[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.
---------------------------------------------------------------------------
[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.
BILLING CODE 4120-01-P
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[GRAPHIC] [TIFF OMITTED] TR15DE03.013
BILLING CODE 4120-01-C
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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-
[[Page 69862]]
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, 2004 should be rolled over to 2005 and
applied toward the cost of covered discount card drugs obtained under
the program during 2005, and 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.
Endorsed sponsors must maintain a real-time claims adjudication
system that, among other capabilities, will--
[sbull] Communicate to pharmacies the applicable coinsurance
rates-- 5 percent or 10 percent;
[sbull] Ensure that transitional assistance is applied only toward
the cost of
[[Page 69863]]
covered discount card drugs obtained under the program; and
[sbull] Track the amount of transitional assistance available to
each transitional assistance enrollee.
We understand that in some circumstances real-time claims
adjudication may not be possible, for instance, due to coordination of
benefits issues. To accommodate these circumstances, endorsed sponsors
must have the capacity to process claims off-line for transitional
assistance.
As discussed below in section II.G. of this document, exclusive
card sponsors may permit their transitional assistance enrollees to
apply transitional assistance toward any copayments, coinsurance, and
deductible amounts for covered discount drug cards obtained under their
Medicare managed care plan outpatient drug benefit. Medicare managed
care organizations seeking to offer an exclusive card program must
indicate in their applications their intent to permit transitional
assistance enrollees to apply transitional assistance toward the cost
of covered discount card drugs obtained under their Medicare managed
care plan and explain their process for doing so.
Applicants must include in their applications details on their
proposed methods for managing and accounting for transitional
assistance.
As discussed in section II.C.6. of this document, endorsed sponsors
will not be permitted to charge their transitional assistance enrollees
any annual enrollment fee; rather, we will pay any enrollment fee on
their behalf.
Endorsed sponsors will be required to establish procedures for
applying transitional assistance toward the cost of covered discount
card drugs obtained by transitional assistance enrollees under the
Medicare drug discount card program. Such procedures must include
applying the coinsurance rules set forth in section 1860D-31(g)(1)(B)
of the Act, as stated in Sec. 403.808(e) of our regulations and
discussed in section II.A.4.a. of this document. Further, as stated in
Sec. 403.806(e)(6) of our regulations, endorsed sponsors must ensure
that transitional assistance is not applied to cover the portion of the
negotiated price that transitional assistance enrollees are responsible
for paying under the coinsurance rules. That is, endorsed sponsors must
ensure that the amount of transitional assistance applied toward the
cost of covered discount card drugs obtained by transitional assistance
enrollees is the negotiated price (or usual and customary price, if
lower) minus the coinsurance. For example, if a beneficiary has a $600
transitional assistance balance and he or she obtains a covered
discount card drug under the Medicare drug discount card program with a
negotiated price of $100, the beneficiary would pay, depending on his
or her income, a coinsurance of 5 percent or 10 percent ($5 or $10),
the endorsed sponsor would pay the negotiated price minus the
coinsurance amount ($95 or $90), and following the transaction, the
amount of transitional assistance remaining available to the
transitional assistance enrollee would be $505 or $510. In their
applications, applicants must describe their approach for applying the
coinsurance rules.
Section 101(e)(2) of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 exempts from the prohibition under
section 1128B(b)(3) of the Act pharmacies who waive or reduce
coinsurance for enrollees with transitional assistance provided such
waiver or reduction meets the conditions in clauses (i) through (iii)
of section 1128A(i)(6)(A). Thus, pharmacies participating in an
endorsed program's network could not be criminally prosecuted under
section 1128B(b)(3) of the Act for waiving or reducing coinsurance
under the Medicare drug discount card program provided the pharmacies
comply with the provisions of clauses (i) through (iii) of section
1128A(i)(6)(A) of the Act, which include the following--
[sbull] The waiver is not to be advertised;
[sbull] The coinsurance is not routinely waived; and
[sbull] The coinsurance is waived only after determining (in good
faith) that--
[sbull] The eligible beneficiary is in financial need; or
[sbull] The pharmacy has made reasonable collection efforts but
still failed to collect the coinsurance due.
Pharmacies and endorsed sponsors seeking further guidance regarding
waivers or reduction of coinsurance may request advisory opinions from
the Office of the Inspector General. To request an advisory opinion,
entities should submit an original and 2 copies of a written request
that contains certain specified information to the following address:
Chief, Industry Guidance Branch, U. S. Department of Health and Human
Services, Office of Inspector General, Office of Counsel to the
Inspector General, Room 5527, Cohen Building, 330 Independence Avenue,
SW., Washington, DC 20201.
For more information on the advisory opinion process and the
information included in the request, please refer to http://www.oig.hhs.gov/fraud/advisoryopinions.html
.
In addition, as discussed under section II.H. of this document,
States may establish arrangements to pay directly to endorsed sponsors
some or all of the coinsurance on behalf of transitional assistance
enrollees in their State. If a pharmacy waives or reduces a
transitional assistance enrollee's coinsurance amount or if the State
pays some or all of the coinsurance, the endorsed sponsor must ensure
that no more than 90 or 95 percent, as applicable, of the negotiated
price is paid using transitional assistance funds.
5. Products and Services Inside and Outside the Scope of the
Endorsement
Section 1860D-31(e)(1)(C) of the Act prohibits an endorsed discount
card sponsor (and any pharmacy included in the endorsed sponsor's
network) from charging card enrollees any amount, other than the annual
enrollment fee and negotiated prices (which include dispensing fees),
for any items and services required to be provided by the endorsed
sponsor under the Medicare drug discount card program. Therefore, our
regulations at Sec. 403.806(h)(2) prohibit endorsed sponsors (and
their network pharmacies) from charging any amount for required
services other than the enrollment fee and negotiated prices. Required
services include, for example--
[sbull] Conducting enrollment;
[sbull] Offering negotiated prices on covered discount card drugs;
[sbull] Ensuring convenient pharmacy access;
[sbull] Reducing the likelihood of medication errors and adverse
drug interactions;
[sbull] Providing customer service and information and outreach
materials;
[sbull] Providing a grievance mechanism; and
[sbull] Administering transitional assistance.
Section 1860D-31(h)(7)(A) of the Act allows endorsed sponsors to
provide certain non-required services under their endorsements as well,
but only if such products or services are directly related to a covered
discount card drug, or are discounts for over-the-counter drugs (that
is, non-prescription drugs). Thus, endorsed sponsors may voluntarily
choose to provide under their Medicare endorsement discounts on over-
the-counter drugs, and products or services that are related to covered
discount card drugs but which are not required services under the
Medicare drug discount card program. For example, an endorsed sponsor
might offer discounts on durable medical equipment that is related to a
covered
[[Page 69864]]
discount card drug. Any product or service that is either not related
to a covered discount card drug, or is not a discount for an over-the-
counter drug, could not be provided under the endorsement and would be
considered outside the scope of a sponsor's Medicare endorsement.
