Medicare Program; Policy and Technical Changes to the Medicare Prescription Drug Benefit, 29403-29423 [07-2577]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 72, Number 101 (Friday, May 25, 2007)]
[Proposed Rules]
[Pages 29403-29423]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-2577]



Federal Register / Vol. 72, No. 101 / Friday, May 25, 2007 / Proposed 
Rules

[[Page 29403]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 423

[CMS-4130-P]
RIN 0938-A074


Medicare Program; Policy and Technical Changes to the Medicare 
Prescription Drug Benefit

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would both codify prior clarifications of 
our policies associated with the Medicare Prescription Drug Benefit 
(also known as Medicare Part D) and propose certain clarifications of 
these policies. These clarifications include the following: Codifying 
our expectations of Part D sponsors regarding providing adequate access 
to home infusion pharmacies for infused covered Part D drugs and 
proposing standards with respect to timeliness of delivery of drugs; 
codifying our guidance that certain supplies associated with the 
inhalation of insulin are included in the definition of Part D drug; 
refining our definition of what may be included in the drug costs Part 
D sponsors use as the basis for calculating beneficiary cost sharing, 
reporting drug costs to CMS for the purposes of reinsurance 
reconciliation and risk sharing, as well submitting bids to CMS; 
reiterating our previous guidance explaining how we interpret the 
statutory exclusion from the definition of a Part D drug for any drug 
when used for the treatment of sexual or erectile dysfunction, unless 
that drug was used for an FDA-approved purpose other than sexual or 
erectile dysfunction; and codifying our guidance on plan-to-plan 
reconciliation and reconciliation to a payer other than the Part D of 
record. In addition, we are correcting the regulations to ensure that 
they reflect the appropriate subsidy for partial subsidy individuals 
subject to a late enrollment penalty. We also propose changes to the 
retiree drug subsidy regulations, including permitting non-calendar 
year plans to choose between the current year's or the subsequent 
year's Part D cost limits in certain circumstances and codifying our 
previous guidance on aggregating plan options for purposes of meeting 
the net test for actuarial equivalence.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on July 24, 2007.

ADDRESSES: In commenting, please refer to file code CMS-4130-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (no duplicates, 
please):
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to https://www.cms.hhs.gov/eRulemaking. Click 
on the link ``Submit electronic comments on CMS regulations with an 
open comment period.'' (Attachments should be in Microsoft Word, 
WordPerfect, or Excel; however, we prefer Microsoft Word.)
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-4130-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 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-4130-P, 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 one of the following addresses. 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. Room 445-G, Hubert H. Humphrey Building, 
200 Independence Avenue, SW., Washington, DC 20201; or 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    (Because access to the interior of the HHS 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.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: For overall questions about this 
proposed rule, please contact Alissa DeBoy, (410) 786-6041. For other 
detailed questions on clarifications and/or proposed changes herein, 
please contact the following individuals for the applicable subpart.

Subpart B--James Slade, (410) 786-1073.
Subpart C--Vanessa Duran, (410) 786-8697 or Gregory Dill, (312) 353-
1754.
Subparts F and G--Deondra Moseley, (410) 786-4577 or Meghan Elrington, 
(410) 786 8675.
Subpart I--James Slade, (410) 786-1073.
Subpart J--Deborah Larwood, (410) 786-9500 or Vanessa Duran, (410) 786-
8697.
Subpart K--Mark Smith, (410) 786-8015.
Subpart P--Deondra Moseley, (410) 786-4577 or Christine Hinds, (410) 
786-4578.
Subpart R--Adam Shaw, (410) 786-1091.
Subpart S--Christine Hinds, (410) 786-4578.

SUPPLEMENTARY INFORMATION:
    Submitting Comments: We welcome comments from the public on all 
issues set forth in this rule to assist us in fully considering issues 
and developing policies. You can assist us by referencing the file code 
CMS-4130-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. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://
www.cms.hhs.gov/eRulemaking. Click on the link ``Electronic Comments on 
CMS Regulations'' on that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

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I. Background

    The Medicare Prescription Drug Benefit (also known as Part D) is a 
voluntary prescription drug benefit program enacted into law on 
December 8, 2003 in section 101 of title I of the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-
173). In the January 28, 2005 Federal Register (70 FR 4194), we 
published a final rule implementing the provisions of Part D, and these 
provisions became effective March 22, 2005.
    Since publication of the January 28, 2005 final rule, we have 
issued several clarifications or interpretations of the final rule by 
way of interpretive guidance documents. In addition, we have issued 
guidance explaining how we will interpret a change to the Social 
Security Act (``Act'') that excludes drugs used in the treatment of 
erectile dysfunction from Part D, with a certain exception. In order to 
ensure public awareness of our policies, as well as to avoid potential 
confusion regarding them, in this preamble, we explain many of the 
respective clarifications or interpretations. Relatedly, we are 
proposing to codify some of these clarifications in regulation through 
this proposed rule, as well as making certain technical corrections to 
the January 28, 2005 final rule.
    In addition, due to our experience to date in implementing Part D, 
we are proposing several new clarifications of our policy for Part D 
plans, to be implemented in contract year 2009, on which we 
specifically invite public comment.

