[Federal Register: January 16, 2009 (Volume 74, Number 11)]
[Rules and Regulations]
[Page 2881-2888]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ja09-25]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 423
[CMS 4138-IFC4]
RIN 0938-AP24
Medicare Program: Medicare Advantage and Prescription Drug
Programs MIPPA Drug Formulary & Protected Classes Policies
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Interim final rule with comment period.
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SUMMARY: This interim final rule with comment period revises the
regulations governing the Medicare prescription drug benefit program
(Part D). This regulation makes conforming changes to reflect revisions
to the rules governing Part D that were made as a result of provisions
in the Medicare Improvements for Patients and Providers Act (MIPPA),
which became law on July 15, 2008. These MIPPA provisions change the
definition of a covered Part D drug, and add new requirements that
apply to Part D formularies.
DATES: Effective date: These regulations are effective January 16,
2009.
Comment date: To be assured consideration, comments must be
received at one of the addresses provided below, no later than 5 p.m.
on March 17, 2009.
ADDRESSES: In commenting, please refer to file code CMS-4138-IFC4.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed)
1. Electronically. You may submit electronic comments on specific
issues in this regulation to http://www.regulations.gov. Follow the
instructions for ``Comment or Submission'' and enter the file code to
find the document accepting comments.
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-4138-IFC4, P.O. Box 8016, Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-4138-IFC4, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to either of the following addresses:
a. Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201;
(Because access to the interior of the HHH Building is not readily
available to persons without Federal Government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Alissa DeBoy at (410) 786-6041)or
Vanessa Duran at (410)786-8697.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have
[[Page 2882]]
been received: http://regulations.gov. Follow the search instructions
on that Web site to view public comments.
Comments received timely will be also available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-800-743-3951.
I. Background
The Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA) (Pub. L. 108-173) was enacted on December 8, 2003.
Section 101 of title I of the MMA added a new ``Part D'' to title XVIII
of the Social Security Act (the Act), creating the Medicare
prescription drug benefit program. The prescription drug benefit
program is one of the most significant changes to the Medicare program
since its inception in 1965. The MMA also made revisions to the
provisions in Medicare Part C, governing what is now called the
Medicare Advantage (MA) program (formerly Medicare+Choice). The MMA
directed that important aspects of the new Medicare prescription drug
benefit program under Part D be similar to and coordinated with
regulations for the MA program.
A final rule implementing the Part D prescription drug program
appeared in the Federal Register on January 28, 2005 (70 FR 4194). The
provisions of that rule became effective on March 22, 2005.
The Medicare Improvements for Patients and Providers Act (MIPPA)
(Pub. L. 110-275) was enacted on July 15, 2008. MIPPA made a number of
changes to the statutory provisions governing both the MA program under
Part C and the prescription drug program under Part D. On September 18,
2008, we published an interim final rule with comment period that made
a wide array of revisions to regulations governing the Part C and Part
D programs to reflect changes in the statutory provisions governing
these programs made in MIPPA [see 73 FR 54226]. This interim final rule
with comment period similarly makes conforming changes to the Part D
regulations to reflect certain statutory changes made in MIPPA that
were not addressed in the September 18, 2008 interim final rule.
II. Provisions of the Interim Final Rule
A. Medically Accepted Indication (Sec. 423.100 Definitions)
Section 182 of MIPPA amends section 1860D-2(e)(1) of the Act to add
a new definition for ``medically accepted indication,'' effective
January 1, 2009, for Part D drugs used in anticancer chemotherapeutic
regimens, specifically, and all other Part D drugs. Under new section
1860D-2(e)(4) of the Act, a ``medically accepted indication'' for Part
D drugs used in anticancer chemotherapeutic regimens has the meaning
given in section 1861(t)(2)(B) of the Act, except that in applying the
1861(t)(2)(B) definition, the terms ``prescription drug plan'' or ``MA-
PD plan'' are substituted for ``carrier,'' and the compendia described
in section 1927(g)(1)(B)(i)(III) of the Act are added to those listed
in section 1861(t)(2)(B)(ii)(I) of the Act. Also, on and after January
1, 2010, this last requirement shall not apply unless the compendia
described in section 1927(g)(1)(B)(i)(III) of the Act meets the
requirement in the third sentence of section 1861(t)(2)(B) of the Act.
Also under section 182 of MIPPA, for all Part D drugs not used in
anticancer chemotherapeutic regimens, ``medically accepted indication''
has the meaning given in section 1927(k)(6) of the Act, except that in
applying this provision, the Secretary shall revise the list of
compendia described in section 1927(g)(1)(B)(i) of the Act as
appropriate for identifying medically accepted indications for drugs,
in a manner consistent with the process for revising compendia under
section 1861(t)(2)(B) of the Act.