Although an endorsed sponsor (and pharmacies participating in their
networks) may provide products and services related to covered discount
card drugs and may offer discounts on over-the-counter drugs, our
regulations provide at Sec. 403.806(h)(1) that endorsed sponsors (and
pharmacies participating in their networks) may not offer any such
product or service for an additional fee (nor may any of their
subcontractors or pharmacies in the network charge an additional fee
for services offered under the endorsement). Endorsed sponsors
therefore must fund all such products and services (whether optional or
required) through the enrollment fee, and, if necessary, through
rebates, discounts, and other price concessions garnered from
manufacturers and pharmacies. We believe that we have the authority to
recognize as outside the scope of endorsement those products and
services offered for an additional fee. Section 1860D-31(h)(8) of the
Act charges us with protecting and promoting the interests of Medicare
beneficiaries. Were we to allow endorsed sponsors to charge additional
fees, we believe beneficiaries might, in effect, be charged annual
enrollment fees higher than the $30 limit mandated by section 1860D-
31(c)(2)(B) of the Act, especially if endorsed sponsors were to
condition enrollment in their endorsed programs on beneficiaries paying
these additional fees. In addition, beneficiaries may be unable to
access negotiated prices and transitional assistance, as intended by
Congress, if endorsed sponsors require that they pay additional fees
for optional products and services. Further, we believe permitting
endorsed sponsors to charge additional fees could be confusing to
beneficiaries. For example, beneficiaries may find it confusing and
frustrating that endorsed sponsors can charge a diabetic an additional
fee to access discounts on durable medical equipment related to drugs
for diabetics when they cannot charge a case management fee related to
helping the beneficiary manage his or her diabetes. Our beneficiary
research has demonstrated that beneficiaries expect a discount card
program to be simple to understand and easy to use (Bearing Point and
Sutton Group. CMS Formative Research on Prescription Drug Shopping
Habits: Round 1 Findings, Final. April 8, 2003). We believe that the
most straightforward and easily understood structure for an endorsed
program is one that provides all products and services related to
covered discount card drugs and discounts on over-the-counter drugs for
the single enrollment fee.
We clarify that we do not intend to prohibit pharmacies from
charging beneficiaries for drugs; rather, this policy concerns not the
price of a drug itself, but products or services directly related to
the drug and access to discounts on over-the-counter drugs. Pharmacies
and endorsed sponsors therefore may charge beneficiaries negotiated
prices for covered discount card drugs and discounted prices for over-
the-counter drugs.
In accordance with section 1860D-31(h)(7)(B) of the Act, our
regulations at Sec. 403.813(a) and Sec. 403.806(g)(5)(iv) provide
that an endorsed sponsor's information and outreach materials may
describe only those products or services within the scope of the
Medicare endorsement; the information and outreach materials may not
include descriptions of products or services offered by the endorsed
sponsor outside the scope of the endorsement. Because only products and
services that are both (1) related to a covered discount card drug or
are discounts for over-the-counter drugs and (2) offered for no fee
(other than the enrollment fee or negotiated prices) are considered
within the scope of the Medicare endorsement, an endorsed sponsor's
information and outreach materials may not include information on
products or services offered for an additional fee. We interpret this
to mean that endorsed sponsors may not commingle communications about
endorsed sponsors' products or services offered outside the scope of
endorsement with information and outreach materials describing products
and services within the scope of endorsement. In addition, if endorsed
sponsors offer for no additional fee non-required products and services
related to covered discount card drugs or they offer discounts on over-
the-counter drugs, the endorsed sponsor must describe these products
and services in its information and outreach materials, which are
subject to our review as described in section II.C.7. of this document.
Finally, as provided in Sec. 403.813(a)(1) and (2) and discussed
in section II.C.9. of this document, an endorsed sponsor may not use or
disclose a card enrollee's individually identifiable health information
created, collected, or maintained under the Medicare drug discount card
program for the purpose of marketing products or services offered
outside the scope of endorsement.
6. Eligibility and Enrollment Responsibilities
Sections 1860D-31(f)(1)(A) and (c)(1) of the Act direct the
Secretary to establish procedures for determining beneficiaries'
eligibility for the Medicare drug discount card program and
transitional assistance and for enrolling eligible beneficiaries in
endorsed programs. Sections 403.810 and 403.811 of our regulations set
forth these procedures, which are discussed in part in section II.A. of
this document. Endorsed sponsors are expected to implement these
requirements as provided in Sec. 403.806(k) of the regulations. This
section discusses the obligations of endorsed sponsors related to
eligibility determinations and enrollment. Section 1860D-31(c)(1)(B) of
the Act also requires endorsed sponsors to use a standard enrollment
form, and section 1860D-31(c)(2) of the Act permits endorsed sponsors
to charge an annual enrollment fee up to, but no more than, $30 per
year. This section also discusses our rules pertaining to the standard
enrollment form and annual enrollment fee.
a. Eligibility and Enrollment Process
An endorsed sponsor may enroll a Medicare beneficiary in its
endorsed program only after we verify the beneficiary's eligibility. We
require endorsed sponsors to interact with CMS's enrollment systems to
ensure that only eligible beneficiaries enroll in the Medicare drug
discount card program; that beneficiaries enroll in only one endorsed
program at a time and with few exceptions, in only one endorsed card
program per year, as required under section 1860D-31(c)(1)(C)(i) of the
Act and Sec. 403.811(a)(6) and (a)(7) of our regulations; and that
members of a Medicare managed care plan offering an exclusive card
program do not enroll in other endorsed programs.
Medicare beneficiaries seeking to enroll in an endorsed sponsor's
program must submit information to the endorsed sponsor by completing
the standard enrollment form or by providing the necessary information
to the sponsor via other means (for example, telephone, internet, or
facsimile), as specified by CMS and permitted by the endorsed sponsor.
Beneficiaries who wish to receive transitional assistance must complete
the standard enrollment form for transitional assistance and submit
this
[[Page 69865]]
form to their endorsed sponsor. We expect endorsed sponsors to promptly
transmit to us all standard data elements captured on a beneficiary's
completed enrollment form.
Prior to transmitting to us any standard data elements, we expect
that the endorsed sponsor will ensure that the beneficiary's enrollment
form is complete. If a beneficiary's enrollment form is incomplete, the
endorsed sponsor must promptly contact the beneficiary or return the
beneficiary's incomplete application to him or her to obtain the
missing information.
In addition to reviewing an enrollment form for completeness,
endorsed sponsors are expected to review whether an enrollment form on
its face indicates that the beneficiary is ineligible for the Medicare
drug discount card program or, if applicable, transitional assistance.
Specifically, if the beneficiary is applying to enroll in the endorsed
sponsor's endorsed program, the endorsed sponsor should review the
enrollment form to determine whether:
[sbull] The beneficiary resides within the endorsed program's
service area; and
[sbull] The beneficiary has any outpatient drug coverage under a
State Medicaid plan (including a 1115 waiver).