II. Provisions of the Proposed Rule

A. Subpart B--Eligibility and Enrollment

1. Approval of Marketing Materials and Enrollment Forms (Sec.  423.50)
    In the preamble of the January 28, 2005 final rule, we discussed 
the approval of marketing materials and enrollment forms, to correspond 
with the regulations text at Sec.  423.50. (70 FR 4223) In our response 
to public comments, we stated that it was ``appropriate to allow 
providers and pharmacies to market to beneficiaries.'' (emphasis 
added). (70 FR 4223) When we used the term ``market'' in the final 
rule, we used the term ``market'' in a more general sense, to mean 
assisting in enrollment or education directed at beneficiaries.
    Subsequent to our publication of the final rule, we issued the 
Medicare Marketing Guidelines (``The Guidelines''). (See Centers for 
Medicare & Medicaid Services, Medicare Marketing Guidelines for: 
Medicare Advantage Plans (MAs); Medicare Advantage Prescription Drug 
Plans (MA-PDs); Prescription Drug Plans (PDPs); 1876 Cost Plans https://
www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/
FinalMarketingGuidelines.pdf (last updated July 25, 2006).) The 
Guidelines contain a specific definition of the term, ``marketing.'' 
The Guidelines define ``marketing'' as ``[s]teering, or attempting to 
steer, an undecided potential enrollee towards a plan, or limited 
number of plans, and for which the individual or entity performing 
marketing activities expects compensation directly or indirectly from 
the plan for such marketing activities.'' (The Guidelines, page 8.) 
This definition further clarifies that neither ``[a]ssisting in 
enrollment'' nor ``education'' constitute ``marketing.'' (The 
Guidelines, page 8.) The Guidelines require Part D plan sponsors to 
ensure that their contracted providers agree to refrain from 
``marketing'' to beneficiaries, as that term is defined by The 
Guidelines (that is, steering or attempting to steer an undecided 
beneficiary toward a plan based on the provider's financial interest). 
Thus, our intent in the preamble was to acknowledge that providers and 
pharmacies are free to engage in either ``assisting in enrollment'' or 
``education'' (as those terms are defined on page 6 of The Guidelines), 
including provider promotional activities as permitted under The 
Guidelines. We believe that the context of our discussion in the 
preamble demonstrates that we were discussing providers and pharmacies 
assisting in beneficiary enrollment, based on the beneficiary's needs, 
and education. This is consistent with The Guidelines, which encourage 
providers to assist beneficiaries in objective assessments of the 
beneficiaries' needs and potential plan options that may meet those 
needs. Given that the Guidelines' definition of ``market'' was not 
issued until after publication of the final rule, we wish to emphasize 
our consistent policy: providers and pharmacies that are contracted 
with plan sponsors may not ``market'' to beneficiaries, as the term is 
defined in The Guidelines. However, providers and pharmacies may assist 
in enrollment, including participating in provider promotion activities 
within the parameters established in The Guidelines, and educate 
beneficiaries. We clarify this policy here in this proposed rule so as 
to avoid any confusion arising from our inaccurate use of the term 
``market'' in our discussion of the approval of marketing materials and 
enrollment forms in the January 28, 2005 final rule.
    Section 423.50(f)(1)(v) states that in conducting marketing 
activities, a Part D plan may not ``[u]se providers, provider groups, 
or pharmacies to distribute printed information comparing the benefits 
of different Part D plans unless the providers, provider groups or 
pharmacies accept and display materials from all Part D plan 
sponsors.'' (70 FR 4532) One might infer from this language that when a 
Part D plan uses providers, provider groups, or pharmacies to 
distribute printed information comparing the benefits of different Part 
D plans, that the providers, provider groups, or pharmacies must not 
only accept and display printed information comparing the benefits of 
the Part D plans with whom they contract, but that they also must 
accept and display printed information comparing the benefits of 
different Part D plans with whom they do not contract. This 
interpretation would likely lead to beneficiary confusion because if a 
provider were required, per its contract with Part D plan sponsors, to 
display materials for plans with which the provider does not contract, 
beneficiaries, who may want to continue using the applicable provider 
because the provider has a history with the beneficiary, may mistakenly 
believe that he or she may continue to use the applicable non-
contracted provider and receive the maximum amount of benefit. Even 
though we are requiring that plan sponsors only require their 
contracted providers to accept and display comparative materials from 
plans with which the provider contracts, the Guidelines require that 
providers in a health care setting inform prospective enrollees where 
they can obtain information on the full range of plan options, 
including referring beneficiaries to 1-800-MEDICARE, https://
www.medicare.gov, State Health Insurance Assistance Programs. (The 
Guidelines, page 124.) We clarify here that a Part D plan can use 
providers, provider groups, or pharmacies to distribute printed 
information comparing the benefits of different Part D plans, so long 
as the providers, provider groups, or pharmacies accept and display 
printed information comparing the benefits of different Part D plans 
with whom they contract; the providers, provider groups, or pharmacies 
are not obliged to accept and display any comparative information 
regarding those Part D plans with whom they do not contract. This

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clarification applies to comparative marketing materials and is in 
accord with The Guidelines. (The Guidelines, page 125.) We are 
codifying the policy in regulation by revising Sec.  423.50(f)(1) to 
indicate a Part D plan may use providers, provider groups and 
pharmacies to distribute printed information comparing the benefits of 
different plans, so long as the providers, provider groups or 
pharmacies accept and display materials from all Part D plan sponsors 
with which the providers, provider groups or pharmacies contract.
2. Procedures To Determine and Document Creditable Status of 
Prescription Drug Coverage (Sec.  423.56)
    In the regulation text of the January 28, 2005 final rule, we have 
identified a typographical error in Sec.  423.56(b)(6). As published, 
Sec.  423.56(b)(6) directs the reader to reference Sec.  423.205 for a 
definition of the term ``Medicare supplemental policy''. (70 FR 4532) 
However, the proper reference for the definition of the term ``Medicare 
supplemental policy'' is Sec.  403.205. Therefore, we are revising the 
regulation text accordingly to state the correct reference; that is, 
Sec.  403.205.

