, nor many private insurers, have extensive experience requiring or
reimbursing for MTMPs. As a result, we seek comments on what
requirements and/or guidelines for MTMPs should be formulated in our
regulation. In this section of the preamble, we are providing a broad
overview of the types of activities that a PDP sponsor or MA
organization offering a MA-PD plan could provide as part of a MTMP. We
also discuss various options for determining which beneficiaries might
qualify as ``targeted individuals'' and what types of clinicians might
provide MTMP services. We plan to conduct further research and seek
comments before establishing requirements with respect to MTMPs. We are
interested in current MTMP best practices, essential components of
MTMPs, and which quality assurance requirements, if any, should be
included in MTMPs. We are also interested in measures and information
on effective MTMP services that could be publicized and used by
beneficiaries who wish to use these services. We are particularly
interested in the most effective steps to make valuable, proven MTMP
services available to beneficiaries to improve health care quality and
reduce costs. We are mindful of the importance of stimulating the
evolution of the most appropriate and efficient form of MTMPs, without
stifling innovation or prematurely locking-in specific attributes.
The description of a MTMP in section 1860D-4(c)(2) of the Act would
allow for plans to establish a broad range of additional services. The
purpose of a MTMP is to provide services that will optimize therapeutic
outcomes for targeted beneficiaries. Specific services to be provided
under a MTMP would be distinct from those required for dispensing
medication. Medication therapy management services would be
reimbursable when adopted by a plan and only when provided to targeted
beneficiaries as defined in Sec. 423.153(2) of our proposed rule and
discussed later in this preamble.
Section 1860D(4)(c)(2)(B) of the Act states that MTMPs may include
elements designed to promote (for targeted beneficiaries):
Enhanced enrollee understanding--through beneficiary
education counseling, and other means--that promotes the appropriate
use of medications and reduces the risk of potentially adverse events
associated with the use of medications.
Increased enrollee adherence to prescription medication
regimens (for example, through medication refill reminders, special
packaging, and other compliance programs and other appropriate means).
Detection of adverse drug events and patterns of overuse
and underuse of prescription drugs.
In order to promote these elements and optimize therapeutic
outcomes for targeted beneficiaries, we envision MTMPs potentially
spanning a range of services, from simple to complex. In addition to
those mentioned in the statute, services could include, but not be
limited to, performing patient health status assessments, formulating
prescription drug treatment plans, managing high cost ``specialty''
medications, evaluating and monitoring patient response to drug
therapy, providing education and training, coordinating medication
therapy with other care management services, and participating in
State-approved collaborative drug therapy management. We would also
anticipate that these services could be offered as components of more
coordinated disease management programs, but would not expect provision
of these services to be limited to such programs.
In addition to MTMPs providing for different types of services, we
would also anticipate the need for different levels of service based on
the individual requirements of targeted beneficiaries. For example, one
beneficiary may require only a fifteen-minute phone consultation, while
another would be better served by a one-hour in-person visit with the
pharmacist. The level of service should be determined by time and
resources required to accommodate the specific needs of the individual
beneficiary. Therefore, we would anticipate that a MTMP would include
policies and procedures for ensuring targeted beneficiary access to the
appropriate types and levels of service offered by the particular PDP
or MA-PD plan.
Within this broad framework, we believe that PDP sponsors and MA
Organizations offering MA-PD plans can customize their MTMPs and that a
competitive market supported by useful information on MTMP services
will provide the best mechanism for establishing optimal MTMPs. We
believe that MTMPs can lead to improved overall health for individuals,
while at the same time decreasing overall healthcare costs resulting
from improper medication use and adverse drug events. We may provide a
mechanism for plans to demonstrate the types of services, levels of
service, and quality outcomes associated with their MTMPs to further
aid beneficiaries with choosing the plan that will best meet their
needs.
In addition, as provided in Sec. 423.153(d)(3), a MTMP, as adopted
by a plan, would have to be developed in cooperation with licensed
practicing pharmacists and physicians.
Beyond these broad parameters for a MTMP, there are several issues
to consider as we provide additional guidance to PDP sponsors and MA
organizations. First, we consider MTMPs to be administrative activities
similar to quality assurance drug utilization review or measures to
control fraud, abuse and waste. Like these other quality improvement
services intrinsic to the drug plan, MTMP services would not involve
direct beneficiary cost-sharing and Part D enrollees would not be
required to pay separate fees for these services (although the cost
could be reflected in the premium rate). The cost of a MTMP is
considered an administrative cost incident to appropriate drug therapy
and, therefore, not an additional benefit. Nevertheless, unlike the
general quality assurance and fraud, abuse, and waste control
requirements, MTMP services can be limited to targeted beneficiaries.
To the extent that MTMPs reduce drug spending by more than their costs,
they have the potential to lower overall Part D costs. To the extent
that MTMP services lower overall medical costs for beneficiaries with
chronic illnesses, we also seek comment on how to integrate MTMP
services and financial incentives into the Medicare Chronic Care
Improvement program (section 721 of the Act).
Second, section 1860D4(c)(2)(A)(ii) of the Act requires that MTMP
services be provided only for targeted individuals. In other words, not
all members of a plan would be entitled to receive these services. As
provided under Sec. 423.153(d)(2), ``targeted beneficiaries'' would be
plan enrollees who have multiple chronic diseases, are taking multiple
Part D covered drugs, and are likely to incur annual costs that exceed
a certain level that we determine. We
[[Page 46669]]
invite comments on how we should provide guidance to drug plans in
defining ``multiple chronic diseases'' and ``multiple covered Part D
drugs'' for the purposes of determining which Part D enrollees would
qualify for MTMP services, or whether such determinations are best left
to the plans as part of their benefit design.
While the statute states that CMS sets the level of annual costs
that must be incurred by a beneficiary to qualify for the receipt of
MTMP services, our preferred policy is to delegate this function to the
private drug plans, as they would be able to evaluate their patients
with greater specificity and information. We request comments on this
policy as both a policy and legal matter. We believe that, given
current evidence, the level of annual costs that must be incurred by a
beneficiary to qualify for the receipt of MTMP services should be
determined by the drug plan. We do not think there is sufficient
evidence at this point to specify a threshold of annual drug costs to
be used for targeting these services to particular Part D enrollees.
However, we seek comments on what guidance we could provide to plans to
ensure these services are targeted in the most efficient manner and to
the most appropriate beneficiaries.
In addition, we are concerned about the method that plans should
use to determine the costs that enrollees are ``likely to incur'' to
ascertain whether they qualify as targeted beneficiaries. Once plans
have historical data on specific patients, determining how to target
such services should become easier and more effective. For example,
based on their previous experience with providing prescription drug
services, plans could qualify enrollees for MTMP services based on
whether the enrollees have multiple chronic diseases and whether they
are using multiple drugs. As they develop more experience with their
Medicare enrollees, past medication history might become another useful
guide.
We believe that plans would benefit from additional guidance on
interpreting the level above which a beneficiary's incurred costs would
qualify him or her for MTMP services. We invite comments on all the
disease, drug, and cost issues that we should consider in further
refining the definition of a targeted beneficiary for receipt of MTMP
services.
Another issue to be considered relates to which clinicians would be
providing MTMP services and the method for providing those services.
Section 1860D-4(c)(2)(A)(i) of the Act specifically states that a
pharmacist may furnish MTMP services. While we believe that pharmacists
will be the primary providers of these services, MTMPs could also
include other qualified health care professionals as providers of
services. The individual needs of the targeted beneficiary should
determine the appropriate provider and setting for MTMP services. For
example, consultant pharmacists will likely provide services to
beneficiaries in long-term care facilities; retail pharmacists could
provide those same services to ambulatory beneficiaries.
Furthermore, we believe beneficiary choice and on-going
beneficiary-provider relationships should play a role in determining
the best provider for MTMP services. Improved therapeutic outcomes
through MTMP services will frequently require active beneficiary, or
caregiver, participation. While population based quality assurance and
cost control measures might adequately be served by impersonal
telephone services, we believe that telephone services are only one
mode of providing medication therapy management services. Active
beneficiary participation and consistent delivery of quality MTMP
services will require developing and maintaining on-going beneficiary-
provider relationships. Therefore, to the extent that these services
are adopted by plans in their MTMPs, we would expect the range of
services offered to reflect this important component and maximize
beneficiary participation by considering beneficiary preference and
existing beneficiary-provider relationships in determining the
appropriate provider and setting for delivery of MTMP services.
Section 1860D-4 (c)(2)(E) of the Act states that in establishing
fees for pharmacists or others providing MTMP services, to the extent
that these services are adopted by a plan in its MTMP, a PDP sponsor
must take into account the resources and time associated with
implementing the MTMP. Section 423.153(d)(5) codifies that requirement.
We propose to implement this requirement as follows:
(1) First, we would expect potential PDP sponsors to describe, as
part of their applications, their plan to consider the resources used
and the time required to implement their MTMP in establishing fees for
pharmacists and others providing services under the MTMPs.
(2) Second, in the event that we receive complaints that a PDP
sponsor is not paying pharmacists or others in accordance with the fees
discussed in the application for the MTMP it has elected to adopt, we
would investigate further.
While section 1860D-4(c)(2)(E) of the Act specifies that the time
and resources necessary to implement the MTMP must be taken into
account when establishing fees, it does not specify how these fees
should be paid. We believe that fees associated with provision of
medication therapy management services are separate and distinct from
dispensing fees discussed in section Sec. 423.100 of the preamble for
this proposed regulation. Although section 1860D-4(c)(2)(E) of the Act
states that PDP sponsors must disclose to the Secretary the amount of
``any such management or dispensing fees'', it merely governs
disclosure and does not require that MTMP be included in the dispensing
fee (indeed the Act distinguishes management fees from dispensing fees
that are part of individual prescriptions).
Therefore, costs associated with MTMPs, including these management
fees, are included as part of the general administrative overhead costs
in the plan bid. For purposes of evaluating the administrative
component of a PDP's bid, we will ask a PDP sponsor or MA organization
to disclose the fees it pays to pharmacists or others, including an
explanation of those fees attributable to MTMP services. The fee
information provided to us under this authority would be protected
under the confidentiality provisions of section 1927(b)(3)(D) of the
Act. Under those provisions, we would be prohibited from disclosing the
specific fees in a manner that links the fees to the particular
pharmacy or other provider providing the MTMP services--except to the
extent necessary to administer the Part D program, to permit the
Comptroller General to review the information, or to permit the
Director of the Congressional Budget Office to review the information.
If we were to discover situations in which plans systematically did not
pay the fees described in their applications--and, if those errors were
not corrected upon notification, we might, at our discretion, employ
the broad ranges of intermediate sanctions or termination provisions
available under subparts K and O of the regulations.
While we expect to perform the due diligence described above
through application review and potentially following up on any
complaints we do not believe we have the authority to mandate that PDP
sponsors or MA organizations pay pharmacists or other providers a
certain amount for MTMP services. We also would not adjudicate any
specific disputes between PDP sponsors or MA organizations and
pharmacists or other providers
[[Page 46670]]
regarding the specific fees due for MTMP services.
Finally, as specified in section 1860D-4(c)(2)(D) of the Act, we
are required to establish guidelines that MTMPs operated by PDP
sponsors are coordinated with the ``chronic care improvement program''
(CCIP) under section 1807 of the Act. The CCIP is a new program
established by section 721 of the MMA, which added a new section,
section 1807, to the Act. The new section 1807 creates a method for us
to assist beneficiaries with multiple chronic conditions in managing
their care. The program is targeted only to beneficiaries in original
fee-for-service Medicare--not beneficiaries enrolled in MA plans.
Therefore, we anticipate that our guidelines will be targeted toward
PDP sponsors and not to MA organizations that offer MA-PD plans. As
stated above, the CCIP is a new program. By statute, the first
agreements under that program with chronic care improvement
organizations should be entered into within 12 months of the MMA's date
of enactment. On April 23, 2004, we published in the Federal Register
(69 FR 22065-22079), the solicitation for the CCIP program. Because the
program has not yet been established, however, we cannot provide a
great deal of guidance at this time regarding how the MTMPs under Part
D would coordinate with the CCIP. We are concerned with the possibility
of beneficiaries receiving duplicative services. We seek comments on
how MTMP services provided through CCIP can be effectively coordinated
with MTMP services provided by PDPs. There are several different ways
that communication could take place so that a beneficiary enrolled in
both the CCIP and a PDP receives efficient assistance with managing
their chronic diseases. For example, the CCIP might collect information
at intake, obtain a beneficiary information release, and inform the PDP
of enrollment. An alternate approach is for us to use the enrollment
files from the two programs to communicate to the respective parties.
We invite comments on this issue and these proposed options. We may
provide further interpretive guidance on coordination with the CCIP
once the section 1807 agreements are finalized and the new program is
in place. We invite comments from interested parties relating to
specific key issues that should be addressed in this guidance.
d. Fraud, Abuse and Waste
Section 423.153(e) of our proposed rule would require PDP sponsors
and MA Organizations offering MA-PD plans that provide qualified
prescription drug coverage under a prescription drug plan to provide a
program to control fraud, abuse, and waste. These requirements overlap
to some extent with those in subpart K of this regulation, but cover
somewhat different territory.
We would expect these plans, as prudent purchasers, to implement
programs to control their expenditures. We would be interested in
comments on the following discussion as to possible requirements in
this area over and above the incentives operating in at risk plans. We
would also like comments on the value added from requiring plans to
develop comprehensive performance standards for use in evaluating
internal processes that would appropriately and efficiently research,
identify, monitor, and take immediate action to mitigate fraud, abuse,
and waste. Fraud, abuse, and waste apply not only to both the PDPs and
MA-PDs and their staffs, but also to the PBMs, pharmacies, physicians,
and other providers that they deal with. For instance, PDPs and MA-PDs
need to determine whether or not physicians are illegally prescribing
narcotics. In addition to available appropriate data that might be
supplied by us, the plans could develop and utilize methods such as
data analysis, record audit of PBMs, pharmacies, physicians, and other
providers, DUR (note these DURs overlap with those described
previously, but these focus on those related to fraud, abuse, and
waste), and methods used to consider and resolve disputes related to
pharmacies, physicians', and other provider's dissatisfaction to ensure
the integrity of all entities (government, beneficiary, PDP sponsor,
PBMs, pharmacies, physicians, and other providers).
One area of concern is inappropriate switching of prescriptions by
a PDP or MA-PD plan without consulting a prescribing physician. For
instance, switching from brand to generic may be appropriate, but
switching brands, e.g. Lipitor to Zocor, may not without consultation.
We also seek comments on the appropriateness, value and need for
requiring the plans to test program integrity analytic tools for
effectiveness, efficiency, and adaptability to the Medicare Benefit
environment. For example, one approach could require the plans to
provide any of the following in periodic reports: (1) Summary of data
analysis activities, (2) resources, (3) tools, or (4) trend analysis.
Alternatively, the plans could be required to develop their strategy
and propose what each plan determines to be the best approach for
detecting and deterring fraud and abuse. Furthermore, the plans could
be asked to demonstrate that the agreed upon activities and outcomes
that the plans achieve are in relation to priorities established by us.
We seek comments on the likely value of these requirements. We also
seek comments on the implementation, scope, and operation of an
effective and robust fraud, abuse, and waste control program for plan
sponsors.
e. Exception for Private Fee for Service Plans
Section 423.153(f) of our proposed rule would implement section
1860D-421(d)(3) of the Act by exempting private fee-for-service MA
plans that offer qualified prescription drug coverage from the
requirement to establish a drug utilization management program and a
MTMP; however, these private fee-for-service MA plans would still be
required to establish a quality assurance program and program to
control fraud, abuse and waste as described in Sec. 423.153(c) and
Sec. 423.153(e), respectively.
3. Consumer Satisfaction Surveys (Sec. 423.156)
Under Sec. 423.156, we would conduct consumer satisfaction surveys
among enrollees of PDPs and MA Organizations offering MA-PD plans in
order to provide comparative information about qualified prescription
drug coverage to enrollees as part of our information dissemination
efforts. Section 1860D-4(d) of the Act specifies that these surveys be
conducted in a manner similar to that in which they are currently
conducted under Sec. 422.152(b) (that is, annually) for MA plans by
using the Consumer Assessment of Health Plans (CAHPS). We believe a
CAHPS-like instrument (or perhaps a modification of CAHPS for MA
Organizations offering MA-PD plans) will most likely be the vehicle
used to collect this information. As we have done in the past in
developing surveys of Medicare beneficiaries in various settings, we
will work with the Agency for Healthcare Research and Quality (AHRQ) to
develop a survey measuring the experience of beneficiaries with their
qualified prescription drug coverage, a sampling strategy, and an
implementation strategy. We will provide further information regarding
this survey as it is developed.
4. Electronic Prescription Program (Sec. 423.159)
Section 1860D-4(e) of the Act contains provisions for electronic
prescription programs. The statute
[[Page 46671]]
contains specific provisions on when voluntary initial standards may be
adopted (not later than September 1, 2005), and when final standards
should be published (not later than April 1, 2008) and then effective
(not later than 1 year after the date of promulgation of final
standards).
The statute requires the National Committee on Vital and Health
Statistics (NCVHS) to develop recommendations, in consultation with a
specific group of constituencies, for possible adoption by the
Secretary according to the schedule set forth above. Those
constituencies include physicians, hospitals, pharmacists and
pharmacies, PBMs, State boards of pharmacy and medicine, Federal
agencies and other electronic prescribing experts for uniform
standards. The law also requires a pilot project once the Secretary has
adopted or announced the initial standards. The pilot will run from
January 2006 through December of that year, and it will be completed
prior to the promulgation of the final standards. The law further
states that a pilot is not needed if there is already adequate industry
experience with whatever standards the Secretary is planning to adopt.
To fulfill the statute's responsibilities, the NCVHS' Subcommittee
on Standards and Security has already held two public hearings on
issues related to e-prescribing. The hearings on March 30 and 31, 2004,
and May 25, 26, and 27, 2004 included testimony from e-prescribing
networks, providers, software vendors, and industry experts on patient
safety and drug knowledge databases. National electronic prescribing
studies were also presented. In order to further refine their
recommendations to the Secretary, the NCVHS Subcommittee on Standards
and Security will continue to hold additional hearings on the state-of-
the-art of electronic prescribing including testimony from a broad
representation of stake holders in July, August and September 2004.
Readers interested the NCVHS' hearing schedule for e-prescribing
standards, testimony presented at the hearings and standards
recommendations should consult the NCVHS Web site at http:/www.ncvhs.hhs.gov/
.
Many in the industry urge us to move expeditiously to establish
electronic prescribing standards. However, the statute intentionally
provided for a deliberative process by directing the NCVHS to study,
select and recommend electronic prescribing standards. Any comments
received in response to this proposed rule will be considered along
with the NCVHS' recommendations in the development of the proposed rule
on the electronic prescribing standards. We are particularly interested
in comments that help us identify consensus or reach consensus on e-
prescribing standards ahead of the statutory time frame, and to help us
identify and evaluate industry experience based on pilot programs
engaged in e-prescribing activities in 2004 and 2005.
To ensure that our regulations are as comprehensive as possible, we
have included language at Sec. 423.159(a) that would require PDP
sponsors and MA Organizations offering MA-PD plans to have the capacity
to support e-prescribing programs in accordance with the final e-
prescribing standards established by the Secretary, including any
standards that are established before the drug benefit begins in 2006.
In addition, once final standards are set, any prescriptions that are
transmitted electronically under the Part D drug benefit for Medicare
beneficiaries will have to conform to those standards. Aside from PDP
and MA-PD plans having the capacity to support final e-prescribing
standards, there is, however, no requirement that prescriptions be
written or transmitted electronically (by for example physicians or
pharmacies). Until e-prescribing standards are effective, of course,
our regulations at Sec. 423.159(a) also will not be in effect.
Although there is no requirement that physicians write
prescriptions electronically, our regulations state that PDP sponsors
and MA Organizations offering MA-PD plans who participate in the Part D
program must be able to support the final e-prescribing program as
specified in section 1860D-4(e)(2) of the Act. The statutory language
is quite specific that e-prescribing will not just be used for a
physician to send a prescription to a pharmacy, but also will transmit
data that can only be supported by the PDP sponsor or MA organization
offering an MA-PD plan. For example, the e-prescribing program is
intended to ensure that pharmacies receive electronic information on
the drugs included on the PDP's or MA-PD's formulary, any tiering of
the formulary, the patient's medical history, the possibility of any
adverse drug-interactions (based on other prescriptions the patient is
already taking) and the availability of lower-priced, alternative
prescriptions. Since the PDP sponsor or MA organization offering an MA-
PD plan will most likely be the warehouse for all this information,
without participation of the PDP sponsors or MA Organizations offering
MA-PD plans, the e-prescribing program would not be able to provide the
results the Congress intended. In addition, if plans do not have this
program, beneficiaries participating in those plans would not benefit
from the patient safety aspects of the program. Also, under section
1860D-12(b)(3)(D) of the Act, we have the authority to add additional
contract terms to the PDP and MA-PD contracts.
While PDP sponsors and MA Organizations offering MA-PD plans will
be required to support the final e-prescribing standards issued by us,
they will not be required to support the pilot standards, which are
voluntary under section 1860D 4(e)(4)(C) of the Act. Therefore, only
those entities that participate in a pilot testing of certain e-
prescribing standards will be required to implement an e-prescribing
program using the initial standards adopted by the Secretary. Others in
the health care industry will not be required to use the initial
standards at the time they are issued, but will be encouraged to do so.
Finally, we note that the pilot test specified in the MMA is not
required if there is adequate industry experience with the standards.
In that case, the Secretary may propose them as final standards in a
proposed rule, thereby expediting a portion of the standards adoptions
process. Therefore, to the extent we determine, after consultation with
affected standard setting organizations and industry users, that there
already is adequate industry experience with certain standards, we may
propose to finalize those standards through notice and comment
rulemaking even if we have not completed the pilot testing of other
standards so that a portion of the standards adoptions process could be
expedited. We seek comments on the desirability of this strategy,
including any concerns about potential unintended consequences.
In order to facilitate electronic prescribing by a PDP or MA-PD
sponsor, we invite public comment on additional steps to spur adoption
of electronic prescribing, overcome implementation challenges, and
improve Medicare operations. For example, we have added regulations at
Sec. 423.159(b) of this proposed rule that would allow an MA-PD plan
to provide a separate or differential payment to a participating
physician who prescribes covered Part D drugs in accordance with
electronic prescription standards. (Note that this provision only
applies to MA-PD plans and not to PDPs.) Section 102(b) of the MMA
makes it clear that this differential payment may occur when a
participating physician prescribes drugs in accordance with an
[[Page 46672]]
electronic prescription drug program that meets standards established
under section 1860D-4(e) of the Act. These differential payments are to
reward physicians for using electronic prescriptions rather than
handwritten ones. These payments would not be used to encourage
physicians to prescribe more frequently or inappropriately steer their
use of particular drugs. Since the standards established under section
1860D-4(e) of the Act include the initial, voluntary standards, which
may be tested on a pilot basis as early as January 1, 2006, we believe
the differential payments envisioned by section 102 of the MMA may
occur as early as January 1, 2006 (for physicians who prescribe in
accordance with the standards adopted by the Secretary in September
2005). We believe the fact that section 102 of MMA has an effective
date of January 1, 2006, supports this determination. Differential
payments, at the MA organization's discretion, could take into
consideration the cost to the physician in implementing the program and
could be increased for participating physicians who use e-prescribing
to significantly increase--
(1) Formulary compliance where medically appropriate;
(2) Use of lower cost, therapeutically equivalent alternatives;
(3) Reductions in adverse drug interactions as evidenced by
appropriate use of drug interaction checking functions in electronic
prescribing; and
(4) Efficiencies in filling and refilling prescriptions through
reduced administrative costs.
