Medicare Program; Policy and Technical Changes to the Medicare Prescription Drug Benefit, 20486-20509 [08-1120]

Agencies

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

[Federal Register Volume 73, Number 73 (Tuesday, April 15, 2008)]
[Rules and Regulations]
[Pages 20486-20509]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 08-1120]



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Part III





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Part 423



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

Federal Register / Vol. 73, No. 73 / Tuesday, April 15, 2008 / Rules 
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 423

[CMS-4130-F]
RIN 0938-AO74


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

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

ACTION: Final rule.

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SUMMARY: This final rule codifies clarifications of existing policies 
associated with the Medicare Prescription Drug Benefit (also known as 
Medicare Part D), including the following: guidance that certain 
supplies associated with the administration of insulin are included in 
the definition of a Part D drug; guidance regarding the statutory 
exclusion from the definition of a Part D drug of any drug when used 
for the treatment of sexual or erectile dysfunction, unless that drug 
is used for an FDA-approved purpose other than sexual or erectile 
dysfunction; a recent statutory change that allows for the payment of 
vaccine administration under Part D for Part D covered vaccines; and 
guidance on plan-to-plan reconciliation and reconciliation with a payer 
other than the Part D plan of record. This final rule also codifies 
clarifications of existing policies associated with the Retiree Drug 
Subsidy (RDS) program, including guidance on aggregating plan options 
for purposes of meeting the net test for actuarial equivalence and 
guidance on applying the Medicare supplemental adjustment when 
calculating actuarial equivalence.
    In addition, new clarifications and modifications in this final 
rule include establishing standards with respect to the timely delivery 
of infusible drugs covered under Part D and modifications to the 
retiree drug subsidy regulations. This final rule also codifies certain 
technical corrections to our regulations and clarifies our intent with 
respect to certain preamble discussions in a prior final rule 
implementing the Medicare prescription drug benefit.

Effective Dates: These regulations are effective on June 9, 2008.

FOR FURTHER INFORMATION CONTACT:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Alissa DeBoy (410) 786-6041..  General questions regarding the final
                                rule.
Vanessa Duran (410) 786-8697.  Subpart B--approval of marketing and
                                materials and enrollment forms;
                                procedures to determine and document
                                creditable status of prescription drug
                                coverage; Subpart C--the definition of a
                                long-term care facility; the definition
                                of a contracted pharmacy network; the
                                waiver or reduction of Part D cost-
                                sharing by pharmacies; access to covered
                                Part D drugs, including adequate access
                                to home infusion pharmacies; Subpart E--
                                organization compliance with State law
                                and preemption by Federal law; and
                                Subpart K--application procedures and
                                contracts with Part D plan sponsors.
Gregory Dill (312) 353-1754..  Subpart C--definition of a Part D drug,
                                including the exclusion of drugs used to
                                treat erectile dysfunction, the
                                exclusion of drugs related to morbid
                                obesity, supplies associated with the
                                delivery of insulin into the body, and
                                vaccine administration fees.
Meghan Elrington (410) 786-    Subpart F--timing of payments.
 8675.
Deondra Moseley (410) 786-     Subpart G--payment appeals; and Subpart
 4577.                          P--low-income benchmark premium amount,
                                and premium subsidy for late enrollment
                                penalty.
Deborah Larwood (410) 786-     Subpart J--coordination of Part D plans
 9500.                          with other prescription drug coverage.
John Scott (410) 786-3636....  Subpart M--grievances, coverage
                                determinations, and appeals.
Christine Hinds (410) 786-     Subpart P--premiums and cost-sharing
 4578.                          subsidies for low-income individuals.
David Mlawsky (410) 786-6851.  Subpart R--payments to sponsors of
                                retiree prescription drug plans.
Christine Hinds (410) 786-     Subpart S--special rules for States.
 4578.
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Table of Contents

I. Background
    A. Requirements for Issuance of Regulations
    B. General Overview
II. Provisions of the Proposed Rule With an Analysis and Response to 
Public Comments
    A. Subpart B--Eligibility and Enrollment
    1. Approval of Marketing Materials and Enrollment Forms (Sec.  
423.50)
    2. Procedures To Determine Creditable Status of Prescription 
Drug Coverage (Sec.  423.56)
    B. Subpart C--Benefits and Beneficiary Protections
    1. Definitions (Sec.  423.100)
    a. Part D Drug
    (1) Erectile Dysfunction (ED)
    (2) Morbid Obesity
    (3) Insulin Inhalation Drugs and Supplies
    (4) Vaccine Administration Fee
    b. Long-Term Care Facilities
    c. Contracted Pharmacy Network
    2. Requirements Related to Qualified Prescription Drug Coverage 
(Sec.  423.104)--Waiver or Reduction of Part D Cost-sharing by 
Pharmacies
    3. Access to Covered Part D Drugs (Sec.  423.120)
    a. Applicability of Some Non-Retail Pharmacies to Standards for 
Convenient Access
    b. Adequate Access to Home Infusion Pharmacies
    C. Subpart F--Submission of Bids and Monthly Beneficiary 
Premiums: Plan Approval--Timing of Payments (Sec.  423.293(a))
    D. Subpart G--Payments to Part D Plan Sponsors for Qualified 
Prescription Drug Coverage: Payment Appeals (Sec.  423.350(b))
    E. Subpart I--Organization Compliance With State Law and 
Preemption by Federal Law--Waiver of Certain Requirements to Expand 
Choice (Sec.  423.410)
    F. Subpart J--Coordination of Part D 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)

[[Page 20487]]