If the beneficiary is applying for transitional assistance, the
endorsed sponsor must review the enrollment form to determine whether:
[sbull] The beneficiary has signed the form;
[sbull] The beneficiary's income as listed on the enrollment form
exceeds 135 percent of the poverty line applicable to the beneficiary's
family size;
[sbull] The beneficiary has coverage for outpatient covered
discount card drugs under one or more of the following sources: (a)
TRICARE, (b) a Federal Employee's Health benefit plan, or (c) a group
health plan or health insurance coverage other than a Part C plan or a
group health plan consisting solely of excepted benefits, such as
Medigap; and
[sbull] The beneficiary does not reside in one of the 50 States or
the District of Columbia.
We also expect endorsed sponsors to determine the appropriate
coinsurance level for each transitional assistance enrollee based on
the income information he or she provides on the standard enrollment
form.
If the endorsed sponsor determines that the beneficiary is
ineligible for its endorsed program or, if applicable, transitional
assistance, the endorsed sponsor should promptly notify the beneficiary
that he or she is not eligible. The endorsed sponsor may wish to
discuss with the beneficiary whether the individual wishes to make any
changes to his or her enrollment form. Otherwise, the endorsed sponsor
is expected to issue a notice of negative eligibility determination, as
discussed in greater detail below.
As discussed in section II.A.3. of this document, if a beneficiary
applies for transitional assistance when he or she applies for an
endorsed program, the endorsed sponsor may not enroll the beneficiary
in their endorsed program if the beneficiary is determined ineligible
for transitional assistance. This requirement is specified in Sec.
403.811(a)(3) of our regulations.
We will inform an endorsed sponsor of beneficiaries' eligibility
for the sponsor's endorsed program and, if applicable, transitional
assistance. If a beneficiary is determined ineligible for the endorsed
sponsor's program and/or transitional assistance, we will inform the
endorsed sponsor of the reasons for the negative determination. We
expect endorsed sponsors to promptly notify a beneficiary in writing of
any negative eligibility determination made either as a result of the
endorsed sponsor's initial review of an individual's complete
enrollment form (or information submitted as part of the enrollment
process) or of CMS' verification process. If the beneficiary has been
determined ineligible for the sponsor's endorsed program and/or
transitional assistance, the notice must communicate to the
beneficiary--
[sbull] The reason for the negative eligibility determination;
[sbull] The beneficiary's right to request reconsideration of the
eligibility determination and the process for doing so; and
[sbull] If not determined eligible for transitional assistance, the
beneficiary's option of enrolling in the endorsed program without
access to transitional assistance.
The model information and outreach materials that will accompany
information and outreach guidelines referenced in section II.C.7. of
this document will include model language for these notices, as
discussed under section II.C.7. of this document. Our reconsideration
process is discussed in greater detail under section II.A.5. of this
document.
The determination process for this program relies on self-
certification and verification. As discussed above in section II.A.2.
of this document, if, as part of our verification process for
transitional assistance , we are unable to verify a beneficiary's
ability to meet the income threshold specified in Sec. 403.810(b)(3)
of our regulations, we may direct endorsed sponsors to request that the
beneficiary submit additional income information. Section 403.810(f)(2)
of our regulations provides that CMS can require such beneficiaries to
fulfill this request as one condition of eligibility for transitional
assistance.
Under section 1860D-31(c)(1)(A)(i) of the Act, and as provided in
Sec. 403.811(a)(10) of our regulations, a discount card eligible
individual may enroll only in an endorsed program serving residents of
the State in which he or she resides. Therefore, an endorsed sponsor
may only enroll in its endorsed program beneficiaries that are
residents of a State within the endorsed program's service area. We
expect the endorsed sponsor to advise beneficiaries that those who
change their address to an address outside the endorsed program's
service area during the year must disenroll from the endorsed program
and request a special election period if they wish to enroll in a new
card program whose service area includes their new address. The model
information and outreach materials to be provided with the information
and outreach guidelines will include model language addressing this
issue. We also plan to educate beneficiaries that any discount card
eligible individual planning to change residence during the year should
enroll in a national endorsed program.
As discussed under sections II.A.3. and II.G. of this document,
Medicare managed care organizations may group enroll, into their
exclusive card programs, eligible beneficiaries enrolled in those
Medicare managed care plans that include access to an exclusive card
program as part of the plan's benefit package. Prior to doing so, these
organizations must notify affected plan members of their intent to
enroll eligible beneficiaries as a group into their exclusive card
program and grant beneficiaries ample opportunity to decline enrollment
in the exclusive card program. We encourage organizations offering
exclusive card programs to inform affected plan members that, if they
decline enrollment in the exclusive card program, they will not be
permitted to enroll in any other endorsed program.
Under Sec. 403.814(b)(5)(iii) of our regulations, we permit
exclusive endorsed sponsors electing to group enroll their plan members
into their exclusive card program to use a modified version of the
standard enrollment form provided such form has been submitted and
approved by us along with the exclusive endorsed sponsor's other
information and outreach materials. If a Medicare managed care
organization group enrolls its plan members into its exclusive card
[[Page 69866]]
program, any transitional assistance eligible beneficiary must be
afforded the opportunity to apply for transitional assistance.
Section 1860D-31(c)(3) of the Act requires that endorsed sponsors
issue a discount card to all of its discount card enrollees for use as
proof of enrollment and to facilitate identification of the discount
card enrollee and the appropriate endorsed program at the point of
sale. Section 1860D-31(c)(3) of the Act gives the Secretary the
discretion to specify a standard format for the discount cards. We
require in Sec. 403.806(g)(4) of our regulations that all discount
cards follow a standard format that complies with National Council for
Prescription Drug Programs standards. We will further discuss this
format in our information and outreach guidelines.
b. Standard Enrollment Form
Section 1860D-31(c)(1)(B) of the Act requires endorsed sponsors to
use a ``standard'' enrollment form that is specified by the Secretary.
The standard enrollment form will collect eligibility data elements in
a standard format for use by the endorsed sponsor and CMS in
determining the beneficiary's eligibility for the Medicare drug
discount card program and, if applicable, transitional assistance. We
interpret the requirement for a standard enrollment form to mean that,
although such forms do not have to be identical, an endorsed sponsor's
enrollment form must contain certain data elements and language. These
data elements will be specified in the information and outreach
materials that accompany the solicitation, but will include:
[sbull] Information on eligibility criteria for the Medicare drug
discount card program and transitional assistance;
[sbull] Documentation of a beneficiary's request for a
determination of his or her eligibility for the Medicare drug discount
card program and enrollment in the endorsed sponsor's endorsed program;
[sbull] Documentation (in the form of a signature) of a
beneficiary's request for a determination of his or her eligibility for
transitional assistance and request for enrollment assuming eligibility
determination is positive;
[sbull] Beneficiary's income level and family size;
[sbull] Authorization to verify the information reported on the
enrollment form, including the beneficiary's income, if applicable; and
[sbull] Certification of whether the beneficiary has outpatient
prescription drug coverage under one or more of the following sources:
(a) TRICARE, (b) a Federal Employee's Health benefit plan, or (c) a
group health plan or health insurance coverage other than a Part C plan
or a group health plan consisting solely of excepted benefits, such as
Medigap.
