[Federal Register: December 15, 2003 (Volume 68, Number 240)]
[Rules and Regulations]
[Page 69839-69927]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de03-20]
[[Page 69839]]
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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 Parts 403 and 408
Medicare Program; Medicare Prescription Drug Discount Card; Interim
Rule and Notice
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 403 and 408
[CMS-4063-IFC]
RIN 0938-AM71
Medicare Program; Medicare Prescription Drug Discount Card
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Interim final rule with comment period.
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SUMMARY: Section 101, subpart 4 of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, codified in section 1860D-
31 of the Social Security Act, provides for a voluntary prescription
drug discount card program for Medicare beneficiaries entitled to
benefits, or enrolled, under Part A or enrolled under Part B, excluding
beneficiaries entitled to medical assistance for outpatient
prescription drugs under Medicaid, including section 1115 waiver
demonstrations. Eligible beneficiaries may access negotiated prices on
prescription drugs by enrolling in drug discount card programs offered
by Medicare-endorsed sponsors.
Eligible beneficiaries may enroll in the Medicare drug discount
card program beginning no later than 6 months after the date of
enactment of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 and ending December 31, 2005. After December
31, 2005, beneficiaries enrolled in the program may continue to use
their drug discount card during a short transition period beginning
January 1, 2006 and ending upon the effective date of a beneficiary's
outpatient drug coverage under Medicare Part D, but no later than the
last day of the initial open enrollment period under Part D.
Beneficiaries with incomes no more than 135 percent of the poverty
line applicable to their family size who do not have outpatient
prescription drug coverage under certain programs--Medicaid, certain
health insurance coverage or group health insurance (such as retiree
coverage), TRICARE, and Federal Employees Health Benefits Program
(FEHBP)--also are eligible for transitional assistance, or payment of
$600 in 2004 and up to $600 in 2005 of the cost of covered discount
card drugs obtained under the program. In most cases, any transitional
assistance remaining available to a beneficiary on December 31, 2004
may be rolled over to 2005 and applied toward the cost of covered
discount card drugs obtained under the program during 2005. Similarly,
in most cases, any transitional assistance remaining available to a
beneficiary on December 31, 2005 may be applied toward the cost of
covered discount card drugs obtained under the program during the
transition period.
The Centers for Medicare & Medicaid Services will solicit
applications from entities seeking to offer beneficiaries negotiated
prices on covered discount card drugs. Those meeting the requirements
described in the authorizing statute and this rule, including
administration of transitional assistance, will be permitted to offer a
Medicare-endorsed drug discount card program to eligible beneficiaries.
Endorsed sponsors may charge beneficiaries enrolling in their endorsed
programs an annual enrollment fee for 2004 and 2005 of no more than
$30; CMS will pay this fee on behalf of enrollees entitled to
transitional assistance.
To ensure that eligible Medicare beneficiaries take full advantage
of the Medicare drug discount card program and make informed choices,
CMS will educate beneficiaries about the existence and features of the
program and the availability of transitional assistance for certain
low-income beneficiaries; and publicize information that will allow
Medicare beneficiaries to compare the various Medicare-endorsed drug
discount card programs.
DATES: Effective Date: The provisions of this interim final rule with
comment period are effective December 15, 2003.
Comment date: Comments will be considered if we receive them no
later than 5 p.m. on January 14, 2004, at the appropriate address, as
provided below.
ADDRESSES: In commenting, please refer to file code CMS-4063-IFC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
Mail written comments (1 original and 3 copies) to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-4063-FC, P.O. Box 8013,
Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be timely
received in the event of delivery delays.
If you prefer, you may deliver (by hand or courier) your written
comments (1 original and 3 copies) to one of the following addresses:
Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW.,
Washington, DC 20201, or Room C5-14-03, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
(Because access to the interior of the Hubert H. Humphrey 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 commenters 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 could be considered late.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Teresa DeCaro, (410) 786-6604.
SUPPLEMENTARY INFORMATION: Copies: To order copies of the Federal
Register containing this document, send your request to: New Orders,
Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-
7954. Specify the date of the issue requested and enclose a check or
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Visa or Master Card number and expiration date. Credit card orders can
also be placed by calling the order desk at (202) 512-1800 (or toll
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each copy is $10. As an alternative, you can view and photocopy the
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Depository Libraries and at many other public and academic libraries
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Register document is also available from the Federal Register online
database through GPO Access, a service of the U.S. Government Printing
Office. The Web site address is: http://www.access.gpo.gov/nara/index.html
.
Inspection of Public Comments: Comments received timely will be
available for public inspection as they are received, generally
beginning approximately 3 weeks after publication of a document, at the
headquarters of the Centers for Medicare & Medicaid Services, 7500
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view
public comments, please call: (410) 786-7197.
[[Page 69841]]
To assist readers in referencing sections contained in this
document, we are providing the following Table of Contents of the
preamble.
Table of Contents
I. Background
A. Statutory Basis for the Program
B. Purpose of the Program
C. Relationship to Medicare-Endorsed Prescription Drug Card
Assistance Initiative
II. Provisions of the Interim Final Rule with Comment Period
A. Eligibility and Enrollment
1. Eligibility for the Medicare Prescription Drug Discount Card
and Transitional Assistance Program
2. Eligibility for Transitional Assistance
3. Enrollment in an Endorsed Program
4. Applying for Transitional Assistance
5. Reconsideration of Eligibility
6. Disenrollment and Enrollment in Another Endorsed Program
B. General Rules about Solicitation, Application, and Medicare
Endorsement Period
C. Sponsor Requirements for Eligibility for Endorsement under
the Medicare Drug Discount Card and Transitional Assistance Program
1. Applicant Structure and Experience
a. 3 Years of Private Sector Experience
b. 1 Million Covered Lives
c. Demonstration of Financial Stability and Business Integrity
d. Contracts with Subcontractors and Pharmacies
2. Service Area
3. Pharmacy Network Access
4. Prescription Drug Offering
a. Covered Discount Card Drugs
b. Formulary and Minimum Prescription Drug Offerings
c. Pricing
d. Transitional Assistance
5. Products and Services Inside and Outside the Scope of the
Endorsement
6. Eligibility and Enrollment Responsibilities
a. Eligibility and Enrollment Process
b. Standard Enrollment Form
c. Transition Period
d. Enrollment Fee
e. Disenrollment
7. Information and Outreach, and Other Customer Service
a. Information and Outreach
b. Call Center
c. Reduction of Medication Errors and Adverse Drug Reactions
8. Grievance Process
9. HIPAA Administrative Simplification Provisions and Other
Marketing and Security Provisions
a. General
b. Overview of HIPAA Administrative Simplification Regulations
c. HIPAA Privacy Rule
d. Administrative Data Standards
e. National Identifiers
f. Security
10. Document Retention
11. Endorsed Sponsor Reporting
D. CMS Reimbursement of Transitional Assistance
E. CMS-Provided Beneficiary Education
F. CMS Oversight and Monitoring
1. General
a. Marketing and Enrollment Policies
b. Transitional Assistance Payments
2. Intermediate Sanctions
3. Civil Monetary Penalties
4. Termination by CMS
5. Termination by Endorsed Sponsor
6. Termination by Mutual Consent
G. Special Rules Concerning Medicare Managed Care Organizations
1. General Requirements for Medicare Managed Care Organizations
2. Special Rules for Applicants Seeking to Offer Exclusive Card
Programs
a. Endorsement Requirements for Applicants Seeking to Offer
Exclusive Card Programs
b. Enrollment and Enrollment Fees in Exclusive Card Programs
c. Application Process
H. Special Rules Concerning States
1. State Pharmacy Assistance Programs
2. Optional State Payment of Enrollment Fee
3. Optional State Payment of Coinsurance
4. State Data
I. Special Rules Concerning Pharmacies Serving Long-term Care
Residents, or Operated by the Indian Health Service, Indian Tribes
and Tribal Organizations, and Urban Indian Organizations
J. Special Rules Concerning Territories
1. Background
2. Discount Card
3. Transitional Assistance
K. Special Rules and Part B Premium and Appropriations
III. Regulatory Impact Analysis and Regulatory Flexibility Act
Analysis Regulation Text
I. Background
A. Statutory Basis for the Program
The purpose of this interim final rule is to establish requirements
for the Medicare Prescription Drug Discount Card and Transitional
Assistance Program (hereafter referred to as the ``Medicare drug
discount card program''). This program was established by section 101,
subpart 4, of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, and is codified in section 1860D-31 of the
Social Security Act (the ``Act'').
Section 1860D-31(a)(2)(A) of the Act requires us to ensure that
eligible Medicare beneficiaries have access to negotiated prices for
prescription drugs and transitional assistance under the Medicare
discount card program within 6 months of the date of enactment of the
program's authorizing statute. To enable us to meet this implementation
deadline, the statute authorizes us to issue this interim final rule,
which is effective immediately on an interim basis, as of the date of
publication. Although the rule will be effective prior to receipt of
public comments, we will accept comments on this interim final rule
during a 30-day comment period and may, at a future date, revise this
regulation based on the comments we receive. In addition, we will
continue to monitor the implementation of this program during its
operation. If we become aware of operational difficulties in the
program, or of activities resulting in fraud, waste, or abuse we may
revise the policies announced in this rule using appropriate
procedures.
Section 105(c) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 provides for expedited implementation by--
[sbull] Exempting the Medicare drug discount card program from the
requirements of the Paperwork Reduction Act, including the public
comment and Federal clearance processes associated with it;
[sbull] Exempting the drug discount card program from the
requirement in the Congressional Review Act for a 60-day delayed
effective date for major rules (5 U.S.C. 801(a)(3)(A)), and from the
requirement under the Administrative Procedure Act (5 U.S.C. 553(d))
that regulations not become effective until 30 days after their
publication.
[sbull] Allowing the Secretary of the Department of Health and
Human Services (hereinafter the ``Secretary'') to enter into contracts
without regard to provisions of law or regulation governing the
performance, amendment, or modification of contracts that may be
inconsistent with furthering the Medicare drug discount card program.
[sbull] As provided under sections 105(c)(4)(A) and (B) of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003,
prohibiting judicial review of a CMS determination not to endorse a
sponsor applicant and providing that, in the event any provision of
section 1860D-31 of the Act is enjoined, the order will not affect the
remaining provisions of section 1860D-31.
To meet the six-month implementation deadline, we will pursue a
compressed timeframe for soliciting and reviewing endorsed sponsor
applications.
B. Purpose of the Program
Congress intended for the Medicare drug discount card program to
serve as a transitional program providing Medicare beneficiaries with
immediate assistance with prescription drug costs during calendar year
(CY) 2004 and CY 2005 while preparations are made for implementation of
the Medicare drug benefit under Medicare part D in 2006. Medicare
currently does not cover the
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cost of outpatient drugs, with a few exceptions. In directing us to
establish the Medicare drug discount card program, Congress sought to
provide Medicare beneficiaries--particularly those lacking outpatient
drug coverage--with access to negotiated prices on prescription drugs
through enrollment in Medicare-endorsed drug discount card programs
operated by endorsed sponsors. In addition, to help low-income
beneficiaries meet their drug costs, Congress authorized up to $600 of
annual transitional assistance that eligible beneficiaries may apply
toward the cost of covered discount card drugs purchased under the
program.
The Medicare drug discount card program is designed to increase
beneficiaries' access to low-cost prescription drugs by building upon
best practices in the private drug benefit market today.
C. Relationship to Medicare-Endorsed Prescription Drug Card Assistance
Initiative
On September 4, 2002, we published a final rule (67 FR 56618)
establishing the Medicare-Endorsed Prescription Drug Card Assistance
Initiative based primarily on the educational and assistance authority
in section 4359 of the Omnibus Budget Reconciliation Act of 1990 (OBRA)
(Pub. L. 101-508). Similar to the Medicare drug discount card program,
this initiative called for us to endorse private sector prescription
drug card programs that met certain criteria, including offering
Medicare beneficiaries discounted drug prices through retail pharmacy
networks that met our access standards. On January 8, 2003, we posted a
solicitation of application.