    2. Coordination of Benefits With Other Providers of Prescription 
Drug Coverage Sec.  (Sec.  423.464)
    a. Coordination of Benefits With Rural Health Clinics
    b. Coordination of Benefits With Part D Plans and Other Payers
    G. Subpart K--Application of Procedures and Contracts with Part 
D Plan Sponsors
    1. General Provisions (Sec.  423.504)--Submission of Bids
    2. Contract Provisions (Sec.  423.505)
    3. Failure To Comply With the Dissemination of Information 
Requirements Grounds for Contract Termination (Sec.  423.509(a)(9))
    H. Subpart M--Grievances, Coverage Determinations, and Appeals
    1. Definitions (Sec.  423.560)
    2. Expediting Certain Coverage Determinations (Sec.  423.570)
    3. Expediting Certain Redeterminations (Sec.  423.584)
    4. Right to an ALJ Hearing (Sec.  423.610)
    I. Subpart P--Premiums and Cost-Sharing Subsidies for Low-Income 
Individuals
    1. Premium Subsidy Amount (Sec.  423.780)
    a. Low-Income Benchmark Premium Amount
    b. Premium Subsidy for Late Enrollment Penalty
    J. Subpart R--Payments to Sponsors of Retiree Prescription Drug 
Plans
    1. Requirements for Qualified Retiree Prescription Drug Plans 
(Sec.  423.884)
    a. Application Timing
    b. Data Match
    c. Actuarial Equivalence
    (1) Medicare Supplemental Adjustment
    (2) Noncalendar Year Plans
    (3) Benefit Options
    (4) Submission of Actuarial Attestations Upon Material Change
    K. Subpart S--Special Rules for States Eligibility
    1. General Payment Provisions--Coordination With Medicare 
Prescription Drug Benefits (Sec.  423.906)
    2. States' Contribution to Drug Benefit Costs Assumed by 
Medicare (Sec.  423.910)
    L. Out-of-Scope Comments
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
    A. Overall Impact
    B. Anticipated Effects on Health Plans and Pharmacy Benefit 
Managers (PBMs)
    C. Alternatives Considered
    D. Accounting Statement
    E. Conclusion
Regulations Text

I. Background

A. Requirements for Issuance of Regulations

    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173) amended section 
1871(a)(3) of the Social Security Act (the Act) and requires the 
Secretary, in consultation with the Director of the Office of 
Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
1871(a)(3)(B) of the Act also states that the timelines for these 
regulations may vary, but shall not exceed 3 years after publication of 
the preceding proposed or interim final regulation, except under 
exceptional circumstances. This final rule finalizes provisions set 
forth in the May 25, 2007 proposed rule (72 FR 29403), hereinafter 
referred to as the May 2007 proposed rule. In addition, this final rule 
has been published within the 3-year time limit imposed by section 
1871(a)(3)(B) of the Act. Therefore, we believe our final rule is in 
accordance with the Congress' intent to ensure timely publication of 
final regulations.

B. General Overview

    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 MMA. The Retiree Drug 
Subsidy (RDS) program, which provides payments to employer and union 
sponsors of qualified retiree prescription drug plans for Part D drug 
costs within certain limits, was also enacted as part of MMA. The final 
rule implementing the provisions of Part D appeared in the Federal 
Register on January 28, 2005, and these provisions became effective 
March 22, 2005. We hereinafter refer to this rule as the January 2005 
final rule. Since publication of the January 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 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, we 
explained many of the respective clarifications or interpretations in 
the May 2007 proposed rule. We also proposed to codify some of these 
clarifications in regulation, as well as to make certain technical 
corrections. Finally, due to our experience to date in implementing the 
Part D program, we proposed several new clarifications of our policy 
for Part D plans on which we specifically invited public comment.

II. Provisions of the Proposed Rule With an Analysis of and Response to 
Public Comments

    We received approximately 60 items of timely correspondence 
containing comments on the May 2007 proposed rule. Commenters included 
health plans and health plan associations, pharmacies and pharmacist 
associations, prescription benefit managers (PBMs), physicians and 
other health care professionals, beneficiary advocacy groups, 
representatives of hospitals, Part D beneficiaries, and others.
    In this final rule, we address all relevant comments we received 
regarding the provisions of our proposed rule with the exception of the 
provisions on what may be included in the drug costs Part D sponsors 
use as the basis for calculating beneficiary cost sharing and reporting 
drug costs to CMS for the purposes of reinsurance reconciliation and 
risk sharing, as well as submitting bids to CMS. We are not finalizing 
these provisions at this time. We intend to revisit this issue in 
future rulemaking and will address the comments at that time. We 
appreciate the comments and will take them under consideration as we 
continue to assess the underlying policy and its associated impact.
    Most of the comments addressed multiple issues. The areas of our 
proposed rule that we are finalizing that received the most comment 
include the provisions on ensuring adequate access to home infusion 
pharmacies and the provisions addressing the coordination of Part D 
plans with other prescription drug coverage. Generally, the vast 
majority of commenters expressed strong support for the provisions of 
our proposed rule, declaring them essential to the success and 
continued operation of the Medicare Part D program. This was especially 
true with regard to our proposal to establish a standard for the timely 
delivery of home infusion drugs. A significant subset of the comments 
regarding home infusion access suggested even more rigorous standards 
for ensuring the timely delivery of Part D infusible drugs.
    We also received a significant number of comments that addressed 
our proposed clarifications on permissible activities vis-[agrave]-vis 
provider marketing and the coverage of drugs when used to treat morbid 
obesity. In general, commenters supported our clarifications or 
technical corrections. However, on some issues, commenters asked for 
reinterpretations of the statute.
    In this final rule, we address comments received on the May 2007 
proposed rule largely in the numerical order of the related regulation 
sections.