Consistent with these new statutory requirements, we have amended
Sec. 423.100 by revising the definition of a Part D drug at Sec.
423.100 to incorporate the new definition of medically accepted
indication in section 1860D-2(e)(4) of the Act.
B. Access to Covered Part D Drugs (Sec. 423.120)
Section 176 of MIPPA added a new section 1860D-4(b)(3)(G)(i) to the
Act requiring, effective for plan year 2010, that CMS identify, as
appropriate, certain categories or classes of drugs which meet the
following two pronged test: (1) Restricted access to the drugs in the
category or class would have major or life threatening clinical
consequences for individuals who have a disease or disorder treated by
drugs in such category or class; and (2) there is a significant need
for such individuals to have access to multiple drugs within a category
or class due to unique chemical actions and pharmacological effects of
the drugs within the category or class, such as drugs used in the
treatment of cancer.
Under a new section 1860D-4(b)(3)(G)(ii) of the Act, subject to the
authority in section 1860D-4(b)(3)(G)(iii) of the Act to provide for
exceptions, Part D formularies must include all covered Part D drugs in
each class identified under section 1860D-4(b)(3)(G)(i) of the Act.
Section 1860D-4(b)(3)(G)(iii), in turn, provides CMS the discretion to
establish exceptions permitting sponsors of a prescription drug plan to
exclude from their formularies, or to otherwise limit access to
(including through prior authorization or other utilization management
restrictions), certain Part D drugs from the protected categories and
classes established consistent with section 1860D-4(b)(3)(G)(i) of the
Act. As provided in section 1860D-4(b)(3)(G)(iii)(I) of the Act, any
such exception must be based on scientific evidence and medical
standards of practice (and, in the case of antitretroviral medications,
be consistent with the Department of Health and Human Services
Guidelines for the Use of Antitretroviral Agents in HIV-1-Infected
Adults and Adolescents). In addition, as provided in section 1860D-
4(b)(3)(G)(iii)(II) of the Act, such exceptions must be provided under
a process that includes an opportunity for public notice and comment.
We have added Sec. 423.120(b)(2)(v) to reflect the new formulary
requirements in section 1860D-4(b)(3)(G) of the Act.
Based on our program experience, and consistent with our formulary
review process, we plan to conduct an examination, described below, of
widely used treatment guidelines in order to establish protected
categories and classes for Part D sponsors that meet the requirements
established by section 1860D-4(b)(3)(G) of the Act. Additionally,
consistent with section 1860D-4(b)(3)(G)(iii) of the Act and Sec.
423.120(b)(2)(v) of this interim final rule, we may establish
exceptions to the requirement that Part D sponsors include all Part D
drugs in the protected categories and classes. Given the complexity
involved in modern medicine and changes in drug therapies with
availability of new information reaching providers almost daily, we
anticipate that exceptions to our regulatory requirements will be
necessary. For example, we believe that in certain circumstances the
application of prior authorization may be appropriate to ensure use of
Part D drugs in line with medically necessary
[[Page 2883]]
indications. As described below, we will therefore establish exceptions
to the protected categories and classes through notice-and-comment
rulemaking to ensure that they are established in a manner that
provides for meaningful public input, in a fully transparent manner (in
which we will formally respond to the public comments), that also
enables us to meet operational timeframes.
We note that Part D sponsors may apply edits to make appropriate
coverage determinations for drugs included in the protected classes
that may be covered under Medicare Part B. Until the Part D sponsor is
able to affirm there is no Part B reimbursement, we do not consider the
definition of a Part D drug to be satisfied. Furthermore, the
limitation of drug utilization management relating to drugs in the
protected classes does not extend to the application of safety edits.
Part D sponsors and their subcontracted network pharmacies must apply
established safety edits to drugs from the protected classes to ensure
their enrollees are not harmed by inadvertent medication errors.
We also note that, as stated in our January 28, 2005 Part D final
rule (70 FR 4194, 4260), inclusion of ``all covered Part D drugs'' from
a protected class or category does not extend to inclusion of all
brand-name drugs and generic versions of the covered drug in question.
Under our longstanding interpretation of the term ``covered Part D
drug,'' Part D sponsors will only be required to include on their
formularies all chemically distinct drugs from the protected classes or
categories in order to the meet the provisions of Sec.