On January 23, 2003, the Federal Court for the District of Columbia
enjoined us from proceeding with the initiative. In accordance with the
court order, we withdrew the solicitation, ceased all work on the
initiative, and neither received any applications nor made any
endorsements on the basis of the September 4, 2002 rule.
The Medicare drug discount card program described in this rule is
based on entirely different statutory authority--the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003--than the
2002 initiative and has significantly different features than the
earlier initiative, most notably the provision of transitional
assistance to eligible beneficiaries. Therefore, parties interested in
the implementation and operation of the Medicare drug discount card
program should not refer to the September 4, 2002 final rule or the
January 8, 2003 solicitation for guidance on the program that we will
implement under the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003. Also, by publishing this interim final rule
with comment under the authority of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, we hereby withdraw the
regulation and solicitation published September 4, 2002 and January 8,
2003, respectively.
II. Provisions of the Interim Final Rule With Comment Period
A. Eligibility and Enrollment
Sections 1860D-31(b)(1) and (2) of the Act establish the
eligibility criteria for the Medicare drug discount card program and
for transitional assistance, which we have incorporated into Sec.
403.810(a) and Sec. 403.810(b) of our regulations. Section 1860D-
31(f)(1)(A) of the Act directs the Secretary to specify the procedures
for determining a beneficiary's eligibility for the Medicare drug
discount card program or transitional assistance and section 1860D-
31(c)(1) directs the Secretary to establish a process for eligible
beneficiaries enrolling in, and disenrolling from, an endorsed program.
Sections 403.810 and 403.811 of our regulations set forth these
procedures. The obligations of endorsed sponsors related to eligibility
determinations and enrollment are discussed in section II.C.6 of this
document.
1. Eligibility for the Medicare Prescription Drug Discount Card and
Transitional Assistance Program
In accordance with section 1860D-31(b)(1) of the Act, a Medicare
beneficiary is eligible for the Medicare drug discount card if the
beneficiary is entitled to benefits, or enrolled, under Medicare Part A
or enrolled under Medicare Part B, and does not already receive drug
coverage through a State medical assistance plan under either a Title
XIX program or under a demonstration program that is approved by us
under sections 1115(a)(1) and (2) of the Act, hereinafter referred to
as a ``section 1115 waiver demonstration.''
The benefit package available to beneficiaries enrolled in section
1115 waiver demonstrations varies, with some demonstrations offering
comprehensive outpatient prescription drug coverage and others offering
more limited or no outpatient drug coverage. Section 1860D-31(b)(1)(B)
of the Act provides that beneficiaries entitled to ``any'' medical
assistance for outpatient prescribed drugs under a section 1115 waiver
demonstration are ineligible for the Medicare drug discount card
program. We interpret this section as rendering ineligible for the
program all beneficiaries enrolled in a section 1115 waiver
demonstration program with some outpatient drug coverage, even if
limited coverage. Beneficiaries enrolled in a section 1115 waiver
demonstration that does not provide outpatient drug coverage are
eligible for the program provided they meet all other eligibility
criteria. Similarly, beneficiaries enrolled in Medicaid under title XIX
of the Act who do not receive outpatient drug coverage may be eligible
for the program.
We have the authority to establish procedures for eligibility
determinations under section 1860D-31(f)(1)(A) of the Act. Under this
authority and in the interest of promoting efficient administration of
the program, we specify in Sec. 403.810(d) of our regulations that
beneficiaries determined eligible for the program will remain eligible
for the entire period of their enrollment. We therefore provide in
section 403.810(a) of the regulations that a beneficiary is eligible
for the Medicare drug discount card program if he or she satisfies the
above requirements at the time of applying to enroll in the program.
Consequently, once a beneficiary has been determined eligible for the
Medicare drug discount card program, he or she will remain eligible for
the duration of the program unless he or she disenrolls from an
endorsed program and is ineligible for a special election period that
would allow the individual to enroll in another program in accordance
with Sec. 403.811(b)(2) of the regulations, as discussed below in
section II.A.6, or if involuntarily disenrolled as provided in Sec.
403.811(b)(6). If, after such a disenrollment from the Medicare drug
discount card program in 2004, a beneficiary wishes to later re-enroll
in the program, he or she must re-apply and re-qualify for the program
for 2005.
Section 1860D-31(b)(4) directs the Secretary to issue appropriate
rules addressing the eligibility of medically needy beneficiaries, as
described in section 1902(a)(10)(C) of the Act, for the Medicare drug
discount card program. Medically needy beneficiaries will be treated
the same as all other beneficiaries applying for the program and
therefore will be eligible for the program if at the time of applying
for the program they meet the eligibility criteria set forth in Sec.
403.810(a) of the regulations.
Medicare beneficiaries residing in the U.S. territories, which
include American Samoa, Commonwealth of the Northern Mariana Islands,
Guam, Puerto
[[Page 69843]]
Rico, and Virgin Islands, are eligible to enroll in an endorsed
program. Whereas Medicare beneficiaries residing in the 50 States and
the District of Columbia are ineligible for the Medicare drug discount
card program if they have outpatient prescription drug coverage under
Medicaid or a section 1115 waiver demonstration, as provided in Sec.
403.817(d) of our regulations and as discussed in section II.J. of this
document, Medicare beneficiaries residing in the territories who also
receive outpatient prescription drug coverage under Medicaid or a
Medicaid section 1115 waiver are eligible for the Medicare drug
discount card program.
2. Eligibility for Transitional Assistance
Under section 1860D-31(b)(2) of the Act, and as provided in Sec.
403.810(b) of our regulations, a beneficiary is eligible to receive
transitional assistance if the beneficiary is eligible for the Medicare
drug discount card program and meets the following requirements:
(1) The beneficiary resides in one of the 50 States or the District
of Columbia;
(2) The beneficiary's income is not more than 135 percent of the
poverty line applicable to the beneficiary's family size; and
(3) The beneficiary does not have coverage for covered discount
card drugs under one or more of the following sources: (a) TRICARE
coverage under chapter 55 of title 10, (b) a Federal Employee's Health
benefit plan under chapter 89 of title 5, or (c) a group health plan or
health insurance coverage, as those terms are defined under section
2791 of the Public Health Service Act (42 U.S.C. 300gg-91), other than
a plan under Medicare Part C or a group health plan or health insurance
coverage consisting solely of excepted benefits, as that term is
defined under section 2791 of the Public Health Service Act (42 U.S.C.
300gg-91(c)).
The poverty line is defined in section 673(2) of the Community
Services Block Grant Act, 42 U.S.C. 9902(2), and is revised annually by
the Secretary. Excepted benefits include, but are not limited to,
medical supplemental insurance (Medigap insurance), limited scope
dental or vision benefits, liability insurance (for example, automobile
insurance), coverage for a specific disease or illness, and workers'
compensation insurance.
Under section 1860D-31(f)(2)(B) of the Act, beneficiaries who have
been verified as eligible for transitional assistance will be
considered so eligible for the entire period of their enrollment in any
endorsed program. We therefore provide in Sec. 403.810(b) of the
regulations that a beneficiary is eligible for transitional assistance
if he or she satisfies the above requirements at the time of applying
for transitional assistance. Thus, we specify in 403.810(d) that once a
beneficiary has been determined eligible for transitional assistance,
he or she will remain eligible for transitional assistance for the
duration of the beneficiary's enrollment in the Medicare drug discount
card program. A beneficiary will no longer be eligible for transitional
assistance if he or she disenrolls from the program; specifically, if
he or she disenrolls from an endorsed program and is ineligible for a
special election period that would allow the individual to enroll in
another endorsed program in accordance with Sec. 403.811(b)(2) of the
regulations, as discussed below in section II.A.6.
Although beneficiaries with outpatient drug coverage under a group
health plan or health insurance coverage generally are ineligible for
transitional assistance, as noted above, the statutory definition of
transitional assistance eligible beneficiaries carves out from this
exclusion outpatient drug coverage under a Part C plan described in
section 1851(a)(2) of the Act or a policy consisting solely of excepted
benefits. Consequently, provided that they meet all other eligibility
criteria, beneficiaries with outpatient drug coverage under a Part C
plan or a policy consisting solely of excepted benefits, such as
Medigap, are still eligible for transitional assistance even if their
employer pays all or a portion of the premium for such plans or
policies.
Section 1860D-31(f)(1)(B) of the Act gives the Secretary the
authority to define ``income'' and ``family size'' as it pertains to
determinations of a beneficiary's eligibility for transitional
assistance. Income refers to the amount, type, and ownership of income
that will be counted in determining whether an applicant's income is no
more than 135 percent of the poverty line for the beneficiary's family
size. For purposes of the Medicare drug discount card program, we have
defined ``income'' as including the components of adjusted gross
income, as defined under 26 U.S.C. 62, and, to the extent not included
in the components of AGI retirement and disability benefits, or, if the
beneficiary is married, the sum of such income for both the beneficiary
and his or her spouse.
Family size means the number of beneficiaries by which 135 percent
of the poverty line must be adjusted to determine the income threshold
the beneficiary's income may not exceed in order to be eligible for
transitional assistance. For purposes of this program, we have defined
``family size'' as one for unmarried individuals and two for
individuals who are married. This definition is based on the rules of
the Supplemental Security Income (SSI) program established under title
XVI of the Act. While the SSI program does not actually define
``family'' or ``family size,'' it makes eligibility determinations
based in part on whether a beneficiary is single or married. The income
definition above is not based on the SSI definition because the
systems-based process we intend to use to determine eligibility for
transitional assistance is different from the interview determination
process used to determine eligibility for SSI, and from the process we
will use under Part D. For this short-term program, the statute directs
us to determine eligibility based on self-certification, with CMS to
perform eligibility verifications via computer matching of Federal
databases, as discussed below. We will not use an individual
determination process as SSI uses; hence we have chosen a simpler
definition than the elaborate definition SSI uses.
In section 1860D-31(f) of the Act, the statute directs us to
determine eligibility based on self-certification, with CMS to verify
self-certified eligibility through data matching. We have developed an
information system for verifying beneficiaries' eligibility for the
Medicare drug discount card program. Among other functions, this system
will verify, to the extent possible, that the income of beneficiaries
applying for transitional assistance does not exceed 135 percent of the
poverty line for their family size. As provided in section 1860D-
31(f)(3) of the Act, this system relies on income and retirement
benefit information provided by the Internal Revenue Service (IRS) and
the Social Security Administration, and may include additional data
sources as they become available.
As part of the standard enrollment form, a beneficiary must
certify, under penalty of perjury that, to the best of the
beneficiary's knowledge, the information about his or her current
income status and outpatient prescription drug coverage, as provided on
the form, is accurate. If we are unable to conclusively verify whether
an individual's income is no more than 135 percent of the poverty line
for his or her family size, we may request that the beneficiary provide
us with additional financial information. In Sec. 403.810(f)(2) of our
regulations, we reserve the right to make the provision of this
additional information a condition of receiving transitional
assistance.
Section 1860D-31(f)(3)(C)(i) of the Act gives the Secretary the
authority to find
[[Page 69844]]
that Medicare beneficiaries eligible under title XIX as Qualified
Medicare Beneficiaries (QMBs), Specified Low-Income Medicare
Beneficiaries (SLMBs), or as Qualifying Individuals (QIs) satisfy the
income threshold requirement for eligibility for transitional
assistance. Therefore, Sec. 403.810(c) of our regulations specifies
that these individuals by definition will be deemed to have met the
income threshold requirement for transitional assistance. However,
these individuals must meet the other eligibility criteria set forth in
Sec. 403.810(b) of our regulations to be determined eligible for
transitional assistance.
Section 1860D-31(b)(4) directs the Secretary to issue appropriate
rules addressing the eligibility of medically needy beneficiaries, as
described in section 1902(a)(10)(C) of the Act, for transitional
assistance. Medically needy beneficiaries will be treated the same as
all other beneficiaries applying for transitional assistance and
therefore will be eligible for transitional assistance if at the time
of applying for transitional assistance they meet the eligibility
criteria set forth in Sec. 403.810(b) of the regulations. An
individual who is already enrolled in an endorsed discount card program
and subsequently qualifies for outpatient drug coverage under Medicaid
as a medically needy beneficiary, will not be disenrolled or denied
transitional assistance solely because he or she is now receiving
outpatient drug coverage under Medicaid.