[[Page 20488]]

A. Subpart B--Eligibility and Enrollment

1. Approval of Marketing Materials and Enrollment Forms (Sec.  423.50)
    In our May 2007 proposed rule (70 FR 4223), we clarified that when 
we used the term ``market'' in the preamble to the January 2005 final 
rule in the context of our discussion of the approval process for 
marketing materials and enrollment forms, we used it in a more general 
sense to mean assisting in enrollment or education directed at 
beneficiaries, and not marketing per se as the term is understood to 
mean in the commercial context. This clarification was necessary to 
distinguish our preamble discussion and our narrower definition of the 
term ``marketing'' in the Medicare Marketing Guidelines, which were 
issued subsequent to our publication of that final rule. (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 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.'' (Medicare Marketing 
Guidelines, page 8.) This definition further clarifies that neither 
``[a]ssisting in enrollment'' nor ``education'' constitute 
``marketing'' as those terms are defined in The Guidelines (Medicare 
Marketing Guidelines, page 8). The Medicare Marketing Guidelines 
specify that ``assisting in enrollment'' consists of assisting a 
potential enrollee with the completion of an application and 
objectively discussing characteristics of different plans to assist a 
potential enrollee with appraising the relative merits of all available 
individual plans, based solely on the potential enrollee's needs; 
further, the individual or entity performing these activities may not 
receive compensation directly or indirectly from a plan for such 
assistance in enrollment (Medicare Marketing Guidelines, page 6). 
``Education'' is defined in the Medicare Marketing Guidelines as 
informing a potential enrollee about Medicare Advantage or other 
Medicare programs, generally or specifically, but not steering, or 
attempting to steer, a potential enrollee towards a specific plan or 
limited number of plans (Medicare Marketing Guidelines, page 6). Thus, 
our intent in the preamble of the January 2005 final rule was to 
acknowledge that providers and pharmacies are free to engage in either 
``assisting in enrollment'' or ``education,'' including provider 
promotional activities as permitted under the Medicare Marketing 
Guidelines, but not to ``market'' to beneficiaries, as the term is 
defined in the Medicare Marketing Guidelines. We maintain this 
clarification in the final rule, as noted in our response to comment.
    Additionally, we proposed to clarify the provision that currently 
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).'' We believed it was 
necessary to clarify this provision because it was possible to infer 
from it that when a Part D plan used providers, provider groups, or 
pharmacies to distribute printed information comparing the benefits of 
the Part D plans with which they contracted, they would also have to 
accept and display printed information comparing the benefits of 
different plans with which they did not contract. Our concern was that 
this interpretation could lead to situations in which a beneficiary 
made a plan selection and realized too late that the provider or 
pharmacist from whom they obtained printed information about a 
particular plan was not in fact contracted with that plan. Therefore, 
in the proposed rule, we clarified that a Part D plan could use 
providers, provider groups, or pharmacies to distribute printed 
information comparing the benefits of different Part D plans, provided 
those providers, provider groups, or pharmacies accepted and displayed 
printed information comparing the benefits of all the different Part D 
plans with which they contract. However, the providers, provider 
groups, or pharmacies were not obliged to accept and display any 
comparative information regarding those Part D plans with which they 
did not contract. We stipulated that this clarification would apply to 
comparative marketing materials and was in accord with the Medicare 
Marketing Guidelines (Medicare Marketing Guidelines, page 125). In this 
final rule, we codify this policy by revising Sec.  423.50(f)(1)(v).
    Comment: A large number of commenters supported our clarification 
that providers and pharmacies that are contracted with plan sponsors 
may not market to beneficiaries but may assist in enrollment, including 
participating in provider promotion activities within the parameters 
established in the Marketing Guidelines, and educate enrollees. 
However, two commenters believed that CMS should withdraw this 
clarification given that it is based on a term we use in the Medicare 
Marketing Guidelines, which is not a regulatory document. Further, 
these commenters questioned the validity and utility of the Medicare 
Marketing Guidelines in the long-term care setting.
    Response: The two commenters who asked us to withdraw this 
clarification did so based on arguments about the validity of the 
Medicare Marketing Guidelines, which we believe are outside the scope 
of this regulation. In the proposed rule and in this final rule, we are 
merely clarifying our policy so as to avoid any confusion arising from 
the broader use of the term ``market'' in a response to comment in the 
January 2005 final rule.
    Comment: Several commenters supported our proposed revision to 
Sec.  423.50(f)(1) allowing Part D plans to use providers, provider 
groups and pharmacies to distribute printed information comparing the 
benefits of different plans only if those providers, provider groups or 
pharmacies accept and display materials from all Part D plan sponsors 
with which they contract. Two of these commenters were especially 
pleased with our clarification that providers, provider groups, or 
pharmacies are not obliged to accept and display any comparative 
information regarding those Part D plans with which they do not 
contract. However, another commenter believed that instead of requiring 
providers to accept and display information for every plan with which 
they have contracted, we should allow them to accept and display 
materials from a reasonable cross-section of contracted plans, as long 
as the provider posts a notice informing beneficiaries that the 
displayed material describes the benefits of only a subset of 
contracted plans and explains where beneficiaries may obtain 
information on the full array of benefits available to them.
    Response: Our goal is to ensure that beneficiaries receive the 
information they need to make a plan selection that is based on their 
particular needs. We disagree with the commenter who believes that we 
should allow Part D

[[Page 20489]]

plan contracted providers, provider groups, and pharmacies to accept 
and display materials from only a subset of plans with which they 
contract--even if they direct beneficiaries to resources for obtaining 
information on all plans. We believe the proposed requirement strikes a 
balance between allowing providers and pharmacies contracted with Part 
D plans to provide enrollment assistance and education, while ensuring 
that beneficiaries are provided with information about the full array 
of plans with which that provider or pharmacy contracts--not on a 
limited subset that may reflect the provider's financial interest--and 
can make a plan selection that best meets their needs. Accordingly, we 
have adopted the revision to Sec.  423.50(f)(1) as set forth in the 
proposed rule. However, we note that plans must provide contracted 
pharmacies with materials in order for pharmacies to display their plan 
information along with any other materials received from other 
contracted plans.
2. Procedures To Determine and Document Creditable Status of 
Prescription Drug Coverage (Sec.  423.56)
    The regulation text of the January 2005 final rule (70 FR 4532) 
contained a typographical error in Sec.  423.56(b)(6) that referenced 
Sec.  423.205 for a definition of the term ``Medicare supplemental 
policy.'' However, the proper reference for the definition of the term 
``Medicare supplemental policy'' is Sec.  403.205. Therefore, we 
proposed revising the regulation text accordingly to state the correct 
reference--that is, Sec.  403.205. We received no comments with regard 
to our proposed revision. Therefore, this final rule adopts this 
revision without change.