The additional or increased payments made to the physicians could
be structured in the same manner as fees for services under Sec.
423.153(d) of this proposed rule. We have not provided a great deal of
specificity in our regulations regarding how the differential payments
may be structured because we believe the MA Organizations offering MA-
PD plans should have discretion in structuring these added payments, if
any.
We note that any payments must be in compliance with other Federal
and State laws, including ``the physician self-referral prohibition at
section 1877 of the Act'' and the Federal anti-kickback provisions at
section 1128B(b) of the Act. We are soliciting the public's view of the
application of these legal authorities to the differential payments
described in this section. We will share any comments regarding the
anti-kickback statute with the Office of Inspector General.
We also seek comment on measures of MA-PD plan quality related to
the use of e-prescribing, and other MA-PD quality measures that reflect
effective e-prescribing systems. The use of electronic prescribing
shows promise for improving Medicare operations by reducing costs in
the administration of the Part D drug benefit and in the use of
prescription drugs, for example promoting generic drug use and creating
timely interface with formularies supported by up-to-date evidence.
Likewise, it has the potential to improve the quality of the care
provided to Medicare beneficiaries through the therapeutic monitoring
of allergies and adverse events. Yet, implementing electronic
prescribing effectively poses a number of challenges. While electronic
prescribing is gradually gaining acceptance by health care providers,
fewer than 10 percent of U.S. doctors currently engage in the practice.
The adoption rate is particularly low among solo practitioners, those
in rural areas, and certain medical specialties. The electronic
prescribing process and the technology that enables it must be cost
effective, the systems must be fast and easy to use, and alerts and
other data passed backed to the prescriber must demonstrate value. We
invite comments on these challenges and on possible Federal activities
that would promote the effective use of e-prescribing by providers,
including publishing best practices, and making technical information
on e-prescribing products available. In addition receptivity to the use
of electronic prescribing by consumers is not well understood
especially among the elderly and disadvantaged populations. We seek
additional information on how those populations may view electronic
prescribing and what step may be taken to get them to use this modality
and, thus, take advantage of the safety and quality benefits it offers.
We also invite comments on how to promote the use of electronic
prescribing by providers, health plans and pharmacies and other
entities involved in the provision and payment of health care to
Medicare beneficiaries. Beyond the grants authorized in Sec.
423.159(b) of this proposed rule, we invite comments on what incentives
could be used to spur more widespread adoption, especially for early
implementers. We also invite your comments on what educational efforts
or data analyses might be undertaken to help health practitioners
understand, or empirically confirm, and ultimately realize, the
benefits of electronic prescribing. Lastly, we seek public input on the
ways electronic prescribing can further reduce costs to the Medicare
program and promote quality of care to beneficiaries.
5. Quality Improvement Organizations (QIO) Activities (Sec. 423.162)
Section 109 of the MMA expands the work of QIOs to include Part C
and Part D. This provision explicitly covers the full range of Part C
organizations. QIOs are required to offer providers, practitioners, MA
organizations, and PDP sponsors quality improvement assistance
pertaining to health care services, including those related to
prescription drug therapy. We plan to issue guidance on how QIOs can
provide this assistance and would coordinate the activities of the QIOs
with the quality related activities of other stakeholders.
To fulfill this responsibility, QIOs would need access to data from
the transactions between pharmacies and PDPs and MA-PD plans providing
the Part D benefit. This data would be extracted from the claims data
submitted to us. Although the agency is still developing plans for the
QIO activities related to the Part D benefit, we expect that this data
primarily from the NCPDP telecommunications format between pharmacies
and plans will be used. The data would include payment-related
information (that is, plan identification, beneficiary HIC, date
prescription filled, NDC, quantity dispensed, ingredient cost,
dispensing fee, and pharmacy zipcode) and additional items such as
prescriber identifiers, pharmacy identifiers, dose, days supply, and
other dispensing information. Potentially, the information gathered
will be aggregated in our data warehouse, and then distributed to QIOs
to fulfill their requirements for quality improvement as specified in
their contracts and in response to requests.
We have been consulting, on an individual, organization by
organization basis, with representatives from pharmacy benefit
managers, managed care organizations, programs that have monitored drug
utilization, and others who have utilized pharmacy claims data. We
welcome comments related to the collection and use of information for
providing quality improvement assistance related to Part D.
We are proposing that any information collected by the QIOs would
be subject to confidentiality requirements in Part 480 of our
regulations. For purposes of applying these confidentiality
regulations, we are also proposing that MA organizations offering MA-PD
plans and PDP sponsors fall within the definition of health care
facilities. This means that
[[Page 46673]]
the confidentiality provisions in Part 480 of our regulations would
apply to PDP sponsors and MA-PD plans in the same manner as they apply
to institutions.
6. Treatment of Accreditation (Sec. 423.165, Sec. 423.168, and Sec.
423.171)
Section 1860D-4(j) of the Act requires that the provisions of
section 1852(e)(4) of the Act relating to the treatment of
accreditation will apply to PDP sponsors with respect to--(1) access to
covered Part D drugs including the pharmacy access requirements and the
use of standardized technology and formulary requirements; (2) quality
assurance, drug utilization review, medication therapy management, and
a program to control fraud, abuse and waste; and (3) confidentiality
and accuracy of enrollee records. Thus, the requirements in Sec.
423.165, Sec. 423.168, and Sec. 423.171 are similar to the
requirements found in Sec. 422.156, Sec. 422.157, and Sec. 422.158
for the MA program, except for subject areas that are deemed.
A PDP sponsor may be deemed to meet the requirements that relate to
access to covered Part D drugs; quality assurance, drug utilization
review, medication therapy management, and a program to control fraud,
abuse, and waste; and confidentiality and accuracy of enrollee records,
if it is accredited and periodically reaccredited by a private national
accrediting organization under a process that we have determined meets
a process and standards that are no less stringent than our applicable
requirements. National accreditation organizations are those entities
that offer accreditation services that are available in every State to
every organization wishing to obtain accreditation status. The process
that we would use to deem compliance with PDP requirements would mirror
the process used for deeming compliance with fee-for-service
requirements and the MA program.
Section 423.165 would provide the conditions under which a PDP
sponsor may be deemed to meet our requirements permitted under
paragraph (b) of this section. The first condition would be that the
PDP plan be fully accredited (and periodically reaccredited) by a
private, national accreditation organization that we approve. The
second condition would be that the PDP organization be accredited using
the standards that we approved for the purposes of assessing the PDP
sponsors' compliance with Medicare requirements.
Consistent with our approach in the MA program, we would analyze on
a standard-by-standard basis whether an accreditation organization
applies and enforces requirements no less stringent than those in part
422 with respect to the standard at issue. We would determine the scope
of the accreditation organization's approval (and, thus, the extent to
which PDP organizations accredited by the organization are deemed to
meet our requirements) based on a comparison of the accreditation
organization's standards and its procedures for assessing compliance
with our deemable requirements and our own decision-making standards.
We would make those determinations on the basis of the application
materials submitted by accreditation organizations seeking our approval
in accordance with Sec. 423.168. We would also conduct surveys to
validate the accreditation organization's enforcement on a standard-by-
standard basis.
Section 423.165(d) would establish the obligations of deemed PDP
sponsors. A PDP sponsor would have to submit to our surveys that are
intended to validate an accreditation organization's process and
authorize the accrediting organization to release to us a copy of its
most current accreditation survey, together with any information
related to the survey that we may require (including corrective action
plans and summaries of our unmet requirements). These activities are
part of our ongoing oversight strategy for ensuring that the
accreditation organization applies and enforces its accreditation
standards in a manner comparable to ours.
Section 423.165(e) would address removal of deemed status. We would
remove part or all of a PDP sponsor's deemed status if--
(1) We determine, on the basis of our own survey or the results of
the accreditation survey, that the PDP organization does not meet the
Medicare requirements for which deemed status was granted.
(2) We withdraw our approval of the accreditation organization that
accredited the PDP organization; or
(3) The PDP fails to meet the requirements of Sec. 423.165(d).
Section 423.165(f), would explain that we retain the authority to
initiate enforcement action against any PDP sponsor that we determine,
on the basis of our own survey or the results of the accreditation
survey, no longer meets the Medicare requirements for which deemed
status was granted. We expect the accreditation organization to have a
system in place for enforcing compliance with our standards (such as
sanctions for motivating correction of deficiencies), but we cannot
delegate to the accreditation organization the authority to impose the
intermediate sanctions established by section 1860D-12 of the Act or
termination of the PDP contract.
Deeming applies only to our enforcement of this regulation, and
neither our enforcement of this regulation nor accreditation by an
accrediting body undercuts the Office for Civil Rights enforcement of
the HIPAA privacy rule.
Section 423.168 would discuss the 3 conditions for our approval of
an accreditation organization. We could approve an accreditation
organization if the organization applies and enforces standards for PDP
sponsors that are at least as stringent as Medicare requirements and,
if the organization complies with the application and reapplication
procedures proposed in Sec. 423.171.
Section 423.168(c) of our proposed rule would establish ongoing
accreditation organization responsibilities. These responsibilities
largely parallel those currently imposed upon accreditors under
original Medicare. One exception is the proposed requirement that an
accreditation organization notify us in writing within 3 days of
identifying, with respect to an accredited PDP sponsor, a deficiency
that poses immediate jeopardy to the PDP sponsor's enrollees or to the
general public.
Section 423.168(d) of our proposed rule would establish specific
criteria and procedures for continuing oversight and for withdrawing
approval of an accreditation organization. Oversight consists of
equivalency review, validation review, and onsite observation.
We could withdraw our approval of an accreditation organization at
any time if we determine that deeming based on accreditation no longer
guarantees that the PDP organization meets the Medicare requirements,
that failure to meet those requirements could jeopardize the health or
safety of Medicare enrollees or constitute a significant hazard to the
public health, or that the accreditation organization has failed to
meet its obligations under Sec. 423.165 through Sec. 423.171.
Section 423.171 of our proposed rule would address the procedures
for approval of accreditation as a basis for deeming compliance. As
mentioned, the process that we would use to deem compliance with PDP
requirements is virtually identical to the process that is being used
for deeming compliance with fee-for-service requirements. One proposed
requirement that would
[[Page 46674]]
appear in Sec. 423.171, and which also appears in regulations
governing MA plans at Sec. 422.158(a)(11), but does not appear in
regulations governing original Medicare, is the requirement that an
accreditation organization applying for approval of deeming authority
submit the name and address of each person with an ownership or control
interest in the accreditation organization. This information would be
used to determine whether the accreditation organization is controlled
by the organizations it accredits for the purposes of Sec. 423.168.
Section 423.171 would further provide for reconsideration of adverse
determinations of accreditation applications.
F. Submission of Bids and Monthly Beneficiary Premiums: Determining
Actuarial Valuation
1. Overview
Subpart F would implement most of the provisions in sections 1860D-
11 and 1860D-13 of the Act, as well as sections 1860D-12(b)(2) (on
limitation on entities offering fallback plans), 1860D-15(c)(2) (on
geographic adjustment of the national average monthly bid amount),
1860D-21(d) (on special rules for private fee-for-service (PFFS)
plans), 1860D-21(e)(3) (on cost contractors), and 1860D-21(f)(3) (on
PACE) of the Act. In this section we address submission, review,
negotiation, and approval of bids for prescription drug plans and MA-PD
plans; the calculation of the national average bid amount; and
determination and collection of enrollee premiums. References to 42 CFR
part 422 of our regulations are to the new MA rules.
As discussed in subpart C, the statute provides a framework for the
provision of subsidized prescription drug coverage. Within this
framework, PDP sponsors and MA organizations have some flexibility to
design coverage that is different from defined standard coverage to
meet the needs of Part D-eligible Medicare beneficiaries. This
framework plays a critical role in bid submissions, and the actuarial
evaluation and approval of bids.
As part of our discussion we specify the actuarial equivalency
tests plan sponsors would have to meet when offering coverage other
than defined standard coverage. Please note that the coverage
definitions are discussed in detail in subpart C of the preamble. In
order to determine actuarial equivalency, plan sponsors would compare
their plans to the defined standard coverage baseline to assess the
various tests of actuarial equivalency that we discuss in detail in the
sections below.
2. Requirements for Submission of Bids and Related Information
As provided under section 1860D-11(b) of the Act, each applicant to
become a PDP sponsor or MA organization would be required to submit a
bid for prescription drug coverage for each plan it intends to offer.
Most bids would be expected to represent full risk plans, meaning that
the prescription drug plan is not a limited risk plan or a fallback
prescription drug plan, and is not asking for any modification of the
statutory risk sharing arrangements. A bid from a full risk plan may be
referred to as a full risk bid. PDP sponsors may choose to participate
as limited risk plans, meaning that they provide basic prescription
drug coverage and request a modification of risk level (as described in
Sec. 423.265(d)) in its bid submitted for the plan. A bid with a
modified level of risk is referred to as a limited risk bid. This term
does not include a fallback prescription drug plan. A risk bid (whether
full risk or limited risk) could not be accepted from any entity
applying to become a PDP sponsor or MA organization offering an MA-PD
plan that--(1) also submits a bid for the same year to act as a
fallback plan; (2) will be offering a fallback plan in any region for
the upcoming year; or (3) currently offers a fallback plan in the
region for which they are submitting the bid. In determining whether an
entity is barred from submitting a risk bid according to these rules,
we would use, as our reference point, the calendar year that they are
submitting their bids. For example, the limitation would work as
follows:
An applicant submitting a risk bid for sponsoring a PDP in 2009
would be excluded from the risk bidding if it--
(1) Also submits a bid to act as a fallback plan in 2009 (where
2009 is the first year of a multi-year fallback contract);
(2) Already is approved to act as a fallback in any PDP region for
2009; or
(3) Offers a fallback in 2008 for the same region for which they
would be submitting their 2009 risk bid.
This fallback prohibition also applies if an applicant (or related
entity) acted as, or will act as a subcontractor to an entity offering
a fallback plan. In other words, an entity would be treated as having
submitted a bid under the fallback contracting process, and thus not be
an eligible risk bidder, if that entity was acting as a subcontractor
for an integral part of the drug benefit management activities of an
eligible fallback entity. Thus, for example, if an applicant was a
subcontractor to a fallback in 2008, it cannot submit a risk bid for
the same region for 2009. Similarly, an applicant for a 2009 risk bid
cannot include as its subcontractor an entity already approved or
applying to act as a fallback plan for 2009. Because awards for 2006
will not be known at the time the initial bids are due in 2005 (for
contracts in 2006), any entity that bids as a fallback plan (or a
subcontractor to a fallback plan) is barred from bidding as a non-
fallback plan in any and all regions for that year.
Bids would be due to us no later than the first Monday in June for
each plan to be offered in the subsequent calendar year. This date
stems from the requirement in section 1860D-11(b) of the Act that bid
data from potential PDP sponsors be submitted at the same time and in a
similar manner as the information described in section 1854(a)(6) of
the Act for MA plans. Since section 1854(a)(1) of the Act requires
initial data to be submitted on the first Monday of June of each year
after 2004, we have also incorporated this date into our regulations.
In the case of MA-PD plans, the prescription drug bid would be a
component of the unified MA bid described in Sec. 422.254(b)(1) with
benefits beyond basic coverage (if any) incorporated into the
supplemental benefits portion of the prescription drug benefit bid.
We are clarifying that this bid would represent the expected
monthly average cost (including reasonable administrative costs) to be
incurred by the plan applicant for qualified prescription drug coverage
in the applicable area for a Part D eligible individual with a national
average risk profile for the factors described in section 1860D-
15(c)(1)(A) of the Act and in Sec. 423.329(b)(1) of this proposed
rule. We plan to develop and publish the risk adjustment factors and
identify the characteristics of an average individual no later than the
date of the 45-day notice for the announcement of 2006 rates, which is
February 18, 2005. Any modifications to these characteristics for
subsequent years would be announced by the date of the annual 45-day
notice. (For further discussion of prescription drug risk adjustment,
see Subpart G of this preamble.) We are interested in providing
information to potential bidders to help eliminate the uncertainty of
drug trend for Medicare beneficiaries and in delaying the submission of
pricing information as long as we can under the law and consistent with
our need to inform beneficiaries. We solicit comment on
[[Page 46675]]
the nature of any additional information needed to prepare bids and
suggestions for any other methods that the bid submission process could
be structured to provide for later pricing data submission.
The costs represented in each plan bid should be those for which
the plan would actually be responsible. Given the structure of
qualified prescription drug coverage, these costs would not include
payments made by the enrollee for deductible, coinsurance (including
100 percent coinsurance between the initial coverage limit and the out-
of-pocket threshold), copayments, or payments for the difference
between a plan's allowance and an out-of-network pharmacy's usual and
customary charge (as discussed in Sec. 423.124(b)). It also does not
include costs reimbursed by us through the reinsurance subsidy.
However, we require the separate identification, calculation, and
reporting of costs assumed to be reimbursed by us through reinsurance.
For standard coverage, defined or actuarial equivalent, these costs
would include the plan's share of costs above the deductible and up to
the initial coverage limit, as well as the plan's share of costs above
the annual out-of-pocket limit. If enhanced alternative coverage is
provided, the plan costs for supplemental benefits would be
distinguished from those for basic coverage. The costs attributable
only to basic coverage, once approved, are known as the standardized
bid amount.
In Sec. 423.265(c) we would require that, with the exception of
potential employer group waivers under section 1860D-22(b) and 1857(i)
of the Act, late enrollment penalties and low-income premium and cost
sharing subsidies, the bid represents a uniform benefit package based
upon a uniform level of premium and cost sharing among all
beneficiaries enrolled in the plan. This means that all enrollees in a
given PDP or MA-PD plan would be subject to the same cost sharing
structure and would be charged the same premium for benefits the PDP
sponsor or MA organization chose to offer.
We note that while benefits are required to be uniform for all
enrollees under the drug benefit, this is not the case for enrollees
under a prescription drug discount card program. To avoid any confusion
between these related programs, we would like to make this distinction
clear. Because of the limited low-income assistance under the card
program, card sponsors have been permitted to negotiate lower prices
for low-income members. Also, in some cases there may be reduced cost
sharing sponsored by manufacturers for low-income members after the
$600 in transitional assistance is used that does not apply to other
card members. Under the Part D prescription drug program, however, both
the negotiated prices and the benefit structure would be the same for
all enrollees in a given PDP or MA-PD plan. While the low-income
subsidies will result in low-income beneficiaries' actual out-of-pocket
costs being lower than for beneficiaries who do not qualify for this
assistance, the benefit structure to which the subsidies apply is the
same for all enrollees in a plan.
3. General CMS Guidelines for Actuarial Valuation of Prescription Drug
Coverage
As directed by section 1860D-11(c) of the Act, we would develop
processes and methods using generally accepted actuarial principles and
methodologies for determining the actuarial valuation of prescription
drug coverage. Although we plan to provide additional information in
the future in the form of interpretive guidance on these processes, we
are currently considering the following processes and methods for
calculating ``actuarial valuation'' and ``actuarial equivalence'' in
the context of risk bids:
Sponsors offering standard coverage with cost-sharing
variants either to the 25 percent coinsurance (before the initial
coverage limit) or the greater of 5 percent coinsurance or $2 generic/
preferred/$5 any other drug (after the out-of-pocket threshold is met)
would be required to demonstrate the actuarial equivalence of their
variations.
Sponsors offering basic or enhanced alternative
prescription drug coverage would be required to demonstrate that--
+ The actuarial value of total or gross plan coverage is at least
equal to the actuarial value of total or gross coverage of the defined
standard benefit.
+ The actuarial value of total coverage of their alternative is at
least equal to the actuarial value of defined standard coverage;
+ The actuarial value of unsubsidized coverage of their alternative
is at least equal to the actuarial value of the unsubsidized portion of
defined standard coverage; and
+ The plan payout at the dollar value of the initial coverage limit
under standard coverage, for individuals whose total spending exceeds
that limit, is at least equal to that provided under defined standard
coverage.
All sponsors would determine the actuarial value of the
defined standard benefit, either because it is--
+ Offered to the beneficiaries;
+ Used as a comparison for either of the following:
Standard coverage with actuarially equivalent cost-sharing
variants.
Alternative coverage; or
+ Used to determine the basic component in enhanced alternative
coverage.
Sponsors that offer enhanced alternative coverage would
also be required to determine the actuarial value of coverage beyond
basic coverage.
We anticipate that we would specify data sources,
methodologies, assumptions, and other techniques in accordance with
generally accepted actuarial principles as either recommended or
required in further guidance. We would also specify the data elements
(including format) to be sent to us for evaluation. We would then
evaluate the analysis and assumptions for compliance and
reasonableness. For example, we would evaluate the source, size, and
timeframe of data on which assumptions are based, the demographic
characteristics of enrollees, the distribution of risk levels, the
average costs in each cost-sharing tier, and the update factors used,
among other considerations.
We would also have reported and separately identified
administrative costs. Since the level of the bid will directly affect
the premium paid by the beneficiary and the attractiveness of the plan,
we expect that plans will have a strong incentive to keep
administrative costs and return on investment at reasonable levels. Any
review of administrative costs would likely focus primarily on outliers
from the competitive range identified in the bids received. All
proposals would contain a description of how certain costs (those
related to appeals that result in payment for non-formulary drugs) are
included in the calculations. Processes and methods for determining
actuarial valuation would take into account the effect that providing
actuarially equivalent standard coverage or alternative prescription
drug coverage (rather than defined standard coverage) has on drug
utilization. This includes utilization effects attributable to
different benefit structures, such as from tiered cost sharing, as well
as those attributable to supplemental benefits. The utilization effect
of supplemental benefits on basic benefits would have to be loaded into
the supplemental portion of the bid. In other words, since the
existence of supplemental coverage would increase total average per
capita spending, that increase over the average spending (if coverage
were limited to basic coverage) would be included in the portion of the
[[Page 46676]]
bid attributable to supplemental coverage. Section 1860D-11(c)(1)(D) of
the Act specifies ``the use of generally accepted actuarial principles
and methodologies.'' We are interpreting this to require that a
qualified actuary certify the plan's actuarial valuation (which may be
prepared by others under his or her direction or review). Actuarial
certification would give better assurance that the actuarial values in
the bid were prepared in conformance with actuarial standards and
methodologies.
Section 1860D-11(c)(3)(B) of the Act specifies that PDP
sponsors or MA organizations offering MA-PD plans may use qualified
independent actuaries in certifying the actuarial values in their bids.
(The actuarial valuation may be prepared by others under the direction
or review of a qualified actuary). We interpret this provision as
encouraging PDP sponsors and MA organizations that do not employ
qualified actuaries, to use outside actuaries in their processes. We
propose to specify that a qualified actuary is an individual who is a
member of the American Academy of Actuaries because members of the
Academy must meet not only educational and experience requirements, but
also a code of professional conduct and standards of practice. These
standards create a common ground for actuarial analysis. Furthermore, a
member of the Academy is subject to its disciplinary action for
violations of the code and standards. This same requirement is
specified in the SCHIP legislation at section 2103(c)(4)(A) of the Act.