423.120(b)(2)(v). We have consistently held that two drug products that
are determined to be therapeutic equivalents by the Food and Drug
Administration (FDA) and identified as such in the FDA's Orange Book
are considered to be the same Part D ``drug.'' (According to the Orange
Book: ``Drug products are considered to be therapeutic equivalents only
if they are pharmaceutical equivalents and if they can be expected to
have the same clinical effect and safety profile when administered to
patients under the conditions specified in the labeling.'') Thus,
therapeutic equivalents are not counted twice for purposes of
satisfying the CMS minimum formulary requirements.
In planning for the implementation of section 1860D-4(b)(3)(G) of
the Act, we note that we have gained valuable experience since 2006 in
evaluating various drug classification systems and ensuring that
Medicare beneficiaries reliant on drugs contained in certain categories
or classes are neither substantially discouraged from enrolling in a
Part D plan nor experience unnecessary complications related to
accessing these drugs. Our experience has provided insight into the
type of evaluation process that will be required to ensure that the
classes and categories of drugs we are protecting are appropriate. In
this rule, below, we describe our current thinking on the process we
believe will allow us to most appropriately identify the classes and
categories of drugs that should be protected. We would welcome comments
on this process.
We believe that it is necessary to establish a multi-level review
process to ensure that we are appropriately identifying classes or
categories that meet the criteria set forth in section 1860D-
4(b)(3)(G)(i) of the Act. Under this multi-level process, we are
planning on conducting an initial analysis that is predominantly
research and data driven, followed by a secondary clinical analysis
that will serve as a validation review. Both processes will involve the
identification of potential exceptions to the protected categories or
classes provision.
We plan on initiating the first-level review by selecting a
contractor familiar with our CMS Part D formulary process. This
contractor will review all the widely used treatment guidelines and
generate a list highlighting those categories or classes in which
multiple drugs within classes or categories are typically used to treat
a specific disorder. Simultaneously, CMS will provide information to
the contractor on beneficiary utilization of multiple drugs within
categories and classes based on analysis of prescription drug event
(PDE) data. The contractor will relate these findings to the
information obtained from the examination of widely used treatment
guidelines.
For the second level validation, an expert panel of physicians and
pharmacists will be organized to review the initial data developed from
the contractor and offer recommendations based on a consensus opinion
on the identification of protected categories and classes under the
statute. Information regarding the independence, potential conflicts of
interest, expertise, and balance of the individuals chosen to
participate in this expert panel will be made publicly available.
We firmly believe an expert panel can assist us in appropriately
weighing the data derived from the initial analysis against the
statutory requirements to identify protected categories or classes of
drugs in which ``access to multiple drugs within a category or class''
is needed and in which ``major or life threatening clinical
consequences'' may arise if access is restricted. Furthermore, we
believe the expert panel will be well positioned to consider the data
suggesting possible exceptions and overlay this with the protected
categories or classes in order to identify exceptions that are based
upon available scientific evidence and medical standards of practice.
These exceptions will be subject to notice and comment as previously
described.
The results from the panel on the protected classes and exceptions
will then be published in the Federal Register in a notice of proposed
rulemaking seeking public comment, to be followed by the issuance of a
final rule that responds to the public's comments. We believe that
reliance on the rulemaking process will better facilitate openness and
transparency of the process for identifying, as appropriate, classes
and categories of drugs that meet the MIPPA criteria.
Given the contracting activities and subsequent extensive analysis
necessary for reviewing all widely used treatment guidelines relative
to the requirements of section 1860D-4(b)(3)(G)(i) of the Act, as well
as commonly-used drug classification systems, we have determined that
we will be unable to complete a full evaluation of what constitutes a
protected category or class under the criteria set forth in section
1860D-4(b)(3)(G)(i) of the Act in time for the 2010 plan year, as this
would require that we hire a contractor, convene an expert panel, and
go through notice of proposed and final rulemaking prior to April 2009,
when Part D sponsors are required to submit their formularies.
Therefore, although the new regulation text at 42 CFR 423.120(b)(2)(v)
states that ``Effective contract year 2010,'' formularies must include
all Part D drugs in the categories or classes CMS has identified as
meeting the MIPPA criteria, in practice, CMS will not have identified
any such categories or classes for the contract year 2010.