B. Subpart C--Benefits and Beneficiary Protections

1. Definitions (Sec.  423.100)
a. Part D Drug
(1) Erectile Dysfunction (ED)
    On October 20, 2005, Congress amended section 1860D-2(e)(2)(A) of 
the Act to exclude erectile dysfunction (ED) drugs from the statutory 
definition of a Part D drug. Section 1860D(2)(e)(2)(A) of the Act 
excludes from the definition of Part D drugs those drugs or classes of 
drugs, or their medical uses, set forth under section 1927(d)(2) of the 
Act (other than subparagraph (E)). The ED drug exclusion is cited in 
section 1927(d)(2)(K) of the Act.
    In the May 2007 proposed rule, we reiterated that beginning January 
1, 2007, ED drugs would 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 Food and Drug Administration (FDA). We noted that ED drugs would 
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--including the treatment of a condition other than sexual 
or erectile dysfunction 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. 
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, we also noted that no regulation text change is required to 
implement this new statutory exclusion.
    Comment: One commenter asked that we share our interpretation of 
the statutory ED drug exclusion with our independent review entity 
(IRE).
    Response: Since October 20, 2005, we have provided information 
about the ED drug exclusion in our outreach efforts to beneficiaries, 
advocates, and our own contractors. Our guidance to Part D sponsors on 
the ED drug exclusion was included in Chapter 6 (``Part D Drugs and 
Formulary Requirements'') of our Prescription Drug Benefit Manual, 
which is posted on the CMS Web site at https://www.cms.hhs.gov/
PrescriptionDrugCovContra/Downloads/PDBMChap6FormularyReqrmts_
03.09.07.pdf. As a result of our efforts, we believe stakeholders are 
now well aware of this statutory change.
(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 2005 final rule (70 FR 4228), 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. However, in response to comment, we had erroneously asserted 
that to the extent that a drug was dispensed for a ``medically accepted 
indication'' as described in section 1860D-2(e)(1) of the Act, the drug 
could be covered for the treatment of morbid obesity (70 FR 4230). Both 
in the May 2007 proposed rule and in this final rule, we clarify that 
agents, when used for anorexia, weight loss, or weight gain, are 
specifically excluded from the definition of Part D drugs. 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.
    Comment: We received several comments asserting that the 
clarification we made in the proposed rule regarding Part D coverage of 
drugs used to treat a medically accepted indication of obesity was a 
reversal of current Part D coverage policy.
    Response: We disagree with these commenters. The clarification in 
our proposed rule did not expand or change our current policy regarding 
the exclusion from the definition of Part D drugs or agents used for 
anorexia, weight loss, or weight gain. Our policy with regard to 
coverage of these drugs has remained consistent since well before the 
Part D benefit was implemented on January 1, 2006 and is in accord with 
the statutory exclusion of such drugs from the definition of Part D 
drug as provided in section 1860D-2(e)(2) of the Act. In the May 2007 
proposed rule, we simply clarified that we had made an error in the 
preamble of the January 2005 final rule by asserting that weight loss 
drugs could be potentially covered under the Part D program as part of 
a Part D basic prescription drug benefit. As discussed in the May 2007 
proposed rule, we corrected this error via guidance to Part D sponsors 
and other stakeholders in July 2005.
    Comment: A number of commenters asserted that our interpretation of 
the statutory exclusion of weight loss drugs was too narrow and that 
CMS was not appropriately distinguishing ``cosmetic'' weight loss from 
those clinical circumstances in which drugs are being specifically 
prescribed for an indication of obesity or significant weight 
management. Other commenters maintained that Congress intended for 
reimbursement of weight loss drugs when they were used in the treatment 
of defined disease states; that given the potential impact of obesity 
on American health care, as well as Medicare Part A coverage of obesity 
treatments, drugs when used to treat obesity should also be covered 
under Part D; and that Part D coverage of drugs used to treat obesity 
would be consistent with guidance and decision-making about these drugs 
by other DHHS agencies (for example, the

[[Page 20490]]