Under Sec. 403.810(b)(2) of our regulations, residents of the
territories are not eligible for transitional assistance under the
Medicare drug discount card program. However, under section 1860D-
31(j)(2) of the Act, and as provided in Sec. 403.817(e) of our
regulations, a territory may establish its own transitional assistance
plan. As discussed in section II.J. of this document, a territory
choosing to establish its own transitional assistance plan may offer
transitional assistance to any individual entitled to benefits, or
enrolled, under Medicare Part A or enrolled under Medicare Part B,
whose income is no more than 135 percent of the poverty line for the
individual's family size, regardless of whether that individual
receives outpatient drug coverage under Medicaid or a section 1115
waiver demonstration.
As specified in section 1860D-31(g)(6) of the Act and provided in
Sec. 403.810(e) of our regulations, any benefits received under the
Medicare drug discount card program will not be taken into account in
determining a beneficiary's eligibility for, or the amount of benefits
under, any other Federal program.
3. Enrollment in an Endorsed Program
Section 1860D-31(c)(1) of the Act requires the Secretary to
establish a process through which beneficiaries enroll in endorsed
programs. Section 403.811(a) of our regulations specifies the
programmatic requirements of this process.
We anticipate that endorsed sponsors will begin enrolling eligible
beneficiaries in their endorsed programs no later than six months after
enactment of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003.
Throughout this document, when we refer to a beneficiary, enrollee,
or individual in the context of taking action regarding the Medicare
drug discount card program, such as applying for the discount card,
transitional assistance, or reconsideration, we also mean the
individual's authorized representative. This representative can
complete an enrollment form on a individual's behalf, certify the
accuracy of its content, authorize CMS to verify the individual's
eligibility information, conduct other enrollment and disenrollment
transactions, and otherwise represent the individual with regard to
this program. Our regulations at Sec. 403.806(l) specify the way
endorsed sponsors must treat authorized representatives.
Under the authority in section 1860D-31(c)(1)(A) of the Act, we
provide in Sec. 403.811(a)(5) of our regulations, that an individual
who is not currently enrolled in an endorsed card program can enroll in
any endorsed program serving residents of their State at any time
during the enrollment period. As provided in section 1860D-31(c)(1) of
the Act and Sec. 403.811(a)(6) of our regulations, an individual may
only enroll in one endorsed program at a time. Relying on the authority
in section 1860D-31(c)(1) of the Act, we provide in Sec. 403.811(a)(7)
of our regulations that an individual can enroll in one endorsed
program per year during the enrollment period. Finally, Sec.
403.811(a)(9) of our regulations specifies that no new enrollment or
changing of endorsed card election can occur during the transition
period.
Under section 1860D-31(c)(1)(A) of the Act, and as provided in
Sec. 403.811(a)(10) of our regulations, a discount card eligible
individual not already enrolled in an endorsed program may enroll in
any endorsed program serving residents of the State in which the
beneficiary resides, with the exception of beneficiaries enrolled in
certain Part C or reasonable cost reimbursement plans offering
``exclusive card programs.'' (A Part C organization as described in
section 1851(a)(2)(A) of the Act that offers enrollment in a
coordinated care plan or an organization that offers enrollment under a
reasonable cost reimbursement plan described in section 1876(h) of the
Act are hereinafter referred to as ``Medicare managed care
organizations'' and the plans they offer, ``Medicare managed care
plans,'' respectively.) An ``exclusive card sponsor'' is a Medicare
managed care organization that offers an endorsed program with
enrollment limited to members of one or more of its Medicare managed
care plan(s). Under section 1860D-31(c)(1)(E) of the Act, members of
Medicare managed care plans offered by exclusive card sponsors that
include access to an exclusive card program as part of the plan's
benefit package, may only enroll in such exclusive card programs.
Medicare managed care organizations as card sponsors, including
exclusive card sponsors, are discussed in section II.G. of this
document.
As part of our verification system, we will verify whether each
beneficiary seeking enrollment receives outpatient drug coverage under
Medicaid or a section 1115 waiver demonstration, is enrolled in another
endorsed program, or is a member of a Medicare managed care plan
offering an exclusive card program. This system will include files
provided to us by the State Medicaid programs and a database for
tracking beneficiaries' enrollment and disenrollment from endorsed
programs.
If a beneficiary wishes to apply for transitional assistance when
he or she applies to enroll in an endorsed program, the endorsed
sponsor may not enroll the beneficiary in its endorsed program until
the beneficiary is determined eligible for transitional assistance. If
the beneficiary is determined ineligible for transitional assistance
and still wishes to enroll in the endorsed sponsor's endorsed program,
the sponsor must provide the beneficiary with an opportunity to
actively choose to enroll in the drug card only through enrollment
processes as specified by the Secretary and permitted by the endorsed
sponsor. This requirement is specified in Sec. 403.811(a)(3) of our
regulations. We create this requirement because we believe a
beneficiary's eligibility or ineligibility for transitional assistance
may influence his or her decision to enroll in the Medicare drug
discount card program and which endorsed program he or she selects.
[[Page 69845]]
Section 1860D-31(c)(2) of the Act provides that endorsed sponsors
may charge an annual enrollment fee up to, but no more than, $30 per
year. Discount card enrollees, other than transitional assistance
enrollees, must pay this fee to their endorsed sponsors. We discuss
enrollment fees in greater detail in section II.C.6. of the document.
A discount card enrollee will remain enrolled in the same endorsed
program for CYs 2004 and 2005 and the transition period unless the
beneficiary changes endorsed programs following the annual coordinated
election period, the beneficiary disenrolls, or the endorsed card
program terminates, as provided in Sec. 403.811(a)(8) of our
regulations. This means that a beneficiary remaining enrolled in an
endorsed program with an annual enrollment fee from CYs 2004 to 2005 is
responsible for paying any new annual enrollment fee for 2005.
Section 1860D-31(c)(4) of the Act gives the Secretary the
discretion to establish the date upon which access to an endorsed
program's negotiated prices will take effect. We specify in Sec.
403.811(a)(11) of our regulations that the date upon which the
beneficiary can access negotiated prices is the date when a
beneficiary's enrollment in an endorsed program becomes effective.
Under the Secretary's authority to develop an enrollment process
under section 1860D-31(c)(1) of the Act, and as stated in Sec.
403.814(b)(5) of the regulations, if a Medicare managed care
organization limits enrollment in an exclusive card program to members
of one or more of its Medicare managed care plans, we will permit the
Medicare managed care organization to automatically enroll, or group
enroll, into its exclusive card program eligible individuals enrolled
in the Medicare managed care plan(s), unless such beneficiaries
affirmatively notify the Medicare managed care organization of their
desire not to enroll in its exclusive card program. Prior to group
enrolling such beneficiaries in its exclusive card program, the
Medicare managed care organization must notify its eligible members of
its intent to do so and inform them of their right not to enroll. As
provided in Sec. 403.814(b)(6) of our regulations, a member
affirmatively electing not to enroll in the exclusive card program
offered as part of the benefit package available through his or her
Medicare managed care plan is ineligible to enroll in any other
endorsed program.
We believe our permitting group enrollment will not limit the
voluntary nature of this program because section 1860D-31(c)(1)(E) of
the Act restricts members of a Medicare managed care plan offering an
exclusive card program to enrollment in the exclusive card program. In
addition, group enrollment will not impose on these beneficiaries any
unwanted cost without consent since they will have the opportunity to
decline enrollment in the exclusive card program.
4. Applying for Transitional Assistance
As provided in Sec. 403.811(a)(12) of our regulations,
beneficiaries may apply for transitional assistance at the same time
that they apply for enrollment in the Medicare drug discount card
program, or after they have already enrolled in the program. We permit
beneficiaries to apply for transitional assistance at any time because
discount card enrollees may, following their enrollment in the program,
have a change in their economic circumstances or outpatient drug
coverage that would qualify them for transitional assistance.
Beneficiaries wishing to receive transitional assistance must
complete the standard enrollment form for transitional assistance,
which is described in greater detail in section II.C.6. of this
document. The standard enrollment form will require the beneficiary to
indicate all elements necessary to determine eligibility, including,
but not limited to, the amount of the beneficiary's income (or, for
married individuals, the beneficiary and spouse's combined income), the
beneficiary's family size, and whether the beneficiary has outpatient
prescription drug coverage under certain sources.
As required by section 1860D-31(f)(2)(A) of the Act, a beneficiary
applying for transitional assistance must certify, on the standard
enrollment form, under penalty of perjury or similar sanction for false
statements, that to the best of the beneficiary's knowledge the
information he or she provides is accurate. We therefore require in
Sec. 403.810(b)(5) of our regulations that beneficiaries wishing to
receive transitional assistance sign the enrollment form. This
signature represents the beneficiary's certification that the
information provided on the form is accurate to the best of the
beneficiary's knowledge, as well as his or her consent to our verifying
the accuracy of the information provided, including verification of the
beneficiary's income using Federal sources of income data.
Consequently, beneficiaries wishing to apply for transitional
assistance must submit to the endorsed sponsor a dated and signed
enrollment form by mail or, at the endorsed sponsor's discretion, by
facsimile.
a. Coinsurance
Under section 1860D-31(g)(1)(B) of the Act and as provided in Sec.
403.808(e) of our regulations, a transitional assistance enrollee is
entitled to have payment made of 90 or 95 percent, depending on the
beneficiary's income, of the charges incurred for covered discount card
drugs obtained through the Medicare drug discount card program, up to
the total amount of transitional assistance available to that
beneficiary. Transitional assistance enrollees with incomes greater
than 100 percent but no more than 135 percent of the poverty line
applicable to their family size are responsible for paying 10 percent
of the charge for covered discount card drugs obtained under the
program. Transitional assistance enrollees with income not greater than
100 percent of the poverty line applicable to their family size are
responsible for paying 5 percent of the charge for a covered discount
card drug.
b. Proration
Section 1860D-31(g)(2)(A) of the Act provides that transitional
assistance beneficiaries may receive up to $600 each year in
transitional assistance. However, section 1860D-31(g)(2)(B) of the Act
permits us to prorate the amount of transitional assistance available
to beneficiaries applying for transitional assistance. We do not intend
to prorate transitional assistance amounts in 2004 in recognition that
it may take time for our education campaign to reach all beneficiaries
and that beneficiaries need sufficient opportunity to learn about the
Medicare drug discount card program without penalty. As provided in
Sec. 403.808(b) of our regulations, we will prorate the transitional
assistance available to eligible enrollees applying for transitional
assistance in 2005 based on the beneficiary application date according
to the schedule set forth in Table 1. The beneficiary application date
is the date upon which the endorsed sponsor receives from the
beneficiary the complete enrollment form for transitional assistance.
Beneficiaries disenrolling from an endorsed program for reasons that
warrant a special election period, however, are not considered to have
left the transitional assistance program and are not subject to
proration should they elect another endorsed program during CY 2005.
We elect to prorate transitional assistance in 2005 because we
believe that, by 2005, beneficiaries will have had ample time to learn
about the
[[Page 69846]]
Medicare drug discount card program. In addition, prorating
transitional assistance encourages transitional assistance eligible
beneficiaries to enroll in the Medicare drug discount card program as
early as possible in order to maximize their transitional assistance
amount, which in turn will increase the volume of covered discount card
drugs obtained under an endorsed program and enhance an endorsed
sponsor's ability to negotiate deeper discounts for discount card
enrollees. We will calculate the amount of transitional assistance a
transitional assistance enrollee may receive and notify endorsed
sponsors of this amount.