Rather, for 2010, given the timeframes discussed above, as well as
the need to ensure consistency in formulary coverage as we complete our
analysis to implement the requirements of section 1860D-4(b)(3)(G)(i)
of the Act, in the meantime we will retain our existing six classes of
clinical concern contained in Chapter 6 of the Medicare Prescription
Drug Benefit Manual (section 30.2.5), which were incorporated into the
Manual under the statutory authority set out in section 1860D-
11(e)(2)(D)(i) of
[[Page 2884]]
the Act. Accordingly, Part D sponsors will continue to be expected to
include all or substantially all drugs in the antidepressant,
antipsychotic, and anticonvulsant classes, immunosuppressant (for
prophylaxis of organ transplant rejection), antiretroviral, and
antineoplastic (those not generally covered under Part B) drugs for
coverage year 2010. We are retaining the policy providing for coverage
of all or substantially all drugs in these six classes under our
existing authority in section 1860D-11(e)(2)(D)(i) of the Act in order
to ensure that Part D sponsors do not discriminate against any class of
beneficiary by substantially discouraging enrollment.
For contract years 2011 and beyond, any modifications we make to
the protected categories and classes, whether under the existing MMA
non-discrimination authority or new authority under MIPPA, will be made
through notice-and-comment rulemaking. Specifically, prior to
establishing the protected categories and classes under the new MIPPA
authority, CMS will (i) engage in an identification and validation
process, such as the process described above and (ii) engage in a
process of notice and comment rulemaking for any modifications
(including any additions, subtractions, or exceptions) to the protected
categories and classes under the MIPPA authority. In such rulemaking,
or a separate rulemaking, we may further articulate our interpretation
of the new statutory criteria. We believe that asking for (and
responding to) public comment on results from the contractor and expert
panel will better facilitate openness and transparency of the process
for identifying, as appropriate, classes and categories of drugs that
meet the MIPPA criteria.
Similarly, if CMS makes modifications to the existing protected
categories and classes under the MMA authority (i.e., the existing six
classes of clinical concern), we will (i) engage in an identification
and validation process, such as the process described above and (ii)
engage in notice and comment rulemaking for any such modifications
(including any additions, subtractions, or exceptions). Any such
rulemaking may also further articulate our interpretation of the
statutory language at section 1860D-11(e)(2)(D)(i) of the Act. This
process will mirror the process for establishing the protected
categories and classes under the new MIPPA authority. Soliciting, and
responding to, public comment on results from the contractor and expert
panel will increase the openness and transparency of the process for
protecting classes and categories of drugs under the MMA non-
discrimination authority.
In the past, we have used annual Call Letters and other guidance
memorandums to announce the policy of expecting plan sponsors to cover
``all or substantially all'' drugs in the six classes of clinical
concern. We announced the policy to ensure that enrollees had as smooth
of a transition as possible into the Part D program. We also wanted to
minimize potential beneficiary concern about access to drugs in the six
protected classes and categories.
However, we now have much more experience with Part D since the
program started in January 2006. Thus, we are in a better position to
consider drug categories and classes that should receive protection
either under MIPPA or the MMA. Further, the public now has greater
experience with a fully implemented Part D program and can provide more
comprehensive comments on our continuing considerations about the
program.
Hence, CMS has decided that any modifications to the current six
categories and classes, whether under MIPPA or the MMA authority, will
go through the process described above that includes notice of proposed
and final rulemaking. The rulemaking process will provide for more
transparency in the process of identifying protected categories and
classes, enabling the public to comment on how modifications to the
current six classes will impact various stakeholders, including
beneficiaries, beneficiary advocates, plan sponsors, contractors of
plan sponsors, and governmental entities, among others.
In addition, CMS believes that identifying protected classes and
categories in the Code of Federal Regulations will provide greater
clarity and transparency about those drug classes that are protected.
III. Waiver of Proposed Rulemaking and Delay in Effective Date
We ordinarily publish a notice of proposed rulemaking in the
Federal Register and invite public comment on the proposed rule. The
notice of proposed rulemaking includes a reference to the legal
authority under which the rule is proposed, and the terms and
substances of the proposed rule or a description of the subjects and
issues involved. This procedure can be waived; however, if an agency
finds good cause that a notice and comment procedure is impracticable,
unnecessary, or contrary to the public interest and incorporates a
statement of the finding and its reasons in the rule issued. We also
usually provide for a delay in effective date under section 553(d) of
the APA (5 U.S.C. 553(d), as well as section 801(a)(3) of the
Congressional Review Act (5 U.S.C. 801(a)(3)) (when applicable).
However, such delay in effective date may be waived for good cause,
when such delay is impracticable, unnecessary, or contrary to the
public interest, and the agency incorporates a statement of the finding
and a brief statement of the reasons therefore in the notice. 5 U.S.C.
553(d)(3), 808(2). Because this interim final rule simply makes
conforming changes to the Code of Federal Regulations to reflect
changes in the statute, we find it would be unnecessary and contrary to
the public interest to seek public comment on these provisions. For the
same reasons, we also find that it would be unnecessary and contrary to
the public interest to delay the effective date of such provisions
beyond January 16, 2009.