National Institute of Health's (NIH) treatment guidelines regarding 
obesity drugs and the Food and Drug Administration's (FDA) approval of 
drugs indicated for the treatment of obesity).
    Response: Section 1860D-2(e)(2) of the Act specifically excludes 
from the definition of a Part D drug agents when used to treat 
anorexia, weight loss, or weight gain. Therefore, drugs when used to 
treat a medical indication of morbid obesity are not considered Part D 
drugs. While this statutory exclusion may create an inconsistency with 
regard to treatment approaches for morbid obesity under different parts 
of the Medicare program, Part D coverage policy is based on completely 
distinct statutory authority than Parts A and B. We note that similar 
to other drugs contained in section 1927(d)(2) of the Act that are 
excluded from the definition of Part D drugs (other than over-the-
counter drugs), those Part D plans wishing to provide coverage of 
weight loss agents may do so as a supplemental benefit under enhanced 
alternative coverage, consistent with Sec.  423.104(f).
    Comment: A number of commenters asked that CMS clearly state that 
the Part D exclusion of weight loss drugs will not affect Part D 
coverage of drugs that may cause weight loss, but whose primary 
indication is not for obesity. A few other commenters noted that our 
exclusion of obesity drugs is inconsistent with CMS policy regarding 
Part D coverage of weight loss drugs under certain clinical situations 
(for example, Part D and Medicaid coverage for drugs when used to treat 
cachexia or AIDS wasting).
    Response: Drugs that are excluded from coverage under Part D when 
used as agents for certain conditions may be considered covered when 
used to treat other conditions not specifically excluded by section 
1927(d)(2) of the Act, provided they otherwise meet the requirements of 
section 1860D-2(e)(1) of the Act and are not otherwise excluded under 
section 1860D-2(e)(2)(B) of the Act. A Part D drug's clinical side 
effect of weight loss would not permit its exclusion via section 
1927(d)(2) of the Act since the drug's use was not prescribed for that 
purpose.
    We have previously stated that we do not consider prescription drug 
products being used to treat AIDS wasting and cachexia as either agents 
used for weight gain or agents used for cosmetic purposes. Given the 
clinical complexities associated with AIDS wasting and cachexia, and 
the documented therapeutic action of these drugs to work beyond weight 
gain and prevent associated morbidity and mortality, the use of these 
products cannot be excluded from Part D by reference to section 
1927(d)(2) of the Act. A summary of similar potential exclusions and 
their associated explanations can be found in Appendix B of Chapter 6 
(Part D Drugs and Formulary Requirements of our Prescription Drug 
Benefit Manual), which is posted on the CMS Web Site at https://
www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/
PDBMChap6FormularyReqrmts_03.09.07.pdf.
(3) Insulin Inhalation Drugs and Supplies
    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).'' In the January 2005 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. On January 27, 
2006, the FDA approved the first-ever inhaled insulin product. 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 reviewed the issues surrounding 
inhaled insulin and concluded it would be appropriate to revise the 
definition of Part D drug to include certain supplies associated with 
the delivery of inhaled insulin. We proposed revising the definition of 
a Part D drug under Sec.  423.100 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.'' We also indicated that our proposed change to the definition 
of a Part D drug was crafted consistent with our intention to narrowly 
construe what constitutes medical supplies associated with the delivery 
of insulin into the body in order to avoid an inappropriate expansion 
of the Part D benefit. Thus, we stated in the preamble to our proposed 
rule that we would expect Part D sponsors to apply drug utilization 
management tools to ensure the appropriate use of these supplies.
    While we have learned since the publication of our May 2007 
proposed rule that marketing of the first inhaled insulin product may 
be discontinued, the fact remains that this product is still approved 
for the U.S. market. Additionally, we received comments indicating that 
there are insulin products administered through routes other than 
injection in various stages of research and FDA approval. As a result, 
we believe our policy on inhaled insulin is still necessary and sound.
    Comment: Most commenters on this issue supported our proposal to 
expand the definition of a Part D drug to cover those supplies directly 
associated with inhaled insulin. However, other commenters opined that 
the proposed definition was too narrow and CMS should broaden the 
definition of a Part D drug to encompass other potential mechanisms or 
supplies used for delivery of insulin into the body, such as novel 
insulin dosage forms and delivery systems that are currently under 
review by the FDA. Some commenters noted developments in diabetes 
treatment including new transdermal, intranasal and aerosolized insulin 
delivery methods. These commenters held that by not broadening the Part 
D drug definition to include insulin delivery supplies that are 
currently in the research and development pipeline, but which might 
someday be FDA-approved, CMS would be burdened with future rulemaking 
to modify the definition of a Part D drug when new FDA-approved 
products came to market. As a result, CMS might provide a competitive 
advantage to manufacturers whose insulin-related supplies are currently 
encompassed within the definition of a Part D drug over other 
manufacturers whose insulin supplies are also related to the direct 
delivery of insulin into the body but would not be covered under Part D 
in the absence of a further broadening of the definition of a Part D 
drug under Sec.  423.100.
    Response: We agree that our proposed rule too narrowly construed 
what constitutes medical supplies associated with delivery of insulin 
into the body for purposes of the definition of a Part D drug under 
Sec.  423.100. Moreover, we believe that Congress intended to ensure 
diabetics' access to insulin by providing for coverage of the medical 
supplies directly associated with delivering insulin into the body. In 
light of continuing medical research and development of alternative 
mechanisms for insulin delivery, we believe it is consistent with 
Congressional intent that our definition of these supplies encompass 
all products that are directly associated with the delivery of insulin 
into the body, including future potential delivery mechanisms, and not 
limit coverage to supplies associated with the only two mechanisms of 
insulin

[[Page 20491]]