Table 1.--2005 Proration Schedule
------------------------------------------------------------------------
Amount
Beneficiary application date payable
------------------------------------------------------------------------
January 1-March 31, 2005..................................... $600
April 1-June 30, 2005........................................ 450
July 1-September 30, 2005.................................... 300
October 1-December 31, 2005.................................. 150
------------------------------------------------------------------------
In accordance with section 1860D-31(g)(2)(A)(ii)(II) of the Act,
and as provided in Sec. 403.808(f) of our regulations, any
transitional assistance remaining available to a transitional
assistance enrollee on December 31, 2004 may be rolled over to 2005 and
applied toward the cost of covered discount card drugs obtained under
the Medicare drug discount card program during 2005. As provided in
Sec. 403.811(b)(5) of our regulations, transitional assistance
enrollees who disenroll from the Medicare drug discount card program in
2004 and who are not eligible for a special election period as provided
in Sec. 403.811(b)(2) of our regulations, however, may not rollover
any unused transitional assistance if they re-enroll in the program in
2005. Any transitional assistance remaining available to a transitional
assistance enrollee on December 31, 2005 may be applied toward the cost
of covered discount card drugs obtained under the program during the
transition period provided the transitional assistance enrollee remains
enrolled in the program through the end of 2005 and during the
transition period.
As required by section 1860D-31(c)(2)(E) of the Act and as provided
for in Sec. 403.808(c) of our regulations, CMS will pay to an endorsed
sponsor the annual enrollment fee, if any, for its transitional
assistance enrollees.
Section 1860D-31(c)(4) of the Act gives the Secretary the
discretion to establish the date upon which access to transitional
assistance through an endorsed program will take effect. As specified
in Sec. 403.811(a)(11) of our regulations, transitional assistance
will be made available to beneficiaries determined eligible for
transitional assistance beginning on the effective date of their
enrollment in the transitional assistance program specified in their
transitional assistance eligibility determination notice.
5. Reconsideration of Eligibility
As discussed above, section 1860D-31(f) of the Act also provides
for an eligibility determination process consisting of self-
certification and, at the discretion of the Secretary, verification
through data matching. For beneficiaries applying for the Medicare drug
discount card program, we will verify their eligibility for the program
by reviewing State data, for example, on beneficiaries with outpatient
drug coverage under Medicaid or a section 1115 waiver demonstration.
For beneficiaries applying for transitional assistance, we will verify
their income by reviewing our data on their income and other retirement
and disability benefits.
Section 1860D-31(f)(4) of the Act requires the Secretary to
establish a reconsideration process for beneficiaries initially
determined ineligible for transitional assistance. Under our authority
to establish procedures for determining beneficiaries' eligibility for
the Medicare drug discount card program, as provided for in section
1860D-31(f)(1)(A) of the Act, we also will establish a reconsideration
process for beneficiaries initially determined ineligible for the
program. Accordingly, as provided in Sec. 403.810(g)(1) of our
regulations, every beneficiary determined ineligible for the program
and/or transitional assistance can request that we reconsider this
determination.
A beneficiary will be given specific instructions on how to request
reconsideration when he or she is notified of our negative eligibility
determination. We will provide standardized language for this notice in
the information and outreach materials that will accompany the
solicitation, as discussed in section II.C.7. of this document. As
provided in Sec. 403.810(g)(2) of our regulations, reconsideration
requests must be filed within 60 days from date of notice of a negative
eligibility determination, unless the individual can demonstrate good
cause for why the 60-day time frame should be extended.
Section 1860D-31(f)(4)(B) of the Act authorizes the Secretary, and
Sec. 403.810(g)(4) of our regulations provides that the Secretary will
enter into a contract for the performance of reconsiderations. We will
contract with an independent entity to conduct reconsiderations on our
behalf. Finally, Sec. 403.810(g)(3) of our regulations provides that
beneficiaries requesting reconsideration may provide, in writing, to
our reconsideration contractor additional documentary evidence or an
explanation about his or her eligibility. The reconsideration
contractor will provide the beneficiary a written final eligibility
determination.
6. Disenrollment and Enrollment in Another Endorsed Program
In accordance with section 1860D-31(c)(1)(D)(i) of the Act, Sec.
403.811(b)(1) of our regulations provide that a discount card enrollee
may voluntarily disenroll from an endorsed program at any time;
however, such a beneficiary may only enroll in another endorsed program
without having to re-apply and re-qualify under two conditions--during
the annual coordinated election period or during a special election
period, as described below.
Section 1860D-31(c)(1)(C)(ii) of the Act and Sec. 403.811(a)(7) of
our regulations provide that beneficiaries enrolled in an endorsed
program in 2004 may elect to change endorsed programs during the annual
coordinated election period from November 15 through December 31, 2004.
The effective date of an enrollment election made during the annual
coordinated election period will be January 1, 2005.
Under section 1860D-31(c)(1)(C)(i) of the Act, and as provided in
Sec. 403.811(a)(7) of the regulations, discount card eligible
individuals generally may enroll in only one endorsed program during a
calendar year. Beneficiaries voluntarily disenrolling from an endorsed
program during the enrollment period, and not changing programs during
the annual coordinated election period, may immediately enroll in
another endorsed program during the enrollment period only under
limited circumstances. Section 1860D-31(c)(1)(C)(iii) of the Act
authorizes the Secretary to establish exceptions to the limitation of
enrolling in only one endorsed card program per year. As specifically
permitted by section 1860D-31(c)(1)(C)(iii) of the Act and as set forth
in Sec. 403.811(b)(2) of our regulations, a beneficiary disenrolling
from an endorsed program for any of the following reasons is awarded a
special election period and may enroll in another endorsed program at
any time in the enrollment period.
[[Page 69847]]
(1) The beneficiary moved outside his or her endorsed program's
service area;
(2) The beneficiary changed his or her residence to or from a long-
term care facility;
(3) The beneficiary enrolled in or disenrolled from a Part C plan
or a Medicare cost plan; or
(4) Other exceptional circumstances as determined by the Secretary.
In addition, we will permit beneficiaries to enroll in new endorsed
programs if their prior endorsed program terminates or they enroll in
or disenroll from a reasonable cost reimbursement plan.
We consider a discount card enrollee who disenrolls for reasons
other than those provided above to have left the Medicare Drug Discount
Card program entirely, as provided in Sec. 403.810(d) of our
regulations. As permitted under sections 1860D-31(c)(1)(D)(i) and
(f)(2)(B) of the Act and as provided in our regulations at Sec.
403.811(b)(4), beneficiaries voluntarily disenrolling from an endorsed
program in 2004 other than for one of the above reasons, or who are
involuntarily disenrolled, must re-apply as if they were new to the
program for the Medicare Drug Discount Card Program for 2005 if they
wish to enroll in another endorsed program. The earliest an individual
may re-apply for the Medicare Prescription Drug Discount Card is during
the annual coordinated election period. Because an individual may only
enroll in one endorsed card program in each calendar year, as provided
in Sec. 403.811(a)(7) of our regulations, beneficiaries voluntarily
disenrolling from an endorsed program in 2005, other than for one of
the above reasons, or who are involuntarily disenrolled, cannot
reenroll in an endorsed card program. Individuals disenrolling for any
reason during the transition period cannot re-enroll.
With respect to beneficiaries enrolling in or disenrolling from a
Part C plan or reasonable cost reimbursement plan, section 1860D-
31(c)(1)(C)(iii) of the Act permits but does not mandate that we allow
these beneficiaries to disenroll from their current endorsed program
and enroll in another endorsed program during a special election
period. Beneficiaries enrolling in or disenrolling from a Medicare
managed care plan offering an exclusive card program will be
automatically disenrolled from their endorsed programs, as they will no
longer be eligible for such endorsed programs under Sec.
403.814(b)(6)(i) of our regulations. We believe that Medicare
beneficiaries entering and leaving a Part C plan or a Medicare cost
plan without an exclusive card program will wish to choose an endorsed
program based on the benefit package under their current health
coverage, including other Part C plans and Medicare cost plans, and
that this benefit package may change when beneficiaries enroll in or
disenroll from a Part C plan or Medicare cost plan. To promote
beneficiaries' coordination of their health benefits, we will allow
beneficiaries enrolling in or disenrolling from any Part C plan or a
Medicare cost plan to disenroll from their current endorsed program and
enroll in another endorsed program during a special election period.
We will automatically disenroll beneficiaries from an endorsed
program if their endorsed program terminates, the beneficiary enrolls
in or disenrolls from a Medicare managed care plan offering an
exclusive card program, or the beneficiary elects another endorsed
program during the Annual coordinated election period. All other
beneficiaries wishing to disenroll from their endorsed program must
notify their endorsed sponsor of their intent, and, if they wish to
enroll in another endorsed program during a special election period,
provide the endorsed sponsor their reason for disenrollment.
As required in section 1860D-31(c)(1)(D)(ii) of the Act, and as
specified in Sec. 403.811(b)(6) of our regulations, an endorsed
sponsor may involuntarily disenroll any discount card enrollee, other
than a transitional assistance enrollee, if the discount card enrollee
fails to pay any annual enrollment fee charged by the endorsed sponsor.
As provided in Sec. 403.811(b)(7) of our regulations and as
discussed under section II.C.6 of this document, a discount card
enrollee who changes endorsed programs during a special election period
may be charged a separate annual enrollment fee by the endorsed sponsor
operating the newly selected endorsed program.
Under section 1860D-31(g)(2)(E) of the Act and Sec. 403.811(b)(5)
of our regulations, transitional assistance enrollees who disenroll
from their endorsed programs generally will forfeit any transitional
assistance remaining available to them at the time of their
disenrollment. Transitional assistance enrollees who disenroll during
the first year of the program and are ineligible for a special election
period must re-apply and re-qualify for transitional assistance for the
second year of the program should they wish to receive additional
transitional assistance. The earliest an individual may re-apply for
the Transitional Assistance Program for 2005 is through their re-
enrollment in an endorsed card program during the annual coordinated
election period. Any transitional assistance provided to these
individuals during the second year of the program may be prorated
depending on when they re-apply for transitional assistance in
accordance with Sec. 403.808(b) of our regulations.
Section 1860D-31(g)(2)(E) of the Act gives the Secretary the
discretion to identify exceptions to this policy. As specified in Sec.
403.808(f) of our regulations, we will permit transitional assistance
enrollees who change their endorsed program during the annual
coordinated election period or who enroll in another endorsed program
during a special election period to carryover to their newly selected
endorsed program any transitional assistance remaining available to
them at the time of their disenrollment from their former endorsed
program.
B. General Rules About Solicitation, Application, and Medicare
Endorsement Period
We will solicit applications from entities seeking to offer
beneficiaries negotiated prices on covered discount card drugs. We will
endorse applicants' drug discount card programs that meet the
requirements discussed below, and will permit successful applicants to
market and label their programs as ``Medicare-approved.''
Although under section 1860D-31(h)(2)(D)(ii) of the Act we have the
discretion to limit the number of endorsed sponsors in a State to two,
we will endorse all applicants that, together with their subcontractors
and other entities with which they have entered into a legal
arrangement to operate an endorsed program (hereinafter collectively
referred to as ``subcontractors''), meet or exceed the requirements for
endorsement and sign our endorsed sponsor contract. We will also select
a limited number of applicants for special endorsement. Endorsed
sponsors receiving special endorsement are, for the purpose of
fulfilling their responsibilities as special endorsed sponsors, exempt
from meeting certain conditions of endorsement provided they agree to:
[sbull] Apply transitional assistance toward the cost of covered
discount card drugs obtained from pharmacies serving residents of
skilled nursing facilities and nursing facilities (hereafter referred
to as ``long-term care pharmacies'') and/or pharmacies serving American
Indians or Alaska Natives (AI/ANs) operated by the Indian Health
Service, Indian tribe and tribal organizations, or urban Indian
organizations (hereinafter referred to as ``I/T/U pharmacies''); and/or
[[Page 69848]]
[sbull] Offer an endorsed program in all the U.S. territories.
We will select applicants for special endorsement based on a
competitive process, with consideration given to which applicants can
best serve these populations. Applicants seeking special endorsement
also must apply and, except in specified circumstances, meet the
requirements for basic endorsement; however sponsors seeking special
endorsement may request waivers of requirements, allowing, for example,
an applicant to apply for special endorsement solely for the purpose of
long-term care pharmacy business to the exclusion of all other types of
pharmacies. The requirements and procedures related to special
endorsements are discussed in further detail in sections II.I. and
II.J. of this document.