IV. Collection of Information Requirements
This document does not impose any new information collection and
recordkeeping requirements. Currently approved and forthcoming controls
account for any collection of information burden relative to the
provisions of this interim final rule, as outlined below.
Section 423.120 Formulary Requirements
Section 423.120(b)(2)(v) requires Part D sponsors to include in
their contract year 2010 formularies all drugs in certain protected
categories of classes of drugs specified by CMS, with certain
exceptions that CMS establishes.
The burden associated with this requirement is the time and effort
put forth by Part D sponsors to submit their formularies to CMS. These
collection of information requirements are currently approved under the
Office of Management and Budget (OMB) Control No. 0938-0763.
V. Regulatory Impact Analysis
A. Overall Impact
We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993, as
further amended), the Regulatory Flexibility Act (RFA) (September 19,
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act,
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the
[[Page 2885]]
Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866, as amended, directs agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). A
regulatory impact analysis (RIA) must be prepared for major rules with
economically significant effects ($100 million or more in any 1 year).
We estimate that this interim final rule with comment is economically
significant under the Executive Order 12866, as it contains impacts of
$100 million or more in any one year, and hence also a major rule under
the Congressional Review Act.
The RFA requires agencies to analyze options for regulatory relief
of small businesses, if a rule has a significant impact on a
substantial number of small entities. For purposes of the RFA, small
entities include small businesses, nonprofit organizations, and small
governmental jurisdictions. Most hospitals and most other providers and
supplies are small entities, either by nonprofit status or by having
revenues of $7 million or less to $34.5 million in any 1 year.
Individuals and States are not included in the definition of a small
entity.
We estimate that the coverage of all drugs by Part D sponsors from
the CMS-established protected classes or categories to have a cost
impact to the federal budget in an amount exceeding $100 million for
any given calendar year (CY). Table 1 provides the costs associated
with these provisions for CY 2010 through CY 2018. The assumptions
underlying these cost estimates are explained later in this section.
With respect to economic benefits, we have no reliable basis for
estimating the effects of the proposals contained in this IFC.
Accordingly, we estimate that while there could be economic benefits
associated with these proposals, they are difficult to gauge at this
time.
The economically significant costs are reflected below in table 1.
Table 1--Projected Part D Costs for CY 2010--CY 2018
[Amounts in $ millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
CY 2010-
CY 2010 CY 2011 CY 2012 CY 2013 CY 2014 CY 2015 CY 2016 CY 2017 CY 2018 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Formulary requirements with 0 160 340 460 520 570 640 710 800 4200
respect to certain categories
or classes of drugs............
--------------------------------------------------------------------------------------------------------------------------------------------------------
We note that the change in the definition of a Part D drug to
revise the meaning of the term ``medically accepted indication,'' as
provided under section 1860D-2(e)(4) of the Act, was scored at zero
additional cost to the program. Most of the anticancer chemotherapeutic
regimens utilized by Medicare beneficiaries are covered under Part B,
and while this new provision may extend coverage for anticancer
therapeutic regimens under Part D, we believe the number of Part D
drugs claims impacted by this change will be minimal. Therefore, we do
not expect that this provision will significantly impact program costs.
a. Regulatory Flexibility Analysis
Under the RFA, we are not required to conduct an initial regulatory
flexibility analysis for interim final rules. However, it is our
longstanding policy to provide an analysis whenever we believe it would
aid in the understanding of the effects of the interim final rule with
comment.
The RFA requires agencies to determine whether a rule will have a
``significant economic impact on a substantial number of small
entities.'' Under the RFA, a ``small entity'' is defined as a small
business (as determined by the Small Business Administration (SBA)), a
non-profit entity of any size that is not dominant in its field, or a
small government jurisdiction. HHS uses its measure of a significant
economic impact on a substantial number of small entities to be a
change in revenues of more than 3 to 5 percent.
With respect to the provisions contained in this interim final
rule, we believe only retail pharmacies which are small businesses will
be impacted. Other small businesses, such as physicians in private
practice or small businesses that deliver prescriptions to
beneficiaries, will be unaffected by this interim final rule since
there is no direct impact to their operations or profitability. For
example, private physicians will generally continue to follow current
prescribing practices regardless of Part D formularies. Small delivery
businesses will continue to deliver the same number of prescriptions
regardless of the drug name or formulary inclusion.