We have developed a standard enrollment form that is as easy to
understand as possible. Endorsed sponsors may customize the layout,
graphics, and language of their enrollment form so long as the form
conforms to the requirements of this section and the information and
outreach guidelines referenced in section II.C.7. of this document. An
endorsed sponsor must submit to us its enrollment form along with its
other information and outreach materials for our review and approval.
As specified in Sec. 403.814(b)(5)(iii) of our regulations, a
Medicare managed care organization offering an exclusive card program
that wishes to group enroll its plan members into its exclusive card
program may use a modified version of the standard form. Any such
modifications must conform to the requirements we will specify in the
information and outreach guidelines (see Sec. 403.806(g)(5)(i) of our
regulations).
c. Transition Period
As discussed in section II.B.2. of this document, we require
endorsed sponsors to continue operating their endorsed program during
the transition period, including providing its discount card enrollees
access to negotiated prices during this period. In accordance with
section 1860D-31(a)(2)(C)(ii)(II) of the Act, Sec. 403.811(c)(6) of
our regulations specifies that endorsed sponsors may not charge an
annual enrollment fee during the transition period. In addition, as
provided in Sec. 403.808(f), endorsed sponsors must permit
transitional assistance enrollees to apply any transitional assistance
remaining available to them on December 31, 2005 toward the cost of
covered discount card drugs obtained under the program during the
transition period. Endorsed sponsors may not enroll any beneficiaries
in their endorsed programs during the transition period.
d. Enrollment Fee
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.
Section 1860D-31(c)(2)(c) of the Act requires that an endorsed
sponsor charge all beneficiaries residing in the same State the same
enrollment fee. As specified in Sec. 403.811(c)(4) of our regulations,
for endorsed programs with service areas larger than a State, the
endorsed sponsor may charge a different annual enrollment fee in each
State of up to, but not more than, $30.
Section 1860D-31(c)(2)(G) provides that the Secretary may establish
special rules with respect to payment of any annual enrollment by
discount card enrollees who enroll in a new endorsed program during a
calendar year. As provided in Sec. 403.811(b)(7) of our regulations,
when a discount card enrollee enrolls in a new endorsed program during
a special election period, the endorsed sponsor of the new endorsed
program may charge the discount card enrollee its annual enrollment
fee. We allow the new endorsed sponsors to charge their annual
enrollment fee because we believe that much of the enrollment fee
covers the start-up costs of enrolling a beneficiary into an endorsed
program.
Section 1860D-31(c)(2)(G) of the Act allows the Secretary to
provide special rules regarding payment of the enrollment fee for
discount card eligible individuals, which include transitional
assistance enrollees who enroll in a new endorsed program during the
calendar year. For transitional assistance enrollees who change
endorsed programs during a special election period, we will pay any
annual enrollment fee charged by the new endorsed program. Further,
section 1860D-31(c)(2)(C) of the statute and Sec. 403.811(c)(4) of the
regulations provides for a uniform enrollment fee for all discount card
enrollees. The requirement means that the Secretary will pay the same
enrollment fee (if any) for individuals receiving transitional
assistance that the endorsed sponsor is charging those not receiving
transitional assistance and residing in the same State.
Section 1860D-31(c)(2)(A) of the Act, as reflected in Sec.
403.811(c)(3) of our regulations, prohibits an endorsed sponsor from
prorating its annual enrollment fee for portions of a calendar year.
Accordingly, an endorsed sponsor that charges an enrollment fee must
charge its discount card enrollees the same enrollment fee in a given
calendar year, regardless of when during the calendar year the discount
card enrollee enrolls in the endorsed sponsor's endorsed program.
Section 403.811(a)(2) of our regulations provides that if the
beneficiary indicates on the enrollment form that he or she only seeks
to enroll in the endorsed sponsor's endorsed program and is not seeking
transitional assistance, the endorsed sponsor may charge the
beneficiary an annual
[[Page 69867]]
enrollment fee in a form and manner determined by the endorsed sponsor.
As discussed above in section II.A.3. of this document, and
provided in Sec. 403.811 (a)(3) of our regulations, beneficiaries may
not enroll in an endorsed sponsor's endorsed program when they also
apply for transitional assistance, unless they are determined eligible
for transitional assistance at the time of application. To ensure that
a beneficiary does not pay any enrollment fee prior to a determination
of his or her eligibility for transitional assistance, Sec.
403.811(c)(2) of our regulations provides that endorsed sponsors may
not charge beneficiaries applying for transitional assistance any
annual enrollment fee at the time of application. Should a beneficiary
be determined eligible for transitional assistance and enrolled in the
endorsed program, the endorsed sponsor may then charge CMS any
enrollment fee. Beneficiaries determined ineligible for transitional
assistance may apply for enrollment in an endorsed drug discount card
program and, if found eligible to enroll in the endorsed program, must
pay the annual enrollment fee (if any) in a form and manner determined
by the endorsed sponsor.
As required in section 1860D-31(c)(2)(E) of the Act, and specified
in Sec. 403.808(c) of our regulations, we will pay any annual
enrollment fee on behalf of transitional assistance enrollees. Should a
discount card enrollee be determined eligible for transitional
assistance after already enrolling in an endorsed program, we will pay
the annual enrollment fee and the endorsed sponsor must immediately
refund to the discount card enrollee, or any State that has paid the
enrollment fee on behalf of the card enrollee, any annual enrollment
fee for the calendar year previously paid by the discount card enrollee
or State. If the discount card enrollee is first determined eligible
for transitional assistance in 2005, we will not pay any enrollment fee
for 2004 and the endorsed sponsor will not be required to refund to the
discount card enrollee any enrollment fee paid by him or her in 2004.
This policy is incorporated into Sec. 403.811(c)(5) of our
regulations.
As discussed in greater detail in section II.H.2. of this document,
under section 1860D-31(c)(2)(F) of the Act and Sec. 403.815(a) of our
regulations, a State may pay some or all of any enrollment fee for some
or all discount card enrollees (other than transitional assistance
enrollees) residing in the State. As specified in Sec. 403.815(a)(1)
of our regulations, these payment arrangements should be negotiated
directly between the State and the endorsed sponsor.
e. Disenrollment
Section 1860D-31(c)(1)(D)(ii) of the Act and Sec. 403.811(b)(6) of
our regulations permit an endorsed sponsor to involuntarily disenroll
any discount card enrollee, other than a transitional assistance
enrollee, who fails to pay the annual enrollment fee charged by the
endorsed sponsor. We expect endorsed sponsors to provide discount card
enrollees prior written notice before involuntarily disenrolling them
for failure to pay the enrollment fee.