Moreover, the National Association of Insurance Commissioners (NAIC)
imposes significantly stricter requirements on actuaries preparing the
financial statements of insurance companies.
4. Determining Actuarial Equivalency for Variants of Standard Coverage
and for Alternative Coverage
When considering the specific requirements for actuarial
equivalence and valuation in the Act, we are aware that there is no
official definition of actuarial equivalence. Moreover, the concept of
actuarial equivalence is applied in multiple contexts. We must address
actuarial equivalence requirements regarding cost sharing, expected
benefits, and bid submissions. We plan to address the application of
actuarial equivalence within these separate contexts in this discussion
and in separate detailed guidance to the industry. Thus, we plan to use
interpretive guidance to further explain the process and methodology
for determining actuarial equivalence and valuation. The processes and
methods for determining actuarial equivalence and valuation would be in
keeping with generally accepted actuarial principles. We would require
prospective PDP sponsors and MA organizations wishing to offer MA-PD
plans to include all of the requirements discussed in the following
sections in the information submitted with the bid, when applicable.
The MMA contains some specific requirements for actuarial equivalence
or valuation. These actuarial equivalence tests are discussed below.
a. Actuarial Equivalence as Applied to Actuarially Equivalent Standard
Coverage--Cost-Sharing
As required in section 1860D-2(b)(2)(A) of the Act, standard
prescription drug coverage must have ``coinsurance for costs above the
annual deductible * * * and up to the initial coverage limit that is
equal to 25 percent; or is actuarially equivalent * * * to an average
expected payment of 25 percent of such costs.'' We interpret this to
mean that sponsors would be required to demonstrate that the actuarial
value of their alternative cost-sharing as a percent of the actuarial
value of both cost-sharing and plan payments for claims up to the
initial coverage limit is the same percentage as for 25 percent
coinsurance under defined standard coverage. In calculating these
percentages, sponsors would reflect the utilization impacts of the two
structures, but hold constant formulary (drug list), drug pricing
(except to the extent that the plan incorporated differential pricing
and cost sharing based on participation status within the plan's
network), and the group whose utilization is modeled. This would allow
plans to have variable co-payments or coinsurance, including tiered
structures for preferred and non-preferred drugs, in the initial
coverage interval as long as the actuarial equivalence test is met. As
a simple example, a plan could have a tiered coinsurance benefit with
coinsurance higher than 25 percent for brand name drugs and lower than
25 percent for generics. Some beneficiaries with expenses between the
deductible and the initial coverage limit would be expected to pay more
than 25 percent, and others to pay less, depending on their usage of
brand versus generic drugs. Overall, however, the total coinsurance
would have to be actuarially equivalent to an average of 25 percent for
all beneficiaries with expenses in this interval, even if the total
expenditures beneath the initial coverage limit ($2,250 in 2006) are
lower than would be expected under defined standard coverage (due to
increased use of generics, for example).
If sponsors wanted to provide a variant on defined standard cost
sharing after the out-of-pocket threshold is met, an actuarial test
similar to that described above for variants on the 25 percent
coinsurance would apply. In this case, based on the group of
individuals projected to exceed the out-of-pocket threshold, the
sponsor would compute total cost sharing once the true out-of-pocket
(TROOP) threshold has been met as a percentage of the sum of that cost
sharing plus the comparable plan payout. This percentage would have to
equal the percentage computed in the same manner using the defined
standard benefit (that is, the greater of $2/$5 or 5 percent). We note
that any variant in cost sharing could not lead to discrimination
against certain beneficiaries, for example, by increasing the cost
sharing of a drug used for a particular illness well above the cost
sharing for other drugs.
b. Tests for Alternative Coverage
As required by section 1860D-2(c) of the Act, sponsors offering
alternative coverage, that is, benefit structures different from
standard coverage, must satisfy five tests (three of the five are
actuarial equivalency tests). As discussed in Subpart C, alternative
coverage would include coverage actuarially equivalent to defined
standard coverage (basic alternative coverage) or coverage that would
include supplemental coverage (enhanced alternative coverage). All
alternative coverage would have to meet all five of the coverage
standards or tests discussed in section b.1-5 of this preamble. Tests
one through three were established by the Congress to assure that
alternative coverage would be at least actuarially equivalent to
standard coverage. Tests four and five are additional tests imposed by
the Congress through section 1860D-2(c) of the Act.
1. Test for Assuring at Least Equivalent Value of Total Coverage
As required in section 1860D-2(c)(1)(A) of the Act, a plan could
offer alternative prescription drug coverage as long as the actuarial
value of total or gross coverage is at least equal to total or gross
coverage provided under standard coverage. Based on a typical
distribution of enrollee utilization, the average plan payout
(including costs reimbursed by Medicare through the reinsurance
subsidy) would have to be at least equal to the sponsor's estimate of
the payout under defined standard coverage (holding various factors
[[Page 46677]]
constant as described above under section 4.a.).
Alternative benefit structures, such as a decrease in the
deductible with an increase in coinsurance below the initial coverage
limit, or a lower initial coverage limit with a corresponding decrease
in coinsurance, or a lower initial coverage limit with a corresponding
decrease in deductible, could be accommodated as basic alternative
coverage as long as the actuarial value of this coverage equaled that
of defined standard coverage. Alternative structures could not increase
the deductible or provide less than the protection offered against high
out-of-pocket expenditures described in section 1860D-2(b)(4) of the
Act. To the extent that the alternative coverage exceeds the value of
defined standard coverage, the plan would be offering enhanced
alternative coverage, that is, alternative coverage that includes
supplemental benefits (as discussed in subpart C).
2. Test for Assuring Equivalent Unsubsidized Value of Coverage
In section 1860D-2(c)(1)(B) of Act, a plan could offer alternative
coverage as long as the unsubsidized value of coverage (the value of
the coverage exceeding subsidy payments) is at least equal to the
sponsor's estimate of unsubsidized value under defined standard
coverage (holding various factors constant as described above section
4.a.). We interpret the unsubsidized value of coverage to mean the
value of the benefit attributable to the beneficiary share of the
premium.
There is a basic question about how this test could be applied
during the plan review and approval process. In order to determine the
unsubsidized value of coverage, one would have to know the projected
reinsurance payments, and the value of the direct subsidy. While the
projected reinsurance payments would be known at the time of the
submission (since the actuarial value of the benefit is reduced by
projected reinsurance payments to produce the bid), the value of the
direct subsidy would not be known (since it would require computing the
national weighted average bid and bids have not yet been approved). In
the face of this problem, one approach could be to remove reinsurance
payments as estimated by the sponsor and to use an estimate of the
direct subsidy that we would provide. For instance, in the first year
we might provide the estimate used for budgeting purposes, and in
subsequent years, an estimate based on prior years' actual experience
updated for trend. We are requesting comments on this approach.
In trying to assess the impact of the test of total value (section
1860D-2(c)(1)(A) of the Act) and the test of unsubsidized value
(section 1860D-2(c)(1)(B) of the Act), we have been unable to identify
an example of a plan meeting the first test but not the second. We are
seeking comment with regard to this question.
3. Test for Assuring Standard Payment for Costs at Initial Coverage
Limit
Under section 1860D-2(c)(1)(C) of the Act, sponsors are to
determine the average payout ``with respect to costs incurred that are
equal to the initial coverage limit'' for ``an actuarially
representative pattern of utilization.'' This projected payout is
compared to a dollar amount that is equal to what defined standard
coverage would pay for someone with costs equal to the initial coverage
limit. Given the comparison, this raises the question of what
represents ``an actuarially representative pattern of utilization.'' As
with the other tests, we believe that it would be reasonable for plans
to use either anticipated plan utilization or a typical utilization
pattern based on the Medicare population. However, given the implicit
comparison to payout under defined standard for someone with costs
equal to the initial coverage limit, it would not be valid to include
individuals with expenses below the value of the initial coverage
limit. After excluding individuals with total expenses below the value
of the initial coverage limit, the plan would compute the actuarial
value of plan payout at the point where total expenses are equal to the
initial coverage limit under standard coverage. Under this
interpretation, a plan could offer alternative coverage as long as the
coverage is designed to provide an actuarial value of plan payout that
is equal to at least 75 percent of costs between the standard
deductible and initial coverage limit ($1,500 in 2006). In other words,
considering only plan enrollees with expected expenses greater than or
equal to the dollar value of the standard initial coverage limit, the
plan would have to demonstrate that the expected plan payout associated
with expenses equal to that dollar value would be at least 75 percent
of benefit costs between the deductible and initial coverage limit (75
percent of $2,000 per beneficiary in CY 2006) including taking into
account their expected behavioral response to the different benefit
structure. This test, combined with the prohibition on increasing the
deductible under alternative coverage (described below), would ensure
that the benefit below the dollar level of the standard initial
coverage limit is always actuarially equivalent to standard coverage.
As a defined standard benefit it is not permissible to trade off
benefits above the initial coverage limit for benefits below.
4. Test for Assuring the Deductible Does not Exceed the Standard
Deductible.
In keeping with the requirements of section 1860D-2(c)(2) of the
Act, alternative coverage could not be structured so that the
deductible is any higher than what it is in standard coverage ($250 in
2006).
5. Test for Assuring the Same Protection Against High Out-of-Pocket
Costs
As specified by section 1860D-2(c)(3) of the Act, any alternative
coverage must provide ``the coverage'' specified for costs above the
catastrophic limit in standard coverage. We interpret this to mean that
both enhanced and basic alternative coverage would have to offer at
least the coverage available above the catastrophic limit through
defined standard coverage. We would apply this test in the same way
that we do for standard coverage with a variant of cost sharing above
the catastrophic limit. That is, examining the group of individuals the
sponsor projects would exceed the out-of-pocket threshold, total cost
sharing once TROOP has been met, as a percentage of the sum of such
cost sharing plus comparable plan payout, must be less than or equal to
the percentage computed using the defined standard benefit (that is,
the greater of $2/$5 or 5 percent). Again, we note that any variant in
cost sharing could not lead to discrimination against certain
beneficiaries, for example, by increasing the cost sharing of a drug
used for a particular illness well above the cost sharing for other
drugs.
c. Value of Qualified Coverage
In accordance with section 1860D'11(b)(2)(B) of the Act, with the
bid, each PDP sponsor and MA organization offering an MA-PD plan must
submit the actuarial value of qualified coverage in the region for the
Part D eligible individual with a national average risk profile for the
factors described in section 1860D'15(c)(1)(A) of the Act. We interpret
this to mean that the weighted average of the plan's expected risk-
standardized costs will represent the plan's cost for the theoretical
national average-risk Part D individual. Any increase in costs
attributable to increased utilization as the result of enhanced
alternative coverage must be
[[Page 46678]]
excluded from this calculation. (Any alternative coverage that does not
include supplemental coverage would be, by definition, actuarially
equivalent to standard coverage. In this case, there is no need to make
a further utilization adjustment since the test of actuarial
equivalence for the 25 percent cost-sharing requirement has already
taken into account utilization.) Any utilization effect that
supplemental coverage has on the basic benefit should be priced into
the supplemental portion of the bid.
5. Information Included With the Bid
a. Bid Format
We have not yet determined the exact format for the bid submission
and we would provide future guidance on these requirements. We believe
that we would develop a fully automated process that would include
electronic signatures for certifications of the actuarial analysis and
the plan benefit package. Section 1860D-11(c)(1)(D) of the Act
specifies ``the use of generally accepted actuarial principles and
methodologies.'' We would require that an actuary (a member of the
American Academy of Actuaries) certify the actuarial valuation, which
may be prepared by others under his or her direction or review.
Actuarial certification would give better assurance that the actuarial
values in the bid were prepared in conformance with actuarial standards
and methodologies. Section 1860D-11(c)(3)(B) of the Act permits use of
outside qualified independent actuaries. We expect that plans would use
outside actuaries, especially if they did not have qualified in-house
actuaries.
As provided in section 1860D-11(b)(3) of the Act, we would develop
the bid submission format to facilitate the submission of bids for
multiple regions and in all regions, and we would take this into
account in process development. This approach would need to ensure that
separate bids were provided for each region in order to calculate the
national average monthly bid amount and any geographic adjustment
required. Our overall approach would be to increase our flexibility to
develop appropriate methodologies in response to program changes, while
minimizing burden, rather than codifying these processes in regulation.
We believe that we would have the authority to develop these
methodologies through interpretive guidance because our regulations
state that sponsors provide the actuarial value of their plans in
accordance with generally accepted actuarial principles and
methodologies.
The information included with the bid should be sufficient for our
review of the acceptability of a proposed plan based on actuarial
principles and for negotiation of terms and conditions of an entity's
participation in the provision of Part D benefits. As provided in
section 1860D-11(b)(2) of Act and Sec. 423.265(d) of this proposed
rule, the information that would accompany the bid submission would, at
a minimum, include the following:
Information on the prescription drug coverage to be
provided, including the structure of the benefit, including
deductibles, coinsurance (including any tiers), initial (or subsequent)
coverage limits at which coinsurance levels change, and out-of-pocket
thresholds. This would also include the plan's formulary and any drugs,
or types of drugs, excluded from coverage, and all documents provided
to beneficiaries explaining the benefit, including the Evidence of
Coverage, and would be certified by an officer of the plan. We solicit
comments on the best way to obtain clear information on what drugs are
included in the formulary.
The actuarial value of the qualified prescription drug
coverage in the region for a beneficiary with a national average risk
profile certified by a qualified actuary.
The portion of the bid attributable to basic benefits.
The portion of the bid attributable to supplemental
benefits, if applicable.
The actuarial basis for the portion of the bid
attributable to basic coverage and to supplemental benefits, if
applicable, certified by a qualified actuary.
The assumptions regarding reinsurance subsidy payments.
The assumptions regarding administrative expenses.
The plan's service area and the plan's network of
pharmacies serving that service area.
(For PDP sponsors only) the level of risk assumed in the
bid, including whether the sponsor requires a modification of risk
level (see discussion below) and, if so, the extent of the
modification. Although our procedures may subsequently seek this
information, we may only review it to the extent that the initial
submission of bids does not yield the statutory minimum number of full
risk bidders in each region and area. Our goal in designing the bidding
process will be to maximize the level of risk borne by contracting
plans and to minimize the need for fallback plans, and we would welcome
comments on facilitating risk bidding; and
Any other information that we would require.
b. Risk Adjustment of Supplemental Premium
The portion of the bid attributable to supplemental benefits
represents the supplemental premium for a beneficiary with a national
average risk profile. The payment process provided in section 1860D-15
of the Act would only address risk adjustment of the basic portion of
the bid, and there are no other provisions for risk adjusting the
supplemental benefit portion of the bid. If not addressed, this would
result in plans with average risk scores above 1.0 being under-
compensated by enrollees for supplemental benefits, and plans with
average risk scores below 1.0 being over-compensated, as illustrated
below.
Table F-1.--Supplemental Premium Risk Adjustment
----------------------------------------------------------------------------------------------------------------
Plan A Plan B Plan C
----------------------------------------------------------------------------------------------------------------
Plan Average Risk Profile....................................... 0.80 1.00 1.10
1.0 Supplemental Premium........................................ 100 100 100
Supplemental Premium if Risk-Adjusted........................... 80 100 110
Over or (under) compensation.................................... $20.00 $0.00 $(10.00)
----------------------------------------------------------------------------------------------------------------
Table F-1 illustrates the case of three equally efficient plans
that each estimate the cost of the same supplemental benefits at $100.
Plan B has an average risk profile, that is, the arithmetic average of
the risk scores of all of its enrollees is equal to 1.0. Plan A and
Plan C, however, have healthier and sicker than average risk pools,
with enrollee risk scores averaging .80 and 1.10, respectively. Plan A
only needs an average risk-adjusted premium of $80 to
[[Page 46679]]
meet the revenue requirements of providing those supplemental benefits
to its healthier enrollees, but would receive $20 more on average from
enrollees if it collects the whole $100 unadjusted premium. In
contrast, Plan C needs to collect $10 more than it would receive from
the unadjusted (1.0) premium to fully fund the expected needs of its
sicker enrollees. Consequently, we are proposing to require additional
information on the projected risk profiles of its projected enrollees
for accurate valuation of the supplemental portion of the bid with the
bid submission. We intend, through the negotiation process, to reach
agreement on a supplemental premium based on the bid submission that
would account for the risk profile of enrollees and, thus, meet the
plan's revenue requirements. Our goal is to maintain a level playing
field that would facilitate the fair competition envisioned in the MMA.
Review and approval of this information is discussed in section F.3. of
this preamble.
c. Modification of Risk in PDP Bids
As provided under section 1860D-11(b)(2)(E) of Act and in Sec.
423.265(d)(4), PDP sponsors may request a modification of certain risk
sharing arrangements provided under section 1860D-15(e) of the Act,
thus, becoming a limited risk plan. Modification of risk could include
an increase in the Federal percentage assumed in the risk corridors or
a decrease in the size of the risk corridors. Any modification of risk
would have to apply to all PDP plans offered by a PDP sponsor in a
region.
Section 1860D-11(b)(2)(E)(i) of the Act states that modification of
risk will not be available to MA-PD plans. Therefore, in discussing the
possibility of including in the bid a request for a modification of
risk, we include only PDP sponsors. Limited risk plans would only be
accepted if the access requirements in section 1860D-3(a) of the Act
could not otherwise be met through the approval of a sufficient number
of full risk plans. These requirements call for at least two qualifying
plans offered by different entities, one of which must be a stand-alone
prescription drug plan. If other bidders meet these requirements, a bid
from a limited risk plan could not be approved and might not be
reviewed.
6. Review and Negotiation of Bid and Approval of Plans
a. Authority To Review Bids
We would review the information filed by the PDP sponsor or MA
organization in order to conduct negotiations on the terms and
conditions proposed in the bid. The MMA grants use the authority to
negotiate bids and benefits ``similar to'' the statutory authority
given the Office of Personnel Management (OPM) in negotiating health
benefits plans under the FEHBP program. We believe that the Congress
used ``similar to'' in the statute because of the differences between
the two programs. For example, while the OPM authority applies to level
of benefits, standard Part D drug coverage is defined. With regard to
rates, in some cases the context for FEHBP negotiations is not
applicable to Part D. For example, the rates for community-rated plans
under FEHBP are related to the rate the entity provides to similarly
sized groups, and there is no comparable concept in Part D. Arguably
the degree of competition among plans, and price signaling through
premium and benefits, might be significantly greater in Part D than in
FEHBP. Although these differences do exist there are also similarities.
OPM is concerned about trend factors used to establish the premium for
experience-rated plans, and we would have similar concerns about the
reasonableness of a sponsor's trend assumptions. OPM is concerned about
cost-sharing changes proposed by plans, and we would have similar
concerns with regard to supplemental benefits. OPM wants to maintain
high member satisfaction and ensure top quality service by plans, and
we would have similar interests.
Chapter 89 of title 5 U.S.C. gives OPM broad discretion to
negotiate prices and levels of benefits. For example, 5 U.S.C. 8902(i)
states that OPM may negotiate with carriers if it believes the rates
charged do not ``reasonably and equitably'' reflect the cost of the
benefits provided. In addition, rates may be determined ``on a basis
which, in the judgment of the Office, is consistent with the lowest
schedule of basic rates generally charged for new group health benefit
plans issued to large employers.'' OPM is permitted to ensure that any
adjustment in rates from one year to the next is consistent with the
general practice of carriers which issue group health benefit plans to
large employers. We interpret this to mean that we would have the
authority not only to determine whether the bids submitted accurately
reflect the costs of the plan, but also to determine whether the bids
are in keeping with premiums charged in other insurance contexts. If
bids increase at a rate higher than the premiums in the general
insurance market (with appropriate adjustments for comparable
populations), we may determine that further negotiations are needed. In
addition, OPM has broad authority to negotiate the level of benefits,
including the ability to prescribe ``reasonable minimum standards for
health benefits plans.'' (See 5 U.S.C. 8902(c).) We are considering
similar regulations to those used by OPM in 48 CFR Chapter 16 and are
soliciting comments on this subject. To the maximum extent feasible and
consistent with the appropriate discharge of our responsibilities, we
prefer to rely on competition rather than negotiation.
b. Bid and Benefit Package Review
We believe we have the authority to negotiate in four broad areas--
(1) administrative costs; (2) aggregate costs; (3) benefit structure;
and, (4) plan management, if dissatisfied with some or all aspects of
bid submissions. We would evaluate administrative costs for
reasonableness in comparison to other bidders and in comparison to a
PDP sponsor's other lines of business. We would examine aggregate costs
to determine whether the revenue requirements for qualified
prescription drug coverage are reasonable and equitable. We would be
interested in steps that the sponsor is taking to control costs, such
as through various programs to encourage use of generic drugs. We would
examine and discuss any proposed benefit changes. Finally, we would
discuss indicators and any identified issues with regard to plan
management, such as customer service.
In addition to the negotiation process, we would assure that bids
and plan designs meet statutory and regulatory requirements. In
general, we would examine bids to determine whether the bid meets the
standard of providing qualified prescription drug coverage, as
described in Sec. 423.104(b) of this proposed rule and in subpart C of
this preamble. We would examine the actuarial analysis accompanying the
bid to ensure that it has been prepared in accordance with our
actuarial guidelines and properly certified. We would examine bids to
determine whether the revenue requirements for qualified prescription
drug coverage are accurate and reasonable, and that the requirements
relating to actuarial determinations are met. We note that section
1860D-11(e)(2)(c) of the Act requires that the portion of the bid
attributable to basic prescription drug coverage must be supported by
the actuarial bases and reasonably and equitably reflect revenue
requirements for benefits provided under the plan, less the sum of the
actuarial value of reinsurance payments. We would also
[[Page 46680]]
review the structure of premiums, deductibles, copayments, and
coinsurance charged to beneficiaries and other features of the benefit
plan design to ensure that it is not discriminatory. We would review
cost sharing both above and below the out-of-pocket threshold with
regard to its impact on groups of beneficiaries. We would also look to
see that there is no differential impact on groups of beneficiaries by
geographical location within the plan's region or service area
attributable to different levels of cost sharing between preferred and
non-preferred network providers.