The Small Business Administration (SBA) considers pharmacies with
firm revenues less than $7 million to be small businesses. The 2004
Business Census (the latest available detailed data) indicated that
there were approximately 19,443 firms operating about 40,115 retail
pharmacies and drug store establishments (NAICS code 44611). Of these
firms, 17,835 had revenues under $7 million and operated a total of
17,835 establishments. As a result, we estimate that more than 90
percent of retail pharmacy firms are small businesses (as defined by
the SBA size standards).
We do not believe that retail pharmacies would be significantly
impacted by the requirement for Part D sponsors to include all drugs in
protected classes or categories specified by CMS. While the number of
brand name drugs dispensed in these categories may increase, we do not
think there will be a substantial increase in overall retail pharmacy
profits. Retail pharmacies may incur some limited costs relative to
this provision, since they may need to inventory more drugs within
these classes given that Part D sponsors may not be able to concentrate
volume on lower cost salts, esters and active moieties.
As previously discussed, the other change contained in this interim
final rule is not expected to affect small businesses in a significant
manner, if at all. For example, section 182 of the MIPPA requires
modification to the definition of a medically accepted indication for
purposes of a Part D drug. While Part D sponsors will be expected to
implement this new definition through their drug utilization management
programs, small
[[Page 2886]]
businesses, such as retail pharmacies or physicians, will not require
any changes to their existing operations. The application of drug
utilization management is common in the commercial market, and small
businesses already have processes (that is, administrative staff or
pharmacy technicians) to supply the necessary information to address
drug utilization management requirements. As a result, we do not
anticipate any additional costs or burdens to be placed on other small
businesses.
Section 1102(b) of the Social Security Act requires us to prepare a
regulatory flexibility impact analysis if a rule may have a significant
impact on the operations of a substantial number of small rural
hospitals. This analysis must conform to the provisions of section 604
of the RFA. For purposes of section 1102(b) of the Act, we define a
small rural hospital as a hospital that is located outside of a
Metropolitan Statistical Area and has fewer than 100 beds. This interim
final rule will not affect small rural hospitals since the program will
be directed at outpatient prescription drugs, not drugs provided during
a hospital stay. As required by law, prescription drugs provided during
hospital stays are covered under a separate Medicare payment system.
Therefore, we are not providing an analysis in this rule.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditure in any one year by
State, local, or tribal governments, in the aggregate, or by the
private sector, of $100 million. That threshold, updated for inflation,
is currently approximately $130 million. We anticipate that this
interim final rule will not impose costs above the $130 million UMRA
threshold on State, local, tribal governments, in the aggregate, or by
the private sector.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a final rule that imposes substantial
direct requirement costs on State and local governments, preempts State
law, or otherwise has Federalism implications. The changes and
additions contained in this interim final rule do not impose new costs
on states or local governments.
There are no anticipated Federalism implications because none of
the provisions contained in this interim final rule place any
requirements on States.
B. Anticipated Effects on Health Plans and Pharmacy Benefit Managers
(PBMs)
Part D sponsors will be significantly impacted by this IFC rule.
For example, we believe that the new provision relative to the
establishment of certain protected classes and categories of Part D
drugs will have a significant impact on Part D sponsors, a class of
beneficiaries and the Federal Government. This new provision requires
that Part D sponsors include all drugs in protected classes and
categories of drugs that CMS specifies as meeting both of the following
conditions:
1. Restricted access to drugs in the category or class would have a
major or life threatening clinical consequence.
2. A significant clinical need exists for individuals to have
access to multiple drugs within a category or class due to unique
chemical actions and pharmacological effects.
We expect these conditions will likely expand access to drugs for
certain classes or categories and provide greater inclusion of
manufacturers' drugs associated with those classes or categories in the
Part D program. If additional drug classes and categories are required
to be included on Part D sponsor formularies, Part D sponsors' costs
could increase, since more drugs could need to be covered. Conversely,
if fewer classes and categories are required to be included on Part D
sponsors' formularies, Part D sponsors' costs could decrease, since
less drugs could require coverage. Since we are only now beginning our
examination of widely used treatment guidelines in order to establish
the protected classes or categories that meet the aforementioned
requirements, we estimate that this provision will add an additional
$160 million to the cost of the Part D program in CY 2011. We believe
this will increase to $800 million in CY 2018, with total costs of
approximately $4.2 billion dollars for the period CY 2010 through CY
2018.