B. Subpart C--Benefits and Beneficiary Protections

1. Definitions
a. Part D Drug
(1) Erectile Dysfunction
    In the preamble of the January 28, 2005 final rule (70 FR 4228 et 
seq.), we addressed the regulatory definition of the term ``Part D 
drug'' in Sec.  423.100. (70 FR 4534) We stated that in accordance with 
section 1860D-2(e)(2) of the Act, the definition of a 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 under section 1927(d)(2) of the Act, with the exception of 
smoking cessation agents. On October 26, 2005, section 1860D-2(e)(2)(A) 
of the Act was amended to exclude from the statutory definition of a 
Part D drug ``a drug when used for the treatment of sexual or erectile 
dysfunction, unless such drug were used to treat a condition, other 
than sexual or erectile dysfunction, for which the drug has been 
approved by the Food and Drug Administration.'' Consequently, beginning 
January 1, 2007, erectile dysfunction (ED) drugs will not be classified 
as Part D drugs under Sec.  423.100 when they are used for the 
treatment of sexual or erectile dysfunction, unless they are used to 
treat a condition, other than sexual or erectile dysfunction, for which 
the drug has been approved by the FDA. We note here that ED drugs will 
also not meet the definition of a Part D drug for off-label uses that 
by definition are not approved by the FDA. This includes non-FDA-
approved uses contained in one of the compendia listed in section 
1927(g)(1)(B)(i) of the Act: American Hospital Formulary Service Drug 
Information, United States Pharmacopeia-Drug Information (or its 
successor publications), and the DRUGDEX Information System.
    This ED exclusion is cited in 1927(d)(2)(K), and because our 
definition of a Part D drug in Sec.  423.100(2)(ii) excludes drugs 
which may be excluded under section 1927(d)(2) of the Act, no 
regulation text change is required. Similar to other excluded drugs 
contained in section 1927(d)(2) of the Act, those plans that wish to 
continue coverage of ED drugs may do so as a supplemental benefit 
through enhanced alternative coverage, consistent with existing policy. 
To ensure adequate notice of this new ED exclusion, we issued a 
question and answer (Q&A) notice to plans throughout our Healthcare 
Plan Management System (HPMS) on July 10, 2006 (Q&A 7682 https://
questions.cms.hhs.gov/cgi-bin/cmshhs.cfg/php/enduser/std_alp.php?p--
sid=F*VR*Ygi). We believe that this Q&A, coupled with a considerable 
amount of media attention on the topic, has provided the industry a 
significant amount of notice regarding the implementation of this ED 
exclusion. Our provider and beneficiary outreach programs are also 
including the new ED exclusion in their broader education program to 
ensure all groups are prepared for the implementation of the ED 
exclusion on January 1, 2007.
(2) Morbid Obesity
    Section 423.100 defines the term ``Part D drug'' and excludes from 
that definition ``[d]rugs or classes of drugs, or their medical uses, 
which may be excluded from coverage or otherwise restricted under 
Medicaid under sections 1927(d)(2) or (d)(3) of the Act, except for 
smoking cessation agents.'' (70 FR 4534) In the corresponding preamble 
of the January 28, 2005 final rule, we explained that this list of 
excluded drugs included agents when used for anorexia, weight loss, or 
weight gain and agents when used for cosmetic purposes or hair growth. 
(70 FR 4228) However, in the preamble we erroneously asserted that to 
the extent that a drug was dispensed for a ``medically accepted 
indication'' (70 FR 4230) as described in section 1860D-2(e)(1) of the 
Act, weight loss agents could be covered for the treatment of morbid 
obesity. Therefore, we clarify here that agents, when used for 
anorexia, weight loss, or weight gain, are specifically excluded from 
the definition of Part D drugs. Thus, a weight loss agent, even when 
not used for cosmetic purposes, is still ``an agent used for anorexia, 
weight loss, or weight gain,'' for purposes of the exclusion from the 
definition of Part D drug. Similar to other excluded drugs contained in 
section 1927(d)(2) of the Act, those plans that wish to continue 
coverage of weight loss agents may do so as a supplemental benefit 
through enhanced alternative coverage, consistent with existing policy.
    Since publication of the January 28, 2005 final rule, we have 
received requests for clarification about our preamble language 
regarding drugs used to treat morbid obesity. We clarified our policy 
in Q&A guidance to Part D plans released in Spring 2005. (Q&A 5279 
https://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg/php/enduser/std_
alp.php?p_sid=7KFqaChi.) There, we stated that weight loss agents 
prescribed for the treatment of morbid obesity are not Part D drugs 
covered under 1860D-2(e)(2) of the Act, because even though they are 
not used for other excluded purposes such as cosmetic or hair growth, 
they nevertheless remain agents for anorexia, weight loss, or weight 
gain that are excluded from the definition of Part D drugs under 
section 1860D-2(e)(2) of the Act. We note that we are not expanding or 
changing current policy regarding the exclusion of agents used for 
weight loss from the definition of Part D drug. Rather, we are 
clarifying existing policy regarding the definition of a Part D drug 
that excludes agents used for weight loss, including in connection with 
morbid obesity.
(3) Insulin Inhalation Drugs and Supplies
    [If you choose to comment on issues in this section, please include 
the caption ``INSULIN INHALATION DRUGS AND SUPPLIES'' at the beginning 
of your comments.]
    With the passage of the MMA, Congress included within the 
definition of ``Part D drug'' found in section 1860D-2(e) of the Act 
``medical supplies associated with the injection of insulin (as defined 
in regulations of the Secretary)'' as Part D drugs. We believe that 
Congress' intent was to ensure that a beneficiary with diabetes had 
access to both the insulin and the supplies required to deliver insulin 
into the body. For example, in the conference report for the MMA, the 
conferees

[[Page 29406]]

specifically stated that: ``It is the intent of conferees that the 
definition of insulin, and medical supplies associated with the 
administration of insulin, as a covered prescription drug shall include 
medical supplies that the Secretary determines to be reasonable and 
necessary, such as insulin, insulin syringes, and insulin delivery 
devices that are not otherwise covered under the durable medical 
equipment benefit.'' (H.R. Conf. Rep. 108-391, 108th Cong., 1st Sess. 
at 442 (2003))
    Administration of insulin by injection, especially since it 
involves multiple injections daily, has fueled constant research into 
the delivery of insulin by another route. While there have been 
promising developments of an alternative delivery method over the past 
8 years, no other insulin delivery method had obtained FDA approval as 
of the time we were undertaking rulemaking to implement the Part D 
program. Thus, in the final rule, we interpreted the term ``medical 
supplies associated with the injection of insulin'' as comprising 
syringes, needles, alcohol swabs, gauze, and insulin delivery devices 
not otherwise covered by Part B, such as insulin pens, pen supplies, 
and needle-free syringes. In doing this, we provided greater detail to 
Part D sponsors on what exactly met the definition of a Part D drug, 
but, like Congress, we derived our definition based upon the only 
approved administration method available to diabetics at the time.
    On January 26, 2006, the FDA approved the first-ever inhaled 
insulin. This inhaled medication is a dry powder inhaler (``DPI'') that 
requires a patient to place a small amount of powdered insulin into a 
hand-held chamber that permits inhalation of the insulin into the 
lungs.
    Subsequent to the FDA approval, we began to receive questions 
regarding the reimbursement of this new product. For example, inquirers 
wanted to know whether the inhalation supplies associated with this new 
product would be included in the definition of a Part D drug, because 
while administration by inhalation offers the beneficiary an 
alternative method of receiving insulin for those appropriately 
qualified, the chamber and any associated accessories involved in 
inhalation are not specifically described in the definition of a Part D 
drug.
    Upon review of these issues, we concluded it was not Congress' 
intention to prevent access to this novel insulin delivery method, as 
doing so would deny millions of Medicare beneficiaries an alternative 
way to manage diabetes. Thus, we have determined that, consistent with 
Congressional intent, supplies associated with the inhalation of 
insulin meet the definition of a Part D drug. We propose to codify our 
existing guidance (Q&A 7940 https://questions.cms.hhs.gov/cgi-bin/
cmshhs.cfg/php/enduser/std_alp.php?p_sid=sXyWmkki) and revise the 
definition of Part D drug to include ``[s]upplies that are directly 
associated with delivering insulin into the body through inhalation, 
such as the inhalation chamber used to deliver the insulin.''
    While this new definition would make these insulin inhalation 
supplies eligible for reimbursement as a Part D drug, unless our 
formulary guidelines required otherwise, it would be the Part D 
sponsor's decision (through its Pharmacy and Therapeutics Committee) 
whether to place these products on the formulary. Additionally, we 
would expect sponsors to apply drug utilization management tools to 
ensure the appropriate use of these supplies.
    We note that our extension of insulin-related supplies extends only 
to those supplies that are directly associated with delivering the 
insulin into the body through inhalation, such as the inhalation 
chamber used to deliver the insulin. Where the relationship is more 
indirect, for example auxiliary supplies that might be used to hold the 
chamber, ease actuation or store the chamber, we would not consider 
such items to be an insulin delivery-related supply. We reiterate our 
statement in the final rule that our intention is to narrowly construe 
what constitutes these medical supplies in order to avoid an 
inappropriate expansion of the Part D benefit.
(4) Vaccine Administration Fee
    We also propose to amend the definition of Part D drug to include a 
reference to vaccine administration on or after January 1, 2008, to 
conform to Section 1860D-2(e)(1)(B) of the Act, which was recently 
amended by Section 202(b) of the Tax Relief and Health Care Act of 
2006. We intend to reflect the statutory change in the final rule.
b. Long-Term Care Facilities
    In the January 28, 2005 final rule, Sec.  423.100 defines the term 
``long term care facility'' as a ``skilled nursing facility as defined 
in section 1819(a) of the Act, or a medical institution or a nursing 
facility for which payment is made for an institutionalized individual 
under section 1902(q)(1)(B) of the Act.'' (70 FR 4534) However, in our 
corollary discussion of that term in the preamble, we inadvertently 
omitted institutions for mental disease (IMDs) from the list of 
facilities that meet the definition of a long term care (LTC) facility. 
(70 FR 4236)
    Since publication of the January 28, 2005 final rule, we have 
received numerous requests for clarification regarding the status of 
IMDs in terms of our definition of the term ``long term care 
facility''. Consequently, we have clarified, in Q&A guidance to Part D 
plans released on October 21, 2005 (https://www.cms.hhs.gov/
PrescriptionDrugCovContra/Downloads/IMDICFPharmacyGuidance.pdf.), the 
status of IMDs. The definition of an LTC facility would include an IMD 
that is a nursing facility or other medical institution (which is a 
term defined at 42 CFR 4435.1009) and receives Medicaid payment for its 
services to an institutionalized individual under section 1902(q)(1)(B) 
of the Act. In other words, to the extent that a nursing facility or 
medical institution that is an IMD has as an inpatient any 
institutionalized individual (which means any full benefit dual 
eligible individual for whom payment is made for IMD services under 
Medicaid throughout a month, as provided in section 1902(q)(1)(B) of 
the Act), that IMD will fall within the definition of an LTC facility 
in Sec.  423.100. We are aware that there exists a statutory Federal 
financial participation exclusion under Medicaid affecting residents of 
IMDs between the ages of 22 and 64. However, the IMD exception to the 
definition of ``medical assistance'' under section 1902(q)(1)(B) of the 
Act does not apply to individuals who are age 65 and older. Thus, a 
State may elect to provide Medicaid coverage for services of an IMD to 
individuals over age 65. In these cases, all elderly full-benefit dual 
eligibles who are inpatients in an IMD for a full month are considered 
institutionalized individuals for that month. We note that we are not 
expanding or changing current policy regarding the definition of an LTC 
facility, but rather clarifying that IMDs are among the medical 
institutions that meet the definition of an LTC facility in Sec.  
423.100.
    We also clarify that as medical institutions, hospitals, (including 
long-term care hospitals) that receive payments under section 
1902(q)(1)(B) of the Act can meet the definition of an LTC facility. To 
the extent that inpatients in these hospitals exhaust their Part A 
inpatient days benefit, and payment is no longer available under Part A 
or Part B for drugs that would otherwise meet the definition of a Part 
D drug, such drugs are Part D drugs. Consequently, Part D sponsors must