As required under section 1860D-11(e)(2)(D)(i) of the Act and in
Sec. 423.272(b)(2), the structure of the benefit design (including
cost sharing provisions and formulary design) must not be
discriminatory; that is, it must not discourage enrollment by any Part
D eligible enrollee on the basis of health status, including medical
condition (related to mental as well as physical illness), claims
experience, receipt of health care, medical history, genetic
information, evidence of insurability, and disability. In general, this
means that we would review benefit plans for features that, when
applied, have differential impacts on beneficiaries with particular
medical conditions. Factors we would consider in determining whether a
benefit structure is discriminatory include, but are not limited to--
(1) the benefit design--including the initial coverage limit, the
tiered cost-sharing, the use of categories and classes in a formulary,
and the choice of drugs provided in each category. (For example, if the
tiered cost-sharing for drugs used to treat HIV is much higher than the
cost-sharing for other types of drugs, we would view this benefit
structure to be discriminatory); (2) the use of any discriminatory
limits such as 90-day limits or requirements for pre-authorization; and
(3) supplemental benefits such as supplemental coverage of drugs that
would encourage a healthier population to join the PDP. As provided in
section 1860D-11(e)(2)(D)(ii) of the Act, plans using formulary designs
based on categories and classes that are consistent with the guidelines
established by the U.S.P. as discussed in subpart C, will be recognized
as satisfying the non-discrimination design related to formulary
structure as it pertains to categories and classes. However, adopting
the USP model categories and classes would not prohibit us from
reviewing other aspects, including the use of any limits or tiers, as
discussed above.
c. Approval of the Supplemental Premium
As provided under section 1860D-11(e)(2)(C)(ii) of the Act, we will
determine that the portion of the bid attributable to supplemental
benefits reasonably and equitably reflects the revenue requirements for
that coverage under the plan. Unless the supplemental portion of the
bid (which is paid by the enrollee in the form of the supplemental
premium) is risk adjusted for the average level of risk among
enrollees, plans with average risk scores above or below 1.0 would be
over compensated or under compensated by enrollees for supplemental
benefits. Therefore, on the basis of this authority, we are proposing
to require additional information, consisting of estimates of the
projected risk scores of the plan's enrollees in the subsequent year,
to be submitted by each plan for purposes of negotiating the
appropriate risk adjustment of the supplemental portion of the bid. We
would review and negotiate that information, and would approve a
uniform supplemental premium reflecting the average risk factor for the
plan's expected enrollment.
d. Rebate Reallocation for MA-PD Plans
The negotiation process for MA-PD plans could include the
resubmission of modified benefit structures (other than changes in that
portion of their supplemental benefits related to drugs) once we know
the outcome of the national average monthly bid calculation and its
impact on beneficiary premiums. Part D drug benefits, including
benefits offered through supplemental Part D coverage) could not be
changed during this process because any changes would have an impact on
government reinsurance payments and, therefore, on the portion of the
bid related to basic drug benefits. The MMA requires that all MA bid
and benefit package submissions be provided to us no later than the
first Monday in June. In the prescription drug program enrollee
premiums must be based on a percentage of the national average monthly
bid amount that can only be calculated once all bids have been
received, if not actually approved. (While the enrollment weights are
determined from the previous year's reference month, the bid amounts
are not.) Therefore, the prescription drug portion of benefit packages
submitted by MA-PD plans would be based on estimates of monthly
beneficiary premiums. Some of these MA-PD plans would have allocated
portions of their Part C rebates to buy-down of the Part D premium.
Once the final national average monthly bid amount and the base
beneficiary premium have been calculated, some of these rebate
allocations in the bids could be either excessive or insufficient to
achieve the desired premium level.
Excessive rebate allocation would result in a portion of the rebate
that is not provided to the beneficiary as required by law, since a
premium of less than zero is not permitted. Compliance with the statute
will require a reallocation of the excessive portion of the rebate
credit back to other allowed uses of the Part C rebate, that is, to
supplemental benefits (including reduced cost sharing other than cost
sharing for Part D drugs) or to credits to the Part B or supplemental
premiums. On the other hand, insufficient rebate allocation may result
in minimal premiums that may be seen as burdensome by plans, enrollees,
and the financial institutions managing electronic funds transfer.
The statute does not address this situation, but section 1860D-11
of the Act does grant us broad authority to negotiate the terms and
conditions of the proposed bids and benefit plans. Our proposed
regulatory approach would be to allow the negotiation process for MA-PD
plans to include the resubmission of modified benefit structures once
the outcome of the premium finalization process is known. MA-PD plans
would be able to redistribute their Part C rebates to correct for the
difference between the projected and final national average monthly bid
amounts and to achieve the previously proposed level of Part D
premiums. Under no circumstances could plans submit modified bids.
For example, an MA-PD organization submitted its bid and benefit
package based on the assumption that the levels of the national average
monthly bid amount and its prescription drug standardized bid would
result in a $35.00 monthly beneficiary premium for basic coverage, and
that it would use $35.00 of its Part C rebate to completely buy down
the Part D premium. If the national average monthly bid amount is
determined to be higher than expected, the plan's bid would end up
below the benchmark and its base beneficiary premium would be adjusted
by subtracting the difference between the bid and national average
monthly bid amount. Therefore, the plan's monthly beneficiary premium
would be less than the projected premium, for instance, $34.00, and the
$35.00 amount allocated
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[[Continued from page 46680]]
[[Page 46681]]
from the Part C rebate for Part D premium buy-down would be excessive.
In that case, we would require the MA organization to amend its benefit
package to reallocate the excessive $1.00 of the Part C rebate credit
to additional supplemental benefits (other than for Part D drugs) or to
Part B or supplemental premium credits. These adjustments would be
mandatory in order to ensure that the entire amount of the rebate was
provided to the beneficiary in some form.
Under an alternative scenario, the national average monthly bid
amount is determined to be lower than expected and the plan's bid ends
up above the benchmark. In this case, the plan's base beneficiary
premium would be adjusted by adding the difference between the bid and
national average monthly bid amount. Therefore, the plan's monthly
beneficiary premium would be higher than projected, for instance
$36.00, and the $35.00 amount allocated from the Part C rebate for Part
D premium buy-down would no longer be sufficient to eliminate the Part
D premium as planned. In that case, we would allow the MA organization
to amend its benefit package to reallocate an additional $1.00 of the
Part C rebate credit from additional supplemental benefits (other than
for Part D drugs) or from Part B or supplemental premium credits to
eliminate the Part D premium. These adjustments would be optional since
the Part C rebate has already been provided to the enrollee. We would
not permit an MA organization to simply eliminate a minimal premium
instead of reallocating the rebate because doing so would mean that the
cost of providing the prescription drug benefit had been overstated.
However, the MA organization could elect to charge the new increased
premium and to amend its benefit package submission accordingly.
e. Private Sector Price Negotiation and Formulary Design
The Act envisions that most price negotiation including discounts,
rebates, or other direct or indirect subsidies or remunerations would
take place between PDP sponsors or MA organizations (or their
subcontractors) and pharmacies and pharmaceutical manufacturers.
(Section 1860D-11(i) precludes CMS from interfering with negotiations
between drug manufacturers and pharmacies, or PDP sponsors, or
requiring a particular formulary or pricing structure.) In other words,
price negotiation would be conducted by the private drug benefit
managers and plans that are already familiar with negotiating prices of
prescription drugs on a local, regional or national basis. Moreover, we
expect that providing information on discounted drug prices to
beneficiaries will encourage further competition on lower prices.
Because beneficiaries will choose a drug plan based on drug prices and
formulary coverage, the plans have strong incentives to negotiate lower
prices on drugs that beneficiaries use--just as private benefit
managers currently do on behalf of the Federal government, state
governments, and employer and retiree plans. We expect that in addition
to price levels for drugs, these negotiations will also include such
terms as prohibitions on substitutions of drugs if the net result would
be higher costs for patients or the plans. The nature of the
negotiations that we propose to conduct with bidders is discussed later
with respect to full-risk and limited-risk bids, and in subpart Q of
this preamble with respect to fallback plans.
We expect that the private negotiations between PDP sponsors and
drug manufacturers would achieve comparable or better savings than
direct negotiation between the government and manufacturers, as well as
coverage options that better reflect beneficiary preferences. This
expectation reflects the strong incentives to obtain low prices and
pass on the savings to beneficiaries resulting from competition,
relevant price and quality information, Medicare oversight, and
beneficiary assistance in choosing a drug plan that meets their needs.
This is similar to the conclusion of other analyses, for example, CBO's
recent statement that ``Most single-source drugs face competition from
other drugs that are therapeutic alternatives. CBO believes that there
is little, if any, potential savings from negotiations involving those
single-source drugs. We expect that risk-bearing private plans will
have strong incentives to negotiate price discounts for such drugs and
that the Secretary would not be able to negotiate prices that further
reduce federal spending to a significant degree.'' In accordance with
the Medicaid best price exemption provided under section 1860D-
2(d)(1)(c) of the Act and codified in Sec. 423.104(h)(2) of our
proposed rule, drug plans may even be able to negotiate better prices
than those paid under Medicaid. It also reflects Medicare's recent
experience with drug price regulation for currently-covered drugs, in
which regulated prices for many drugs have significantly exceeded
market averages.
By not allowing us to require any particular formulary, the statute
ensures that the Pharmacy and Therapeutics committees of prescription
drug plans and MA-PD plans have the flexibility to make changes in
their classifications and lists of preferred drugs based on the most
current evidence-based information (subject to the limitations of Sec.
423.120(b)). We will evaluate plan formulary categories and classes in
comparison to the model guidelines developed by U.S.P. In addition to
evaluating any discriminatory features, as discussed above, we will
evaluate the number of categories in formularies that do not meet the
model guidelines and the choice of drugs available in those categories
with respect to meeting the needs of the Medicare population. After the
initial year of the program, we will also review the history of plan
formulary appeals to identify issues with the plan's formulary. We will
conduct additional research on evaluating formularies and drug benefit
designs and we would welcome comments on evaluation. As noted
previously, we may also review plan cost sharing (that is, tiers).
f. Bid Level Negotiation
The FEHBP standard in 5 U.S.C. 8902(i) requires us to ascertain
that the bid ``reasonably and equitably reflects the costs of benefits
provided.'' In addition, we note that section 1860D-11(e)(2)(c) of the
Act requires that the portion of the bid attributable to basic
prescription drug coverage must ``reasonably and equitably'' reflect
revenue requirements * * * for benefits provided under that plan, less
the sum * * * of the actuarial value of reinsurance payments.''
Analogous to the manner in which FEHBP views its management
responsibilities, we see this requirement as imposing the fiduciary
responsibility to evaluate the appropriateness of the overall bid
amount.
In general, we expect to evaluate the reasonableness of bids
submitted by at-risk plans by means of the actuarial valuation
analysis. This would require evaluating the plan's assumptions
regarding the expected distribution of costs, including average
utilization and cost by drug coverage tier, for example, in the case of
standard coverage--(1) those with no claims; (2) those with claims up
to deductible; (3) those with claims between the deductible and the
initial coverage limit; (4) those with claims between the initial
coverage limit and the catastrophic limit; and (5) those with claims in
excess of the catastrophic limit. We could test these assumptions for
reasonableness through actuarial analysis and comparison to industry
standards and other comparable bids. Bid negotiation could take the
form of
[[Page 46682]]
negotiating changes upward or downward in the utilization and cost per
script assumptions underlying the bid's actuarial basis. We ask for
comment on the most effective and least burdensome way to obtain
pricing and utilization data for use in our actuarial review, as well
as comments on the broader issues discussed in this section.
Arguably, appropriate assurance that plan bids reasonably and
equitably reflect the revenue requirements associated with providing
the Part D benefit requires knowing the final drug price levels the
plans are paying that are implicit in their bids. Consequently, in
addition to looking at final aggregate prices, if we found that a
plan's data differed significantly from its peers without any
indication as to the factors accounting for this result, we could also
ask bidders to provide information about rebates and discounts they are
receiving from manufacturers and others, in order to ensure that they
are negotiating as vigorously as possible. Section 1860D-11(b)(1)(C) of
the Act allows us to ask for necessary ``information on the bid''. In
other words, we would be able to inquire as to the ``net cost'' of
drugs since this is the key dollar value we would need to make accurate
``apples to apples'' comparisons on drug prices between PDPs. Under
this approach, if the particular bids appear to be unusually high (or
low), we could go back to the bidders and request that they explain
their pricing structure, the nature of their arrangements with
manufacturers, and we might ask further questions and take further
action to perform due diligence to ensure that there is no conflict of
interest leading to higher bids. For instance, we would look at certain
indicators, such as unit costs or growth rates in the bid amounts to
see if they are in keeping with private market experience to the extent
feasible for a comparable population (for example, retirees). (In this
case, we would be using the authority in 5 U.S.C. 8902(i) to negotiate
bids that are ``consistent with the group health benefit plans issued
to large employers''.) If the overall bids were unjustifiably high, we
would have the authority to negotiate the bids down to a level that is
more in keeping with bids that a private market would provide. While
there is not a private drug-only insurance market, we could look at the
rates used in overall coverage or determine which part of such coverage
is made up by drug coverage, and make appropriate adjustments for
Medicare utilization differentials. We could exercise our authority to
deny a bid if we do not believe that the bid and its underlying drug
prices reflect market rates. Our strong expectation, however, is that
we will be able to rely on the incentives provided by competitive
bidding, and we would use our authority under this part only on the
rare occasion we find that a plan's data differs significantly from its
peers without any indication as to the factors accounting for this
result.
Under the previous M+C program, we permitted M+C organizations to
waive premiums or to offer mid-year benefit enhancements to their
benefit packages. However, in order to maintain the integrity of the
bidding process, we believe that it is no longer appropriate to allow
either MA organizations or PDP sponsors to waive premiums or offer mid-
year enhancements as they would be de facto adjustments to benefit
packages for which bids were submitted earlier in the year. These
adjustments would be de facto acknowledgement that the revenue
requirements submitted by the plan were overstated. Allowing premium
waivers or mid-year benefit enhancements would render the bid
meaningless. Excessive amounts included in the bid will be subject to
recovery by the government in the risk corridor calculations following
the coverage year.
Consequently, we are proposing to interpret the statutory
provisions on competitive price negotiation as prohibiting us from
setting a regulated price of any particular drug or imposing by
regulation an average discount in the aggregate on any group of drugs
(such as single-source brand-name drugs, multiple-source brand name
drugs, or generic drugs), but as allowing justification of aggregate
price levels for groups of drugs. In addition, we could, under the
specific circumstances previously discussed, negotiate regarding the
level of the overall risk bid. This approach would allow us to exercise
the authority similar to FEHBP as visualized in the MMA to ensure that
per capita rates charged ``reasonably and equitably'' reflect the cost
of the benefits provided, and that beneficiaries receive the full
benefits of vigorous price negotiation by their drug plans.
g. Approval of Plans
After negotiations on the terms and conditions of the bid, we must
approve or disapprove the bid. After negotiations, we would approve a
plan only if--
The plan is found to be in compliance with requirements
specified in this regulation;
The plan meets the actuarial valuation requirements; and
The plan design does not discourage enrollment by certain
eligible beneficiaries.
In Sec. 423.272(c), we would approve limited risk plans only if
fewer than two qualifying prescription drug plans offered by different
entities, one of which must be offered by a stand-alone PDP sponsor,
were submitted and approved in a region. We would approve only the
minimum number of limited risk plans needed to meet these access
requirements and would give priority to plans bearing the highest
levels of risk; however, we may take into account the level of the bids
submitted by these plans. Except as authorized under section 1860D-
11(g) of the Act and in Sec. 423.863 with regard to fallback plans, we
would not, under any circumstances, approve a plan that elected to bear
no risk or a minimal level of risk.
h. Special Rules for PFFS Plans
As provided in section 1860D--21(d) of the Act, and codified in
Sec. 423.272(d), PFFS plans that offer prescription drug coverage are
exempt from review and negotiation (under sections 1860D-11(d) and
(e)(2)(C)) of their prescription drug bids and premium amounts but are
otherwise subject to all other requirements under this part, with the
following exceptions. While we will not negotiate PFFS bids, those bids
must meet the actuarial valuation requirements applicable to all risk
bids. These plans are not required to negotiate discounted prices for
prescription drugs. If they do negotiate, the proposed requirements
under Sec. 423.104(h) related to negotiated prices would apply. If the
plan provides coverage for drugs purchased from all pharmacies, without
charging additional cost sharing, and without regard to whether they
are participating pharmacies. Sec. 423.120(a) and Sec. 423.132 of
this proposed rule (requiring certain network access standards and the
disclosure of the availability of lower cost bioequivalent generic
drugs) would not apply to the plan. PFFS plans are also exempt from
drug utilization management program and medication therapy management
program requirements.
Finally, we note that section 1860D-21(d)(7) of the Act provides
that costs incurred for off-formulary drugs will not be excluded in
determining whether a beneficiary has reached the out-of-pocket
threshold if a PFFS plan does not use a formulary. We believe that
section 1860D-21(d)(7) is a tautology and simply states that PFFS plans
without formularies, by definition, cannot have
[[Page 46683]]
non-formulary drugs to exclude from the out-of-pocket threshold
calculation.
7. National Average Monthly Bid Amount
In Sec. 423.279, we outline the calculation of the national
average monthly bid amount. For each year, beginning in 2006, we would
compute a national average bid based on approved bids in order to
calculate the national base beneficiary premium. As a practical matter,
we realize that we might need to calculate and announce the national
average monthly bid amount before negotiations on all bids were
completed in order to allow time for finalization of premiums and
benefit packages. Therefore, we anticipate that we would identify a
date by which the national average monthly bid amount would be
published, and we would use the bids that had passed a certain level of
approval as of that date as the basis for the calculation.
As provided in section 1860D-13(a)(4)(A) of the Act, in computing
the national average monthly bid amount, we would exclude bids
submitted for MA private fee-for-service (PFFS) plans, specialized MA
plans for special needs individuals, PACE programs under section 1894
of the Act (pursuant to section 1860D-21(f) of Act) and reasonable cost
reimbursement contracts under section 1876(h) of the Act (according to
section 1860D-21(e) of the Act). The exclusion from the calculation of
bids of PFFS, cost plans, specialized MA plans, and PACE suggests that
they are different from, and not comparable to, the average bid in some
way. We interpret this difference to be based solely on price levels
because the legislation--
Does not define any other basis for determining these
bids;
Continues to compare these bids to the national average
bid amount to determine adjustments to enrollee premiums; and
Provides for payments to such plans (including risk
adjustment) in the same manner as to non-excluded plan types.
Therefore, these excluded plan types would still submit bids on the
same basis as all other plans, that is, the 1.0 risk prescription drug
plan beneficiary, even though these bids are not included in the
national average bid amount at this time.
The national average bid amount would be equal to the weighted
average of the standardized bid amounts for each PDP and for each MA-PD
plan described in section 1851(a)(2)(A)(1) of the Act. The national
average monthly bid amount would be a weighted average, with the
weights being equal to the proportion of Part D eligible individuals
enrolled in each respective plan in the reference month (as defined in
Sec. 422.258(c)(1)). For calendar year (CY) 2006, we would determine
the enrollment weights on the basis of assumptions that we would
develop. One possible approach would be to use the following procedure
to assign weights to individual bids for PDPs and MA-PD plans for CY
2006:
Obtain total Medicare enrollment by region, and enrollment
in each (local) MA plan that offers a drug benefit by region. These
enrollments would be as of a specific date, for example, March 31,
2005.
Assign each (local) MA-PD plan in each region a weight
equal to its MA enrollment.
Subtract the MA enrollment from the total Medicare
enrollment for each region to arrive at the PDP-eligible enrollment.
Divide the PDP-eligible enrollment for each region by the
number of companies offering PDPs in each region to arrive at the
weight for each company in each region.
For each company in a region, divide the company weight by
the number of plans offered by that company to arrive at the PDP
weight.
The regional average monthly bid amount would be
calculated by weighting each plan's bid by its assigned weight.
The national average monthly bid amount would be
calculated by weighting each regional average monthly bid amount by the
region's proportion of Part D eligible individuals (Medicare
enrollment) and summing these products.
Using this methodology, after subtracting MA enrollments, each
company offering PDP(s) in a region gets equal weight. An exception
might occur based on capacity limits indicated by MA-PD plans. This
assumes that beneficiaries would select a company, and then select a
plan from that company. It also dilutes the effect of any potential
artificially high bids designed solely to increase the national average
monthly bid amount. If a company offers multiple plans in a region,
each plan gets an equal allocated share of its company's assigned
weight.
New MA-PDs would get a zero weight. This treatment is consistent
with the weight assignment specified in the statute for subsequent
years. Starting with the second year, all new plans would get zero
weight because they have no prior year enrollment. We request comments
on the ``unequal'' inclusion of plans in the calculation of the
national average monthly bid. We note that many MA-PDs would operate in
small geographic areas with small potential enrollment, and so we
believe that the impact of this approach for new local MA-PDs is likely
limited. We recognize, however, that this approach is perhaps more
problematic related to the treatment of the new regional MA-PD plans,
as these plans in a given region are likely to have larger enrollment
than local MA-PD plans. This particular approach implicitly assigns
persons in new MA-PD plans (both local and regional) to the PDP
weights, hence giving potentially too much weight to the PDPs.
Alternatively, assigning equal weights to PDPs and new MA-PD plans
(even if limited to just the regional MA-PDs) could likely assign too
much weight to the new regional MA-PD plans, which at least in 2006 are
expected to have lower enrollment. Another possible alternative would
be to base weights on regional MA-PD plan projections of enrollment,
subject to our assessment of reasonableness of the estimates. In this
approach we would use the proportion of projected enrollment for each
plan as weights. However, particularly in the first year or so,
projections may be quite inaccurate, leading to a distorted and
unrepresentative benchmark. We welcome comments on these and other
alternative approaches for how to weight bids in 2006.
The assigned weights are price inelastic, that is, the recommended
weight assignment methodology implies that price is not a factor in
plan selection. In the absence of experience on which to base the
relationship between price and plan choice in this population, and,
therefore, on how many people would be expected to join each plan, we
believe that the fairest method for 2006 is simply to assume an equal
weight for each plan.
In subsequent years, the weights for the weighted average would be
calculated as a percentage with the numerator equal to the number of
Part D eligible individuals enrolled in the plan in the reference month
and the denominator equal to the total number of Part D eligible
individuals enrolled in all plans (except for those plans whose bids
are not include in the national average bid amount, as described above)
in the reference month. It represents the proportion of the Part D
eligible enrolled individuals in the plan. We would multiply the
portion of each plan bid attributable to basic benefits by its
proportion of total Part D enrolled individuals and sum each product to
arrive at the national average monthly bid. In Sec. 423.279(c), we
would also establish an appropriate methodology
[[Page 46684]]
for adjusting the national average monthly bid amount to take into
account any significant differences in prices for covered Part D drugs
among PDP regions. We welcome comments on the existence of regional
price variation in drug prices and on any factors that could lead to
that variation. As part of carrying out the Congress' requirement that
our geographic adjustment methodology be ``appropriate,'' we believe
the method would first require gathering data from PDPs and MA-PDs on
regional drug prices. Therefore, we may not implement a geographic
adjuster for the first few years of the program unless we have acquired
sufficient information on pricing to accurately characterize that
variation. If we were to determine that there is significant geographic
variation in prices, we anticipate that we would announce the
adjustment factors in advance of the bidding process for any year in
which geographic adjustment would be applied to bids in the
calculation. (This would be subject to notice and comment like any
other change in payment methodology.) If we were to determine that
there is only minimal price variation, we would not implement a
geographic adjuster for the national average monthly bid calculation.
Additionally, we would implement any geographic adjuster in a budget
neutral manner to avoid a change in aggregate payments from the total
amount that would have been paid if we had not applied an adjustment.
8. Rules Regarding Premiums
In Sec. 423.286, we propose that the monthly beneficiary premium
would be the result of the calculation of a national base beneficiary
premium subject to certain adjustments. Congressional intent was to
arrive at an average monthly beneficiary premium in CY 2006
representing a certain percentage of the average total estimated
benefit provided by the drug plans on a national basis (including
benefits subject to Federal reinsurance subsidies). Taking into account
that projected reinsurance subsidies are excluded from plan bids, the
applicable percentage becomes approximately 32 percent, which is
applied to the national average monthly bid amount.