delivery (injection and inhalation) available to diabetics today. 
Consequently, we have removed our reference to the specific route of 
administration, ``through inhalation,'' in the definition of a Part D 
drug at Sec.  423.100(i)(iv). Instead, our definition of a Part D drug 
will encompass supplies that are directly associated with delivering 
insulin into the body, such as the inhalation chamber used to deliver 
the insulin. We believe this modification will obviate the need for 
continued future rulemaking to ensure coverage of supplies that are 
directly associated with delivery of insulin into the body. In 
addition, we believe that our revised definition of the term Part D 
drug will level the playing field for the manufacturers of novel 
administration insulin supplies while avoiding an inappropriate 
expansion of the Part D benefit to insulin-related supplies in which 
the relationship to delivery into the body is more indirect. We have 
retained the example of the inhalation chamber in the definition of a 
Part D drug under Sec.  423.100 only as an example of a product that is 
directly associated with the delivery of insulin into the body.
    Comment: A few commenters suggested that we clarify that our 
proposed modification of the definition of a Part D drug excludes any 
insulin delivery device covered under the Part B durable medical 
equipment benefit.
    Response: Paragraph (2)(i) of our existing definition of a Part D 
drug already excludes from Part D coverage those drugs for which 
payment as so prescribed and dispensed or administered to an individual 
is available for that individual under Part A or Part B. We believe 
that further clarification of this exclusion is unnecessary.
    Comment: We received comments asking that CMS issue separate 
guidance indicating whether any novel insulin-related product will be 
covered under Part D.
    Response: We disagree that we should issue product-specific Part D 
coverage guidance for all new FDA approvals. Part D sponsors and their 
Pharmacy and Therapeutics (P&T) Committees are required to evaluate new 
FDA-approved products and make timely coverage determinations that are 
consistent with the definition of a Part D drug under Sec.  423.100. 
While we provide Part D sponsors with tools to assist sponsors with 
their reviews of new products, coverage determinations are ultimately a 
Part D sponsor's responsibility.
    Comment: A number of commenters asked that we retract the statement 
we made in our proposed rule that we would expect Part D sponsors to 
apply drug utilization management tools to inhaled insulin supplies. 
These commenters stated that the application of such pharmacy based 
edits would impede access to these inhaled insulin supplies for 
beneficiaries who are appropriately qualified for this insulin delivery 
mechanism. Many of these same commenters stated that inhaled insulin 
supplies should be provided free of any utilization management tools to 
maximize use of this new therapy.
    Response: We remind these commenters that all Part D sponsors, with 
the exception of Medicare Advantage private fee-for-service (PFFS) 
plans, are required under Sec.  423.153(b) to establish reasonable and 
appropriate drug utilization management programs. As we stated in the 
May 2007 proposed rule, sponsors should ensure the appropriate and 
prudent use of all Part D drugs, including supplies associated with the 
direct delivery of insulin into the body and the use of drug 
utilization management tools, is appropriate to prevent inappropriate 
coverage and utilization of insulin-related supplies. In general, 
inhaled insulin supplies have either a specific life span based on the 
number of doses or actuations they deliver or, for more durable items, 
a manufacturer's recommended life span ranging from a few months to a 
year or more with proper cleaning and maintenance. It is therefore 
appropriate for a sponsor to evaluate claims for inhaled insulin 
supplies that are submitted for a period less than their recommended 
life span or period of use.
(4) Vaccine Administration Fee
    On December 20, 2006, the Tax Relief and Health Care Act of 2006 
was signed into law. Section 202(b) of that legislation amended the 
definition of a Part D drug at section 1860D-2(e)(1)(B) of the Act to 
include a reference to vaccine administration on or after January 1, 
2008. In the May 2007 proposed rule (72 FR 29406) we indicated that we 
would amend the definition of Part D drug to conform to the statutory 
change. Accordingly, in this final rule, we have amended the definition 
of a Part D drug to include a reference to vaccine administration on or 
after January 1, 2008, consistent with the statute.
    Comment: One commenter suggested we increase our outreach efforts 
regarding the availability of vaccine administration under Part D.
    Response: We agree with this comment and have employed a number of 
methods to ensure that beneficiaries and providers are aware of this 
statutory change. We have updated our beneficiary outreach materials 
with specific information on Part D vaccine administration 
reimbursement, including the addition of a section to the annual 
evidence of coverage (EOC) notice that was mailed to all currently 
enrolled beneficiaries in advance of the 2008 Part D contract year. We 
have also incorporated information regarding Part D vaccine 
administration into our provider programs and have conducted a number 
of national level outreach programs addressing the availability of 
reimbursement under Part D for this new benefit in 2008. We have 
generated MedLearn Matters Articles on Part D vaccines and vaccine 
administration for display on the CMS Web site (https://www.cms.hhs.gov/
MLNMattersArticles/downloads/SE0727.pdf). We have also issued guidance 
to Part D sponsors on vaccine administration so they can prepare for 
covering these services and address beneficiary questions. We plan on 
continuing various tiers of communication on Part D vaccine 
administration into 2008 and subsequent years.
    Comment: One commenter asked that we monitor billing and payment 
for Part D vaccine administration over the next several months to 
identify and resolve issues that may arise with implementation of this 
new benefit under Part D.
    Response: We agree with this comment. We intend to work very 
closely with our Part D sponsors on resolving any issues that arise 
with covering Part D vaccine administration in 2008 and subsequent 
years. We have developed a number of communication channels to solicit 
feedback from various stakeholders regarding the ongoing implementation 
of this new benefit, and we will take appropriate actions to address 
any issues with our Part D sponsors as they occur.
    Comment: One commenter specifically suggested that we amend Sec.  
423.100 to add the following language to the definition of a Part D 
drug under paragraph (1)(v) of that definition: ``and for vaccine 
administration on or after January 1, 2008, its administration.''
    Response: We agree with this comment. We are changing the 
definition of a Part D drug at Sec.  423.100 to conform to the 
statutory change made by the Tax Relief and Health Care Act of 2006 to 
section 1860D-2(e)(1)(b) of the Act. Accordingly, we are modifying 
Sec.  423.100 to include vaccine administration for Part D-covered 
vaccines on or after January 1, 2008.
b. Long-Term Care Facilities
    In the January 2005 final rule (70 FR 4534), the term ``long-term 
care facility''

[[Page 20492]]