[[Page 29407]]

ensure that they provide convenient access to network LTC pharmacies 
(which, in the case of a hospital, is typically the hospital's in-house 
pharmacy) for all of their enrollees who are inpatients in a hospital 
where the hospital is a ``medical institution'' under 1902(q)(1)(B) and 
therefore would meet the Part D definition of an LTC facility and whose 
Part A benefits have been exhausted.
c. Contracted Pharmacy Network
    Section 423.100 defines the ``contracted pharmacy network'' as 
``pharmacies, including retail, mail-order, and institutional 
pharmacies, under contract with a Part D sponsor to provide covered 
Part D drugs at negotiated prices to Part D enrollees.'' (70 FR 4533) 
There, we made a technical error by inadvertently omitting clarifying 
language indicating that a pharmacy in a contracted pharmacy network 
must be licensed. We view this change as necessary in order to bring it 
in line with our term ``retail pharmacy'' which requires that a retail 
pharmacy be ``licensed.'' (70 FR 4535) Further, we believe this is an 
important clarification to be made, given our commitment to safeguard 
beneficiaries' interests and health with respect to access to covered 
Part D drugs through network pharmacies, be they retail, home infusion, 
long-term care, I/T/U, or other types of pharmacies. Accordingly, we 
will revise the definition of ``contracted pharmacy network'' to state 
that a pharmacy participating in a contracted pharmacy network must be 
licensed.
d. Negotiated Prices
    [If you choose to comment on issues in this section, please include 
the caption ``NEGOTIATED PRICES'' at the beginning of your comments.]
    Under Sec.  423.104(d)(2)(i), beneficiary cost sharing under the 
initial coverage limit is equal to 25 percent of ``actual cost.'' (70 
FR 4535) In addition, in accordance with Sec.  423.104(g)(1), a Part D 
sponsor is required to provide beneficiaries with ``access to 
negotiated prices for covered Part D drugs * * * even if no benefits 
are payable to the beneficiary * * * because of the application of any 
deductible or 100 percent coinsurance requirement.'' (70 FR 4536) In 
other words, even if a beneficiary is paying 100 percent of his or her 
costs, the beneficiary must be charged the same negotiated prices at a 
network pharmacy that would otherwise be used for calculating cost 
sharing.
    Actual cost is defined in Sec.  423.100 as ``the negotiated price 
for a covered Part D drug when the drug is purchased at a network 
pharmacy, and the usual and customary price when a beneficiary 
purchases the drug at an out-of-network pharmacy consistent with Sec.  
423.124(a).'' (70 FR 4533.) In Sec.  423.100 ``negotiated prices'' 
means prices for covered Part D drugs that--
     Are available to beneficiaries at the point of sale at 
network pharmacies;
     Are reduced by those discounts, direct or indirect 
subsidies, rebates, other price concessions, and direct or indirect 
remunerations that the Part D sponsor has elected to pass through to 
Part D enrollees at the point of sale; and
     Includes any dispensing fees. (70 FR 4534.)
    On July 20, 2006, we issued guidance to Part D sponsors stating 
that, in order to minimize disruption to plan operations, for 2006 and 
2007, sponsors could, at their option, base beneficiary cost-sharing 
not on the price ultimately charged by the pharmacy for the drug, but 
on the price the sponsor paid a pharmacy benefit manager (PBM) or other 
intermediary for the drug. We also stated our intent to issue a 
proposed rule that would require a single approach for calculating 
beneficiary cost sharing, based upon the price ultimately received by 
the pharmacy.
    In order to resolve the confusion caused by the Prescription Drug 
Benefit final rule, we are now proposing to amend the definition of 
``negotiated prices'' to be effective for Part D contract year 2009 to 
require that beneficiary cost sharing must be based upon the price 
ultimately received by the pharmacy or other dispensing provider.
    Therefore, we are proposing to revise Sec.  423.100 so that the 
first part of the definition of ``negotiated prices'' would state that 
negotiated prices are prices that the Part D sponsor (or other 
intermediary contracting organization) and the network dispensing 
pharmacy or other network dispensing provider have negotiated as the 
amount the network dispensing pharmacy or other network dispensing 
provider will receive, in total, for a particular drug. The term 
``intermediary contracting organization'' refers to organizations such 
as pharmacy benefit managers that contract with plan sponsors to 
negotiate pharmacy contracts on their behalf.
    We would also revise the definition of ``negotiated prices'' to 
include prices for covered Part D drugs negotiated between the Part D 
sponsor and other network dispensing providers. Part D sponsors can 
contract with providers other than a pharmacy to dispense covered Part 
D drugs, including them in their network. Therefore, we are amending 
the definition of negotiated prices to reflect the prices for covered 
Part D drugs that Part D sponsors negotiate with all of their network 
dispensing providers.
    In addition, although the definition of negotiated prices continues 
to state that these prices are reduced by discounts, rebates, and other 
direct and indirect remuneration that the Part D sponsor has elected to 
pass through to Part D enrollees at the point of sale, it is our 
understanding that in practice, Part D sponsors are unable to actually 
apply discounts, rebates, and other price concessions at the point of 
sale in order to reduce the price negotiated with the dispensing 
pharmacy or other dispensing provider. We recognize that negotiated 
prices would include only those price concessions actually passed 
through in order to result in a lower price to the beneficiary at the 
pharmacy (or other dispensing provider). To the extent no price 
concessions are passed through, of course, the negotiated prices would 
not be reduced.
2. Requirements Related to Qualified Prescription Drug Coverage (Sec.  
423.104)--Waiver of Reduction of Part D Cost-Sharing by Pharmacies
    In the January 28, 2005 final rule, we stated that we would allow 
waivers or reductions of cost-sharing by pharmacies to count as 
incurred costs. (70 FR 4240) Our statement, however, was limited only 
to pharmacies that are not also acting as other wrap-around coverage 
that generally would not count toward TrOOP. We did not intend to allow 
pharmacy waivers to count as incurred costs in cases where a pharmacy 
also met the definition of a group health plan, insurance or otherwise, 
or a third party payment arrangement, as those terms are defined in 
Sec.  423.100. As provided in the definition of incurred costs in Sec.  
423.100 (70 FR 4534), wraparound assistance with covered Part D drug 
costs by group health plans, insurance or otherwise, or a third party 
payment arrangement does not count as costs incurred toward a Part D 
enrollee's annual out-of-pocket threshold.
    In response to numerous requests for clarification of our policy 
with regard to waiver or reduction of Part D cost-sharing by network 
pharmacies, particularly by safety-net pharmacies, we have clarified, 
in question-and-answer guidance to Part D plans released on June 27, 
2005 (Q & A number 5115 https://questions.cms.hhs.gov/cgi-bin/
cmshhs.cfg/php/enduser/std_alp.php?p_sid=gIVVcxhi), that although we 
will generally allow waivers or reductions of Part D cost-sharing by 
pharmacies to count toward