To arrive at the cost estimate for the implementation of the
protected categories and classes, we began by putting drug spending
into 3 groupings: (1) Drugs that were already included in the six
classes of clinical concern; (2) drugs with a greater likelihood of
being affected by this statutory change; and (3) drugs with a lesser
likelihood of being affected by this statutory change. For each of
these categories, we estimated the likelihood that they would
ultimately be included in the protected categories and classes. A very
preliminary review of commonly used classification systems revealed
that additional categories and classes of drugs may be included in the
protected categories and classes based upon the statutory requirements
in section 1860D-4(b)(3)(G)(i) of the Act. We assumed that it would
take several years for the full impact of this policy to take effect as
new formulary requirements are fully implemented and manufacturers
discover their new negotiating positions. Finally, we estimated the
impact on drug expenditures for those drugs that could potentially be
moved into protected categories or classes of drugs based on the
statutory requirements. These impacts reflect our best estimates of a
range of possibilities that cannot be more accurately projected until
actual decisions are made.
There is a large amount of uncertainty in the cost impact presented
above. As described above, the cost impact is calculated based on
making a series of assumptions regarding potential classes that may
become protected. It is possible that the actual number of classes that
would be protected will be different than we've estimated. For example,
if no classes beyond the current six become protected, there would be
no cost impact at all. Alternatively, if a greater number of classes
than we estimate become protected, the actual cost impact will be
greater than presented above. Moreover, if this process only resulted
in the elimination of the existing six classes, savings could accrue.
If additional categories and classes are included on Part D sponsor
formularies as a result of the new statutory provisions, we expect
sponsors' negotiating power to be diminished. If this were to occur,
Part D sponsors could incur higher drug costs and could be forced to
raise their bids, which could result in higher premiums and co-pays to
offset these increases. We also anticipate that Part D sponsors could
have additional costs associated with managing a larger overall
formulary--for example, increased Pharmacy and Therapeutics Committee
oversight and increased expenses in marketing more products on
comprehensive formularies. Alternatively, however, the number of
protected classes and categories meeting the MIPPA requirement could
decline relative to the current six protected under the MMA authority.
If this were the case, we expect Part D sponsors' negotiating power to
increase. As a result, Part D sponsors could incur lower drug costs and
could lower their bids, which could result in lower premiums and co-
pays.
We are also uncertain at this time what exceptions to the
requirement that Part D sponsor formularies include all
[[Page 2887]]
drugs in the protected categories and classes of drugs will be
established by CMS. We anticipate establishing exceptions similar to
those available under our existing six classes of clinical concern
policy. It is possible we will establish fewer exceptions, and Part D
sponsors may have to include more drugs on their formularies than
current policy. However, it is also possible that we may establish more
exceptions than current policy. We are also uncertain how Part D
sponsors will be permitted to apply drug utilization management to
drugs in the protected classes until we finalize the exceptions to the
protected categories and classes requirement. We believe that if we are
unable to permit Part D sponsors to apply meaningful utilization
management to these drugs--even if only for beneficiaries initiating
therapy in these categories or classes--the result could be an
increased use of brand-name or higher cost drugs and an increase in
costs overall. These costs could be reflected in bids submitted to CMS
by Part D sponsors and could result in increased premiums for Medicare
beneficiaries. We plan on working closely with all of our Part D
sponsors as our guidance in this area develops to ensure they have the
information they need to negotiate as efficiently as possible and
continue to provide high quality prescription drug coverage at the most
economical price.
Except for the potential impact of increased or decreased costs
(that is, increased or decreased copayments and premiums) on
beneficiaries, we do not believe that the implementation of the
protected classes and categories requirement will negatively impact
enrollment in Part D plans. We also do not believe that the provisions
of this rule will lead to greater beneficiary confusion or any
increased difficulty in making enrollment decisions. While increased
copayments and premiums may dissuade some beneficiaries from enrolling
in particular Part D plans, we continue to believe that overall
enrollment will increase given demographic trends and the increasing
cash prices for drugs. Accordingly, we believe Medicare beneficiaries
will continue to find Part D to be a cost efficient method of obtaining
robust drug coverage at a range of acceptable costs.
We also believe that PBMs could experience higher administrative
costs as a result of the provisions contained in this rule. The
protected classes provision may increase a number of formulary
maintenance expenses ranging from managing a larger formulary to
increased support of technical call centers to address requests for
assistance in processing a wider range of covered drugs. As a result,
PBMs may increase their fees to Part D sponsors to offset these
increased costs. We do not believe these additional costs will
negatively impact the PBM industry given its ability to pass these onto
the Part D sponsors. Similar to our ongoing communications with our
Part D sponsors, we intend to work closely with the PBM industry to
ensure as much efficiency as possible and minimize any resulting
increases in beneficiary costs.