To determine the uniform plan premium, in Sec. 423.286(d), we
would adjust the base beneficiary premium for certain plan
characteristics including whether the plan's bid would be above or
below the national average bid, and whether the plan offers
supplemental benefits. (Since the bid has to be approved and premiums
established for the entire year, we are interpreting the phrase ``if
for a month'' in section 1860D'13(a)(1)(B)(i) of the Act and
1860D'13(a)(1)(B) (ii) of the Act as referring to the beneficiary
premium as a monthly amount.) The base premium is adjusted to reflect
the full difference between the plan's standardized bid amount and the
national average monthly bid amount (which may be adjusted for regional
price differences). To the extent that the plan's standardized bid
amount is below the national average monthly bid amount, the base
premium is adjusted downward by the difference. To the extent that the
plan's standardized bid amount is above the national average monthly
bid amount, the base premium is adjusted upward by the difference. The
base premium would also be adjusted by adding the premium amount
approved after negotiations for risk adjustment of the supplemental
benefits, if any (as discussed above). Table F-2 illustrates a
calculation of the base beneficiary premium and the adjustment for the
difference between the bid and the national average monthly bid amount.
Table F-2.--Premium Illustration
----------------------------------------------------------------------------------------------------------------
Benchmark Plans in region Bids Beneficiary premium
----------------------------------------------------------------------------------------------------------------
Applicable
percent of
Amount by Amount by nat'l
National average monthly bid amount Plans Approved which bid which bid premium
\1\ plan bid exceeds is below < plus-
benchmark benchmark minus>
difference
----------------------------------------------------------------------------------------------------------------
Plan 1................ 125 14.00 0.00 $50
111................................. Plan 2................ 111 0.00 0.00 36
Plan 3................ 101 0.00 (10.00) 26
------------------------------------------------------------------------
------------------------------------------------------------------------
Est. Reinsurance Percentage...... 21.25 (Assumed)
Applicable Percent =............. 0.3238 (25.5 /(100- 21.25)
Base Beneficiary Premium =....... 36.00 (111 * .3238) \2\
------------------------------------------------------------------------
\1\ A. Assumes no geographic adjustment.
\2\ B. Rounded to nearest dollar.
The sum of the base beneficiary premium, the adjustment for
difference between the bid and the national average bid, and the
supplemental benefit premium would be the monthly beneficiary premium.
The monthly beneficiary premium (except for any supplemental premium)
would be eliminated or reduced for low-income subsidy-eligible
individuals, as described in section 1860D-14 of the Act and Sec.
423.780. (This adjustment reflects the fact that the government would
pay all or a portion of the monthly beneficiary premium for subsidy-
eligible individuals.)
In Sec. 423.286(d)(3), the monthly beneficiary premium would be
increased for enrollees subject to the late enrollment penalty. The
penalty amount for a Part D eligible individual for a continuous period
of eligibility (as described in Sec. 423.46) would be the greater of
an amount that we determine is actuarially sound for each uncovered
month in the same continuous period of eligibility; or 1 percent of the
base beneficiary premium for each uncovered month in that period. The
beneficiary premium amount is cumulative which means that each month
the beneficiary is subject to a penalty, the penalty accumulates. Once
the beneficiary enrolls in Part D, that accumulated penalty would be
added to their premium amount each month. So for example, if the
penalty amount is $.36 per month in 2004, and is subject to 12 months
of this penalty, the beneficiary would pay an additional $.36 * 12 or
$4.32 per month for as long as they are enrolled in Part D. During the
first several years of the program, we currently expect that we would
specify
[[Page 46685]]
the penalty amount would be 1 percent of the base beneficiary premium
per month. Once we have sufficient data on experience under the program
with respect to individuals who enroll after their Initial Enrollment
Periods, we will be able to determine the appropriate penalty amount,
that is, either one percent or a greater amount to be adopted.
We note that achieving very high (indeed, virtually universal)
access to prescription drug coverage for beneficiaries who participate
in Part D was a key Congressional consideration in enacting MMA. We
would encourage comments from insurers, actuaries, and others with
experience, data, or expertise in this area. We are particularly
interested in receiving comments on the most appropriate level for the
late enrollment penalty, the likelihood of whether a $.36 per month of
delay penalty (that is, 1 percent for each month of delayed enrollment)
constitutes an adequate safeguard against selection bias, and the
importance of strongly encouraging widespread enrollment to maximize
the affordability and stability of Part D premiums.''
Except as provided with regard to any enrollment penalty, low-
income assistance, or employer group waivers under section 1857(i) and
section 1860D-22(b) of the Act and Sec. 423.458(c) (as discussed in
Subpart J of the preamble to our proposed rule), the monthly
beneficiary premium for a prescription drug plan or MA-PD in a PDP
region must be the same for all Part D eligible individuals enrolled in
the plan. The monthly beneficiary premium charged under a fallback plan
is discussed in Sec. 423.867 of our proposed rules and in Subpart Q of
this preamble.
9. Collection of Monthly Beneficiary Premiums
a. Means of Collection
In Sec. 423.293(a), the beneficiary would have the same options on
the method for premium payments as under Part C. Section 1860D-13(c)(1)
of the Act applies the provisions of section 1854(d) of the Act (as
amended by the MMA) to Part D premium collection. The beneficiary would
have the option of having the amount withheld from his or her social
security benefit check similar to the way Part B premiums are withheld.
Beneficiary premium payments could also be paid directly to the PDP
sponsor or MA organization through an electronic funds transfer
mechanism (for example, an automatic charge of an account at a
financial institution or a credit or debit card account). We could
specify other means of payment, including payment by an employer or
under employer-based retiree health coverage (as defined in section
1860D-22(c)(1) of the Act) on behalf of an employee or former employee
(or dependent). All premium payments withheld from social security
checks would be credited to the appropriate Trust Fund (or Account) and
would be paid by us to the PDP sponsor or MA organization involved.
Premiums from beneficiaries enrolled in fallback plans would not be
collected by the plan. Instead, these premiums would be withheld from
social security checks (or from other benefits as permitted under
section 1840 of the Act). Beneficiaries who do not receive social
security checks or otherwise have premiums deducted from other benefits
or annuities would pay us directly. Failure to make premium payments
could result in disenrollment as provided under section 1854(d)(1) of
the Act and Sec. 423.44(d) of our proposed regulations.
b. Collection of Late Enrollment Penalties
Concerning collection of the late enrollment penalty calculated
under Sec. 423.286(d)(3), after the early years of the program we
would estimate and specify the portion of the penalty that would be
attributable to increased actuarial costs assumed by the PDP sponsor or
MA organization (and not taken into account through risk adjustment
provided under Sec. 423.329(b)(1) or through reinsurance payments
under Sec. 423.329(c)) as a result of that late enrollment. When the
premium is withheld from social security benefits, we would pay only
the portion of the late enrollment penalty attributable to the
increased actuarial costs to the PDP sponsor or MA organization. When
the premium is paid directly to the plan, we would reduce payments
otherwise made to the PDP sponsor or MA organization by an amount equal
to the amount of the enrollment penalty not attributable to increased
actuarial cost. (Fallback plans would not receive any enrollment
penalties applicable to their enrollees because they are not at risk.)
At least in the initial years of the program we do not anticipate
paying plans additional funds related to late enrollment individuals.
In the initial years there will not be a significant number of people
who can have delayed enrollment for a significant period of time.
Moreover, in the initial years of the program the risk corridors are
more generous and afford more protection. Consequently we do not think
it is necessary to provide a portion of the enrollment penalty to plans
until experience indicates that actual risk has increased.
G. Payments to PDP Sponsors and MA Organizations Offering MA-PD Plans
for All Medicare Beneficiaries for Qualified Prescription Drug Coverage
1. Overview (Sec. 423.301)
Subpart G of part 423 implements section 1860D-15 and the
deductible and cost sharing provisions of 1860D-14(a) of the Act. This
section sets forth rules for the calculation and payment of CMS direct
and reinsurance subsidies for prescription drug plans and MA-PD plans;
the application of risk corridors and risk-sharing adjustments to
payments; and retroactive adjustments and reconciliations to actual
enrollment and interim payments. References to part 422 of our
regulations are to the new MA rules published elsewhere in this issue
of the Federal Register.
2. Definitions
We propose definitions for a number of terms used in the
computation of payments under this subpart, such as ``allowable
reinsurance costs'', ``actually paid'' and ``coverage year'' in Sec.
423.308 of our regulations, but discuss these separately in the
appropriate sections of this preamble. We do this because these terms
are complex and are best clarified in the context of the discussion of
the pertinent provisions.
3. General Payment Provisions (Sec. 423.315)
The payment provisions required by section 1860D-15 of the Act
include 4 different payment mechanisms. The first payment mechanism
involves monthly payments that (along with reinsurance subsidies)
subsidize on average 74.5 percent of the value of the basic
prescription drug benefit, thereby maintaining beneficiary premiums for
basic coverage on average at 25.5 percent. The direct subsidy is
determined based on a national bidding process. Sponsors who wish to
offer plans submit bids based on the projected costs of an average
beneficiary. After our review and approval, these bids become the basis
for the direct subsidy that is equal to the plan's standardized bid,
risk-adjusted for health status as provided in Sec. 423.329(b), minus
the base beneficiary premium (as determined in Sec. 423.286(c) and as
adjusted for any difference between the standardized plan bid and the
national average monthly bid amount (as described under Sec.
423.286(d)(1))). The risk-adjustment
[[Page 46686]]
applied to the bid compensates the plan for individual enrollee
differences in health status from the average beneficiary and thus
reduces the impact from any adverse risk selection. Further adjustments
to the direct subsidy payments would be made to account for actual
enrollment and updated health status information.
The second and third payment mechanisms would substantially reduce
the uncertainty and risk of participating in this new program. Since
the Medicare prescription drug benefit is new, there is uncertainty
surrounding the utilization, costs, and risk profiles (participation
rates and characteristics) of potential enrollees. Federal reinsurance
subsidies and risk corridor payment adjustments work along with the
risk-adjustment included in the direct subsidy to substantially reduce
the uncertainty and risk of participating in this new program. Through
reinsurance subsidies, in which we act as the re-insurer, we would
subsidize a large portion of any catastrophic expenses (defined as
expenses over an individual's out-of-pocket limit) through a
reinsurance subsidy. Through risk corridor arrangements, exposure to
unexpected non-catastrophic expenses would be limited. These risk
sharing arrangements are structured by the statute as symmetrical risk
corridors, that is, agreements to share a portion of the losses or
profits resulting from expenses above or below expected levels,
respectively.
Finally, according to section 1860D-14 of the Act, PDP sponsors and
MA organizations would receive payments to cover certain premium, cost-
sharing, and extended coverage subsidies for low-income subsidy
eligible individuals. With the exception of interim estimated payments
of cost-sharing subsidies, these payments are discussed separately in
subpart P of this preamble and in Sec. 423.780 of our proposed
regulations.
Certain payments would be exceptions to these general payment
provisions. Under private fee-for-service (PFFS) plans, reinsurance
would be calculated differently and risk sharing would not be
available. Reinsurance subsidies and risk sharing would not be
available for fallback plans, and are paid in accordance with
contractual terms related to actual costs and management fees tied to
performance measures.
4. Requirement for Disclosure of Information (Sec. 423.322)
a. Data Submission.
As provided under sections 1860D-15(c)(1)(C), 1860D-15(d)(2) and
1860D-15(f) of the Act and in Sec. 423.322 of our proposed
regulations, we would condition program participation and payment upon
the disclosure and provision of information needed to carry out the
payment provisions. Such information would encompass the quantity,
type, and costs of pharmaceutical prescriptions filled by enrollees
that can be linked to individual enrollee data in our systems; that is,
linked to the Medicare beneficiary identification number
(HIC). We would appreciate comments on the content, format and
optimal frequency of data feeds. We believe that more frequent feeds
than annually (weekly, monthly, quarterly) would allow us to identify
and resolve data issues and assist the various payment processes.
We are evaluating our minimum data requirements with regard to
prescription drug claims. Our goal would be to determine the least
burdensome data submission requirements necessary to acquire the data
needed for purposes of accurate payment and appropriate program
oversight. Our view is that we will need at least the following data
items for 100 percent of prescription drug claims for the processes
discussed below:
Beneficiary name (first, middle initial, last).
Beneficiary HIC.
Beneficiary birth-date.
Eleven-digit NDC code.
Quantity dispensed.
Prescription drug cost before co-payment (ingredient cost,
dispensing fee, sales tax amount).
Beneficiary co-payment amount, and
Date prescription filled.
We assume that ingredient cost and dispensing fee reflect point of
sale price concessions in accordance with purchase contracts between
plans (or their agents, such as PBMs) and pharmacies, but do not
reflect subsequent price concessions from manufacturers, such as
rebates. We anticipate that we will need similar data on prescription
drug claims for appropriate risk-adjustment, reconciliation of
reinsurance subsidies, calculation of risk sharing payments or savings,
and program auditing. Data will also be required for assessing and
improving quality of care. We will welcome comments on the nature and
format of data submission requirements for the following processes:
Risk adjustment process would require 100 percent of drug
claims in order to develop and calibrate the weights for the model for
this new benefit. Consequently, PDP sponsors and MA organizations
offering MA-PD plans would be required to submit 100 percent of
prescription drug claims for Part D enrollees for the coverage year.
Risk adjustment would require the submission of prescription drug agent
identifying information, such as NDC codes and quantity, in order to
allow the standardized pricing of benefits in the model. Because we
would use standardized pricing, cost data on each prescription is not a
requirement for risk adjustment, although it is needed for other
purposes.
The reinsurance subsidy payment process would require 100
percent of claims for each enrollee for whom the plan claimed allowable
reinsurance costs. (Although reconciliation of the reinsurance subsidy
does not require NDC codes or quantities, it does require member, cost
and date of service data.) All claims for enrollees with expenses in
excess of the out-of-pocket limit would be necessary to verify that the
costs were allowable because the totality and order in which the claims
are incurred would define which claims would be eligible for
reinsurance payments. While the start of reinsurance payments begins
with claims after the out-of-pocket threshold has been reached, which
is $5,100 in total spending (2006) for defined standard coverage, it
may be associated with a higher dollar total spending amount under
alternative coverage. Whatever the level, we would need to receive all
claims by date of service including the amount of beneficiary cost
sharing in order to determine the occurrence of the out-of-pocket
threshold. Any plan-incurred costs for claims for supplemental benefits
cannot be included in determining whether the out-of-pocket threshold
has been met.
The risk sharing process would require 100 percent of
claims for all enrollees for the calculation of total allowable risk
corridor costs. The plan would need to segregate costs attributable to
supplemental benefits from those attributable to basic benefits since
supplemental benefit costs are not subject to the risk corridor
provisions. Again, all claims would be necessary to verify that the
costs were allowable because the order in which the claims were
incurred would help determine whether the claims were solely for basic
coverage. For instance, a claim processed between a beneficiary's
deductible and initial coverage limit (in standard coverage) would
count towards risk sharing, but another claim (processed identically
but immediately after the initial coverage limit has been reached)
would not. Unlike the reinsurance subsidy, which is limited to
[[Page 46687]]
individuals with expenses in excess of the out-of-pocket threshold,
risk sharing involves costs (net of discounts, chargebacks and rebates,
and administrative costs) for all enrollees for basic coverage, but
only those costs that are actually paid by the sponsor or organization.
Because all plans participate in risk sharing, potentially all claims
for all Part D enrollees in all plans must be reviewed. Like the
reinsurance reconciliation, risk sharing does not require NDC codes or
quantities, but does require member, cost, and date of service data.
The program audit process would require at least a
statistically valid random sample of all Part D drug claims. We believe
that several points of reference including HIC, cost, date of
service, and NDC code would be required for unique identification of
individual claims in any random sample drawn from the population. If we
receive 100 percent claims to support the payment processes, this
sample could be drawn from our records. We believe it would be useful
to obtain the prescribing physician's National Provider Identifier
(NPI) number, as required by the administrative simplification
provisions of HIPAA, in the elements of collected data for purposes of
fraud control once it is available. Prior to May 2007 when the NPI is
expected to be used, we would be interested in alternative means for
identifying the physician prescriber.
(Nothing in this data collection discussion should be construed as
limiting OIG authority to conduct any audits and evaluations necessary
for carrying out our proposed regulations.)
b. Allowable Costs
Section 1860D-15(b)(2) and 1860D-15(e)(1)(B) of the Act and Sec.
423.308 of our proposed regulations, specify that to determine
``allowable costs'' for purposes of both the reinsurance and risk
corridor payments, only the net costs actually paid after discounts,
chargebacks, and average percentage rebates, as well as administrative
costs, are to be counted. We encourage comments on appropriate
methodologies and data sources that can be used in making these
adjustments. For example, we would like to receive comments on how
price concessions (discounts, chargebacks, rebates, or any other
periodic financial remuneration) would be most accurately and
efficiently applied to prescription drug claims data to satisfy this
requirement. We would also be interested in any information or data on
the effect on costs such adjustments can be expected to yield. We are
particularly interested in how data would be appropriately allocated
and applied to the reinsurance subsidy tied to individual expenses in
excess of the out-of-pocket limit.
We understand that much of the rebate accounting is not applied in
the context of point of sale claims data, but rather in periodic
accounting adjustments, and that rebates are frequently reported along
with administrative fees paid by the manufacturer. We are concerned
that these accounting practices would be incompatible with the need to
report all price concessions for purposes of determining allowable
reinsurance and risk corridor costs and we, therefore, are proposing to
require that they be segregated. Moreover, we are proposing to require
that any administrative fees paid to Part D plans be based on the fair
market value of services rendered, and that any fees determined to be
above or below fair market value would be considered additional price
concessions.
Due to the nature and timing of rebate accounting, we believe that
this will require a form of step-down cost reporting in which rebates
received at the aggregate level may be apportioned down to the level of
plan enrollees incurring reinsurance expenses on a reasonable basis.
Since Medicare beneficiaries would be expected to have higher per
capita prescription drug utilization than other populations, we believe
it would be appropriate to allocate rebates (and other similar price
concessions) on the basis of percentage of dollars spent rather than of
covered lives. Alternatively, one could create a ratio of total rebate
amounts to total spending and reinsurance-related spending to total
spending to derive the share of rebates to be allocated to reinsurance,
and then adjust down the reinsurance amount. A similar ratio could be
created for risk corridor spending. Another way that the current market
expresses these relationships is in an average rebate per script value
that could even be differentiated by brand versus generic rebates per
script. In apportioning rebates and other financial remunerations to
Medicare costs, we would look to ensure that plans appropriately take
into account the distribution of claims between basic and supplemental
benefits, and apportion price concessions in a proportionally accurate
way.
In whatever manner price concessions will be apportioned, plans
must require and keep accurate records on all price concessions and
ensure that these are clearly accounted for and segregated from
administrative fees. All cost reporting would be subject to inspection
and audit (including periodic audits) by us and the OIG. As stated
below, to the extent either we or the OIG discover that a sponsor was
overpaid for reinsurance or risk sharing (that is, the records do not
support the payments made, or there is insufficient documentation to
determine whether the payments are correct), we may recoup the
overpayments. The reopening and overpayment provisions are discussed at
the end of this part G.
c. Coverage Year
In Sec. 423.308 we propose that the term ``coverage year'' would
mean a calendar year in which covered Part D drugs are dispensed if the
claim for such drugs (and payment on such claim) is made not later than
3 months after the end of the year. In other words, drug claims paid
past the close of the 3-month period would not be considered part of
that coverage year (or the next), and would not be used to calculate
that year's payments or in reconciling risk adjustment payments for the
year.
This limit would be imposed in order to provide timely closure for
payment determination processes such as reinsurance, risk corridors and
employer subsidies. While the period of 3 months would be significantly
less than the fee-for-service Medicare medical claims standard of 18
months, we believe that a shorter period is warranted due to the highly
automated and point of sale nature of prescription drug claim
processing. We understand that the vast majority of prescriptions are
not filled without the claim being simultaneously processed and
therefore, there is a much shorter claims lag to be considered. We
believe that the number and value of drug claims that would potentially
be missed would be immaterial, consisting primarily of paper claims.
The 3-month close-out window would not limit the liability of the plan
or its claims processing contractor for reimbursing any lagging claims,
but would simply establish a timely cut-off for finalizing payments.
Any rebates for the coverage year not reflected in the fourth quarter
data (sent to close out the year) must be credited against future
payments. Although we are closing the year for claims purposes, the
plan must account for all rebates that occur throughout the coverage
year and send us all the data.
A shorter period would allow for payment processes that are
dependent on the knowledge of total allowable costs for each coverage
year to be concluded on approximately the same schedule as other
reconciliations involving enrollment or risk adjustment data. On this
schedule, calculations of
[[Page 46688]]
risk sharing could begin as soon as five to six months after the close
of the payment year. If the claims submission standard were a longer
period, final reconciliations would be significantly delayed. We are
interested in receiving comments on this timetable, specifically
whether we should adopt a shorter or longer period than 3 months, and
including data with which to estimate the proportion and value of drug
claims that could be excluded with a 3-month close-out window.
5. Determination of Payment (Sec. 423.329)
a. Direct Subsidies
As directed in section 1860D-15(a)(1) of the Act and codified in
Sec. 423.329(a), we would provide direct subsidies to PDP sponsors and
MA organizations offering MA-PD plans. These subsidies would be in the
form of advance monthly payments. Payments would be equal to the plan's
standardized bid, risk adjusted for health status as provided in Sec.
423.329(b), minus the base beneficiary premium (as determined in Sec.
423.286(c) and adjusted for any difference between the standardized
plan bid and the national average monthly bid amount (as described
under Sec. 423.286(d)(1))). The standardized bid would be the portion
of the plan's bid attributable to basic coverage. This portion would be
risk-adjusted by multiplying by the prescription drug risk score
attributable to each enrollee. Between the government direct subsidy
and the adjusted base beneficiary premium, the plan would receive its
entire risk-adjusted standardized bid in advance each month. Payment
for supplemental benefits would come from enrollees in the form of
additional premium. By statute, the sponsor must bear all risk for such
supplemental benefits.
We would note that a plan's total per capita payment could never
exceed its bid, risk-adjusted for the beneficiary's health status. This
would be the case even if the difference between the plan's bid and the
national average monthly bid amount were greater than the beneficiary
monthly premium, mathematically resulting in a ``negative premium''
amount. We do not believe that the statute envisions plan payments in
excess of negotiated costs, since this would violate the revenue
requirements provisions discussed in the Subpart F of this preamble.
b. Risk Adjustment
In section 1860D-15(c)(1) of the Act, we are directed to develop
and publish a prescription drug risk adjustment methodology taking into
account the similar methodologies under Sec. 422.308(c)(1) to adjust
payments to MA organizations for benefits under Part C on the basis of
costs incurred under original Medicare. In Sec. 423.329(c) we propose
to establish this risk adjustment methodology. We would develop and
publish this risk adjustment methodology in the 45-day notice for the
announcement of 2006 Medicare Advantage rates. Section 1860D-
15(c)(1)(D) of the Act requires us to publish the risk adjustment for
Part D at the same time we publish risk adjustment factors under
section 1853(b)(1)(B)(i)(II) of the Act. Because these risk adjustment
factors under Part C can only be published after 45-day advance notice
under section 1853(b)(2) of the Act, we would use the same notice
procedures we use under Part C for risk adjustment. We believe this
would promote consistency and uniformity in the process, and,
especially for MA-PD plans, allow entities to review notices published
on the same day for purposes of commenting on or learning about risk
adjustment. As usual, the 45-day notice would solicit public comment on
any change in proposed payment methodologies. We are expecting that
this new prescription drug risk adjustment methodology would initially
be based on the relationship of prescription drug utilization within
the entire Medicare population to medical diagnoses, and that it would
be applied at the individual beneficiary level. Our longer-term plan
would be to refine the risk adjustment model to account for predictable
risk based on both medical and drug claim data.