[[Page 29408]]

as incurred costs, this will not be the case for pharmacies affiliated 
with entities whose wraparound coverage does not count as an incurred 
cost. This includes pharmacies operated by entities that are group 
health plans, insurance, government-funded health programs, or third 
party payment arrangements with an obligation to pay for covered Part D 
drugs. As a result, many safety-net providers (who, because they are 
fully or partially funded through government grants are considered 
government-funded health programs as defined in Sec.  423.100) will be 
unable to have any waiver or reduction of cost-sharing their pharmacies 
apply to Part D enrollees' Part D cost-sharing count as an incurred 
cost. This clarification does not represent a change or expansion to 
current policy given that, consistent with the section 1860D-2(b)(4)(C) 
of the Act, our regulations have made abundantly clear that cost-
sharing paid for or reimbursed by group health plans, insurance or 
otherwise, or other third party payment arrangements cannot be counted 
toward a Part D enrollee's incurred cost total.
3. Access to Covered Part D Drugs (Sec.  423.120)
a. Applicability of Some Nonretail Pharmacies to Standards for 
Convenient Access (Sec.  423.120(a)(2))
    In Sec.  423.120(a)(2), we made a technical error by inadvertently 
referring to ``rural health clinics'' as ``rural health centers.'' (70 
FR 4537) In fact, there is no such entity as a ``rural health center'' 
for purposes of the Medicare statute or regulations. Our intent was to 
reference facilities described in section 1861(aa)(2) of the Act, as 
demonstrated by our reference in Sec.  423.464(f)(1)(vii) to ``Rural 
health centers as defined under section 1861(aa)(2) of the Act.'' The 
correct terminology for those facilities is ``rural health clinics.'' 
Accordingly, we are revising the regulatory text to correctly reference 
these entities in Sec.  423.120(a)(2) by removing the phrase ``rural 
health centers'' and adding in its place ``rural health clinics.''
b. Adequate Access to Home Infusion Pharmacies (Sec.  423.120(a)(4))
    [If you choose to comment on issues in this section, please include 
the caption ``ADEQUATE ACCESS TO HOME INFUSION PHARMACIES'' at the 
beginning of your comments.]
    We are proposing to codify in regulation, at Sec.  423.120(a)(4) 
(70 FR 4537), guidance that we have already issued with regard to 
access to home infusion pharmacies by Part D sponsors. This 
codification would ensure that the regulations provide specificity to 
our requirement that Part D enrollees receive adequate access to Part 
D-covered home infusion therapy. In addition, we propose one change to 
the regulations, on which we invite comments. This modification would 
require that Part D sponsors provide covered home infusion drugs within 
24 hours of discharge from an acute setting.
    In the January 28, 2005 final rule, we used our authority under 
section 1860D-4(b)(1)(C) of the Act to require Part D plans to provide 
adequate access to home infusion pharmacies. Given coverage of home 
infusion drugs under Part D, we did not believe it was an option for 
Part D plans not to include at least some home infusion pharmacies in 
their networks in order to provide enrollees with meaningful access to 
those drugs. As we stated in the preamble to the final rule (70 FR 
4250), we were particularly concerned in regard to prescription drug 
plans which, unlike other Part D plans options, do not benefit from 
reduced medical costs associated with home infusion and may therefore 
have little incentive to contract with home infusion pharmacies. 
Therefore, we added a provision to our final regulations at Sec.  
423.120(a)(4) which requires Part D plans to demonstrate to us that 
they provide adequate access to home infusion pharmacies consistent 
with CMS operational guidance to Part D plans. In the preamble to our 
final rule, we also set forth our expectation that Part D plans would 
demonstrate adequate access based in part on the number of enrollees in 
their service areas and the geographic distribution and capacity of 
home infusion pharmacies in those service areas.
    As we have gained experience with the Part D program, the need to 
clarify our expectations with regard to the provision of Part D-covered 
home infusion drugs became necessary. To this end, we issued a 
clarification of our expectations regarding adequate access to home 
infusion pharmacies to Part D plans on March 10, 2006. (https://
www.cms.hhs.gov/PrescriptionDrugCovContra/downloads/
HomeInfusionReminder_03.10.06.pdf.) That policy memorandum clarified 
that, while we do not expect Part D plans to provide or pay for 
supplies, equipment, or the professional services needed for home 
infusion therapy, we do expect Part D sponsors' contracted pharmacy 
networks to deliver home infused drugs in a form that can be 
administered in a clinically appropriate fashion.
    In addition, we clarified that home infusion networks must have 
contracted pharmacies capable of providing infusible Part D drugs for 
both short term acute care (for example, IV antibiotics) and long term 
chronic care (for example, alpha1 protease inhibitor) 
therapies. While the same network pharmacy does not necessarily need to 
be capable of providing the full range of home infusion Part D drugs, 
the home infusion network, in the aggregate, must have a sufficient 
number of pharmacies capable of providing the full range of home 
infusion Part D drugs to ensure enrollees have adequate access to 
medically necessary home infusion therapies when needed.
    In addition, we clarified that Part D plans must require their 
contracted network pharmacies that deliver home infusion drugs to 
ensure that the necessary professional services and ancillary supplies 
required for home infusion therapy are in place before dispensing home 
infusion drugs. In addition, we believe that plans must require the 
delivery of home infusion drugs within a reasonable time period based 
on these assurances. We note that, generally, facility discharge 
planners, in collaboration with a patient's physician, are responsible 
for ensuring that the components needed to safely administer a drug at 
home are present upon a patient's discharge. However, we expect the 
Part D plan's in-network contracted pharmacy vendors--particularly 
those that do not supply the necessary ancillary services (which are 
not a Medicare Part D benefit)--to receive assurances that another 
entity, such as a home health entity, can arrange for the provision of 
these services. We further clarified that we consider the action of 
obtaining assurances a minimum quality assurance requirement on Part D 
plans under Sec.  423.153(c).
    With respect to the timely delivery of home infusion drugs under 
Part D, we invite comments on the specification of a reasonable 
timeframe for delivery. In our ongoing discussions with home infusion 
providers we have learned that best practices involve the availability 
of infusion services upon discharge from a hospital either by the next 
required dose or within twenty-four hours of the discharge. 
Consequently, we are proposing a requirement that Part D plan sponsors 
provide covered home infusion drugs within 24 hours of discharge from 
an acute setting. We note that home infusion therapy may serve as a 
vehicle to promote early hospital discharge. Given that the need for 
home infusion therapy is often of an urgent nature, we believe that 
delivery of home infusion drugs should occur within 24