Except as provided in section 403.804 (c)(2) of our regulations and
discussed below in section II. O.2.C. of the preamble, we anticipate
that endorsed sponsors may begin information and outreach activities,
as well as enrollment activities as early as Spring 2004, and expect
that these activities will begin no later than 6 months from the date
of enactment of the Act; we reserve the right to terminate an endorsed
sponsor's endorsement if the endorsed sponsor is not ready to fully
operate its endorsed program and begin information and outreach
activities by the 6 month deadline. The date upon which we will permit
an endorsed sponsor to begin these activities will depend on its
satisfaction of certain conditions, including--
[sbull] Finalizing pharmacy network contracts;
[sbull] Negotiating manufacturer rebates or discounts;
[sbull] Entering into an endorsed sponsor contract with us;
[sbull] Operationalizing call centers;
[sbull] Entering into all subcontracts necessary to ensure full
compliance with the conditions of endorsement;
[sbull] Obtaining our approval of all information and outreach
materials; and
[sbull] Establishing and obtaining CMS approval of a system for
conducting electronic transactions with us (or our subcontractor),
including successful testing of such system.
As stated above, we expect these requirements to be met within 6 months
of enactment, and may terminate an endorsed sponsor's endorsement if
the requirements are not met by this time. These requirements are
discussed in greater detail below.
A solicitation for applications for Medicare endorsement under the
Medicare drug discount card program will follow publication of this
interim final rule. We expect to publish the solicitation on or near
the date of publication of this rule. Following publication of the
solicitation, potential applicants seeking clarification on the
application process and requirements for endorsement may submit
questions to us. In addition, we will hold a pre-application conference
for potential applicants approximately 2 weeks after publication of the
solicitation.
In order to ensure that we successfully implement the Medicare drug
discount card program no later than 6 months after enactment of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003,
we anticipate that applicants will first need to submit completed
applications to CMS within 45 days after the publication date of the
solicitation. Applicants must certify that based on best knowledge,
information, and belief, the reported information is accurate,
complete, truthful, and supportable.
We will require applicants to provide with their applications
certain information and test files, as specified in the solicitation.
Such information and files will be used by us to expedite our
implementation of the data systems necessary to support enrollment in
the Medicare drug discount card program, determinations of
beneficiaries' eligibility for transitional assistance, and comparison
of endorsed programs negotiated prices.
Medicare endorsement of a sponsor's drug discount card will be
valid for the duration of the Medicare drug discount card program,
which in accordance with section 1860D-31(a)(2)(C)(i)(I) of the Act
will terminate on December 31, 2005. Section 1860D-31(a)(2)(C)(ii) of
the Act authorizes the Secretary to issue rules governing the
transition period, including rules ensuring that the balance of any
transitional assistance remaining available to a transitional
assistance enrollee on January 1, 2006 remain available during the
transition period. Under this authority we require endorsed sponsors to
continue operating their endorsed program during the transition period,
including ensuring that their card enrollees have access to negotiated
prices and that transitional assistance enrollees can apply any
transitional assistance remaining available to them toward the cost of
covered discount card drugs obtained under the program during the
transition period.
See section II.F. of this document for a discussion of termination
of an endorsed sponsor's endorsement.
Section 403.804(d) of our regulations specifies that as a condition
of endorsement, an endorsed sponsor must sign a contract. The contract
signature will certify that the endorsed sponsor will comply with all
requirements set forth in the contract, will implement its endorsed
program in accordance with the program description contained in its
application, and will operate its endorsed program consistent with the
requirements set forth in the Act, this rule, and all other applicable
Federal and State laws, including administering transitional assistance
for eligible enrollees and conducting information and outreach
activities consistent with our guidelines.
C. Sponsor Requirements for Eligibility for Endorsement Under the
Medicare Drug Discount Card and Transitional Assistance Program
Section 1860D-31(a)(1)(A) of the Act requires the Secretary to
endorse qualified applicants seeking to offer endorsed discount card
programs to Medicare beneficiaries. Section 1860D-31 of the Act sets
forth specific requirements that applicants must satisfy to be eligible
for endorsement and that endorsed sponsors must meet to retain their
endorsement. In addition, section 1860D-31(h)(8) of the Act authorizes
the Secretary to prescribe additional requirements of endorsement that
the Secretary concludes protect and promote the interests of
beneficiaries. Accordingly, we require applicants seeking endorsement
under the Medicare drug discount card program to demonstrate that they
meet a series of requirements related to--
[sbull] Organizational structure and experience;
[sbull] Service area;
[sbull] Pharmacy network access;
[sbull] Administering transitional assistance;
[sbull] Prescription drug offering;
[sbull] Eligibility and enrollment processes;
[sbull] Customer service, including information and outreach;
[sbull] Grievance processes;
[sbull] HIPAA administrative simplification provisions and other
marketing and security provisions;
[sbull] Document retention; and
[sbull] Data reporting to CMS.
In this section of the document we describe these conditions for
endorsement.
Special rules govern Medicare managed care organizations wishing to
limit enrollment in their endorsed programs to members of one or more
of their Medicare managed care plans.
[[Page 69849]]
Rules governing these exclusive card programs are discussed in section
II.G. of this document.
Applicants seeking special endorsement--that is, applicants wishing
to offer an endorsed program in the U.S. territories and/or applicants
willing to include within their pharmacy networks' long-term care and/
or I/T/U pharmacies--also are subject to special rules, as set forth in
Sec. 403.816 and Sec. 403.817 of our regulations and discussed in
sections II.I and II.J of this document.
1. Applicant Structure and Experience
Under section 1860D-31(h)(1)(A) of the Act, the Secretary is
authorized to designate the type of non-governmental entities that are
appropriate to act as endorsed sponsors, which may include pharmacy
benefit management companies, wholesale or retail pharmacy delivery
systems, insurers (including insurers offering Medicare supplemental
policies), and Part C plans. Although we have the authority to limit
the types of entities that may act as endorsed sponsors, the only
specific structural requirement for a sponsor is that it be a non-
governmental, single legal entity doing business in the United States.
We choose not to impose other structural requirements at this time
because our conditions for endorsement ensure that applicants, either
individually or through subcontracts, will have the necessary
experience and integrity to act as endorsed sponsors. Thus, as long as
an applicant can meet our conditions for endorsement through
subcontracting, except as stated above, we do not mandate the legal
form of the endorsed sponsor.
Although only one legal entity may act as the applicant, our
regulations at Sec. 403.804(c)(1) permit applicants to combine their
capabilities with other entities in order to meet the requirements for
endorsement. As further discussed below, applicants must include
documentation related to their legal arrangements with subcontractors.
As specified in section 1860D-31(h)(1)(B) of the Act, an applicant
is eligible for endorsement under the Medicare drug discount card
program if the applicant, together with its subcontractors, has
demonstrated experience and expertise in operating a drug discount card
or similar program and meets certain requirements related to business
stability and integrity. We interpret this provision to mean that
applicants, together with their subcontractors, must: (1) Demonstrate 3
years of private sector experience in pharmacy benefit management; (2)
currently serve at least 1 million covered lives; and (3) demonstrate
fiscal stability and business integrity, as provided in Sec.
403.806(a) and Sec. 403.806(b) of our regulations. Medicare managed
care organizations offering exclusive card programs, while required to
comply with most of the conditions related to applicant structure, are
subject to alternative requirements, as discussed in greater detail in
section II.G. of this document.
a. 3 Years of Private Sector Experience
Section 403.806(a)(2) of the regulations provides that each
applicant, together with its subcontractors, must have 3 years of
private sector experience within the United States in the following:
[sbull] Adjudication and processing of claims at the point of sale;
[sbull] Negotiating with prescription drug manufacturers and others
for rebates and discounts on prescription drugs; and
[sbull] Administration and tracking of an individual subsidy or
benefit in real time.
We require that this experience must have occurred in the United
States to ensure that the applicant, together with its subcontractors,
is familiar with applicable Federal laws, including those enforced by
the Food and Drug Administration. We believe requiring 3 years prior
experience will ensure that endorsed sponsors are able to quickly
establish their endorsed programs, thereby promoting implementation of
the Medicare drug discount card program within 6 months of enactment of
the Medicare Prescription Drug, Improvement, and Modernization Act of
2003. In addition, the 3 years prior experience requirement ensures
that endorsed sponsors have the necessary experience and capacity to
offer card enrollees quality discounts and customer service. Moreover,
given the relative newness of the drug card industry and high market
turnover, we believe requiring less than 3 years experience would
create an untenable risk of having the Medicare name associated with
less than stable and reputable organizations.
b. 1 Million Covered Lives
In addition to requiring 3 years of relevant experience, our
regulations at Sec. 403.806(a)(3) require that a single entity which
is either the applicant or a subcontractor operate a pharmacy benefit
program, a drug discount card, a low-income drug assistance program, or
a similar program that serves at least 1 million covered lives.
We interpret covered lives to mean discrete individuals who have
signed enrollment agreements with or paid (or have paid on their
behalf) an enrollment fee or insurance premium to the applicant (or its
subcontractors), or some comparable documentation. An applicant must
include in its application documentation demonstrating that the
applicant meets this requirement. If an applicant contracts with other
entities for purposes of administering an endorsed program, the entity
satisfying the 1 million covered lives requirement need not be the same
entities satisfying the 3 years experience requirement. We choose not
to link the 1 million covered lives requirement with the 3-year
experience requirement in order to provide entities the flexibility to
combine their capabilities. For example, an entity with the requisite
experience may not have the enrollment capacity, but may acquire this
capacity by contracting with another entity for purposes of
administering the endorsed program. (A single entity, however, must
meet the 1-million covered lives requirement. Therefore, an entity with
600,000 covered lives could not combine with an entity with 400,000
covered lives and meet the conditions for endorsement.)
As discussed in the impact analysis, we estimate that during the
first year of the Medicare drug discount card program, over 7 million
beneficiaries may wish to enroll in the program, and anticipate that
endorsed sponsors should have the capacity to accept between 1 to 10
percent of this volume. This influx of Medicare beneficiaries--100,000
to several hundred thousand beneficiaries--enrolling in an endorsed
program would represent a sizable expansion over most card programs'
current operations. Our 6-month implementation timeline requires that
endorsed sponsors be able to quickly accommodate this potentially large
influx of enrollees over a relatively short period of time. Current
levels of covered lives provides evidence of an applicant's immediate
capacity to do so.
In examining our data on the number of covered lives served by a
variety of organizations, we found that a standard of 1 million lives
strikes a balance between ensuring a competitive marketplace with a
number of different endorsed programs available to Medicare
beneficiaries and ensuring that endorsed sponsors have the capacity to
handle a large influx of card enrollees.
[[Page 69850]]
c. Demonstration of Financial Stability and Business Integrity
As required by section 1860D-31(h)(1)(B) of the Act, and as
provided for in Sec. 403.806(b)(1) of our regulations, an applicant
must demonstrate the financial stability and business integrity of
itself, and any of its subcontractors on which the applicant relies
to--
(1) Develop the pharmacy network;
(2) Handle the negotiation of drug rebates or discounts;
(3) Administer enrollment, including transitional assistance
eligibility determinations;
(4) Administer transitional assistance; or
(5) Meet the 3-years of experience and/or covered lives
requirements.
The application should include the following documents or
information for the applicant and each of these subcontractors:
[sbull] A summary of the entity's history, structure, and
ownership, including a chart showing the structure of ownership,
subsidiaries, and business affiliations;
[sbull] The most recent audited financial statements (balance
sheet, income statement, statement of cash flow along with auditor's
opinions, and related footnotes), which must demonstrate that the
entity's total assets are greater than total unsubordinated liabilities
and that the entity has sufficient cash flow to meet its obligations as
they come due;
[sbull] Financial ratings, if any, for the past 3 years; and
[sbull] Listing of past or pending investigations (if known to the
entity) and legal actions brought against the entity (and its parent
entities, if applicable) by any financial institution, government
agency (local, State, or Federal), or private organization over the
past 3 years on matters relating to health care and prescription drug
services and/or allegations of fraud, misconduct, or malfeasance. The
application should include a brief explanation of each action,
including the following: (1) Circumstances giving rise to the action;
(2) the action's status (pending or closed); and (3) if closed, details
as to resolution of the action and any monetary damages.
Additionally, we plan to conduct an independent investigation of
each entity, with respect to the above factors, which will include a
review of Federal databases available to us that may contain
information pertaining to legal issues involving the entity.