Section 1860D-15(c)(1)(C) of the Act and Sec. 423.329(b)(3) of
this proposed rule authorize us to specify and require the submission
of data from PDP sponsors regarding drug claims that can be linked at
the individual level to part A and part B data in a form and manner
similar to the Medicare Advantage process provided in Sec. 422.310 and
such other information as we determine necessary. Similarly, MA
organizations that offer MA-PD plans must submit data regarding drug
claims that can be linked at the individual level to other data that
these organizations are required to submit to us. A primary
requirement, therefore, would be claims linked to the Medicare
beneficiary HIC. Other proposed data submission elements are
discussed in section 3(a) of this part of the preamble. We may also be
interested in linking this data to the plan level and would then
require the inclusion of the PDP or Medicare Advantage plan identifier
(H). We would use this data to further refine our prescription
drug risk adjustment factors and methodology in order to make payments
that accurately reflect plan risk.
Any risk adjustment methodology we adopt should adequately account
for low-income subsidy (LIS) individuals (and whether such individuals
incur higher or lower-than average drug costs). Our risk adjustment
methodology should provide neither an incentive nor a disincentive to
enrolling LIS individuals, and we request comments on this concern and
suggestions on how we might address this issue.
Our particular concern is that a risk adjustment methodology,
coupled with the statutory limitation restricting low-income subsidy
(LIS) payments for premiums to amounts at or below the average, could
systematically underpay plans with many LIS enrollees (assuming LIS
enrollees have higher costs than average enrollees). If the risk-
adjustor fails to fully compensate for the higher costs associated with
LIS recipients, an efficient plan that attracts a disproportionate
share of LIS eligible individuals would experience higher costs to the
extent the actual costs of the LIS beneficiaries are greater than the
risk-adjustment compensation. Failing to discourage enrollment by LIS
beneficiaries in 2006, the plan would experience higher than expected
costs in that year and presumably be driven to reflect these higher
costs (due to adverse selection, not efficiency) in its bid for 2007.
In this hypothetical, plans would have a disincentive to attracting a
disproportionate share of LIS beneficiaries. One possible solution
would be to assure that the initial risk-adjustment system, which will
be budget neutral across all Part D enrollees, does not undercompensate
plans for enrolling LIS beneficiaries. In fact, to the extent that an
initial risk-adjustor might at the margin tend to overcompensate for
LIS beneficiaries, plans would have a strong incentive to
disproportionately attract such beneficiaries. Plans could attract LIS
beneficiaries both by designing features that would be attractive to
such beneficiaries but also by bidding low. We would appreciate
comments on this concern and suggestions on how we might address this
potential problem.
c. Risk Adjustment Budget Neutrality
In accordance with section 1860D-15(c)(1)(A) of the Act and Sec.
423.329(b)(1), our risk adjustment methodology would be implemented in
a budget-neutral manner. A requirement for budget neutrality assumes
that there is a known budget. We interpret the statute to require that
the risk
[[Page 46689]]
adjustment methodology must not result in a change in aggregate amounts
payable in section 1860D-15(a)(1) of the Act, that is, the risk
adjustment methodology must be ``budget neutral'' to some aggregate of
direct subsidy payments made before risk adjustment. (Since direct
subsidy payments are made only to full-risk or limited risk plans, this
budget by definition would not include payments to fallback plans.)
For comparison, in the current M+C (now Medicare Advantage) program
the budget for risk-adjustment budget neutrality is defined to be the
aggregate government payments made to plans under the 100 percent
demographic payment system. Since the health-status-risk-adjustment
methodology currently results in lower aggregate payments than the
demographic methodology, M+C budget neutrality distributes among
participating plans the difference between total payments under the 2
methodologies via a factor that allocated the difference in the same
proportion as the allocation of risk-adjusted payments. However, there
is no corresponding predetermined limit to aggregate payments in Title
I, that is, to the aggregate government direct subsidy payments made
before risk adjustment, so there is no amount to use as a basis for
comparison in determining budget neutrality.
In the M+C program, the reason for the difference between the total
payments under the demographic methodology and total payments under
health status risk adjustment is that the average health status of
enrollees in M+C is different than the average health status for the
program as a whole (that is, M+C plus original Medicare). In Part D,
there is no equivalent to original Medicare since beneficiary access
subsidized coverage through enrollment in private plans. The Part D
risk adjustment system would be based on these enrollees. Since there
is no group of beneficiaries outside the system like there is under
Part C, total payments with and without risk adjustment are always
equal or budget neutral. Therefore, we believe that risk adjustment as
applied to Part D benefits should be budget neutral to the risk of the
individuals who actually enroll without any additional adjustment. We
would appreciate comments on this approach.
d. Reinsurance Subsidies
i. Allowable Reinsurance Costs
As provided in section 1860D-15(e) of the Act and Sec. 423.329(c),
we would reduce the risk of participating in this new program by
providing reinsurance subsidies. Subsidies would be limited to 80
percent of allowable reinsurance costs for drug costs incurred after an
enrollee has reached the annual out-of-pocket threshold. The annual
out-of-pocket threshold would be $3,600 in 2006. Under standard
coverage this corresponds to total gross covered prescription drug
costs of $5,100, and would be increased annually as provided in section
1860D-2(b)(4)(B)(i)(II) of the Act and 1860D-2(b)(4)(B)(ii) (with
regard to rounding).
In meeting the various actuarial tests required of alternative
coverage, there could be instances where a sponsor wanting to provide
basic alternative coverage would have to enhance plan benefits in order
to meet the test of equal total actuarial value relative to defined
standard coverage. This could occur with the use of a tiered co-pay
benefit structure that could shift utilization to a cheaper set of
drugs, thus allowing plans to lower cost sharing to achieve the same
total dollar value as defined standard coverage. In these instances,
since cost sharing is reduced relative to defined standard coverage,
the out-of-pocket threshold would be associated with a higher total
drug costs than the $5,100 under standard coverage in 2006. For
sponsors offering enhanced alternative coverage, the out-of-pocket
threshold would also be associated with higher total drug spending. In
this instance, however, it would be due to fact that the plan's
supplemental benefits would be displacing part of the cost sharing that
enrollees would otherwise have incurred.
Allowable reinsurance costs are a subset of gross covered
prescription drug costs. Gross covered prescription drug costs are
those costs incurred under the plan, excluding administrative costs,
but including costs related to the dispensing of covered Part D drugs
during the year and costs relating to the deductible. These costs are
determined whether paid by the individual or under the plan, and
regardless of whether the coverage under the plan exceeds basic
prescription drug coverage. Allowable reinsurance costs, on the other
hand, are the subset of these costs that are attributable solely to
basic or standard benefits and that are actually paid by the sponsor or
organization or by (or on behalf of) an enrollee under the plan.
Actually paid--means that these costs must be net of any discounts,
chargebacks, and average percentage rebates, and would exclude any
amounts not actually incurred by the sponsor. The reinsurance payments
are then calculated by determining the portion of allowable reinsurance
costs that are incurred after the enrollee has reached the out-of-
pocket threshold ($3,600 out of pocket in 2006). The reinsurance
subsidy would provide 80 percent of such excess amount.
ii. Payment of Reinsurance Subsidy
Since allowable reinsurance costs can only be fully known after all
costs have been incurred for the payment year, we would propose to make
payments on an incurred basis to assist PDP sponsors and MA
organizations with cash flow. Under Sec. 423.329(c)(2)(i), we would
provide for payments of reinsurance amounts based on plan actual
reinsurance-eligible allowable costs with a one-month lag period. In
other words, no payments would be made until enrollees reached the true
out-of-pocket threshold. This would require timely submission of drug
claim data. In this approach rebates would be recognized in the month
after they were received and would be offset against the previous
month's actual costs.
Alternatively, we could consider payments of reinsurance amounts on
a monthly prospective basis based on the reinsurance assumptions
submitted and negotiated with each plan's approved bid. We would take
these assumptions into account in developing either a plan-specific or
program-wide approach. We note that any program-wide approach involving
some kind of average of the amounts included in the bids would have to
adjust for the fact that plans providing enhanced alternative benefits
would incur lower reinsurance costs. We are also aware that allowable
reinsurance costs would be predominantly incurred in the latter parts
of the coverage year and are considering the most appropriate
methodology for distributing interim payments. One possible approach
would require the submission of a schedule of the estimated timing of
incurred allowable reinsurance costs along with the bid. For example,
we might take schedules from each plan or we could propose an
incremental schedule (X% of the total in January, Y% in February,
etc.). We are aware that the prospective payment of estimated costs
would create an incentive to overstate reinsurance, however, and are
interested in ensuring that payments are not excessive. Since equal
payments would be most compatible with our systems, in the first two
years of the program (and for the first two years of new plans
thereafter) we could also consider another approach paying \1/12\th of
the net present value of estimated allowable reinsurance costs in each
month of the coverage year. The net
[[Page 46690]]
present value would be calculated on the basis of all estimated
reinsurance payments due at the end of the year and discounted by the
most recently available rate for one-year Treasury bills. We would
welcome comments on these approaches and on the appropriate treatment
of interest in such a system.
For subsequent years of the program, we could consider an approach
of paying \1/12\th of the two-year prior year's actual expenses. Such
an approach would need to be trended forward by an appropriate index to
account for expected growth in plan costs. In other words, in 2008 the
interim payments would be based on actual reconciled reinsurance
payments for 2006 trended forward by an estimated two-year growth
factor. Regardless of which process we used for making reinsurance
payments, as discussed below, if, at the end of the year, the data
demonstrates the sponsor was overpaid through the interim payments--or
if there is insufficient evidence to support the reinsurance payments
claimed--we would recover the overpayments either through a lump sum
recovery or by reducing future payments during the coverage year.
Similarly, if the data demonstrates that the sponsor was underpaid, we
would pay the sponsor.
iii. Adjustments to Reflect the True Out-of-Pocket Threshold
The statute provides that the reinsurance subsidy would be paid
only for the plan's share of individual expenses in excess of an
enrollee's true out-of-pocket (TrOOP) threshold. As indicated above, if
the PDP sponsor offers enhanced alternative coverage or an MA-PD plan
offers benefits beyond basic coverage as part of its supplemental
benefits, the plan's spending for these benefits would not count toward
the TrOOP threshold. Since benefits beyond basic coverage reduce cost
sharing that would otherwise be incurred, they shift the effective
prescription drug catastrophic limit beyond the associated total
spending under the standard benefit ($5,100 in 2006) and raise the
effective reinsurance attachment point at the same time.
In addition, to the extent that plan cost sharing is paid or
reimbursed by secondary insurance coverage or otherwise, that cost
sharing does not count toward the out-of-pocket threshold.
Beneficiaries are required to report the existence of secondary
coverage or other types of coverage we identify and plans must identify
these payments and ensure that true out-of-pocket spending is accounted
for accurately in claims processing. This is more fully discussed in
subpart C and subpart J of this preamble.
iv. Adjustments for the Insurance Effect of Supplemental Coverage
Supplemental benefits increase the level of total drug spending
after which reinsurance payments begin (reinsurance attachment point).
Assuming 2 identical groups of enrollees with respect to utilization,
one enrolled in enhanced alternative coverage and one in defined
standard coverage, the total allowable reinsurance costs for the group
with standard coverage would be greater than for the group with
enhanced alternative coverage. Thus, one might hold that the
differences in benefit packages are accounted for without the need for
further adjustment. If one would examine average total spending for
both groups, however, one would find that the average spending under
enhanced alternative coverage would be greater than the average under
defined standard coverage because of the impact of the insurance effect
(or ``moral hazard'', that is, the tendency of increased coverage
resulting in increased utilization due to decreased financial stake in
the costs associated with utilization). All other things being equal,
this higher total spending would result in higher allowable reinsurance
costs than would otherwise occur if the total spending under enhanced
alternative coverage were comparable to that under standard coverage.
We are therefore proposing (in the definition of allowable
reinsurance costs) to adjust allowable reinsurance costs to reflect the
impact of this induced utilization. We would make this adjustment to
comply with the requirement in section 1860D-15(b)(2) of the Act that
in no case shall the allowable reinsurance costs exceed the costs
``that would have been paid under the plan if the * * * coverage * * *
were standard prescription drug coverage''. We are looking for comments
on whether this adjustment should be made and how best to adjust the
experience of PDPs with enhanced alternative coverage or MA-PD plans
offering supplemental coverage to account for the insurance effect.
v. Reinsurance Subsidies to Private Fee-For-Service Plans
As provided under section 1860D-21(d)(4) of the Act and proposed in
Sec. 423.329(c)(3), we would base reinsurance payments for PFFS plans
on an alternative methodology. Rather than negotiating reinsurance
assumptions submitted with the PFFS plan bid or otherwise adjusting for
potential price level differences between PFFS and other MA
organization bids, we would estimate the amount of reinsurance payments
that would be payable if the plan were an MA-PD plan described in
section 1851(a)(2)(A)(i) of the Act. In doing so we would take into
account the average reinsurance payments made under Sec. 423.329(c)(2)
for basic benefits for populations of similar risk under such MA-PD
plans. Estimated payments would not be subject to any reconciliation
process to compare the amounts paid to the actual allowable reinsurance
expenses, and would not allow for payment recoveries in the event that
actual allowable reinsurance costs exceed payments.
6. Low-Income Cost-Sharing Subsidy Interim Payments
As provided under section 1860D-14 of the Act and in Sec. 423.780
of our proposed regulations, CMS will provide additional assistance for
certain low-income beneficiaries in the form of premium, deductible and
cost-sharing subsidies. Since actual expenses incurred by these low-
income beneficiaries can only be fully known after all costs have been
incurred for the payment year, we would propose to make estimated
payments on an interim basis to assist PDP sponsors and MA
organizations with cash flow. Under Sec. 423.329(d)(2)(i), we would
provide for interim payments of low-income deductible and cost-sharing
amounts on a monthly prospective basis based on estimates of low-income
cost sharing submitted and negotiated with each plan's approved bid.
Like the possible option of reinsurance subsidy interim payments
discussed above, a decision on whether these assumptions would be taken
into account in developing a plan-specific or program-wide approach has
yet to be determined.
We are aware that low-income cost sharing would not necessarily be
incurred evenly throughout the coverage year and are considering the
most appropriate methodology for distributing interim payments. Since
equal payments would be most compatible with our systems, in the first
two years of the program (and for the first two years of new plans
thereafter) we are considering an approach paying \1/12\th of the net
present value of estimated low-income cost sharing in each month of the
coverage year. The net present value would be calculated on the basis
of all estimated costs due at the end of the year and discounted by the
most recently available rate for one-year Treasury bills. An
alternative approach would require the submission of a schedule of the
estimated timing of
[[Page 46691]]
incurred low-income cost sharing along with the plan bid. For example,
we might take schedules from each plan or we could propose an
incremental schedule (X% of the total in January, Y% in February,
etc.). We are aware that the prospective payment of estimated costs
creates an incentive to overstate low-income cost sharing, and are
interested in ensuring that our interim payments are not excessive. We
would welcome comments on these approaches and on the appropriate
treatment of interest in any methodology. For subsequent years of the
program, we are considering an approach of paying \1/12\th of the two-
year prior year's actual expenses. Such an approach would need to be
trended forward by an appropriate index to account for expected growth
in plan costs. In other words, in 2008 the interim payments would be
based on actual reconciled low-income cost sharing subsidy payments for
2006 trended forward by an estimated two-year growth factor. Again, any
reconciliation at the end of the year would need to be based on the
sponsor providing adequate information in order to determine the
subsidy amounts for the year. If the sponsor could not provide such
information, interim payments would be recovered. In addition, the low-
income payments would be subject to the same inspection and audit
provisions applying to the other payments made under section 1860D-15
of the Act.
7. Risk Sharing Arrangements
a. Risk Sharing Methodology and the Target Amount
As provided under section 1860D-15(e) of the Act and proposed in
Sec. 423.336, we would establish risk corridors. Risk-sharing payments
would limit exposure to unexpected expenses not already included in the
reinsurance subsidy or taken into account through risk adjustment.
These would be structured as symmetrical risk corridors that are
agreements to share a portion of the losses or profits resulting from
expenses for basic benefits either above or below expected levels,
respectively. However, plans would always be at full financial risk for
all spending on supplemental drug coverage. In addition, in accordance
with section 1860D-21(d)(5) of the Act and section 1860D-15(g) of the
Act, the risk sharing provisions are not available to PFFS and fallback
plans.
The expected level of expenses for basic benefits included in the
standardized bid is known as the ``target amount''. The target amount
for any plan would be equal to the total amount of direct subsidy
payments from us, and premium payments from enrollees to that plan for
the year based upon the risk-adjusted standardized bid amount, less the
administrative expenses and return on investment assumed in the
standardized bid. Since the standardized bid is the portion of the
accepted bid amount attributable to basic prescription drug coverage,
the target amount can be thought of as ``prepayments'' of prescription
drug expense for basic benefits. The standardized bid has also taken
into account (and excludes) any utilization effects of offering
supplemental coverage. The objective of risk sharing would be to
compare total actual incurred prescription drug expenses to the
prepayments, to compute the difference, and to reimburse or recover a
portion of the difference.
In Sec. 423.336(a)(2)(A), we would establish risk corridors,
defined as specified risk percentages above and below the target
amount. For instance, in Sec. 423.336(a)(2)(ii), for 2006 and 2007,
the first risk corridor is defined as 2.5 percent above the target
amount and the second as 5 percent above the target amount. This means
that, for 2006 and 2007, the first risk corridor is between 100 percent
and 102.5 percent of the target amount and the second risk corridor is
between 102.5 percent and 105 percent of the target amount. A third
risk corridor is above 105 percent of the target amount.
The term, symmetrical risk corridors--means that the same size
corridors exist below the target amount as above it. The actual upper
or lower limits of each corridor equal the target amount plus or minus
the product of the risk percentage times the target amount, as
illustrated in Table G-1. Since these risk corridors would be
symmetrical, plans with adjusted allowable costs below the 1st
threshold lower limit would have to share the savings with the
government.
b. Allowable Risk Corridor Costs
The costs applicable to the computation of risk sharing are known
as allowable risk corridor costs. These costs are defined in section
1860D-15(e)(1)(B) of the Act and proposed in Sec. 423.308 as the part
of costs for covered Part D drugs that are only attributable to basic
benefits. Allowable risk corridor costs cannot include costs
attributable to benefits outside the basic benefit. We would interpret
this as both the actual differences in benefits structure and the
insurance effect of supplemental coverage on basic coverage. In section
1860D-15(e)(1)(B) of the Act, reference is made to section 1860D-
11(c)(2) of the Act that provides for a utilization adjustment using as
its reference point standard prescription drug coverage. We are
interpreting this to mean the statutorily defined standard prescription
drug coverage described in Subpart C. Also, allowable risk corridor
costs must actually be paid by the sponsor or organization under the
plan and must be net of any chargebacks, discounts or average
percentage rebates. The allowable risk corridor costs also do not
include any administrative expenses of the sponsor or organization.
(Administrative expenses would not include costs directly related to
dispensing of Part D drugs during the year.) Note that unlike allowable
reinsurance costs, allowable risk corridor costs do not include any
amount paid by the enrollee. In Sec. 423.336(a)(1), we propose that
allowable risk corridor costs must be adjusted in accordance with
section 1860D-15(e)(1)(A) of the Act, by subtracting expenses
reimbursed through other separate payments. Thus, reinsurance payments
made under Sec. 423.329(c)(2) and the non-premium low-income subsidy
payments made under Sec. 423.782 [in Subpart P] of these proposed
regulations to the sponsor of the plan for the year must be subtracted.
The PDP sponsor or MA organization would already have received
compensation for these costs, and thus they do not fall within the
construct of risk corridors that are directed at limiting exposure to
unexpected expenses.
If adjusted allowable risk corridor costs exceed the prepayments by
a certain amount, we would reimburse a percentage of the difference to
help plans with a portion of the unanticipated expenses associated with
their drug coverage. On the other hand, if prepayments exceed adjusted
allowable risk corridor costs, we would reduce future payments or
otherwise recover a percentage of the difference to reduce the impact
on the Trust Fund of excessive bids.
[[Page 46692]]
Table G-1. Illustration of Risk Sharing Arrangements for Hypothetical Plan
----------------------------------------------------------------------------------------------------------------
A. Assumptions in bid Actual costs for basic benefit
----------------------------------------------------------------------------------------------------------------
PMPM Totals PMPM Totals
----------------------------------------------------------------------------------------------------------------
Enrollees............................... .............. 10,000 .............. .............. ..............
(Subsidy-eligible) .............. 0 .............. .............. ..............
Avg. Payment............................ 114.00 ...... .............. .............. ..............
Premium................................. 30.60 ...... .............. .............. ..............
Avg. Direct Subsidy..................... 83.40 ...... .............. .............. ..............
Admin................................... 17.00 ...... .............. .............. ..............
Est. Allowable Cost..................... 97.00 970,00 .............. 100.00 1,000,000
0
Reinsurance Cost........................ 0.00 ...... .............. .............. ..............
Total Premiums.......................... .............. 306,00 .............. .............. ..............
0
Total Direct Subsidy.................... .............. 834,00 .............. .............. ..............
0
Less Total Admin........................ .............. (170,0 .............. .............. ..............
00)
Target Amount........................... .............. 970,00 .............. .............. ..............
0
----------------------------------------------------------------------------------------------------------------
Allowable
B. Risk corridor limits Risk Corridor C. Threshold Risk sharing % costs minus Payment
limit % threshold change
----------------------------------------------------------------------------------------------------------------
2nd upper limit........................ .050 1,018,500 80% .............. .......
1st upper limit........................ .025 994,250 50% 5,750 +2,875
Target Amount.......................... .000 970,000 0% .............. .......
1st lower limit........................ (.025) 945,750 (50%) .............. .......
2nd lower limit........................ (.050) 921,500 (80%) .............. .......
----------------------------------------------------------------------------------------------------------------
In Table G-1, a hypothetical plan with average payments of $114
per-member-per-month (PMPM), based on expected prescription drug costs
of $97 PMPM, actually incurs costs equal to $100 PMPM. In this
simplified example there are no reinsurance or low-income subsidies.
The actual incurred costs are compared to the ``prepayment'' included
in the risk-adjusted standardized bid (in this case the target amount
of $970,000) by looking at the risk corridors in which they fall. The
risk corridors have been calculated based on the target amount plus or
minus the risk percentages associated with each risk corridor limit.