[[Page 29409]]

hours, provided that all necessary assurances have been received by the 
Part D plan sponsor that all ancillary services and professional 
services have been arranged.
    Accordingly, in order to codify our previous guidance, we are 
proposing to revise Sec.  423.120(a)(4) to expressly require that a 
Part D plan's contracted pharmacy network provide adequate access to 
home infusion pharmacies through a contracted pharmacy network that, at 
a minimum: (1) Is capable of delivering home infused drugs in a form 
that can be administered in a clinically appropriate fashion; (2) is 
capable of providing infusible Part D drugs for both short-term acute 
care and long-term chronic care therapies; and (3) ensures that the 
professional services and ancillary supplies necessary for home 
infusion therapy are in place before dispensing home infusion drugs. In 
addition, we propose to add a new requirement that a Part D plan's 
contracted pharmacy network also provide delivery of home infusion 
drugs within 24 hours. These proposed changes would codify our existing 
operational policies and impose a new requirement that Part D plans 
provide adequate access to home infusion therapy through their 
contracted pharmacy networks within 24 hours.

C. Subpart F--Submission of Bids and Monthly Beneficiary Premiums: Plan 
Approval--Timing of Payments (Sec.  423.293(a))

    We are making a technical correction to Sec.  423.293(a) (70 FR 
4546) to reflect the statutory requirement that all the provisions of 
section 1854(d) of the Act apply in the same manner as they apply under 
Part C of Title XVIII of the Act. Section 1860D-13(c)(1) of the Act 
states that, with two exceptions not particularly relevant to this 
discussion, the provisions of ``section 1854(d) shall apply to PDP 
sponsors and premiums (and any late enrollment penalty) under this part 
in the same manner as they apply to MA organizations and beneficiary 
premiums under part C, except that any reference to a Trust Fund is 
deemed for this purpose a reference to the Medicare Prescription Drug 
Account.'' Section 1854(d)(1) of the Act requires an organization to 
permit the payment of both basic and supplemental premiums on a monthly 
basis. This concept is reflected in the Part C regulations at Sec.  
422.262(e). In accordance with the statutory mandate, we have already 
required plans to permit beneficiaries to pay their premiums on a 
monthly basis. We are now making a technical correction to Sec.  
423.293(a) to cite both Sec.  422.262(f) and Sec.  422.262(e). This 
change reflects both our current policy as well as the statutory 
requirement.