In deciding whether to endorse an applicant with a record of legal
actions brought against it, we will evaluate that record based on
factors that include: (1) Whether the action is a pending investigation
or has resulted in a settlement or judgment against the applicant, (2)
whether the settlement or judgment has been issued recently (for
example, within the past 3 years), (3) whether the conduct on which the
judgment or settlement was based involved allegations of fraud or
abuse, (4) whether the conduct was related to reimbursement for health
care services or products, and (5) whether the applicant is currently
operating under a corporate integrity agreement with the DHHS Office of
the Inspector General.
We require the applicant to demonstrate the business stability and
integrity of the applicant and these subcontractors to ensure that we
endorse only those endorsed sponsors that will be reliable, stable, and
operate with integrity. We believe the specific requirements are an
appropriate method for determining the business integrity and financial
stability of an applicant and its subcontractors. For example, by
requiring that assets exceed liabilities, we increase the likelihood
that an endorsed sponsor will remain in the Medicare drug discount card
program for the life of the program. Similarly, reviewing financial
ratings and past or pending investigations allows us to represent to
our beneficiaries that we have endorsed applicants that are financially
sound and committed to a high level of business integrity.
As discussed elsewhere in this document, an applicant that is a
Medicare managed care organization offering an exclusive card program
will be deemed to have met these business stability and integrity
requirements through its compliance with Sec. 422.400, if a Part C
plan, or Sec. Sec. 417.120 and 417.122, if a Medicare cost plan.
Following its receipt of endorsement, as provided in Sec.
403.806(b)(2) of our regulations, an endorsed sponsor (including both
the applicant and its subcontractors) must continue to operate with
fiscal stability and business integrity, in accordance with the same
standards applicable to the applicant. Also, we require at Sec.
403.806(c) that endorsed sponsors comply with all applicable Federal
and State laws, including the Federal anti-kickback statute, section
1128B(b) of the Act (42 U.S.C. 1320a-7b(b)). As provided in Sec.
403.806(b)(3) of our regulations, Medicare endorsement of a discount
card program shall not be construed to express or imply any opinion
that an endorsed sponsor or any subcontractor is in compliance with or
not liable under the False Claims Act, Federal anti-kickback statute,
or other laws, regulations, or policies regarding improper billing,
claims submission, or related conduct.
d. Contracts With Subcontractors and Pharmacies
Although only one legal entity may act as the applicant, our
regulations at Sec. 403.804(c)(1) permit applicants to combine their
capabilities with other entities in order to meet the requirements for
Medicare endorsement. As will be further described in the solicitation,
applicants must include documentation, including contracts or signed
letters of agreement, related to their legal arrangements with these
subcontractors if the applicant has combined with such entities to meet
the following requirements--
[sbull] Years of experience and/or covered lives;
[sbull] Establishing a pharmacy network or home delivery through
mail order;
[sbull] Negotiating manufacturer discounts or rebates;
[sbull] Conducting enrollment and transitional assistance
eligibility;
[sbull] Administering transitional assistance;
[sbull] Operating the customer service call center;
[sbull] Administering a grievance process; and
[sbull] Developing information and outreach materials.
The contracts or signed letters of agreement must--
[sbull] Clearly identify the parties to the contract;
[sbull] Describe the functions to be performed by the
subcontractor;
[sbull] Contain language indicating that the subcontractor has
agreed to participate in the Medicare drug discount card program
(except for a network pharmacy if the existing contract would allow
participation in this program);
[sbull] Describe any payment the subcontractor will receive under
the contract;
[sbull] Extend for the lifetime of the Medicare drug discount card
program;
[sbull] Be signed and executed by representatives of each party
with legal authority to bind the party;
[sbull] Require the subcontractor to comply with State and Federal
privacy and security requirements applicable to the endorsed sponsor or
the subcontractor, and our marketing and document retention
requirements, including the requirements provided in Sec. 403.812 and
Sec. 403.813 of our regulations and discussed in section II.C.9. of
this document.
In addition, as will be further explained in the solicitation, an
endorsed sponsor also must include in
[[Page 69851]]
its contracts with pharmacies participating in its network such terms
and conditions as necessary to ensure that the endorsed sponsor meets
all requirements for endorsement. This includes the requirement that
subcontractors comply with all applicable Federal and State laws
(including the anti-kickback law). Each application for endorsement
must include one sample copy of every customized contract or letter of
agreement used across the entire network. That is, we are asking to see
every version of the contracts/letters of agreement across the network.
If the applicant is unable to provide with its application final
versions or templates of letters of agreement or contracts that
represent the exact terms and conditions under the program with each of
its subcontractors and pharmacies satisfactory to CMS, the applicant
may submit revised documentation following receipt of the Medicare
endorsement. We expect the applicant, however, to provide such
documentation no later than 6 months after the date of enactment of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003,
and we reserve the right to revoke endorsement if the materials are
submitted later. In addition, an applicant may not commence outreach
and enrollment activities prior to our receipt of such documentation
and our determination that such documentation meets our requirements.
The 6-month deadline and prohibition on outreach and enrollment
activities may be waived for endorsed sponsors receiving special
endorsement for the purpose of fulfilling obligations related to
special endorsement provided such sponsors make a good faith effort to
meet these documentation requirements as soon as possible, as provided
in Sec. 403.816 and Sec. 403.817.
2. Service Area
As provided in section 1860D-31(h)(3) of the Act, if an endorsed
program enrolls beneficiaries residing in any part of a State, the
program must permit any discount card eligible beneficiary residing in
any portion of the State to also enroll in its endorsed program. We
interpret this to mean, and provide in Sec. 403.806(f)(1) of our
regulations, that a State is the smallest service area permitted under
the Medicare drug discount card program. Accordingly, an endorsed
program may not limit enrollment to only a portion of a State, with the
exception of exclusive card programs, which, as discussed in section
II.G. of this document, may limit their service area to the service
area of the Medicare managed care plan(s) whose members may enroll in
the exclusive card program (which may include part of a State).
Further, an endorsed program's service area could be regional, meaning
it operates in more than one State (contiguous or not). In addition, we
define ``national'' endorsed programs as endorsed programs operating in
each of the 50 States and the District of Columbia; an endorsed program
that does not operate in each of the 50 States and the District of
Columbia may not describe itself as a ``national'' endorsed program.
Finally, an endorsed program may not operate outside of the 50 States
and the District of Columbia, with the exception of sponsors receiving
special endorsement permitting them to operate in the territories, as
discussed in section II.J of this document.
3. Pharmacy Network Access
As provided in section 1860D-31(e)(1)(B) of the Act, an endorsed
discount card sponsor must ensure that its card enrollees have
convenient access to covered discount card drugs at negotiated prices
by securing the participation in its network of a sufficient number of
pharmacies that dispense drugs (other than solely by mail order)
directly to card enrollees. Specifically, consistent with the statement
of work of solicitation MDA906-03-R-0002 of the Department of
Defense under the TRICARE Retail Pharmacy (TRRx) as of March 13, 2003,
we are requiring in Sec. 403.806(f)(3) of our regulations that, at all
times during the program, beginning upon the date an endorsed sponsor
initiates its outreach and enrollment activities--
[sbull] In urban areas served by the endorsed program, at least 90
percent of Medicare beneficiaries, on average, live within 2 miles of a
pharmacy participating in the endorsed program's network;
[sbull] In suburban areas served by the endorsed program, at least
90 percent of Medicare beneficiaries, on average, live within 5 miles
of a pharmacy participating in the endorsed program's network; and
[sbull] In rural areas served by the endorsed program, at least 70
percent of Medicare beneficiaries live, on average, within 15 miles of
a pharmacy participating in the endorsed program's network.
For the purposes of meeting these access standards, as also defined
in the statement of work of solicitation MDA906-03-R-0002 of
the Department of Defense--
[sbull] Urban is defined as a five-digit ZIP Code in which the
population density is greater than 3,000 persons per square mile;
[sbull] Suburban is defined as a five-digit ZIP Code in which the
population density is between 1,000 and 3,000 persons per square mile;
and
[sbull] Rural is defined as a five-digit ZIP Code in which the
population density is less than 1,000 persons per square mile.
The endorsed sponsor must meet or exceed these access standards at
the endorsed program level, that is, across the entire geographic
region serviced by the endorsed program. Only pharmacies that are under
contract and are not mail order can be included in the count.
As we will explain further in the solicitation, applicants must
demonstrate their capacity to satisfy the pharmacy network access
standard using mapping software, provided by us, which will compute
beneficiaries' access to the pharmacies participating in the
applicant's network using one hundred percent of beneficiary counts
(that is, the entire beneficiary population) by zip code. These data
and the population density information will be provided by CMS on
request. Tables generated by the mapping software must be included with
the application and must include the urban, suburban, and rural areas
in each of the States covered under the applicant's drug discount card
program.
As discussed in greater detail in II.J. of this document, endorsed
programs receiving special endorsement to operate in the territories
may exclude the territories from the calculation as to whether the
endorsed sponsor meets the above pharmacy access standard.
Exclusive card programs are not required to meet these same
pharmacy access standards; rather, as discussed in greater detail in
section II.G. of this document, exclusive card programs will be subject
to an alternative access standard.
In accordance with section 1860D-31(e)(1)(B) of the Act, Sec.
403.806(f)(4) of the regulations provides that endorsed sponsors will
not be permitted to offer a mail order only option to their card
enrollees. However, because some card enrollees may prefer to obtain
their drugs from mail order pharmacies, endorsed programs will be
allowed to offer a home delivery option via a mail order pharmacy, in
addition to including their retail pharmacy in their networks. As
discussed in greater detail in II.J. of this document, we may waive
this requirement to allow mail order only in the territories for
endorsed programs receiving special endorsement to operate in the
territories.
[[Page 69852]]
4. Prescription Drug Offering
a. Covered Discount Card Drugs
Endorsed sponsors must offer their card enrollees discounts on
covered discount card drugs. Section 1860D-31(a)(4)(A) of the Act
states that the term ``covered discount card drug'' has the same
meaning given the term ``covered Part D drug'' in section 1860D-2(e) of
the Act. Section 1860D-2(e), in turn, is based on sections
1927(k)(2)(A)(i), (A)(ii), and (A)(iii) of the Act. This definition is
incorporated into Sec. 403.802 of our regulations under the definition
of ``covered discount card drug.'' The definition applies only to the
following types of prescription drugs:
(1) FDA-approved drugs;
(2) Drugs used or sold prior to the enactment of the Drug
Amendments of 1962 (Pub. L. 87-781); and
(3) Drugs described in section 107(c)(3) of the Drug Amendments of
1962 and any drug for which the Secretary has determined there is a
compelling justification for its medical need.
If the Secretary has determined, in the context of the Medicaid
program, that there is a compelling justification for the medical need
of a drug, such drug will be incorporated into our definition of
``covered discount card drug'' for purposes of this program.
Section 1860D-2(e) of the Act also includes in the definition of
``covered discount card drug'' a biological product which (1) may only
be dispensed upon prescription, (2) is licensed under section 351 of
the Public Health Service Act (42 U.S.C. 262) and (3) is produced at an
establishment licensed under each section to produce that product.
Vaccines licensed under section 351 of the Public Health Service Act
also are ``covered discount card drugs.'' Finally, section 1860D-2(e)
of the Act includes insulin in the definition of covered discount card
drug.
Necessary medical supplies associated with the injection of insulin
are also included in this definition. We interpret necessary medical
supplies for this purpose to include syringes, needles, alcohol swabs,
and gauze. We do not consider test strips or lancets to be supplies
associated with injection since these supplies are more directly
related to testing.
The definition of covered discount card drug includes drugs when
they are used for a medically accepted indication. The term ``medically
accepted indication'' is defined in section 1927(k)(6) of the Act and
generally means any use of a covered drug which is approved under the
Federal Food, Drug, and Cosmetic Act, or the use of which is supported
by one or more citations included or approved for inclusion in any of
the following compendia: American Hospital Formulary Service Drug
Information; United States Pharmacopoeia-Drug Information; the DRUGDEX
Information System; and American Medical Association Drug Evaluations.