C. Alternatives Considered
All of the provisions in this interim final rule are a result of
the recent passage of the MIPPA and are largely self-implementing. With
the publication of this interim final rule, we desire to make our
implementing regulations available to industry and the public as soon
as possible to facilitate continued, efficient operation of the Parts C
and D programs.
D. Accounting Statement
As required by OMB Circular A-4 (available at http://
www.whitehouse.gov/omb/circulars/index.html), Table 2 below provides an
accounting statement showing the classification of the expenditures
associated with the provisions of this IFC rule. This table provides
our best estimate of the increase in costs as a result of the changes
presented in this final rule. All costs, including increases and
reductions, are classified as transfers by the Federal Government to
Part D plans or MAOs.
Table 2--Accounting Statement: Classification of Estimated Expenditures
----------------------------------------------------------------------------------------------------------------
Category Transfers ($ millions)
----------------------------------------------------------------------------------------------------------------
Formulary requirements with respect to certain
categories or classes of drugs, CYs 2010-
2018:
Undiscounted Annualized Monetized 466.7.
Transfers.
Annualized Monetized Transfers Using 7% 424.5.
Discount Rate.
Annualized Monetized Transfers Using 3% 448.3.
Discount Rate.
From Whom to Whom?........................ Federal Government to Part D Plans.
----------------------------------------------------------------------------------------------------------------
D. Conclusion
Given that we expect the cost of implementing a number of the
provisions contained in this IFC rule, as specified in Table 1, will
exceed the $100 million threshold within a single year between CY 2010
and CY 2018, we conducted an economic impact analysis with regard to
those entities potentially impacted by these provisions. As we stated
previously in this preamble, we expect that entities such as pharmacies
will benefit from these changes, whereas other entities, such as Part D
sponsors, will experience additional costs which they will pass on to
CMS through direct subsidy payments and to beneficiaries through
additional premiums as reflected in their bids. In accordance with the
provisions of Executive Order 12866, this final rule was reviewed by
the Office of Management and Budget.
List of Subjects in 42 CFR Part 423
Administrative practice and procedure, Emergency medical services,
Health facilities, Health maintenance organizations (HMO), Medicare,
Penalties, Privacy, Reporting and recordkeeping.
0
For the reasons set forth in the preamble, the Centers for Medicare &
Medicaid Services amends 42 CFR chapter IV as set forth below:
PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT
Subpart C--Benefits and Beneficiary Protections
0
1. The authority citation for part 423 continues to read as follows:
Authority: Secs. 1102, 1106, 1860D-1 through 1860D-42, and 1871
of the Social Security Act (42 U.S.C. 1302, 1306, 1395w-101 through
1395w-152, and 1395hh).
0
2. Amend Sec. 423.100 by revising the introductory text of paragraph
(1) under the definition of ``Part D drug'' to read as follows:
[[Page 2888]]
Sec. 423.100 Definitions.
* * * * *
Part D drug means--
(1) Unless excluded under paragraph (2) of this definition, any of
the following if used for a medically accepted indication (as defined
in section 1860D-2(e)(4) of the Act)--
* * * * *
0
3. Amend Sec. 423.120 by--
0
A. Revising (b)(2) introductory text.
0
B. Revising (b)(2)(i).
0
C. Adding (b)(2)(v).
The revisions and additions to read as follows:
Sec. 423.120 Access to covered Part D drugs.
* * * * *
(b) * * *
(2) Provision of an Adequate Formulary. A Part D plan's formulary
must--
(i) Except as provided in paragraphs (b)(2)(ii) and (v) of this
section, include within each therapeutic category and class of Part D
drugs at least two Part D drugs that are not therapeutically equivalent
and bioequivalent, with different strengths and dosage forms available
for each of those drugs, except that only one Part D drug must be
included in a particular category or class of covered Part D drugs if
the category or class includes only one Part D drug.
* * * * *
(v) Effective contract year 2010, a Part D Sponsor's formulary will
include all Part D drugs in a category or class that CMS has identified
as meeting the two conditions set forth in section 1860D-4(b)(3)(G)(i)
of the Act. CMS may establish certain exceptions, which may include the
application of drug utilization management under certain circumstances,
through a process that provides for public notice and comment, and
ensures that any exception to such requirements is based upon
scientific evidence and medical standards of practice (and, in the case
of antiretroviral medications, is consistent with the Department of
Health and Human Services Guidelines for the Use of Antiretroviral
Agents in HIV-1-Infected Adults and Adolescents).
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: September 12, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: January 9, 2009.
Michael O. Leavitt,
Secretary.
[FR Doc. E9-783 Filed 1-15-09; 8:45 am]
BILLING CODE 4120-01-P