D. Subpart G--Payments to Part D Plan Sponsors for Qualified 
Prescription Drug Coverage

1. Definitions and Terminology (Sec.  423.308)
a. Administrative Costs (Sec.  423.308)
    [If you choose to comment on issues in this section, please include 
the caption ``ADMINISTRATIVE COSTS'' at the beginning of your 
comments.]
    The statute requires CMS to exclude administrative costs from the 
calculation of gross covered prescription drug costs and allowable risk 
corridor costs. However, administrative costs are not defined in either 
the statute or the January 28, 2005 final rule. Therefore, to explain 
this term and clarify which costs are included in administrative costs, 
we are adding a definition for the term ``administrative costs''. In 
the definition, we define ``administrative costs'' as the Part D 
sponsor's costs other than those incurred to purchase or reimburse the 
purchase of Part D drugs under the Part D plan. Included in the 
definition of administrative costs are costs incurred by Part D plans 
that exceed the price charged by a dispensing entity for covered Part D 
drugs. For example, the profit retained by a PBM that negotiates prices 
with pharmacies on behalf of a Part D sponsor is considered an 
administrative cost and not a drug cost.
    The policy refines our interpretation of the statutory and 
regulatory definitions of ``allowable reinsurance costs'' and 
``allowable risk corridor costs,'' which in both cases exclude any 
administrative costs of the sponsor. By statute, ``allowable 
reinsurance costs'' are a subset of ``gross covered prescription drug 
costs,'' and Congress specifically defined these gross costs as ``not 
including administrative costs.'' (See sections 1860D-15(b)(2) and 
1860D-15(b)(3) of the Act.) Similarly, Congress defined ``allowable 
risk corridor costs'' as ``not including administrative costs.'' (See 
section 1860D-15(e)(1)(B) of the Act.) In the January 28, 2005 final 
rule, we adopted these definitions. (70 FR 4547.) We interpret 
administrative costs to include any profit or loss incurred by an 
intermediary contracting organization (for example, a pharmacy benefit 
manager (PBM)) as a result of lock-in pricing. Therefore, this profit 
or loss must not be included in the reinsurance and risk corridor 
payments made by the government, as these payments exclude 
administrative fees. Thus, the Ingredient Cost, Dispensing Fee, Sales 
Tax, Gross Drug Cost below the Out of Pocket Threshold, and Gross Drug 
Cost above the Out of Pocket Threshold fields would need to reflect the 
final amount ultimately received by the pharmacy at the point of sale.
b. Gross Covered Prescription Drug Costs (Sec.  423.308)
    [If you choose to comment on issues in this section, please include 
the caption ``GROSS COVERED PRESCRIPTION DRUG COSTS'' at the beginning 
of your comments.]
    Part D sponsors are required to report drug costs to CMS for the 
purposes of reconciliation and risk sharing. We are required by statute 
to calculate reinsurance payments using ``allowable reinsurance 
costs,'' a subset of ``gross covered prescription drug costs,'' which 
Congress specifically defined as ``not including administrative 
costs.'' (See sections 1860D-15(b)(2) and 1860D-15(b)(3) of the Act). 
Risk sharing payments are calculated using ``allowable risk corridor 
costs,'' which are also defined as ``not including administrative 
costs.'' (See section 1860D-15(e)(1)(B)of the Act.)
    There have been several questions regarding the appropriate drug 
costs to report, particularly when a Part D sponsor has contracted with 
a PBM. The January 28, 2005 final rule defines ``gross covered 
prescription drug costs'' as ``those actually paid costs incurred under 
a Part D plan, excluding administrative costs * * * [equal to:] (1) All 
reimbursement paid by a Part D sponsor to a pharmacy (or other 
intermediary) * * * plus (2) All amounts paid under the Part D plan by 
or on behalf of an enrollee (such as the deductible, coinsurance, cost 
sharing, or amounts between the initial coverage limit and the out-of-
pocket threshold) in order to obtain drugs covered under the Part D 
plan.'' (70 FR 4547)
    The January 28, 2005 final rule definition of ``gross covered 
prescription drug costs'' specifically recognizes that reimbursement 
may be paid by a Part D sponsor ``to a pharmacy (or other 
intermediary).'' (70 FR 4547) Many interpreted the term 
``intermediary'' to mean PBM (rather than agent). Using this 
definition, many plan sponsors reported the prices they negotiated with 
their PBMs, rather than the prices that were agreed upon as the amount 
to be received by the pharmacies.
    We propose rectifying these conflicting definitions to require the 
plan sponsor to include the profit or loss retained or incurred by a 
PBM as part of lock-in pricing to be part of the administrative costs 
of the plan sponsor.

[[Page 29410]]

This would require the amount ultimately received by the pharmacy 
(minus any point-of-sale price concessions) to be used in calculating 
cost-sharing for plan years 2009 and beyond. Specifically, we propose 
amending the definition of ``gross covered prescription drug costs'' to 
eliminate the parenthetical ``or other intermediary'' to require that 
all plan sponsors report the amount ultimately received by the 
pharmacy, other dispensing provider, or agent (as opposed to the amount 
paid to an intermediary contracting organization that does not serve as 
an agent, such as a PBM). We propose that the amount ultimately 
received by the pharmacy or other dispensing provider (whether directly 
or indirectly) for the particular drug will be the basis for-- (1) 
calculating beneficiary cost sharing; (2) accumulating gross covered 
drug costs; (3) reporting drug costs on the Prescription Drug Event 
(PDE) records, and (4) developing bids submitted to CMS.
    Similarly, we propose clarifying our definition of ``allowable risk 
corridor costs'' so that it is clear that these costs are only based 
upon the amounts received directly by the pharmacy or other dispensing 
provider. This is because we would consider any profit (or loss) earned 
by a PBM or other entity negotiating contracts with pharmacies to 
constitute an administrative cost, and therefore would be exempt from 
the definition of allowable risk corridor costs, as well as gross 
covered prescription drug costs. Thus, for example, if a Part D sponsor 
pays a PBM a certain amount for a particular drug, and then the PBM 
negotiates a different price with the pharmacy, any differential 
retained or lost by the PBM would be considered administrative, and 
could not be reported as part of drug costs.
    We propose revising the definitions of ``gross covered prescription 
drug costs'' and ``allowable risk corridor costs'' to establish that 
the amount received by the dispensing pharmacy or other dispensing 
provider (whether directly or through an intermediary contracting 
organization) rather than just the amount paid by the Part D sponsor is 
the basis for drug cost that must be reported to CMS and used as the 
basis to calculate beneficiary cost sharing. Accordingly, we are 
revising Sec.  423.308 to incorporate these changes.
    We also propose amending the definition of ``gross covered 
prescription drug costs'' and ``allowable risk corridor costs'' to 
ensure that when entities other than pharmacies dispense Part D drugs 
and receive payment for Part D drugs, these expenditures are also 
reflected in gross drug costs and allowable reinsurance costs, as well 
as allowable risk corridor costs. For instance, reimbursement for a 
vaccine that must be administered in a physician's office, payments 
made to other Part D plans due to reconciliation, and reimbursement 
made to a third party payer for COB error are all legitimate drug costs 
that have been incurred through the payments indicated. In some cases, 
a Part D plan, other than the plan in which the beneficiary is 
correctly enrolled, may pay for a prescription drug on the 
beneficiary's behalf (because of an erroneous belief that the 
beneficiary was actually enrolled in its plan). In these cases, when 
the enrollment error is corrected, the beneficiary's true plan 
generally will reconcile payments with the original payer. The drug 
costs paid by Part D plans (as well as by the beneficiary) under these 
reconciliation processes reflect drug costs incurred by the plan's 
enrollees that a payer other than the correct Part D plan of record 
paid as primary. As drug costs paid for Part D covered drugs under Part 
D plans, these costs are included in the calculations of reinsurance 
costs and risk corridor costs. Therefore, we have amended the 
definition of ``gross covered prescription drug costs'' and ``allowable 
risk corridor costs'' in Sec.  423.308 to include all these drug costs.
    We also propose amending the definition of ``gross covered 
prescription drug costs'' to ensure that when a beneficiary is paying 
100 percent cost sharing (for example, in any applicable deductible or 
coverage gap) and the beneficiary obtains a covered Part D drug at a 
network pharmacy for a lower price than the plan's negotiated price, 
the beneficiary's out-of-pocket costs are counted toward both incurred 
costs (TrOOP) and total drug spending. This is consistent with guidance 
released via Q&A 7944 (issued May 9, 2006 https://questions.cms.hhs.gov/
cgi-bin/cmshhs.cfg/php/enduser/std_alp.php?p_sid=gIVVcxhi.) For 
example, if an enrollee in any applicable coverage gap or deductible 
phase of the Part D benefit is able to obtain a better cash price for a 
covered Part D drug at a network pharmacy than the plan offers via its 
negotiated price, and the enrollee takes advantage of the special cash 
price or discount being offered to all pharmacy customers or, 
alternatively, by using a discount card, the enrollee may purchase that 
covered Part D drug without using the Part D benefit or a supplemental 
card. If that purchase price is lower than the Part D plan's negotiated 
price, it will count toward TrOOP and total drug spend balances, 
provided the Part D plan finds out about the purchase. This means that 
the enrollee must take responsibility for submitting the appropriate 
documentation to the enrollee's Part D plan, consistent with plan-
established processes and instructions for submitting that information, 
in order to have that amount aggregated to the beneficiary's TrOOP and 
total drug spend balances.
    The applicability of beneficiary out-of-pocket expenditures made 
outside the Part D benefit to TrOOP and total drug spend also extends 
to any nominal copayments assessed by patient assistance programs 
(PAPs) that provide assistance with covered Part D drug costs to Part D 
enrollees outside the Part D benefit. Consistent with guidance provided 
via Q&A 7942 (https://questions.cms.hhs.gov/cgi-bin/cmshhs.cfg/php/
enduser/std_alp.php?p_sid=gIVVcxhi), operating outside the Part D 
benefit does not preclude a PAP sponsor from requiring its enrollees 
(including those enrolled in a Part D plan) from paying a nominal 
copayment when they fill a prescription for a covered Part D drug for 
which they provide assistance. We note that any copayments assessed by 
PAPs operating outside the Part D benefit should be nominal, since only 
nominal beneficiary cost-sharing is consistent with the concept of 
operating outside Part D. Moreover, given that copayments are typically 
assessed for purposes of minimizing drug overutilization, the 
assessment of anything but nominal cost-sharing by PAPs is seemingly 
inconsistent with the mission of a charitable organization structured 
to provide assistance with prescription drug costs to low-income 
patients.
    Although PAP payments made for covered Part D drugs outside the 
Part D benefit do not count toward enrollees' TrOOP or total drug spend 
balances, nominal PAP copayment amounts paid by affected Part D 
enrollees can be aggregated to their TrOOP and total drug spend 
balances, provided the enrollees submit the appropriate documentation 
to their plan consistent with plan-established processes and 
instructions for submitting the information. The definition of ``gross 
covered prescription drug costs'' has been revised to include these 
drug costs and to reflect this sub-regulatory guidance.
2. Payment Appeals (Sec.  423.350(b))
    In the January 28, 2005 final rule, we made a technical error in 
Sec.  423.350(b). (70 FR 4550) In this paragraph, we inadvertently used 
the phrase ``notice of