While we do not expect endorsed sponsors to collect diagnosis
information to confirm diagnoses associated with every dispensed drug,
endorsed sponsors should make an effort to responsibly comply with this
provision.
Section 1860D-2(e)(2)(A) of the Act categorically excludes from the
definition of ``covered discount card drug'' the following drugs or
classes of drugs, or their medical uses, and we have no authority to
alter this Congressional exclusion:
[sbull] Agents when used for anorexia, weight loss, or weight gain.
[sbull] Agents when used to promote fertility.
[sbull] Agents when used for cosmetic purposes or hair growth.
[sbull] Agents when used for the symptomatic relief of cough and
colds.
[sbull] Prescription vitamins and mineral products, except prenatal
vitamins and fluoride preparations.
[sbull] Nonprescription drugs.
[sbull] Outpatient drugs for which the manufacturer seeks to
require associated tests or monitoring services be purchased
exclusively from the manufacturer or its designee as a condition of
sale.
[sbull] Barbiturates.
[sbull] Benzodiazepines.
Additionally, as provided in section 1860D-2(e)(2)(B) of the Act, a
drug prescribed for a card enrollee that would otherwise be a covered
discount card drug will not be considered a covered discount card drug
if payment for that drug, as prescribed and dispensed or administered
to the card enrollee, is available under Part A or Part B of Medicare
(or would be available except for application of a deductible). That
is, for prescribed drugs that may be payable under Medicare Part A or
Part B, Medicare participating pharmacies should bill Medicare for the
drug, and not the card enrollee or, in the case of transitional
assistance enrollees, the endorsed sponsor, and non-Medicare
participating pharmacies should refer the beneficiary to a Medicare
participating pharmacy. When a pharmacy submits a claim under Medicare
Part B, the rules applicable to pharmacies' claims adjudication under
Part B will apply. Only after denial of a claim submitted under Part B
may a pharmacy adjudicate a claim under the Medicare drug discount card
program.
Furthermore, endorsed discount card sponsors should not reconcile
any claims under the Medicare drug discount card program previously
rejected under Medicare Part A or Part B when the covered discount card
drug was purchased by a non-pharmacy provider to provide to the card
enrollee. For example, if a physician provides a drug to a card
enrollee incident to an office visit that is not covered by Medicare
Part B, then endorsed sponsors may not apply transitional assistance
toward the cost of such drug.
b. Formulary and Minimum Prescription Drug Offerings
Studies performed for the Department of Health and Human Services
(BoozAllenHamilton, Pharmaceutical Industry Scan, August 6, 2002) have
shown that one of the primary methods pharmacy benefit management
companies and insurers negotiate drug discounts is through the
establishment of a formulary. Through formularies that are properly
structured, pharmacy benefit management companies, in consultation with
a panel of physicians, pharmacists, and other health care
professionals, establish clinically appropriate, safe, and cost-
effective lists of covered prescription drugs. While clinical
appropriateness must be foremost in the development of a formulary, a
properly designed formulary can also promote lower costs for
beneficiaries as pharmaceutical manufacturers compete, using, among
other things, rebates, volume discounts, and generic drugs to supply
the drugs that meet the formulary requirements at the lowest price.
Therefore, in Sec. 403.806(d)(1) of our regulations, we allow endorsed
sponsors to establish formularies, whereby endorsed sponsors limit the
set of drugs for which a discount is offered. However, even if an
endorsed sponsor uses a formulary, it must permit transitional
assistance enrollees to apply transitional assistance toward the cost
of any covered discount card drug, including those not on the endorsed
sponsor's formulary, offered by a pharmacy contracted by the sponsor
for the endorsed discount card program's network. Our past research
demonstrates that allowing sponsors to use a formulary will result in
deeper discounts for card enrollees, and enhanced use of generic drugs,
and we therefore have the authority to permit such formularies under
section 1860D-31(h)(8) of the Act, as larger discounts and reduced
prescription drug costs promote the interests of card enrollees.
[[Page 69853]]
While we recognize the useful role of formularies in providing
discounts to beneficiaries, we also want to insure that sponsors, in
constructing their formularies, include, at a minimum, the types of
drugs commonly needed by beneficiaries. In establishing a minimum
requirement, it is not our intention to build the operating framework
of a sponsor's formulary, but rather to present a floor, as we believe
a minimum requirement is better than none at all. As provided in Sec.
403.806(d)(2) of our regulations and consistent with promoting and
protecting beneficiaries as specified in section 1860D-31(h)(8) of the
Act, each endorsed discount card program will be required to provide a
negotiated price for at least one drug in each of the lowest level
categories under each of the therapeutic groupings (hereafter,
collectively referred to as ``categories'') representing the drugs
commonly needed by Medicare beneficiaries as listed in Table 2. This
minimum requirement in no way precludes sponsors from adding additional
categories or differentiating the categories we provide as they
construct their formularies. In fact, we anticipate that sponsors would
do that through their usual process involving a pharmacy and
therapeutics committee. The categories in Table 2 were structured to
ensure that beneficiaries enrolling in Medicare-endorsed discount card
programs will be offered discounts on many of the types of drugs most
commonly needed by the Medicare population. There are a total of 209
categories (represented in italics within the table) for which card
sponsors are required to offer a drug at a negotiated price. As some
drugs can be classified into more than one category, a drug can be used
only once to satisfy the criterion of providing a negotiated price for
a drug in a category.
Moreover, under the rationale that discounts on commonly used
generic drugs are also typically made available under current industry
practice, and that offering discounts on generics improves beneficiary
understanding of sources of prescription drug discounts, we are
requiring that endorsed sponsors provide discounts on a range of
generic drugs. Specifically, sponsors must provide at least one generic
drug for a negotiated price in at least 55 percent of the required
categories (italicized in Table 2). Fifty-five percent represents about
95 percent of those categories that include a Class A generic drug
according to the FDA's Orange Book.
We believe it is important that the Medicare name be associated
only with endorsed programs that offer at least the types of drugs
commonly needed by Medicare beneficiaries, while still maintaining the
ability to negotiate discounts. Thus, we believe that requiring at
least one drug per category, including generic drugs, strikes the
proper balance between achieving drug discounts for card enrollees and
offering some assurance that discounts will be available for the drugs
Medicare enrollees most commonly need.
It is important to note that endorsed sponsors have the flexibility
to provide negotiated prices on as many drugs as they choose beyond the
minimum number and types needed to satisfy this endorsement
qualification criterion, and we expect that many endorsed sponsors will
choose to do so in order to make their discount cards attractive to
beneficiaries.
We employed a contractor to provide technical assistance to develop
the list of categories in Table 2.\1\ The following set of principles
served to guide a comprehensive approach to develop the list of
categories:
---------------------------------------------------------------------------
\1\ Contract 500-02-0024 Modification 3, AMS,
subcontracted to Navigant Consulting and Independent Pharmaceutical
Consultants, Inc. Identification of Baseline Therapeutic Categories
for the Medicare Drug Discount Card Program. December 5, 2003.
---------------------------------------------------------------------------
[sbull] The category list is based on covered discount card drugs,
as defined in section 1860D-2(e) of the Act, and also represents the
types of drugs commonly needed by Medicare beneficiaries, as determined
through analyses of survey data from the 2000 Medicare Current
Beneficiary Survey, 2002-2003 Scott Levin-Verispan pharmacy data, and
Food and Drug Administration information.
[sbull] One category list will set minimum requirements for
discount card offerings, regardless of whether an enrollee has access
to transitional assistance funds. Importantly, provided that the drug
is offered at the pharmacy, enrollees with transitional assistance can
use these funds to purchase covered discount card drugs for which no
discount is provided.
[sbull] A given category could not contain only a single drug.
[sbull] The list is intended to wrap around rather than represent
existing Medicare Part B outpatient drug coverage.\2\ As such, drugs,
biologicals, and vaccines administered in physician offices, hospital
outpatient departments, dialysis centers, or provided outside of retail
pharmacies were not reviewed unless they also can generally be obtained
through retail pharmacies and appeared in data sources used to identify
drugs commonly used by Medicare beneficiaries.
---------------------------------------------------------------------------
\2\ Medicare coverage of outpatient drugs under Part B is
principally for certain drugs and biologicals used in dialysis,
cancer treatment, organ transplantation, certain vaccines and drugs
used with DME such as infusion pumps and nebulizers.
---------------------------------------------------------------------------
[sbull] In compliance with section 1860D-2(e) of the Act, non-
covered discount card drugs were excluded from review.
To develop the listing of therapeutic categories of drugs most
commonly needed by Medicare beneficiaries, we first analyzed drug
utilization and expenditure data from the 2000 Medicare Current
Beneficiary Survey (MCBS), a CMS-sponsored continuous, multipurpose
survey of a nationally representative sample of aged, disabled, and
institutionalized Medicare beneficiaries, to produce lists of the top
200 drugs used based on number of prescriptions and the top 200 drugs
used based on expenditures. Separate lists were compiled for elderly
enrollees and disabled enrollees to ensure that important drugs for
both populations were captured.
We supplemented the list of commonly used drugs derived from the
Medicare Current Beneficiary Survey by analyzing commercial datasets
(Scott-Levin/Verispan Source Prescription Audit (SPA) and Physician
Drug & Diagnosis Audit (PDDA)) for other commonly used drugs in the
elderly populations. These data provide a comprehensive overview of the
national performance of all prescription drugs dispensed by retail
pharmacies for the 12-month period ending in May 2003. Utilization
share percentages for people age 65 and over were applied to the data.
Out of this data set, we obtained the top 200 drugs used based on
number of prescriptions and the top 200 drugs used based on
expenditures for the age 65 and over group. Prescription data is
electronically collected on a monthly basis from approximately 35,000
U.S. retail pharmacies, including chains, independents, mass
merchandisers, and food stores. It is estimated that SPA data cover
approximately 70 percent of all dispensed prescriptions in the U.S. The
Scott-Levin PDDA database includes data from approximately 365,000
office-based physicians in 29 specialties. Finally, to ensure that our
list of commonly used drugs included new drugs and excluded retired and
over-the-counter drugs (where over-the-counter drug is defined in our
regulations at Sec. 403.802 to mean non-prescription drug), we
consulted current Food and Drug Administration (FDA) materials,
including the FDA's ``Additions/Deletions for Prescription and OTC Drug
Product Lists'' for June 2002 through July 2003.
After the list of drugs commonly needed by Medicare beneficiaries
was
[[Page 69854]]
finalized, we assigned therapeutic class codes and sorted each drug
into therapeutic classes. We accomplished this by using an enhanced
classification tool made available from First DataBank. The First
DataBank Enhanced Therapeutic Classification System (ETC) \3\ provides
a method for classifying drugs and drug products into classes and sub-
classes using a parent-to-child relationship hierarchy. Using a
combination of identifiers and formulation-based and name-based drug
concepts, the system provides for maximum flexibility and allows for
categorization of drugs into more than one therapeutic classification
as necessary. The drugs were assigned to therapeutic categories and
sub-categories based on National Drug Code and/or drug short name. The
classification tool was then used to sort the listing of commonly used
drugs according to therapeutic categories and sub-categories. The
category list then underwent the following steps:
---------------------------------------------------------------------------
\3\ According to First DataBank, the following sources were used
in the compilation of data for the ETC: American Hospital Formulary
Service (AHFS) Drug Information, Pharmacotherapy: A Pathophysiologic
Approach, Martindale: The Extra Pharmacopeia, Applied Therapeutics:
The Clinical Use of Drugs, Goodman and Gilman's The Pharmacological
Basis of Therapeutics, Harrison's Principals of Internal Medicine,
The Merck Manual of Diagnosis and Therapy, Current Medical Diagnosis
and Treatment, The Merck Index, and manufacturer package inserts.
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[sbull] It was reviewed for major therapeutic classes that did not
appear in the listing. In addition, non-covered discount card drugs
were eliminated and drugs covered under Part B were flagged.
[sbull] The revised draft classification and sub-classification
system was reviewed by a pharmacy team, external to CMS, consisting of
5 PhD and clinical pharmacists, and two geriatricians/internists, to
determine the level of specificity required to ensure that the types of
medications required by Medicare beneficiaries are represented. The
category list was also compared with several commercial formulary
categorization schemes.