Under section 1860D-31(c)(1)(D)(i) of the Act, a discount card
enrollee also may voluntarily disenroll from an endorsed program at any
time. Discount card enrollees generally must notify an endorsed sponsor
of their desire to disenroll from the endorsed sponsor's endorsed
program. We expect endorsed sponsors to promptly submit to CMS all
disenrollment requests they receive. In addition, if an endorsed
sponsor involuntarily disenrolls one of its discount card enrollees for
failure to pay any enrollment fee, we expect the endorsed sponsor to
promptly notify us of such disenrollment. As discussed above in section
II.A.6. of this document, discount card enrollees who disenroll from a
Medicare managed care plan offering an exclusive card program are no
longer eligible for that exclusive card program. The exclusive endorsed
sponsor must disenroll these beneficiaries from its exclusive card
program.
If a discount card enrollee contacts the endorsed sponsor in order
to disenroll from an endorsed program, the endorsed sponsor is
responsible for--
[sbull] Disenrolling the discount card enrollee from its endorsed
program and promptly notifying us of such disenrollment;
[sbull] Determining whether the discount card enrollee is eligible
for a special election period based on the reason provided for the
disenrollment, if any; and
[sbull] If the endorsed sponsor determines that a discount card
enrollee is eligible for a special election period, promptly notifying
us of this determination.
7. Information and Outreach, and Other Customer Service
a. Information and Outreach
Section 1860D-31(d)(2)(A) of the Act requires that each
prescription drug card endorsed sponsor that offers an endorsed
discount card program will make available to eligible beneficiaries for
the discount card program (through the Internet and otherwise)
information that the Secretary identifies as being necessary to promote
informed choice among endorsed discount card programs including
information on enrollment fees and negotiated prices for covered
discount card drugs. Furthermore, section 1860D-31(h)(7)(A) of the Act
limits drug card endorsed sponsors to providing under their
endorsements only (1) products and services directly related to covered
discount card drugs, or (2) discounts on over-the-counter drugs.
Section 1860D-31(h)(7)(B) then prohibits endorsed sponsors from
marketing--under their endorsements--any products and services other
than those described in section 1860D-31(h)(7)(A).
Under the above authority, we have drafted regulations which
condition endorsement on card sponsors providing information and
outreach according to our rules. To further explain these regulations
and provide guidance to endorsed sponsors, we plan to publish
information and outreach guidelines on our Web site at the same time we
release the solicitation for applications. These information and
outreach guidelines will provide further interpretations of our
regulations and will contain the procedures endorsed sponsors can use
to apply for and receive approval of their information and outreach
materials.
Our regulations at Sec. 403.806(g) contain our requirements for
the information to be included in materials. Endorsed sponsors must
provide to Medicare beneficiaries in their service area(s) information
and outreach materials on the endorsed program, including discounts on
over-the-counter drugs, if offered. Our regulations also incorporate
the statutory requirement that information and outreach materials
promote informed choice and contain information on enrollment fee and
negotiated prices.
As we will explain further in the information and outreach
guidelines, we will implement and interpret these statutory and
regulatory requirements by requiring endorsed sponsors to disclose to
Medicare beneficiaries (prior to enrollment, after enrollment, and upon
request) the following information at a minimum--
(1) A detailed description of the program that includes information
on how to become enrolled in a program, eligibility qualifications for
transitional assistance, and how transitional assistance works;
(2) A description of the services the sponsor provides for no
additional fee,
[[Page 69868]]
such as drug interaction counseling or allergy alerts;
(3) The availability of a grievance process and how it works;
(4) If applicable, any special rules for beneficiaries in long term
care facilities, American Indians/Alaska Natives who use I/T/U
pharmacies, as well as residents of the U.S territories;
(5) The toll-free telephone numbers described in Sec.
403.806(g)(6) of our regulations;
(6) A list of contracted pharmacies and prescription drugs offered
for a negotiated price, how coinsurance works, and a guarantee that
contracted pharmacies will provide the lower of the negotiated price or
the usual and customary price;
(7) Enrollment fees (if any);
(8) A notice that drugs and prices may change or vary and a
description of how the enrollee can obtain information regarding those
changes and variations;
(9) A clear description of the service area in which the endorsed
program is available;
(10) A privacy notice for protected health information. Further
guidance will be provided in the information and outreach guidelines on
the notice of privacy practices for protected health information; and
(11) A description of any circumstances and special procedures that
relate to potential transitional assistance enrollee liabilities
stemming from procedures endorsed sponsors have in place to manage
transitional assistance against an enrollee's cap or transitional
assistance balance transfer to a newly elected endorsed program.
Endorsed sponsors must also make available, upon request, the
negotiated prices for prescription drugs.
In addition to the above information, section 1860D-31(d)(2)(B) of
the Act provides that an individual's transitional assistance balance
must be available and provided as requested by toll-free line. Because
this provision also requires that the toll-free line is publicized, we
will require in the information and outreach guidelines that the toll-
free number be included in all media through which the sponsor
communicates with beneficiaries (for example, magazines, television,
newspapers, billboards, radio, pre-enrollment, or post-enrollment
materials).
Section 1860D-31(d)(2)(C) of the Act requires endorsed sponsors to
make available, at the point of sale, information on the remaining
balance of transitional assistance. Endorsed sponsors, therefore, must
explain in their information and outreach materials that, at the point
of sale, enrollees can request that network pharmacies determine--
either electronically or by telephone--how much of the enrollee's
transitional assistance remains. Endorsed sponsors must also include
information in the member handbook or summary of program features on
how an enrollee can obtain his or her transitional assistance balance.
Additionally, in accordance with section 1860D-31(d)(3) of the Act,
information and outreach materials must explain how enrollees will be
informed of the differential between the price of the drug to the
enrollee and the price of the lowest priced therapeutically equivalent
and bioequivalent generic covered discount card drug available at that
pharmacy. Our forthcoming information and outreach guidelines will
provide further detail on the method for communicating this information
to beneficiaries, including to beneficiaries who purchase drugs through
mail order.
All information required to be included in information and outreach
materials, must, as required under section 1860D-31(d)(2)(A) of the
Act, be provided both through the Internet and through some tangible
medium, such as mailings (see Sec. 403.806(g)(1) of our regulations).
For information provided on the Internet, endorsed sponsors must
establish a process for informing members when the web page was last
updated, for example, by putting a date and disclaimer on the web page
to promote beneficiary understanding that the information could be
dated. In their applications, we require endorsed sponsors to
demonstrate how they will maintain Web sites that provide information
and outreach.