is defined in Sec.  423.100 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.'' However, in our corollary 
discussion of that term in the preamble of the January 2005 final rule 
(70 FR 4236), we inadvertently omitted institutions for mental disease 
(IMDs) from the list of facilities that meet the definition of a long 
term care (LTC) facility.
    In the May 2007 proposed rule, we clarified that 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 
a LTC facility in Sec.  423.100.
    We also clarified 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, 
we indicated that Part D sponsors must 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: (1) Need drugs for which payment is no longer 
available under Part A or Part B and otherwise meet the definition of a 
Part D drug; and (2) are inpatients in a hospital where the hospital is 
a ``medical institution'' under section 1902(q)(1)(B) of the Act and 
therefore would meet the Part D definition of an LTC facility.
    Comment: Several commenters supported our clarification that an IMD 
may meet our definition of a long-term care facility and that, 
consequently, Part D plans must provide convenient access to a network 
long-term care pharmacy to the residents of such facilities. One 
commenter supported our proposed policy clarification but noted that 
there were significant practical implications. For example, plans might 
not receive notice that their members are IMD patients until after 
prescriptions have been filled and claims are submitted. Both this and 
the fact that most of these facilities use only in-house, State-run 
pharmacies to fill prescriptions often prevent plans from anticipating 
the need for contracts with these institutional LTC pharmacies. Another 
commenter echoed this statement, noting that Part D sponsors have 
experienced difficulty contracting with certain LTC pharmacies. One 
commenter asked us to clarify that we would determine a Part D plan to 
be in compliance with our convenient access requirements if it limited 
itself to pursuing contracts only with institutional LTC pharmacies 
that proactively sought inclusion in a plan's pharmacy network, 
consistent with the ``any willing pharmacy'' requirement. Another 
commenter asked us to clarify that plans would be considered compliant 
with the convenient access requirements even if they did not come to 
terms with an institutional LTC pharmacy, provided they made a good 
faith effort to contract.
    Response: The fact that a Part D plan has met our LTC pharmacy 
network submission requirements as part of the application approval 
process does not preclude it from continuing its contracting efforts 
with LTC pharmacies as needed. In fact, continued contracting likely 
will be necessary in order for plans to meet the convenient access 
standard articulated at Sec.  423.120(a)(5). This is particularly true 
as plans continue to identify LTC facilities and LTC pharmacies, and as 
they examine their auto-enrollment assignments and incoming 
enrollments. To the extent that a beneficiary is enrolled in a plan 
that does not have a contract with a LTC pharmacy that can serve the 
LTC facility in which he or she resides, the appropriate action for a 
plan to take is to contract with the facility's contracted LTC pharmacy 
or--if that pharmacy will not sign a contract--with another LTC 
pharmacy that can serve that facility. In some cases, a retroactive 
contract may be necessary to ensure coverage for enrollees in a 
particular facility. For example, if a Part D sponsor becomes aware 
that one or more of its enrollees resides in a LTC facility that is not 
serviced by one of its network LTC pharmacies and cannot immediately 
either identify a network LTC pharmacy that can serve this particular 
facility or negotiate a contract with the facility's contracted LTC 
pharmacy, a retroactive contract might be necessary to ensure 
convenient access for the enrollees in question. This would 
particularly be the case if the facility's contracted pharmacy makes a 
good faith effort to negotiate but the sponsor does not quickly 
finalize a contract. We emphasize that plans will not be compliant with 
our LTC convenient access standard if they do not provide access to 
covered Part D drugs via a LTC pharmacy in their network for all of 
their enrollees who reside in LTC facilities.
    We understand that there sometimes may be issues associated with 
contracting with the in-house, and often State-run and operated, 
pharmacies that many ICFs/MR, IMDs, and LTC hospitals use to provide 
drugs and pharmacy services to their patients--for example, multiple 
claim formats, post-consumption billing, and potential delays in 
billing due to systems and other start-up issues--that could delay or 
complicate contracting negotiations. In some States, licensing laws 
preclude facilities from obtaining prescription drugs and LTC services 
for their residents from anywhere but the facility's in-house pharmacy. 
Further, States may not be able to agree to certain standard clauses in 
some LTC standard contracts because of constitutional and legal 
restraints on States. For example, contractual provisions that require 
arbitration may be problematic for States that are legally precluded 
from going to arbitration. In these situations, Part D plans should be 
prepared to readily negotiate with States to address these issues. To 
the extent that plan contracting efforts involve communication with 
State-run and operated pharmacies, we have consistently encouraged 
sponsors to coordinate their efforts through a single point of contact 
at the State level. We provide lists of State contacts for IMDs and 
ICFs/MR on the CMS Web site at https://www.cms.hhs.gov/
PrescriptionDrugCovContra/11_PartDContacts.asp#TopOfPage.
    Comment: Several commenters supported our clarification that plans 
must provide convenient access to a LTC pharmacy to inpatients in 
hospitals who have exhausted their Part A inpatient days benefit and 
whose drugs qualify as Part D drugs given that coverage is not 
available under Part A or Part B. One commenter expressed concern that 
our policy clarification was confusing and could create an unintended 
expansion of the Part D benefit. This commenter urged CMS to provide 
more specific guidance, consistent with the Part D statutory and 
regulatory framework, regarding the

[[Page 20493]]