[sbull] Several non-CMS internal medicine physicians with
specialties in geriatrics and several non-CMS specialists with
expertise in serving Medicare beneficiaries, reviewed the
specifications and drugs listed to ensure that the category list
represents types of drugs that are commonly needed by the Medicare
population, and to provide the guidance concerning the drugs they
routinely prescribe to Medicare beneficiaries in their areas of
specialization, for the consideration of sponsors in their development
of formularies for the Medicare drug discount card program. A total of
11 physicians took part in this review process.
[sbull] CMS clinicians, including 2 pharmacists and a physician,
conducted a final review of the categories. We then finalized the
categories based on this input.
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In the interest of protecting beneficiaries' health, we believe
there are several issues applicants should consider in developing their
formularies, if they plan to use one. First, there are several
medications that are not widely recommended for use in the elderly
population based on their potential to cause adverse outcomes (Beers
MH. Explicit criteria for determining potentially inappropriate
medication use by the elderly. Arch Intern Med. 1997; 157:1531-1536).
However, under certain clinical conditions, some of these medications
may be appropriate for use in the elderly population. Endorsed sponsors
should evaluate whether or not to include these drugs on their
formularies, as well as ways in which to help reduce the potential for
adverse drug reactions, described further in section II.C.7. of this
document.
Second, another key area for consideration by endorsed sponsors is
the importance of ensuring that negotiated prices are available to
special populations. Certain groups, such as beneficiaries who are HIV
positive, beneficiaries with a mental illness, and beneficiaries with
cancer may require treatment with a variety of specific medication
combinations, which may not be easily substitutable. The medical
treatment of these beneficiaries and other special populations may be
significantly compromised if discounts are not made available on
particular medications that they require.
Finally, we believe endorsed sponsors should consider ensuring that
there are appropriate selections and dosage forms of drugs within each
class or subclass as needed (for example, long-acting versus short-
acting). In some cases, this might require more than one drug to
satisfy a single subclass or group. Specifically, there are several
therapeutic classes that contain both short-acting and long-acting
medications. These medications commonly come in both standard oral
dosage forms and time-release dosage forms.
We are requesting that applicants address these issues in their
applications if they will use a formulary so that we may have a fuller
understanding of how drug discount card programs will address the needs
of Medicare beneficiaries.
c. Pricing
As provided in sections 1860D-31(e)(1)(A) and 1860D-31(h)(4) of the
Act, and cited in Sec. 403.806(d)(1) of our regulations, each endorsed
sponsor will be required to provide card enrollees access to negotiated
prices on covered discount card drugs. Section 1860D-31(e)(1)(A)(ii) of
the Act defines negotiated prices as taking into account negotiated
price concessions (such as discounts, direct or indirect subsidies,
rebates, and direct or indirect remunerations) for covered discount
card drugs, and includes any dispensing fees for such drugs. Thus, as a
general matter, to the extent discounts, rebates, subsidies or other
price concessions are obtained by endorsed sponsors, the negotiated
prices must take these concessions into account and some of the
concessions should be shared with beneficiaries in the form of lower
prices.
In addition, section 1860D-31(i) of the Act specifically requires
that endorsed sponsors disclose to us the percentage of manufacturer
price concessions or rebates passed on to Medicare beneficiaries, with
section 1860D-31(h)(4) of the Act requiring endorsed sponsors to pass
these savings on to card enrollees. We interpret these provisions as
reflecting Congressional intent that endorsed sponsors meet the
threshold of obtaining some level of manufacturer rebates, discounts,
or other price concessions on some covered discount card drugs. In
addition, we believe requiring endorsed sponsors to obtain manufacturer
rebates, discounts, or other price concessions on some covered discount
card drugs will promote and protect the interests of Medicare
beneficiaries.
Therefore, as stated in Sec. 403.806(d)(6) of our regulations, as
a condition of endorsement, endorsed sponsors must obtain manufacturer
rebates, discounts, or other price concessions on at least some covered
discount card drugs.
In requiring endorsed sponsors to disclose to us the extent to
which they pass through to card enrollees manufacturer discounts,
rebates or other remunerations or price concessions, section 1860D-
31(i) of the Act anticipates that endorsed sponsors might not pass
through to card enrollees 100 percent of such manufacturer price
concessions. We therefore interpret section 1860D-31(h)(4) of the Act
as requiring endorsed sponsors to pass through to card enrollees some,
but not necessarily all, of these price concessions. Rather than
establish minimum quantitative requirements for either the level of
manufacturer rebates, discounts, or other price concessions endorsed
sponsors must obtain or the share of such price concessions that must
be passed through to card enrollees, we will allow endorsed sponsors to
determine this in light of their understanding of consumer preferences
and the impact of market forces on their business model. Research
conducted for us has shown that pharmacy benefit managers frequently
obtain and pass through substantial manufacturer rebates for their
commercial populations (BoozAllenHamilton, Pharmaceutical Industry
Scan, August 6, 2002). In addition, we believe that market competition
will encourage endorsed sponsors to pass through to enrollees a high
percentage of the rebates, discounts, or other remuneration or price
concessions. In particular, our price comparison Web site, discussed in
greater detail in section II.E. of this document, will promote
competition by allowing beneficiaries to compare maximum negotiated
prices for drugs under different endorsed programs. Further, as
described below, endorsed sponsors' negotiated prices for covered
discount card drugs will not be taken into account for the purposes of
establishing the best price under section 1927(c)(1)(C) of the Act. We
therefore anticipate that endorsed sponsors will pass a substantial
share of manufacturer price concessions through to beneficiaries in the
form of negotiated prices at the point of sale. We have chosen not to
establish minimum threshold levels for manufacturer price concessions
because doing so could have the unintended effect of undercutting
market competition as endorsed sponsors might cluster their drug price
offering around that threshold.
We believe this approach provides endorsed sponsors with maximum
flexibility within the basic program requirement in designing their
endorsed program and negotiating price concessions with a broad range
of manufacturers at levels that are commensurate with the structure of
their endorsed programs.
In recognition of current industry practice, we anticipate that the
level of discount offered to card enrollees will vary across the full
complement of covered discount card drugs offered at negotiated prices.
Moreover, as provided in Sec. 403.806(d)(4) of our regulations, prices
may vary across pharmacy contracts. We believe it is necessary to
permit such price variation in order to provide endorsed sponsors
sufficient flexibility to accommodate local market conditions and
competition. As part of our educational efforts, we will explain to
beneficiaries the possibility of price variation by pharmacy, and
expect endorsed sponsors to do the same.
Additionally, we will allow endorsed sponsors to vary prices and
formularies by enrollee characteristics, such as transitional
assistance eligibility status, to offer lower negotiated prices to low-
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income card enrollees, or card enrollees with a particular disease. We
believe this flexibility promotes the objective of improving
beneficiaries' access to prescription drug discounts by allowing card
sponsors to structure formularies and prices for these populations for
whom prescription drug expenses are a significant burden. An endorsed
sponsor choosing to incorporate this flexibility into its endorsed
program must ensure that its alternative offerings do not restrict any
card enrollee's access to its basic option should the card enrollee not
wish to participate in the alternative offering.
Further, CMS recognizes that endorsed sponsors may change their
negotiated prices over time for legitimate business purposes. However,
because beneficiaries are generally locked into the endorsed program of
their choice for a calendar year, we would not want beneficiaries to
enroll in cards with unrealistically low advertised prices, only to see
those prices arbitrarily increase in subsequent weeks or months.
Therefore, as provided in Sec. 403.806(d)(9) of our regulations, we
require that, except during the week of November 15, 2004, (which
coincides with the beginning of the annual coordinated election
period), endorsed sponsors must ensure that any increase in the
negotiated price does not exceed an amount proportionate to the change
in the drug's average wholesale price (AWP), and/or an amount
proportionate to the changes in the endorsed sponsor's cost structure,
including material changes to any discounts, rebates, or other price
concessions the endorsed sponsor receives from a pharmaceutical
manufacturer or pharmacy. We will monitor whether negotiated prices
decline in proportion to decreases in AWP.
As discussed in section II.C.7. of the document, an endorsed
sponsor must make available to its card enrollees, over its customer
service telephone line, upon request, information about negotiated
prices.
Under section 1860D-31(h)(8) of the Act, and as provided in Sec.
403.806(d)(7) of our regulations, endorsed sponsors must ensure that
card enrollees are charged at the point of sale the lower of the
negotiated price or the pharmacy's usual and customary price for a
covered discount card drug. We expect an endorsed sponsor to arrange
with its network and mail order pharmacies that if, at time of
purchase, a drug's usual and customary price is lower than the
negotiated price under the endorsed sponsor's endorsed program, the
pharmacy will make available to card enrollees the lower usual and
customary price.
Additionally, as provided in section 1860D-31(d)(3) of the Act and
stated in Sec. 403.806(d)(8) of our regulations, endorsed sponsors are
required to ensure that pharmacies inform card enrollees of any
differential between the price of the covered discount card drug to the
card enrollee and the price of the lowest priced generic drug that is
therapeutically equivalent and bioequivalent and available at that
pharmacy. This information must be provided at the time the card
enrollee purchases the drug, or in the case of drugs purchased by mail
order, at the time of delivery of that drug. As permitted under
sections 1860D-31(d)(3)(B) and 1860D-31(g)(5) of the Act, for the
reasons discussed in section II.I. of this document, we exempt from
this requirement covered discount card drugs obtained from long-term
care pharmacies or I/T/U pharmacies.
As provided in section 1860D-31(e)(1)(D) of the Act, the prices
negotiated for covered discount card drugs under an endorsed discount
card program (notwithstanding any other provision of law) will not be
taken into account for the purposes of establishing the best price
under section 1927(c)(1)(C) of the Act. Section 103(e) of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 amends
section 1927(c)(1)(C)(i) of the Act by adding a new subparagraph (V) to
exclude from best price any negotiated prices charged under an endorsed
program. This exemption applies only to prices obtained from a drug
manufacturer for the ingredient cost of the drug under the Medicare
drug discount card program; prices negotiated for discount cards that
are not Medicare endorsed programs would not meet the criteria of the
exemption. Furthermore, since this rule relates to the Medicare drug
discount card program, the rule does not address application of the
best price rules to non-endorsed drug discount cards. We will not
codify into regulation the statutory exemption from best price for
negotiated prices under endorsed programs because we do not currently
have regulations implementing section 1927(c)(1) of the Act.
d. Transitional Assistance
As discussed under section II.A. of this document, certain low-
income Medicare beneficiaries enrolled in the Medicare drug discount
card program will be eligible to receive transitional assistance of up
to $600 per year, which may be applied toward the cost of covered
discount card drugs obtained under the program.
Section 1860D-31(h)(1)(C) of the Act requires endorsed sponsors to
administer the transitional assistance on our behalf and to demonstrate
to the Secretary that they have satisfactory arrangements that account
for the transitional assistance provided to transitional assistance
enrollees. Therefore, as stated in Sec. 403.806(e) of our regulations,
endorsed sponsors must:
[sbull] Establish accounting procedures to manage the transitional
assistance funds;
[sbull] Ensure that transitional assistance is applied toward the
lower of a covered discount card drug's negotiated price (if any) or
usual and customary price;
[sbull] Permit transitional assistance enrollees to apply
transitional assistance toward the cost of any covered discount card
drug obtained under the endorsed sponsor's endorsed program, regardless
of whether that drug is on the endorsed sponsor's formulary (if any) or
whether a discount has been negotiated for that drug.
[sbull] As required under section 1860D-31(d)(2)(C) of the Act,
make available electronically or by telephone at the point-of-sale of
covered discount card drugs the amount of transitional assistance
remaining available to the transitional assistance enrollee; and
[sbull] As required under section 1860D-31(d)(2)(B) of the Act and
discussed in section II.C.7. of this document, endorsed sponsors should
inform transitional assistance enrollees of the endorsed sponsor's
toll-free telephone number where they can obtain information on the
amount of transitional assistance available to them.
In tracking the amount of transitional assistance available to
transitional assistance enrollees, endorsed sponsors must take into
account that any transitional assistance remaining available to a
beneficiary on December 31,