For instance the 1st upper limit is defined as the target amount
($970,000) plus 2.5 percent of the target amount ($24,250), so the 1st
upper limit is calculated to be $994,250. The actual allowable costs of
$1,000,000 fall between the 1st upper limit and the 2nd upper limit, so
the costs eligible for risk sharing is the difference between the
allowable costs ($1,000,000) and the 1st threshold upper limit
($994,250), or $5,750. Since the amount of risk sharing in this
corridor is set at 50 percent, the actual change in payment due to risk
sharing is 50 percent of $5,750, or an additional $2,875.
As mentioned above, in order to arrive at a value for actual risk
corridor costs that can be appropriately compared to the target amount,
allowable risk corridor costs would be adjusted to remove expenses
reimbursed through total reinsurance payments and non-premium low-
income subsidy payments. The statute indicates that allowable risk
corridor costs should be reduced by reinsurance payments and by the
subsidy payments for low-income individuals. The subsidy payments for
low-income individuals under section 1860D-14 of the Act include
subsidies for both premium and for cost sharing. We are proposing to
interpret ``the total subsidy payments made under section 1860D-14''
under section 1860D15(e)(1)(A)(ii)(II) of the Act in the context of
``costs incurred by the sponsor or organization'' in the definition of
allowable risk corridor costs. Since premiums are not a cost, we
propose to limit our interpretation of ``the total subsidy payments''
to payments related to cost sharing.
In proposing this interpretation, we note that when adjusted
allowable risk corridor costs are calculated by subtracting only non-
premium subsidies, as we are proposing to do, the results are the same
as for an identical plan without any subsidy-eligible individuals.
However, if the adjusted allowable risk corridor costs are calculated
by subtracting total low-income subsidies (that is, for premiums, cost
sharing and coverage above the initial coverage limit), the risk
sharing calculation results in lower recouped costs on the part of the
plan and a different outcome from that in a plan without subsidy-
eligible individuals. Since there should be no difference in these
amounts, the calculation subtracting only non-premium subsidies must be
the appropriate one. We believe that to do otherwise would result in a
major disincentive for PDP and MA-PD plans to enroll individuals
eligible for the low-income subsidies, and we do not believe that this
would be the logical outcome that was intended by the statute. We would
welcome comments on our interpretation.
c. Changes in Risk Corridor Limits and Percentages (Sec. 423.336(a)
and (Sec. 423.336(b))
The risk corridors and the percentage of risk to be shared would be
set at certain levels for 2006 and 2007 with flexibility for us to
increase the risk sharing percentage if bids, and therefore target
amounts, are off during the early years of the program by a certain
percentage set by the statute in section 1860D-15(e)(2)(B)(iii) of the
Act. During 2006 and 2007, plans would be at full risk for adjusted
allowable risk corridor costs within 2.5 percent above or below the
target. Plans with adjusted allowable costs above 102.5 percent of the
target would receive increased payments. If their costs were between
102.5 percent of the target (1st threshold upper limit) and at or below
105 percent of the target (2nd threshold upper limit), they would be at
risk for 25 percent of the increased amount; that is, their additional
payments would equal 75 percent of adjusted allowable costs for
spending in this range. If their costs were above 105 percent of the
target they would be at risk for 25 percent of the costs between the
first and second threshold upper limits and 20 percent of the costs
above that amount. That is, their additional payments would equal 75
percent of the difference between the first and second
[[Page 46693]]
threshold upper limits and 80 percent of the adjusted allowable costs
over the second threshold upper limit. Conversely, if plan spending
fell below the 97.5 percent of target, plans would share the savings
with the government. They would have to refund 75 percent of the
savings for any costs less than 97.5 percent of the target amount but
at or above 95 percent of the target level, and 80 percent of any
savings below 95 percent of the target.
In Sec. 423.336(b)(2)(iii) the program will cover a higher
percentage of the risk for costs between the 1st and 2nd upper
threshold limits would apply in 2006 and 2007 if we were to determine
that (1) 60 percent of prescription drug plans and MA-PD plans have
adjusted allowable costs that are more than the first threshold upper
limit for the year; and (2) these plans represent at least 60 percent
of beneficiaries enrolled in such plans. In this case, additional
payments to plans would increase from 75 percent to 90 percent of
adjusted allowable costs between the first and second upper threshold
limits. Conversely, there would be no change in savings shared with the
government if costs fell below 97.5 percent of the target level.
For 2008-2011, the risk corridors and the percentage of risk to be
shared would be modified so that PDP and MA-PD sponsors would assume an
increased level of risk. Plans would be at full risk for drug spending
within 5 percent above or below the target level. Plans would be at
risk for 50 percent of spending exceeding 105 percent and at or below
110 percent of the target level. Additionally, they would be at risk
for 20 percent of any spending exceeding 110 percent of the target
level. Payments would be increased by 50 percent of adjusted allowable
costs exceeding the first threshold upper limit and up to the second
threshold upper limit and 80 percent for any additional costs exceeding
the second threshold upper limit. Conversely, if plan spending fell
below the target, plans would share the savings with the government.
They would have to refund 50 percent of the savings if costs fell
between 95 percent and 90 percent of the target level, and 80 percent
of any amounts below 90 percent of the target.
For years after 2011, we would establish the risk threshold
percentage as deemed necessary to create incentives for plans to enter
the market. The only required parameters would be that the first
threshold risk percentage could not be less than 5 percent and the
second threshold risk percentage could not be less than 10 percent of
the target amount.
d. Risk Sharing Payments or Recoveries
As proposed in Sec. 423.336(c), we will make payments or recover
savings after a coverage year after obtaining all of the information
necessary to determine the amount of payment. In Sec. 423.336(c)(1) we
are proposing that within six months of the end of a coverage year, the
PDP sponsor or MA organization offering a MA-PD plan would provide us
with the information necessary to calculate the risk sharing as
discussed in section 3(a) of this part of the preamble. This would
include prior final reconciliation of reinsurance and low-income
subsidies since allowable risk corridor costs must be reduced by the
total reinsurance payments and non-premium low-income subsidies for the
year. Once this information has been received, under Sec.
423.336(c)(2) we would either make lump-sum payments or adjust monthly
payments in the following payment year based on the relationship of the
plan's adjusted allowable risk corridor costs to the predetermined risk
corridor thresholds in the coverage year. We would not make payment if
we did not receive the necessary information from the PDP sponsor or MA
organization. In addition, as stated, below, we are considering certain
corrective actions to recoup risk-sharing payments, in the event of
lack of information.
8. Retroactive Adjustments and Reconciliation (Sec. 423.343)
In Sec. 423.343(a) and Sec. 423.343(b) we propose to make
retroactive adjustments to the aggregate monthly payments to a PDP or
MA-PD for any difference between the actual number and characteristics,
including health status, of enrollees and the number and
characteristics on which we had based the organization's advance
monthly payments. Reconciliation of actual payments made would be done
as needed. In order for total payments to be properly accounted for in
all steps, the order of reconciliation processes would be first,
enrollment; second, risk adjustment; third, low-income cost sharing;
fourth, reinsurance; and finally, risk sharing.
Under Sec. 423.343(c) and (d), we would provide for a final
reconciliation process to compare the payments for reinsurance
subsidies and low-income cost-sharing subsidies made during the
coverage year to actual allowable reinsurance expenses and low-income
cost sharing and to make additional payments or payment recoveries
accordingly. The form and manner in which actual allowable reinsurance
costs would be submitted for reconciliation has yet to be determined.
We are proposing that PDP sponsors and MA organizations offering a MA-
PD plan would provide us with the information necessary to finalize
reinsurance payments as discussed in section 3(a) of this part of the
preamble within six months of the end of a coverage year. Once complete
data were received for a coverage year, we would compare 80 percent of
the allowable reinsurance costs attributable to that portion of gross
covered prescription drug costs incurred in the coverage year after an
individual has incurred costs that exceed the annual out-of-pocket
threshold to the monthly reinsurance payments and compute the
difference. We would then either make lump-sum payments or adjust
monthly payments throughout the remainder of the payment year following
the coverage year to pay out or recover this difference.
If an entity did not provide us with sufficient documentation for
us to reconcile payments, we would reconcile by recovering payments for
which the entity lacked documentation. For example, if CMS makes
interim payments during the year for the low-income subsidy, but at the
end of the year, the PDP sponsor or MA organization cannot provide
documentation demonstrating the amounts of beneficiary cost-sharing,
the reconciliation process would involve recouping the interim payments
for such subsidy. The need to provide sufficient documentation to
support final payment determinations applies even in the event of a
change of ownership. Thus, new owners of a PDP sponsor or MA
organization would be responsible for obtaining the documentation
necessary to support payment, and the reconciliation process would be
used to recover any payments for which the new owner lacked
documentation. We believe this authority stems from the direction of
the Congress that each PDP sponsor and MA-PD organization ``provide the
Secretary with such information as the Secretary determines is
necessary to carry out this section,'' (section 1860D-15(f)(1)(A) of
the Act) and that ``payments under this section * * * are conditioned
upon the furnishing to the Secretary in a form and manner specified by
the Secretary, of such information as may be required to carry out this
section,'' (section 1860D-15(d)(2)(A)of the Act)).
We also request comment on the remedy that should be imposed in the
event a PDP sponsor or MA organization offering an MA-PD plan fails to
provide us with adequate information regarding risk-sharing
arrangements. In the case of
[[Page 46694]]
risk corridor costs, the organization or sponsor may owe the government
money if, for example, prepayments exceed adjusted allowable risk
corridor costs. In this case, failure to provide information could
result in a shortfall to the government, since the entity would not
have the information necessary for the Secretary to establish the
proper amount owed. Although we have not proposed regulations on this
issue, some of the remedies we are considering for the final rule are:
(1) Assume that the sponsor's or organization's adjusted allowable risk
corridor costs are 50% of the target amount; (2) assume that the
sponsor's or organization's adjusted allowable risk corridor costs are
the same percentage of the target amount as the mean (or median)
percentage achieved by all PDPs or MA-PDs whose costs are lower than
the target amount; (3) assume that the sponsor's or organization's
adjusted allowable risk corridor costs are the same percentage of the
target amount as the mean (or median) percentage achieved by all PDPs
or MA-PDs (whose costs are both higher and lower than the target
amount). We use a 50% threshold for option (a) because we believe this
threshold would constitute a lower limit; and it would be unlikely for
any organization or sponsor to have costs lower than 50% of their total
payments. We request comments on these options, as well as proposals of
other options that would allow us to recoup risk-sharing payments in
the event a sponsor fails to provide us the adequate information
necessary to determine appropriate risk-sharing payments.
9. Reopening (423.346)
Finally, we believe that the provision in 1860D-15(f)(1) of the Act
providing the Secretary with the right to inspect and audit any books
and records of a PDP sponsor or MA organization regarding costs
provided to the Secretary would not be meaningful, if upon finding
mistakes pursuant to such audits, the Secretary were not able to reopen
final determinations made on payment. In addition, we believe that
sections 1870 and 1871 of the Act provide us with the authority to
reopen final determinations of payment to PDP sponsors and MA
organizations. Therefore, we propose in this rule to include reopening
provisions patterned after those used in Medicare claims reopening,
found in Part 405 of the regulations, subparts G and H. Including
reopening provisions would allow CMS to ensure that the discovery of
any overpayments or underpayments could be rectified. Under our
proposed provisions, reopening could occur for any reason within one
year of the final determination of payment, within four years for good
cause, or at any time when there is fraud or similar fault. CMS could
initiate a reopening on its own, or a sponsor or organization could
request reopening, but such requests would be at the discretion of CMS.
The Supreme Court has determined that in the context of reopening cost
reports, a fiscal intermediary's decision not to reopen a final
determination is not subject to judicial review, see Your Home Visiting
Nurse Services, Inc. v. Shalala, 525 U.S. 449, 456 (1999), and we
believe the same reasoning would apply in the context of Part D.
Good cause would be interpreted in the same manner as in Part 405
(see Medicare Carriers Manual section 12100). Thus, good cause would
exist, if (a) new and material evidence, not readily available at the
time of the determination, is furnished; (b) There is an error on the
face of the evidence on which such determination or decision is based;
or, (c) There is a clerical error in determination. In order to meet
the standard under (a) the evidence could not have been available at
the time the determination was made. A clerical error constitutes such
errors as computational mistakes or inaccurate coding. An error on the
face of the evidence exists if it is clear based upon the evidence that
was before CMS when it reached its initial determination that the
initial determination is erroneous. Thus, for example, good cause would
exist in cases where it is clear from the files that rebates or
administrative costs were not appropriately accounted for, where
computation errors had been made, where a sponsor or organization
included non-Part D drugs in their calculations, where individuals not
enrolled in the plan were included in calculating payment, and in
similar situations. Reopening could occur at any time in cases of fraud
or similar fault, such as in cases where the sponsor or organization
knew or should have known that they were claiming erroneous Medicare
payment amounts.
I. Organization Compliance With State Law and Preemption by Federal Law
1. Overview
In our proposed regulation at Sec. 423.401 we would implement the
requirements of section 1860D-12(a) of the Act that address licensing,
the assumption of financial risk for unsubsidized coverage and solvency
requirements for unlicensed sponsors or sponsors who are not licensed
in all States in the region in which it wants to offer a PDP. The
provisions of this section specify that a sponsor of a PDP must be
organized and licensed under State law as a risk bearing entity
eligible to offer health insurance or health benefits coverage in each
State that it offers a PDP. However, as required by section 1860D-
12(a)(1) of the Act, we have provided in our proposed regulations at
Sec. 423.410 for a waiver of the State licensure requirement for the
reasons and under the conditions set forth under section 1860D-12(c) of
the Act. In addition, under the requirements of section 1860D-12(a) of
the Act, to the extent an entity is at risk, it must assume financial
risk on a prospective basis for covered benefits that are not covered
by reinsurance. The PDP sponsor can obtain insurance or make other
arrangements for the cost of coverage provided to enrollees to the
extent that the sponsor is at risk for providing the coverage.
In Sec. 423.420, we specify that sponsors that have been granted a
waiver by us or those operating in States that do not have licensing
requirements for PDPs must maintain reasonable financial solvency and
capital adequacy. We intend to develop these reasonable standards
through guidance, after consulting with the National Association of
Insurance Commissioners (NAIC), as required by statute. The guidance
would be issued by January 1, 2005. Although we believe these standards
would be interpretive guidance, we are interested in receiving comments
on the issue. In addition, as noted in Sec. 423.410, we would
establish an application and certification process for waiver
applicants.
We expect that the development of solvency standards for purposes
of PDP sponsors under Part D will be less complex than the situation
presented to us by the development of solvency standards for provider-
sponsored organizations (PSOs) under the Balanced Budget Act of 1997.
(PDP sponsors in contrast to PSOs are fairly straightforward insurance
risk models whereas the PSO situation involved having to consider such
issues as the role that physical plant assets played in establishing
solvency standards.) Although drug only plans are not a common product
in the insurance market today, there are other single lines of business
plans licensed by States (for example, dental plans, behavioral mental
health plans) that can provide some possible models.
We also have experience from determining solvency standards for
federally qualified health maintenance organizations under Title XIII
of the Public Health Service Act and competitive medical plans under
[[Page 46695]]
Section 1876 of the Social Security Act. In addition, we are aware that
the solvency standards have been applied to at least two drug-only
plans (Medica and PacifiCare) and believe that these could also provide
a model for the licensing of the entities. However, we believe that
these two products are lines of business operated under a current
insurance license, and therefore, our greatest concern would be how to
go about developing standards for organizations that may have
experience managing a drug benefit but have not had any experience as
risk bearing entities and/or are not structured as risk-bearing
entities. We would welcome comments regarding this issue.
Factors which may be considered in discussions with the NAIC
include the ability of an organization to maintain assets greater than
total unsubordinated liabilities and the ability of the organization to
generate a surplus on a consistent basis as demonstrated by history or
an acceptable financial plan.
2. Waiver To Expand Choice
a. Overview
In our regulations at Sec. 423.410 we would implement the
provisions of section 1860D-12(c) of the Act that address waiver of
certain requirements to expand choice. Generally, section 1860D-12(c)
of the Act specifies that in order to expand access to prescription
drug plans, we may waive the State licensure requirement under
circumstances similar to those permitted under Part C for provider-
sponsored organizations, as described in section 1855(a) of the Act.
However, we note that the States would be expressly preempted from
regulating in all areas except licensure and solvency (see section
1860D-12(g) of the Act and Sec. 423.440). Additional requirements
referenced under section 1855(a) of the Act such as State consumer
protection and quality standards, do not apply to and are not
incorporated in these regulations
b. Waiver When State Imposes Certain More Stringent Standards
Section 1860D-12(c) of the Act provides that a prospective PDP
sponsor may request a waiver from State licensure requirements from us
under the waiver provisions at section 1855(a)(2)(B), 1855(a)(2)(C) and
1855(a)(2)(D). Because the Congress directed us to use many of the same
grounds for approving a waiver as used pursuant to Sec. 1855(a)(2)(B),
Sec. 1855(a)(2)(C), and Sec. 1855(a)(2)(D), We have adopted the
regulatory provisions in proposed Sec. 422.372. Thus, our regulation
at Sec. 423.410(c)(1) would use the same standard used in Sec.
422.372(b)(1) and allows a waiver when the State has failed to complete
action on a licensing application within 90 days of receipt of a
substantially complete application.
c. Distinct Waivers
Proposed Sec. 423.410(c)(2) uses the same standards as used in
Sec. 422.372(b)(2) for determining when a State has denied an
application based on discriminatory treatment. The regulation provides
that the following activities may also constitute a basis for us to
waive State licensure requirements: (1) The State denies an application
based on requirements that are not generally applicable to PDP sponsors
or other entities engaged in a similar business or (2) the State
requires as a condition of licensure that the PDP sponsor offer any
product or plan other than a prescription drug plan.
Section 423.410(c)(3) of our proposed regulations, addresses denial
of an application based on application of different solvency
requirements--when a State imposes solvency requirements that are more
stringent than the solvency standards that would be established by us
under Sec. 423.420. In addition, a waiver may be granted if the State
imposes procedures or standards relating to solvency that are different
from the solvency requirements established by us. CMS will utilize a
waiver application process similar to that used under its federally
waivered PSO program in which the waiver applicant will be required to
submit certain documents that would indicate that the State is imposing
procedures or standards relating to solvency that are different from
CMS standards. CMS would utilize this documentation in its waiver
determination process.
In our regulations at Sec. 423.410(c)(4), we would implement
section 1860D-12(c)(2)(A)(ii) of the Act, which provides that we may
grant a waiver when a State imposes requirements other than those
required under Federal law.
Section 1860D-12(c)(2)(B) of the Act also establishes special rules
for the approval of a waiver by us. We propose to implement these
special rules at Sec. 423.410(d) and (e) of these regulations. The
special rules allow that we will grant a waiver when a State does not
have any licensing process for PDP sponsors. Also, even if a State does
have a licensing process for years beginning before January 1, 2008, a
waiver will be granted if the PDP sponsor merely submits its completed
application for licensure to the State. The PDP sponsor seeking a
waiver will submit a waiver application indicating its understanding of
State law which CMS will confirm through contacts with the State
regulator.
d. Relationship of Waiver to State Regulation
The statute requires, at section 1860D-12(c)(3) of the Act, that
the waivers granted under the provisions of section 1855 of the Act
must also meet the conditions of approval established at section
1855(a)(2)(E), 1855(a)(2)(F) and 1855(a)(2)(G) of the Act. Accordingly,
we would implement the applicable waiver requirements from section
1855(a)(2)(E) and 1855(a)(2)(F) that relate to licensure or solvency in
the regulations at Sec. 423.410(f)(1) through Sec. 423.410(f)(3).
Section 423.410(f)(1) of our proposed regulations establishes that
except in States without a licensing process for PDP sponsors and
except in the case of regional plan waivers described in Sec. 423.410
(b), a waiver only applies to a specific State, is effective for 36
months and cannot be renewed. We propose to implement section
1855(a)(2)(F) of the Act at Sec. 423.410(f)(2) where we specify our
requirement concerning prompt action on applications. This requirement
would establish that we would grant or deny a waiver application under
this section within 60 days after we determine that a substantially
complete waiver application has been filed. A substantially complete
application would have to clearly demonstrate and document a PDP
sponsor's eligibility for a waiver. In addition, section 1860D-12(c)(3)
of the Act establishes that if a State does not have a licensing
requirement for PDP sponsors, then the requirements of section
1855(a)(2)(E)(i) and section 1855(a)(2)(E)(ii) do not apply. We propose
to implement these provisions at Sec. 423.410(f)(3) where we would
establish that if a State does not have a licensing process for PDP
sponsors, we would approve a waiver for a PDP sponsor that meets our
solvency standards and that this waiver would not be time limited.
With respect to section 1855(a)(2)(E)(i) of the Act, we believe
that the most reasonable interpretation of this provision is that when
a PDP sponsor is granted a waiver (because the State does not have a
PDP sponsor licensing process), one waiver that we grant can be applied
to all States in which there are no PDP sponsor licensing requirements.
However, the waiver granted on the basis that a State does not have a
licensing process cannot be applied in a State that does have a
[[Page 46696]]
PDP sponsor licensing process. In a State that may have denied
licensure to the entity in question, one of the other bases for
approving a waiver may be applicable. In addition, a waiver granted for
other reasons such as failure to act on an application on a timely
basis, or denial based on discriminatory treatment will apply only to
the States in question and not other States.
We would implement the regional plan waiver rule provided at
section 1860D-12(c)(1)(B) of the Act in the regulations at Sec.
423.410(b) of our proposed rule. This allows us to use the proposed
waiver authority at section 1858(d) of the Act--Temporary Waiver of
State Licensure Requirement for the licensing of PDPs. This temporary
waiver would be available in the event a prospective PDP sponsor
proposes that its prescription drug plan would cover a multi-State
region, but is not yet licensed in all of the States. (Under those
circumstances, we can waive the State licensure requirement until the
State has completed processing of the application.) In the interim, the
PDP sponsor would be required to comply with the solvency standards
established by us. In the event the State ultimately denies the
application, we can extend the waiver through the contract year as we
deem appropriate to provide for transition.
3. Preemption of State Laws and Prohibition of Premium Taxes
Section 1860D-12(g) of the Act incorporates section 1856(b)(3) of
the Act which states: ``the standards established under this part shall
supersede any State law or regulation (other than State licensing laws
or State laws relating to plan solvency) for MA organizations under
this part.'' Accordingly, we specify in our proposed regulations that
to the extent there are Federal standards, those standards supersede
any State Law. For purposes of this section, with the exceptions of
State licensing laws or State laws related to plan solvency, State laws
do not apply to prescription drug plans and PDP sponsors.
We do not believe, however, that the language in 1856(b)(3) means
that each and every State requirement applying to PDP sponsors would
now become null and void. In areas where we have neither the expertise
nor the authority to regulate, we do not believe that State laws would
be superseded or preempted. For example, State environmental laws, laws
governing private contracting relationships, tort law, labor law, civil
rights laws, and similar areas of law would, we believe, continue in
effect and PDP sponsors in such States would continue to be subject to
such State laws. Rather, our Federal standards would merely preempt the
State laws in the areas where Congress intended us to regulate-such as
the rules governing pharmacy access, formulary requirements for
prescription drug plans, and marketing standards governing the
information disseminated to beneficiaries by PDP sponsors. We believe
this interpretation of our preemption authority is in keeping with
principles of Federalism, and Executive Order 13132 on Federalism,
which requires us to construe preemption statutes narrowly.