In II.C.5. of this document, we discuss products and services
considered inside and outside the scope of endorsement, and explain
that products or services outside the endorsement may not be offered or
marketed under the endorsement. We further explain in section II.C.9.
of this document that marketing related to non-endorsed services will
be prohibited, even if the endorsed sponsor obtains beneficiary consent
to receive such marketing. In keeping with these rules, our information
and outreach provisions provide that any communication provided by
sponsors that would concern services outside the endorsement may not be
co-mingled with information and outreach materials relating to endorsed
items or services. Therefore, when endorsed sponsors are acting in
their capacity as endorsed sponsors, and are using data or information
they collected through the operation of their endorsed program, they
may not co-mingle information and outreach materials on endorsed
features with any materials on non-endorsed features. This, however,
would not prohibit entities, when they are not acting in their capacity
as endorsed sponsors, from publicizing their endorsed programs or
providing information about such programs. Thus, for example, an
exclusive card sponsor could describe its endorsed program in its
Medicare managed care plan marketing materials if those materials are
CMS-approved, but it could not describe its Medicare managed care plan
general features in materials which are directed solely toward its
endorsed program enrollee population.
Our forthcoming information and outreach guidelines also will
provide certain rules regarding the proper procedures for conducting
information and outreach. For example, the guidelines will provide
that, in conducting information and outreach, endorsed discount card
sponsors may not engage in activities that could mislead or confuse
beneficiaries or provide cash or other monetary rebates (for example,
coupons or discounts on pharmacy products and services) as an incentive
for enrollment.
Section 1860D-31(c)(3) of the Act provides that each endorsed
sponsor must issue to each enrollee a card in a standard format
specified by the Secretary that establishes proof of enrollment and
that can be used in a coordinated manner to identify the endorsed
sponsor, program, and beneficiary (see also Sec. 403.806(g)(4) of our
regulations). We will, in the information and outreach guidelines,
provide guidance according to the requirements of the National Council
for Prescription Drug Programs (NCPDP) for pharmacy identification
cards. NCPDP is recognized as the industry standard for current
prescription drug programs. We will review and approve pharmacy
identification cards.
Our information and outreach guidelines will also include standards
for use of a Medicare endorsement emblem. Use of the emblem may occur
only after written notification of endorsement. Endorsed discount card
sponsors may use the emblem on information and outreach materials such
as newsletters, discount cards, stationery, and other promotional items
designed to inform Medicare beneficiaries about the program.
Finally, as a condition of endorsement, we will require endorsed
sponsors to file with us all information and outreach materials (See
also Sec. 403.806(g)(5)). These materials will require our review and
approval (within
[[Page 69869]]
the time period discussed below) prior to the endorsed sponsor being
able to disseminate them. We believe there is sufficient authority in
section 1860D-31 of the Act for us to require prior submission and
review of information and outreach materials. For example, section
1860D-31(d)(2) of the Act gives the Secretary the authority to identify
the information necessary to be included in information and outreach
materials to ``promote informed choice among endorsed discount card
programs.'' In order to ensure that information and outreach materials
are, in fact, promoting informed choice, we believe prior filing and
review is necessary. Additionally, section 1860D-31(h)(8) of the Act
authorizes us to craft conditions for endorsement that we believe would
``protect and promote the interests of Medicare beneficiaries.'' We
believe that ensuring that marketing materials contain the necessary
information, adequately reflect the drug discount card program, and do
not violate any of our conditions for endorsement will protect Medicare
beneficiaries. Our review of these materials will ensure that
beneficiaries are not misled or confused about the services offered by
drug discount card programs, that beneficiaries receive the information
necessary to make informed choices in their selection of a drug
discount card program, and that the Medicare name is not misused--for
example, to advertise services unrelated to this program.
Therefore, we require in Sec. 403.806(g)(5) of our regulations
that information and outreach materials must have our review and
approval (within the time period discussed in Sec. 403.806(g)(5)(iii))
in order for them to be disseminated. We define information and
outreach materials to include the same kinds of materials described in
42 CFR Sec. 422.80(b) as well as enrollment forms, eligibility
determination forms, membership cards, Web site content and any
information on over-the-counter drugs (see also Sec. 403.806(g)(5)(v)
of our regulations). Examples of information and outreach materials
that will be reviewed include, but are not limited to--
[sbull] General audience materials;
[sbull] Telephone or sales scripts for presentations;
[sbull] Presentation materials and slides;
[sbull] Membership communications, such as member handbooks and
letters regarding contractual changes in benefits, procedures, or
enrollment fee;
[sbull] Enrollment forms, eligibility determination forms, and
membership cards;
[sbull] Information regarding over-the-counter drugs offered for a
discount; and
[sbull] All forms of advertising, including television, radio,
print, and Internet.
In order for us to conduct our review, our regulations provide that
all information and outreach materials must be submitted to us for
approval 30 days before dissemination. We will include model language
in our guidelines, and materials that use that model language will
receive a streamlined review process and will be approved in fewer than
30 days. Our guidelines will also include a File and Use Program, which
will be another approach for streamlining the review process. Further
guidance will be provided in the information and outreach guidelines
regarding the criteria for the File and Use Program.
The endorsed sponsor may disseminate the information and outreach
materials if we do not disapprove the initial submission of these
materials by the end of the 30-day period. This rule applies only to
the initial submission of materials. Resubmission of materials (that
is, submissions made after receiving comments or questions on the
initial submission) will not be subject to the deemed approval rule in
Sec. 403.806(g)(5)(iii) of our regulations.
Exclusive card sponsors will have a modified review process that
will facilitate the coordination of their information and outreach
materials with the Medicare managed care plan marketing materials.
Further details on the review process will be provided in the
Information and Outreach Guidelines, the solicitation, and also in the
pre-application conference that will be announced in the solicitation.
b. Call Center
As stated in section 1860D-31(d)(2)(B) of the Act, each endorsed
sponsor must have a mechanism (including a toll-free telephone number)
for providing, upon request, specific information (such as negotiated
prices and the amount of transitional assistance remaining available
through the program) to their enrollees. Therefore, in Sec.
403.806(g)(6), we are requiring that, as a condition of endorsement,
each endorsed card endorsed sponsor must maintain a toll-free customer
call center to assist beneficiaries in understanding the drug discount
card program offered. The call center must be open during regular
business hours and must provide customer telephone service in
accordance with standard business practices. We interpret this to mean
that the call center will be available at least Monday through Friday
from 8 a.m. to 4:30 p.m. Eastern to Pacific Standard times for those
zones in which the discount card program will operate. We also
interpret the requirement that the call center will be operated in
accordance with standard business practices to mean that--
[sbull] 70 percent of customer service representatives' time while
on the job will be spent answering telephones and responding to
enrollee inquiries;
[sbull] 80 percent of all incoming customer calls will be answered
within 30 seconds;
[sbull] The abandonment rate for all incoming customer calls will
not exceed 5 percent; and
[sbull] There will be an explicit process for handling customer
complaints.
These standards are required or exceeded by the 1-800 Medicare call
center contractors.
As stated earlier and included in Sec. 403.806(e)(5) of our
regulations endorsed sponsors are required to provide through their
toll-free numbers information on the amount of available transitional
assistance (section 1860D-31(d)(2)(B) of the Act).