circumstances under which Part D coverage would be available to 
patients who have exhausted their Part A inpatient days and for whom 
Part B coverage is not available.
    Response: Section 1860D-2(e)(2)(B) of the Act requires the 
exclusion of coverage under Part D of any drug for which, as prescribed 
and dispensed or administered to an individual, payment would be 
available under Parts A or B of Medicare for that individual. In the 
preamble to January 2005 final rule, we clarified that this requirement 
meant that if payment could be available under Part A or Part B to that 
individual for such drug, then it would not be covered under Part D. 
This means that if an individual could sign up for Parts A or B, 
payment could be available under Part A or Part B, regardless of 
whether they actually enrolled. All individuals who are entitled to 
premium-free Part A are eligible to enroll in Part B. All individuals 
who are entitled to Part B only are almost never eligible for premium-
free Part A but are eligible to buy into Part A for a premium. 
Consequently, for all Part D eligible individuals, drugs covered under 
Parts A and B are available if they choose to pay the appropriate 
premiums. However, drugs provided in an inpatient setting to an 
individual who has exhausted his or her lifetime inpatient hospital 
benefit under Part A are not drugs that could be covered under Part A 
for that individual. Unlike a beneficiary who, for example, chooses not 
to buy into Part B, there is no way for an individual who has exhausted 
his or her Part A inpatient stay benefit to obtain coverage under Part 
A for his or her drugs. Thus, once a Part D enrollee exhausts his or 
her Part A inpatient days benefit, any drugs that cannot be covered 
under Part B are Part D drugs provided they otherwise meet the 
definition of a Part D drug at Sec.  423.100. The LTC convenient access 
standard is implicated when these individuals reside in hospitals that 
meet our definition of a LTC facility. However, because we envision it 
will be rare (and typically unforeseen) that an individual exhausts his 
or her inpatient Part A hospital benefit and remains hospitalized--and 
that the hospital meets the definition of a LTC facility--we expect 
that the need to contract with hospital pharmacies to provide Part D 
drugs to these individuals will be quite rare, and that contracting 
will be undertaken only on an as-needed basis. As discussed elsewhere 
in this preamble, to the extent that a beneficiary is enrolled in a 
plan that does not have a contract with a LTC pharmacy that can serve 
the LTC facility in which he or she resides, the appropriate action for 
a plan to take is to contract with the facility's contracted pharmacy 
or--if that pharmacy will not sign a contract--with another network LTC 
pharmacy that can serve that facility. In some cases, a retroactive 
contract may be necessary to ensure coverage for enrollees in a 
particular facility. Part D plans will not be compliant with our LTC 
convenient access standard if they do not provide access to covered 
Part D drugs via a LTC pharmacy in their network for all of their 
enrollees who reside in LTC facilities. We will take appropriate 
compliance action if LTC enrollees' access to covered Part D drugs is 
compromised due to the unavailability of a network LTC pharmacy.
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. In the January 
2005 final rule (70 FR 4535), 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.'' We 
proposed revising the definition of ``contracted pharmacy network'' to 
state that a pharmacy participating in a contracted pharmacy network 
must be licensed.
    We received only one comment on this clarification, which supported 
our proposed revision. Accordingly, we are adopting the revised 
definition of ``contracted pharmacy network'' as set forth in the 
proposed rule without change.
2. Requirements Related to Qualified Prescription Drug Coverage (Sec.  
423.104)--Waiver or Reduction of Part D Cost-Sharing by Pharmacies
    In the January 2005 final rule (70 FR 4240), we stated that we 
would allow waivers or reductions of cost-sharing by pharmacies to 
count as incurred costs. However, our statement was limited to 
pharmacies that are not also acting as other wrap-around coverage that 
generally would not count toward incurred costs (or true-out-of-pocket, 
(TrOOP) costs). We did not intend to allow pharmacy waivers to count as 
incurred costs in cases where a pharmacy also meets 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.
    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 clarified in the 
proposed rule that although we will generally allow waivers or 
reductions of Part D cost-sharing by pharmacies to count as incurred 
costs, this will not be the case for pharmacies affiliated with 
entities whose wrap-around 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 noted in our response to comments below, we maintain our 
position in this final rule.
    Comment: One commenter disagreed with our proposed clarification 
regarding the applicability to TrOOP of pharmacy waivers or reductions 
of Part D cost-sharing made by certain entities. This commenter 
believes that our clarification penalizes Part D sponsors that, as non-
profit organizations, have historically and responsibly provided 
financial assistance (and now pharmacy waivers) to financially needy 
members as part of their mission. The commenter recommended that CMS 
either allow all or no pharmacy waived cost-sharing to count toward 
TrOOP, since every pharmacy is affiliated with one or more Part D 
sponsors and any pharmacy waiver can serve the economic interests of 
both the pharmacy and the sponsor. The commenter believes it is 
preferable for CMS to develop standards under which Part D sponsors 
could--through cost-sharing waivers granted by affiliated network 
pharmacies--assist non-LIS eligible enrollees with a demonstrated 
financial need and have that waived cost-sharing count toward TrOOP.
    Response: We disagree with this commenter's recommendation. While 
we appreciate the fact that some Part D sponsors are non-profit 
entities with charitable missions, we note that a pharmacy owned and 
operated by an insurer is acting on behalf of an insurer. Because a 
Part D drug costs paid or reimbursed by an insurer, as that term is 
defined in Sec.  423.100, cannot count as an incurred cost, per the 
definition of the term ``incurred cost'' in Sec.  423.100, allowing 
pharmacy waivers funded by an insurer to count toward an enrollee's 
TrOOP balance would essentially be an

[[Page 20494]]

end run around our rules regarding incurred costs.
    Comment: Two commenters did not support our policy clarification 
regarding the applicability to TrOOP of pharmacy waivers or reductions 
of Part D cost-sharing made by safety-net pharmacies, including 
Federally-qualified health centers (FQHCs). Given that many safety-net 
providers are fully or partially funded through government grants, 
their waivers or reductions of cost-sharing may leave many low-income 
individuals unable to reach the catastrophic coverage portion of their 
Part D benefits. These commenters assert that although safety-net 
providers rely on a variety of revenue sources--both public and 
private--to provide health care services, unlike other programs 
identified as ``government-funded health programs'' in the preamble to 
the January 2005 final rule, FQHCs do not necessarily use government 
funds to pay the cost of Part D drugs and should not necessarily be 
categorized as government-funded health programs. One of these 
commenters believes that recent operational guidance released by CMS 
indicating that DSH funds could count toward TrOOP further supports its 
position that health center-subsidized cost-sharing should count toward 
TrOOP. The commenter asserts that the receipt of any source of Federal 
funding should not automatically result in excluding health center 
cost-sharing from TrOOP expenditures.
    Response: Payments made for Part D enrollees' Part D cost-sharing 
by any entity--including an FQHC or other safety-net pharmacy--that has 
an obligation to pay for covered Part D drugs on behalf of Part D 
enrollees, or which voluntarily elects to use public funds, in whole or 
in part, for that purpose, will not count toward that beneficiary's 
TrOOP expenditures. We understand that safety-net providers use a mix 
of private and public revenue sources to provide health care services 
and prescription drugs. As we stated in the January 2005 final rule, to 
the extent that an entity pays for the cost of drugs using a mix of 
private and public funds, the entity is considered a government-funded 
health program, and all of its Part D drug spending is excluded from 
TrOOP. However, if an entity can demonstrate to a Part D sponsor that 
it uses only non-public funds to pay for the cost of Part D drugs, that 
sponsor may allow for cost-sharing waivers or reductions in cost-
sharing paid for by that entity's pharmacies to count toward TrOOP. 
Part D sponsors remain ultimately accountable for correctly tracking 
their enrollees' TrOOP expenditures.
    We view Medicare and Medicaid DSH funds essentially as adjustments 
to the Medicare and Medicaid reimbursements these facilities already 
receive for covered services. In other words, receipt of Medicaid or 
Medicare DSH payments by a hospital does not, in and of itself, render 
a DSH facility (and any Part D network pharmacy it owns or operates) a 
``government-funded health program.'' Even though DSH funds are not 
considered government funding streams that would render an entity a 
government-funded health program, DSH hospitals may be government-
funded health programs given other government funding streams they 
receive. An entity that receives DSH funds but uses non-DSH government 
funding streams to provide to or pay on behalf of an individual the 
costs of Part D drugs will still meet our definition of a government-
funded health program, and any reduction or wai