By the same token, in areas where Congress specifically stated that
State law would not be preempted--that is, State licensing laws and
State laws related to plan solvency--we would construe the preemption
exception narrowly, and only view the exception as applying to true
licensing or solvency requirements. By this we mean that if a State
conditioned licensing on a PDP sponsor meeting requirements in an area
we also regulate outside of licensure or solvency, then such condition
could not be viewed as a ``licensing'' law and would not be excepted
from preemption. For example, if a State conditioned licensure on a PDP
sponsor adhering to the State's guidelines for prescription drug plan
marketing materials, we would not view the marketing guidelines as a
licensure requirement and we would still view the Federal marketing
rules as preempting the State requirements.
Additionally, in accordance with the incorporation of section
1854(g) of the Act into section 1860D-12(g) of the Act, States are
expressly prohibited from imposing a premium, or similar type of tax,
on premiums paid by us to prescription drug plans or PDP sponsors, on
premiums applicable to Medicare enrollees of the prescription drug
plans under Part F, or on any other payments made by us to PDP sponsors
under subpart G of the regulations,--including the direct subsidy,
reinsurance payments and risk corridor payments.
J. Coordination Under Part D Plans With Other Prescription Drug
Coverage
1. Overview and Terminology
We propose in subpart J of part 423 to implement sections 1860D-
2(a)(4), 1860D-2(b)(4)(C), 1860D-2(b)(4)(D), 1860D-11(j), 1860D-21(c),
1860D-22(b), 1860D-23(a), 1860D-3(b), 1860D-23(c), 1860D-24(a), 1860D-
24(b), and 1860D-24(c) of the Act that were added by section 101 of the
MMA. We provide a brief summary of each of these provisions. Following
this overview we provide a more detailed discussion of how we propose
implementing each of these statutory provisions in this subpart.
We propose to implement section 1860D-21(c) of the Act at Sec.
423.458 of the proposed rule and explain that the requirements of Part
D generally apply under Part C for prescription drug coverage offered
by MA-PD plans although certain waivers are available. We propose to
implement section 1860D-22(b) of the Act at our proposed Sec.
423.458(c) that provides employer group waiver authority for
prescription drug plans.
We outline options that we have identified related to the data-
exchange that will be necessary between both State pharmaceutical
assistance programs and other insurers and Part D plans in order to
accurately apply incurred costs to appropriate Part D enrollee records.
For purposes of this subpart, provisions in the statute that address
coordination requirements generally apply in a similar manner to both
State pharmaceutical assistance programs and other drug plans and to
both prescription drug plans and MA-PD plans. The main difference
between coordination requirements related to SPAPs and other drug plans
is that we are prohibited from charging user fees to SPAPs. On the
other hand, Part D plans may impose fees only related to the cost of
coordination on both SPAPs and other drug plans.
We propose to implement section 1860D-11(j) of the Act at Sec.
423.464(a) of the proposed rule and require sponsors of Part D plans to
coordinate with State pharmaceutical assistance programs and other
prescription drug plans. In this section we specify the other plans
with which Part D plans must coordinate benefits in accordance with
section 1860D-24(b) of the Act and define State Pharmaceutical
Assistance Programs, in accordance with section 1860D-23(b) of the Act.
a. Part D Plans
Wherever we mention or reference ``Part D plans'' we mean any or
all of ``MA-PD plans, prescription drug plans (PDPs) and fallback
prescription drug plans''. Likewise, the term ``Part D plan sponsor''
refers to MA organizations offering MA-PD plans, PDP sponsors, and
eligible fallback entities offering fallback plans. If a statement or
reference applies exclusively to a specific type of plan, we use that
exact term to limit the reference.
[[Page 46697]]
b. Employer-sponsored Group Prescription Drug Plan
Section 1860D-22(b) applies to ``employment-based retiree health
coverage'' that is defined under section 1860D-22(c)(1) of the Act.
This term means coverage for individuals (or their spouses and
dependents) under a group health plan based on their status as retired
participants. We use the term ``employer-sponsored group prescription
drug plan'' to mean a prescription drug plan under a contract between a
PDP sponsor and employers, labor organizations, or the trustees of
funds established by one or more employers or labor organizations to
furnish prescription drug benefits under employment-based retiree
health coverage.
c. State Pharmaceutical Assistance Program
A State Pharmaceutical Assistance Program is a program operated by
or under contract with a State for purposes of this part if it: (1)
Provides financial assistance for the purchase or provision of
supplemental prescription drug coverage or benefits on behalf of Part D
eligible individuals; (2) provides assistance to Part D eligible
individuals in all Part D plans without discriminating based upon the
Part D plan in which an individual enrolls; (3) meets the benefit
coordination requirements specified in this part; and (4) does not
change or affect the primary payor status of a Part D plan. Since an
SPAP cannot discriminate under the Part D plans with respect to either
eligibility or the amount of assistance provided, in accordance with
section 1860D-23(b)(2) of the Act and in our proposed rule at Sec.
423.464(e)(1)(ii), to the extent that a program does discriminate it
cannot, by definition, be considered an SPAP. A non-conforming State
program that did discriminate in either of these ways (eligibility or
amount of assistance provided) would not meet the definition of a State
Pharmaceutical Assistance Program.
We are interpreting the non-discrimination language to mean that
SPAPs, if they offer premium assistance or supplemental assistance on
Part D cost sharing, must offer equal assistance by all PDPs or MA-PD
plans available in the State and may not steer beneficiaries to one
plan or another through benefit design or otherwise. State programs
cannot, for example, use the threat of withholding SPAP enrollees to
negotiate coverage, premium or formulary changes with PDPs or MA-PD
plans. Violations of the non-discrimination rule will jeopardize the
program's special status with respect to true out-of-pocket costs. That
is, a State program that discriminates does not qualify under the
definition of an SPAP, and consequently, its contributions to cost
sharing do not count toward the out-of-pocket limit.
Section 1860D-23(b) of the Act also provides that an SPAP is a
State program that provides financial assistance for the purchase or
provision of prescription drugs, and we interpret this to mean that it
provides that assistance with State funds. Therefore, the definition of
SPAP would exclude State Medicaid programs, section 1115 demonstration
programs, and any program where program funding is from Federal grants,
awards, contracts, entitlement programs, or other Federal sources of
funding. (We would clarify that this does not exclude some Federal
administrative funding or incidental Federal monies.)
For purposes of this part, we are proposing that a Pharmacy Plus
demonstration waiver under section 1115 of the Act shall not be
considered a State pharmaceutical assistance program. Pharmacy Plus
waivers are granted to allow states to treat these individuals as
Medicaid eligible for the purposes of receiving drugs and primary care
services. Expenditures for these limited services receive federal
matching payments in the same manner as do services for full benefit
Medicaid beneficiaries. We do not believe that these waivers, having
expenditures that are federally matched in this manner, should be
considered SPAPs as the effect of this would be to allow federally
matched payments to be used to meet an out of pocket expense to gain
further payments from the Federal Medicare program.
2. Application of Part D Rules to MA-PD Plans on and After January 1,
2006 (Sec. 423.458)
In accordance with section 1860D-21(c)(1) of the Act, and as
provided under proposed Sec. 423.458(a), the provisions of Part D
apply under Part C to prescription drug coverage provided by an MA-PD
in lieu of other Part C provisions that would apply to such coverage,
unless otherwise provided. As permitted under section 1860D-21(c)(2) of
the Act, we will waive Part D provisions to the extent that we
determine they duplicate, or conflict with, provisions under Part C, or
as necessary in order to improve coordination of Part D benefits with
the Part C program. For instance, under section 1860D-21(c)(3) of the
Act, we will waive the pharmacy network access requirements as
described at Sec. 423.120(a)(3) of the proposed rule in the case of an
MA-PD plan that provides access (other than through mail'order
pharmacies) to qualified prescription drug coverage through pharmacies
owned and operated by the MA organization if we determine that the
organization's pharmacy network is sufficient to provide comparable
access for enrollees under the plan. As discussed in other parts of
this preamble, Part D rules generally apply to section 1876 cost HMOs/
CMPs and PACE organizations in the same or in a similar manner as the
rules apply to MA-PD local plans. The waiver provision under section
1860D-21(c)(2) of the Act applicable to MA-PD plans similarly extends
to section 1876 cost HMOs/CMPs and PACE organizations. We provide for
this waiver authority for cost HMOs/CMPs and PACE organizations by
adding a paragraph (d) to section 423.458 of our proposed rule.
In reviewing requested waivers we will follow a process similar to
the process we initially established under the M+C program related to
the employer group waiver authority provided in section 1857(i) of the
Act and codified in regulation at Sec. 422.106(c). Under Sec.
422.106(c), MA organizations could submit written requests to our
permission to waive requirements that hinder the design of or offering
of MA plans to employers. We would make approved waivers available to
all similarly situated MA organizations that meet the conditions of the
waiver. Accordingly, we will use a similar approach to the one we
established under Sec. 422.106(c) in implementing our authority to
waive those Part D provisions that can be shown to (1) duplicate or
conflict with Part C requirements or (2) should be waived in order to
improve coordination of the benefits provided under Parts C and D of
Medicare. However, we will not, under our waiver authority, waive Part
D rules that are specifically directed to MA-PDs or to the Part C
program. We ask for your comments on both the process we propose for
authorizing additional waivers under this section and for what
additional waivers should, or should not, be permitted under this
waiver authority.
3. Application to PACE Plans
Section 1860D-21(f) of the Act indicates that Part D provisions
shall apply to PACE organizations in a manner that is similar to those
of an MA-PD local plan and that a PACE organization may be deemed to be
an MA-PD local plan. As discussed in detail in Subpart T, PACE
organizations
[[Page 46698]]
would not be deemed as MA-PD plans but would be treated in a manner
that is similar to MA-PD plans for purposes of payment. Proposed Sec.
423.458(d) establishes regulatory authority for CMS to waive Part D
provisions for PACE organizations and indicates that PACE organizations
may request waivers from CMS. Because many of the Part D requirements
duplicate, conflict with, or inhibit coordination of existing PACE
requirements, we anticipate a significant number of waivers would
necessary for PACE organizations. We are concerned about the potential
burden this would place on PACE organizations and propose to include a
provision that would allow for CMS to identify all Part D provisions
requiring waivers and waive these provisions on behalf of PACE
organizations. In other words, we are considering a special rule for
PACE organizations that would automatically apply the waivers granted
in the final rule (see discussion in subpart T of this preamble)
without a plan-specific application process.
We would like to receive comments on this proposed approach and on
any other related suggestions for minimizing burden on PACE plans.
4. Application to Employer Groups
a. Employer Group Waivers
Section 1860D-22(b) of the Act extends the waiver authority that is
provided for MA organizations related to Part C by section 1857(i) of
the Act and implemented at Sec. 422.106(c) to prescription drug plans
related to Part D. This waiver authority is intended to provide
prescription drug plans an opportunity, similar to the opportunity
afforded MA organizations under Part C, to furnish Part D benefits to
participants or beneficiaries of employment-based retiree health
coverage sponsored by employers and labor organizations in the most
efficient and effective manner possible. Section 1860D-21(b) of the Act
specifically authorizes prescription drug plans to establish separate
premium amounts for Part D enrollees who are participants or
beneficiaries of employment-based retiree health coverage sponsored by
employers and labor organizations. It also contemplates separate Part D
plans for participants and beneficiaries of such employment-based
retiree health coverage. In administering this waiver, we propose to
follow the template first established at Sec. 422.106(c) that we
created under Part C to implement the waiver authority under section
1857(i) of the Act.
While we discuss coordination of Part D coverage with employment-
based retiree health coverage at some length later in this part, we
believe it is important to include a brief discussion here on the Part
D waivers that we specifically would not permit related to employer
group retiree coverage under the authority provided in section 1860D-
22(b) of the Act. Although the statute permits ``* * * in relation to
employers, including authorizing the establishment of separate premium
amounts for enrollees in a prescription drug plan * * *'' we interpret
``separate premium amounts'' to mean the amount of premium the retiree
or the enrollee pays. Under the MA program many employer groups
subsidize the premiums that would otherwise be payable by their
retirees through partial or full payment or subsidization of the MA
plan premiums on their members' behalf. We believe that a similar
practice related to PDP Part D plan premiums would be permissible and
find support in section 1860D-22(a)(6)(B) of the Act. Alternatively, we
do not believe that the statutorily defined Part D premium could be
different for employees or retirees than it is for individuals enrolled
in the same PDP plan. Thus, the combined Part D premium contributed by
the employee or retiree and the employer group would need to be
identical to the premium charged to an individual enrolled in the same
PDP plan. These principles apply to waiver requests by MA-PD plans
under section 1857(i) of the Act.
Generally, we also would not permit waivers that directly increase
Medicare spending. For example, a section 1860D-22(b) waiver would not
be permitted that had the effect of changing the definition (in Subpart
C of our proposed rules) for incurred costs (which are defined for
purposes of calculating the true out-of-pocket threshold--TrOOP). An
alternative example of a waiver we would not permit would be a waiver
that would increase the premium subsidy. We also note that section
1860D-22(b) applies to ``prescription drug plans,'' not non-Part D
plans that ``wrap around'' or supplement the benefits provided under,
the PDP. Consequently, section 1860D-22(b) of the Act would not apply
to a request to waive rules under this Part that effect an employer-
sponsored non-Part D plan that wraps around a Part D plan, including
the TrOOP rules. The exclusion of costs paid by group health plans from
TROOP is irrelevant when the group health plan is itself a part D plan
(in other words, the exclusion applies when the group health plan pays
costs not otherwise covered under the part D plan).
We invite comment on the process we propose for authorizing
additional waivers that prescription drug plan sponsors can request
under this section. We also ask for comment on the manner in which
additional waivers should be permitted and what additional waivers, if
any, we should not allow.
b. Employer Options
The enactment of Title I of the MMA has provided sponsors of
retiree prescription drug plans with multiple options for providing
drug coverage to their retirees. For the benefit of the employers and
unions, we discuss these options. We believe the availability of these
various options will make it easier for sponsors to continue to assist
their retirees in having access to high-quality prescription drug
coverage.
Generally, employers and unions who offer drug benefits to their
retirees (and their dependents) who are eligible for Medicare Part D
may do so as follows:
1. Provide prescription drug coverage through employment-based
retiree health coverage. If those coverage is at least actuarially
equivalent to the standard prescription drug coverage under Part D, the
sponsor is eligible for a special Federal subsidy for each individual
enrolled in the sponsor's employment-based retiree health coverage who
is eligible for Part D but elects not to enroll in Part D, directly
reducing the cost of providing a high-quality drug benefit. It is
important to note that employers can still make arrangements with
Medicare Advantage organizations to offer a Medicare Advantage (MA)
only plan without the Part D benefit, but then still take the retiree
drug subsidy and through a separate private contract with the MA
organization arrange for an employer-sponsored retiree drug benefit
that is not subject to the application of the true out-of-pocket
provision and retains the employer's flexibility to design a benefit
that is at least equivalent to the Part D benefit.
2. Provide prescription drug coverage that supplements, or ``wraps-
around,'' the coverage offered under the PDP or MA-PD plans in which
the retirees (and their dependents) enroll. For example, this option
would permit beneficiaries who receive retiree coverage from employers
who provide some financial assistance, but not enough to qualify for
the retiree drug subsidy, to supplement the new drug benefit subsidy
from Medicare with their existing employer assistance and thereby
receive more generous coverage than they have now.
3. Subsidize the monthly beneficiary premium for whatever PDP or
MA-PD plan in which the employer or union's
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retirees (and their dependents) elect to enroll.
4. Provide a prescription drug plan (PDP) or Medicare Advantage-
prescription drug plan (MA-PD plan) either under contract with a PDP
sponsor or Medicare Advantage (MA) organization or by directly
sponsoring a PDP or an MA-PD plan. This plan may consist of enhanced
alternative coverage (as defined under proposed Sec. 423.104(g)), or
drug coverage that is more generous than that offered under the
standard prescription drug coverage under Part D (as defined under
proposed Sec. 423.104(e)). Medicare would subsidize the cost of this
coverage through direct and reinsurance subsidies (as calculated under
proposed Sec. 423.329(a)(1) and (2)). At its option, the employer or
union may elect to subsidize the monthly beneficiary premium (as
calculated under proposed Sec. 423.286). Many employers already have
arrangements with Medicare Advantage plans and we expect that this will
continue, as well as new arrangements being established.
The first option is the subject of subpart R of this preamble. The
latter three options, all of which involve the employer or union's
retirees (and their dependents) enrolling in Part D, are discussed in
this subpart.
We note that if employers or unions elect to sponsor enhanced
alternative coverage under Part D or to provide supplemental coverage
that wraps around Part D, either election will have an impact on when
its retirees (and their dependents) are eligible for the additional
Medicare subsidies for catastrophic drug coverage. By delaying the
provision of government-financed catastrophic coverage, these plans
would lower the cost of Part D to the Federal government by lowering
our reinsurance payments while preventing beneficiaries from facing any
gaps in coverage. As discussed in Subpart C, individuals enrolled in a
PDP or MA-PD plan are eligible for Medicare subsidies on top of their
employer subsidies for catastrophic drug coverage after they incur out-
of-pocket drug costs in the amount specified under proposed Sec.
423.104(e)(5)(iii). Under the reinsurance provisions discussed in
subpart G, Medicare would reimburse PDP sponsors and MA organizations
offering MA-PD plans 80 percent of their gross costs for providing this
catastrophic coverage (excluding administrative costs and net of
discounts, rebates, and similar price concessions). Only drug costs
paid by a Part D enrollee, or on behalf of a Part D enrollee by another
person, would count toward the annual out-of-pocket threshold, with the
exception of amounts reimbursed by insurance or otherwise, a group
health plan, or another third-party payment arrangement. We refer to
those drug expenditures that count toward the out-of-pocket threshold
as ``true out-of-pocket (TrOOP) expenditures.''
Under these rules, employers and unions who provide retirees (and
their dependents) enhanced alternative coverage or wrap-around coverage
in effect push out the total drug spending that triggers the Medicare
subsidy for catastrophic coverage, since participants in the plan will
have lower cost-sharing, and thus have lower out of-pocket costs. This
approach limits the ``crowd-out'' of employer contributions by the new
Medicare subsidy, resulting in more comprehensive coverage at a lower
cost to the Federal government by lowering reinsurance payments.
When an employer or union elects to provide a PDP or MA-PD plan
under contract with the PDP or MA-PD sponsor, the PDP sponsor, under
proposed Sec. 423.458(c), or the MA organization, under 42 CFR
422.106(c), may submit written requests to us for permission to waive
requirements under Part D that hinder the design of or offering of PDP
or MA-PD plans to employers. We believe these waivers will help
efficient administration and integration of their enhanced Part D
coverage with other retiree health benefits offered by the sponsor. For
example, the PDP sponsor or MA organization could request permission to
restrict enrollment in its PDP or MA-PD plan to the sponsor's retirees
(and their dependents) and offer a benefit that resembles or enhances
the sponsor's existing coverage. We encourage employers and unions to
carefully review each option and determine which one is most beneficial
to it and its retirees (and their dependents). The variety of options
gives employers many ways to retain and enhance drug coverage for their
retirees, and we seek comment on how we can use all of these subsidized
options to maximize enhancements in retiree coverage.
c. Implications for Beneficiaries
For beneficiaries, the significance of the above discussion, as
well as of the earlier discussion (in subpart C) of incurred costs that
count toward the true out-of-pocket threshold, is that these rules
would lead to new options for drug coverage. All Medicare Part D
coverage would at a minimum provide basic coverage, funded with a
generous Federal subsidy that did not exist before. In addition, there
would be a number of ways in which some beneficiaries can get access to
more comprehensive benefits, such as filling in any coinsurance
requirements in coverage in whole or in part. Such access will be
dependent on individual eligibility for other subsidies or coverage,
and individual willingness to continue to pay for enhancements in their
coverage, such as:
If they are eligible for a more comprehensive retiree
health benefits policy sponsored by their former employer, their
retiree plan sponsor may qualify for a subsidy payment.
If they have limited income, they may be eligible for Part
D low-income subsidies of premium and cost sharing through a Part D
plan.
They may be eligible for financial assistance through a
State Pharmaceutical Assistance Program that can pay for an enrollee's
cost sharing and still have these payments count toward the out-of-
pocket limit.
They may qualify for charitable assistance from bona fide
non-profit charities that can also pay for an enrollee's cost sharing
and still have these payments count toward the out-of-pocket limit.
They may have access to a PDP or MA-PD (through either
individual enrollment or employer group enrollment) that offers an
enhanced alternative prescription drug plan for an additional premium.
In this case, either the plan sponsor and/or the beneficiary must bear
some of the drug costs that would otherwise have been subsidized by
Part D reinsurance subsidies. While they would consequently not receive
the additional subsidy until they reached a higher level of drug
expenditures, the substantial savings in drug costs as a result of the
highly subsidized, standard drug benefit would permit such coverage to
be financed while still saving money for the beneficiary and the plan
sponsor.
5. Medicare Secondary Payer Procedures
Section 1860D-2(a)(4) of the Act extends the Medicare secondary
payer (MSP) procedures applicable to MA organizations under section
1852(a)(4) of the Act and 42 CFR 422.108 to PDP sponsors. Section
1852(a)(4) of the Act provides that an MA organization may charge or
authorize a provider to seek reimbursement for services from a
beneficiary or third parties to the extent that Medicare is made a
secondary payer under section 1862(b)(2) of the Act. Accordingly, under
Sec. 423.462 of this proposed rule, PDP sponsors would be required to
follow the same rules as MA organizations regarding:
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Their responsibilities under MSP procedures;
Collection of payment from insurers, group health plans
and large group health plans, the enrollee, or other entities for
covered Part D drugs; and
The interaction of MSP rules with State laws.
Because Medicare would not pay for covered Part D drugs to the
extent that there is a third party that is to be the primary payer
under the provisions of section 1862(b)(2) of the Act and 42 CFR part
411, PDP sponsors must, for each prescription drug plan: (1) identify
payers that are primary to Medicare under section 1862(b)(2) of the Act
and 42 CFR part 411, (2) determine the amounts payable by those payers,
and (3) coordinate their benefits to plan enrollees with the benefits
of the primary payers.
The PDP sponsor may charge other individuals or entities for
covered Part D drugs for which Medicare is not the primary payer. If an
enrollee receives from a PDP sponsor covered Part D drugs that are also
covered under State or Federal workers' compensation, no-fault
insurance, or any liability insurance policy or plan, including a self-
insured plan, the PDP sponsor may charge the insurance carrier, the
employer, any other entity that is liable for payment for the covered
Part D drugs under section 1862(b) of the Act and 42 CFR part 411, or
the prescription drug plan enrollee, to the extent that he or she has
been paid by the carrier, employer, or entity for covered Part D drugs.
When Medicare, and thus a Part D plan, is secondary to other
payers, beneficiary costs incurred for covered Part D drugs would not
be considered ``covered'' costs under the Part D plan. Consequently,
these costs would be excluded from a benefici