Endorsed sponsors must also have in place a reliable means for
accommodating pharmacy inquiries regarding the endorsed sponsor's
program. We believe this requirement promotes and protects
beneficiaries by ensuring that pharmacists can have their questions
answered about the card program's drug offering on behalf of the
beneficiary. Endorsed sponsors could, for example, accommodate
pharmacist inquiries by incorporating a specific number in the
Interactive Voice Response (IVR) for the pharmacist to select so that
hold times will be minimized (many pharmacies use this already for ease
of access for physicians). We are aware that endorsed sponsors, as part
of their current business operations, generally have some established
mechanism for responding to pharmacy inquiries. However, we do not
intend to mandate a specific approach because we do not want to
inadvertently force a higher cost solution. Instead, we will permit
individual endorsed sponsors to decide on methods for effectively
addressing pharmacy inquiries.
Endorsed discount card programs may establish additional mechanisms
for communicating with enrollees and pharmacies, such as e-mail or fax.
c. Reduction of Medication Errors and Adverse Drug Reactions
In our regulations at Sec. 403.806(g)(7), we require that each
endorsed discount
[[Page 69870]]
card program must provide a system to reduce the likelihood of
medication errors and adverse drug interactions and to improve
medication use (section 1860D-31(e)(2) of the Act). Endorsed sponsors
have flexibility to design their own individual systems to accomplish
these goals. We will require applicants to describe their systems and
discuss how these goals will be accomplished. Published scientific and
clinical literature should support the proposed approaches. If
applicants have experience using their proposed systems to accomplish
these goals, applications should describe past achievements in reducing
medication errors and adverse drug interactions and in improving
medication use.
8. Grievance Process
Section 1860D-31(h)(5) of the Act specifies that endorsed sponsors
must establish and maintain a grievance process to track and address in
a timely manner enrollees' complaints about any aspect of the endorsed
sponsor's operations. The grievance process does not include the
reconsideration process, described in section 1860D-31(f)(4) of the Act
and discussed in section II.A.5. of this document, which affords
beneficiaries an opportunity to seek review of an initial determination
that they are ineligible to receive transitional assistance or enroll
in an endorsed program.
A grievance is any card enrollee's complaint or dispute expressing
dissatisfaction with the manner in which he or she has received
services under an endorsed program. The subjects of a grievance may
include the timeliness, appropriateness, access to, and/or setting of
services provided by the endorsed sponsor, such as waiting times,
demeanor of pharmacy or customer service staff, or disrespect shown a
card enrollee. A grievance may also include a dispute concerning the
endorsed sponsor's failure to offer discounts on particular covered
discount card drugs, ensure its pharmacies charge a certain price for
covered discount card drugs, apply transitional assistance toward the
cost of a covered discount card drug obtained by a transitional
assistance enrollee under the program, or correctly calculate the
correct coinsurance amount for a covered discount card drug obtained by
a transitional assistance enrollee.
In Sec. 403.806(j) of our regulations, we require endorsed
sponsors to maintain meaningful procedures for timely review and
resolution of their card enrollees' grievances. We will publish more
specific guidelines on grievance procedures in our solicitation. These
guidelines will include the following features--
(1) Endorsed sponsor's ability to collect information concerning
the grievance;
(2) Timely transmission of grievances to appropriate decision-
making levels within the endorsed sponsor's organization, including to
any subcontractors;
(3) Taking prompt and appropriate action to address a grievance,
including conducting a full investigation of the grievance if
warranted; and
(4) Communication of the results of an investigation to all
concerned parties, consistent with applicable State law.
9. HIPAA Administrative Simplification Provisions and Other Marketing
and Security Provisions
a. General
Section 1860D-31(h)(6)(A) of the Act provides that for the purpose
of the Medicare drug discount card program, the operations of an
endorsed program are covered functions and an endorsed sponsor is a
covered entity for purposes of applying Part C of title XI and all
regulatory provisions promulgated thereunder, including regulations
(relating to privacy) adopted pursuant to the authority of the
Secretary under section 264(c) of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). We therefore provide in Sec.
403.812(a) of our regulations that endorsed sponsors are covered
entities and must comply with the standards, implementation
specifications, and requirements in 45 CFR parts 160, 162, and 164 as
set forth in Sec. 403.812 of our regulations. Section 403.812(a) of
our regulations also provides that those functions of an endorsed
sponsor the performance of which are necessary or directly related to
the operations of the endorsed discount card program are covered
functions for purposes of applying to endorsed sponsors the standards,
implementation specifications, and requirements in 45 CFR parts 160,
162, and 164.
Section 1860D-31(h)(7)(B) of the Act provides that an endorsed
sponsor only may market those products and services under its endorsed
program that are directly related to a covered discount card drug, or
discounts on non-prescription drugs to the extent such marketing is
otherwise permitted under the Medicare discount drug card program, and
the use of beneficiary information for such communications is permitted
by the HIPAA Privacy Rule.
b. Overview of HIPAA Administrative Simplification Regulations
The HIPAA Administrative Simplification Regulations are a suite of
regulations that provide for the standardization of certain electronic
financial and administrative health care transactions, as well as for
the privacy and security of individually identifiable health
information.\4\ The regulations apply to three types of entities, which
collectively are termed ``covered entities''--health care providers who
transmit protected health information in electronic form in connection
with a transaction for which the Secretary has adopted a standard,
health plans, and health care clearinghouses. Section 1860D-31(h)(6)(A)
of the Act essentially specifies a fourth type of covered entity, the
endorsed sponsors. Therefore, as a condition of endorsement, endorsed
sponsors must comply with the HIPAA Administrative Simplification
regulations in the manner described in Sec. 403.812 of our
regulations.
---------------------------------------------------------------------------
\4\ The suite includes regulations for the electronic health
care transactions and code sets, unique health identifiers for
health plans, health care providers, and employers, and security and
privacy.
---------------------------------------------------------------------------
Section 1860D-31(h)(6)(A) of the Act provides that only the
endorsed sponsor's operations of an endorsed program are covered
functions. Consequently, activities performed by an endorsed sponsor
outside of the scope of its endorsement under the Medicare drug
discount card program are not made covered functions by the Act.
However, if these other activities would make the endorsed sponsor a
health plan, covered health care provider, or health care
clearinghouse, as currently defined by HIPAA, then the endorsed sponsor
may otherwise be a covered entity that is subject to the Administrative
Simplification regulations. An endorsed sponsor performing non-covered
functions may declare itself a hybrid entity in accordance with 45 CFR
164.105, with its health care component including any component
performing operations that make the entity an endorsed sponsor.