[[Page 29411]]

the adverse determination'' when we said that the request for 
reconsideration for a payment determination must be filed within 15 
days from the date of the notice of the adverse determination. The term 
``notice of the adverse determination'' is a term that was 
inadvertently copied here from a fee-for-service policy, and is not 
relevant here. We are revising the regulation text to instead cite to 
the notice of final payment for risk adjustment, reinsurance, low-
income cost sharing subsidies, or risk-sharing payments under 
Sec. Sec.  423.343(b), 423.343(c), 423.343(d) or 423.336, respectively.

E. Subpart I--Organization Compliance With State Law and Preemption by 
Federal Law--Waiver of Certain Requirements To Expand Choice (Sec.  
423.410)

    In accordance with section 1860D-12(c)(2)(B) of the Act, which 
describes the special waivers available for the 2006 and 2007 plan 
years, we are revising section 423.410(d) of the January 28, 2005 final 
rule (70 FR 4551). We believe that the statute requires only a 
substantially complete (rather than a fully complete) application to 
have been submitted to the applicable state in order for an applicant 
to be granted the special waiver for 2006 and 2007. Therefore, we are 
correcting the regulatory language to require that an applicant submit 
a substantially completed application to the state, in order for the 
applicant to be eligible for the Sec.  423.410(d) waiver.

F. Subpart J--Coordination of Part D Plans With Other Prescription Drug 
Coverage

1. Application of Part D Rules to Certain Part D Plans On and After 
January 1, 2006 (Sec.  423.458).
    Application of Part D Rules to Certain Part D Plans On and After 
January 1, 2006 (Sec.  423.458).
    We are revising the regulation text of Sec.  423.458(d)(2)(ii), 
because we inadvertently omitted a reference to section 1894 of the Act 
in describing the statutory authorization for the benefits offered by a 
Program for All Inclusive Care For the Elderly (PACE) organization (70 
FR 4552). Under Sec.  423.458(d)(2)(ii), a PACE organization may 
request a waiver of a Part D requirement if the waiver would improve 
the coordination of benefits between Part D and the benefits offered by 
the PACE organization. As provided in section 1860D-21(f)(1) of the 
Act, Part D provisions will apply to PACE organizations electing to 
offer qualified prescription drug coverage in a manner that is similar 
to the manner in which those provisions apply to an MA-PD local plan. 
In addition, section 1860D-21(f) provides that a PACE organization may 
be deemed to be an MA-PD local plan. Section 1860D-21(f) of the Act 
specifically refers to ``a PACE program under section 1894.'' As 
published in Sec.  423.458(d)(2)(ii), we reference only section 1934 of 
the Act when describing benefits provided by PACE organizations. In 
fact, PACE operates under both the Medicare and Medicaid statutes, and 
all descriptions of PACE benefits should refer to both sections 1894 
and 1934 of the Act. We are therefore revising Sec.  423.458(d)(2)(ii) 
so that it refers to benefits offered by a PACE organization under both 
sections 1894 and 1934 of the Act.
2. Coordination of Benefits With Rural Health Clinics (Sec.  423.464)
a. Coordination of Benefits With Rural Health Clinics
    In Sec.  423.464(f)(1)(vii), we made a technical error by 
inadvertently referring to rural health clinics as rural health centers 
(70 FR 4553). In fact, our intent was to reference facilities described 
in section 1861(aa)(2) of the Act, and the correct terminology for 
those facilities is rural health clinics. Accordingly, we are 
correcting the reference to these entities in Sec.  423.464(f)(1)(vii) 
by removing the phrase rural health centers and adding in its place 
rural health clinics.
b. Coordination of Benefits With Part D Plans and Other Payers
    [If you choose to comment on issues in this section, please include 
the caption ``COORDINATION OF BEN