As provided in Sec. 403.812(f) of our regulations, nothing in this
discussion or Sec. 403.812 of our regulations should be considered a
modification of the HIPAA Administrative Simplification regulations or
as otherwise affecting the applicability of the Administrative
Simplification regulations to covered entities other than endorsed
sponsors. Moreover, as provided in Sec. 403.812(f) of our regulations,
if an endorsed sponsor is also a health plan, covered health care
provider, or health care clearinghouse, the Administrative
Simplification
[[Page 69871]]
regulations as set forth in parts 160, 162, and 164 will still govern
the performance of those functions which make it a health plan, health
care clearinghouse, or covered health care provider.
c. HIPAA Privacy Rule
As covered entities, endorsed sponsors are responsible for
complying with the HIPAA Privacy Rule. The Privacy Rule limits the uses
and disclosures a covered entity may make with individually
identifiable health information (known as protected health
information), requires that safeguards be applied to the information to
protect it, and gives individuals rights with respect to the protected
health information about them, including rights to access and correct
the information. Thus, endorsed sponsors are responsible for
safeguarding the protected health information of beneficiaries of the
program, and must limit the uses and disclosures made with the
information to only those permitted by the Privacy Rule and these
regulations. In addition, under the program, beneficiaries have certain
rights to be informed of the uses and disclosures the endorsed sponsor
is permitted or required to make with their protected health
information, to access their records, and to have corrections made to
their records, among other rights. See 45 CFR part 160 and subparts A
and E of part 164 for the full set of standards, implementation
specifications, and requirements of the Privacy Rule.
1. Endorsed Sponsors To Be Treated in Same Manner as Health Plans
The standards, implementation specifications, and requirements in
the HIPAA privacy regulations do not apply uniformly to all covered
entities; rather, certain provisions apply only to one or two of the
different types of covered entities. We believe we have the discretion
to prescribe the manner in which the regulations will apply to endorsed
sponsors, as section 1860D-31(h)(6)(A) is silent on this issue.
Although endorsed sponsors are not by definition health plans under
HIPAA, we believe that the HIPAA privacy regulations should apply to
endorsed sponsors in the same manner as applicable to health plans
because endorsed sponsors' operations more closely resemble those of
health plans than health care clearinghouses or providers.
Health plans are organizations that provide, or pay the cost of,
``medical care,'' which is defined in section 2791(a)(2) of the Public
Health Service Act (42 U.S.C. 300gg-91(a)(2)) as amounts paid for (1)
the diagnosis, cure, mitigation, treatment, or prevention of disease,
or amounts paid for the purpose of affecting any structure or function
of the body; (2) amounts paid for transportation primarily for and
essential to such medical care; or (3) amounts paid for insurance
covering such medical care or transportation. As endorsed sponsors do
not themselves provide or pay the cost of medical care, they are not by
this definition health plans under HIPAA. However, endorsed sponsors
resemble health plans in several respects.
Whereas health plans typically negotiate discount rates for health
care products and services, endorsed sponsors similarly will negotiate
discounted prices for covered discount card drugs. In addition, health
plans coordinate health care for its enrollees, in part by assessing
the interaction of various modalities of treatment, which endorsed
sponsors also provide albeit on a more limited basis by assessing and
avoiding adverse drug interactions and providing educational activities
that resemble some of a health plan's care coordination activities.
Endorsed sponsors' processing payment for covered discount card drugs
provided to transitional assistance enrollees is also somewhat similar
to a health plan's payment infrastructure and processes, although
unlike health plans, generally speaking, endorsed sponsors would not be
bearing capitated risk under this program.
In contrast, the functions performed by endorsed sponsors do not
resemble the functions performed by health care providers or health
care clearinghouses. A health care provider means a provider of
services (as defined in section 1861(u) of the Act, 42 U.S.C.
1395x(u)), a provider of medical or health services (as defined in
section 1861(s) of the Act, 42 U.S.C. 1395x(s)), or any other person or
organization who furnishes, bills, or is paid for health care in the
normal course of business. Under the Medicare discount drug card
program, endorsed sponsors will not provide medical or health services
to beneficiaries, but instead will arrange for discount card enrollees
to have access to negotiated prices and related products and services.
A health care clearinghouse is a public or private entity that
processes or facilitates the processing of health information received
from another entity in a nonstandard format or containing nonstandard
data content into standard data elements or a standard transaction or
receives a standard transaction from another entity and processes or
facilitates the processing of health information into nonstandard
format or nonstandard data content for the receiving entity. Endorsed
sponsors, however, will not be required to perform such services.
Accordingly, except as otherwise provided and discussed below, Sec.
403.812(b) of our regulations provide that the HIPAA privacy
regulations will apply to endorsed sponsors in the same manner as they
apply to health plans.
2. Waiver by the Secretary
Section 1860D-31(h)(6)(B) provides that, in order to promote
participation of endorsed sponsors in the Medicare drug discount card
program, the Secretary may waive portions of the HIPAA Privacy Rule for
a limited period of time as the Secretary deems appropriate. While the
Secretary expects endorsed sponsors to be able to comply with the
Privacy Rule and, therefore, does not at this time anticipate a need to
exercise his waiver authority, the Secretary reserves the right to do
so at a later time, if such waiver is deemed necessary to promote
participation of endorsed sponsors in the Medicare drug discount card
program.
3. Administering the Drug Card Program
The Privacy Rule permits covered entities to use or disclose
protected health information without individual authorization for
health care treatment and payment activities, as well as for certain
legal, financial, and administrative functions--known as health care
operations--that support treatment and payment activities. To carry out
their obligations under the Medicare drug discount card program,
endorsed sponsors will have to conduct a number of activities
pertaining to products and services offered under the endorsement that
may involve the use or disclosure of beneficiary information. These
activities and services will include processing beneficiary
applications and enrollment in the program, reducing the likelihood of
medication errors and adverse drug interactions, providing customer
service and information and outreach materials, and administering
transitional assistance. (For a description of the services required as
part of the endorsement, see section II.C.5 of this document.) The use
or disclosure of beneficiary protected health information for these
activities are encompassed within the Privacy Rule's definition's of
``payment'' and ``health care operations'' and, thus, may be conducted
without beneficiary authorization.
[[Page 69872]]
4. Special Marketing Restrictions for Endorsed Sponsors
Under the Medicare drug discount card program, as explained above,
endorsed sponsors will be required to provide information and outreach
about products and services offered under the endorsement. Section
1860D-31(h)(7)(B) of the Act provides that an endorsed sponsor may only
market those products and services directly related to a covered
discount card drug, or discounts for non-prescription drugs to the
extent such marketing is otherwise permitted under the Medicare drug
discount drug card program and the Privacy Rule. Accordingly, Sec.
403.813(a)(1) provides that an endorsed sponsor may only market those
products and services offered within the scope of its endorsement, that
is, products and services directly related to a covered discount card
drug, and discounts for non-prescription drugs. Thus, only products and
services offered by an endorsed sponsor within the scope of its
endorsement may be included in an endorsed sponsor's information and
outreach materials.
As discussed in section II.C.5. of this document, products or
services offered by an endorsed sponsor following termination of its
endorsement or termination of the Medicare drug discount card program
are considered outside the scope of endorsement. Therefore, Sec.
403.813(b)(4) of our regulations provides that individually
identifiable health information created, collected or maintained by an
endorsed sponsor may not be used to market any product or service
following termination of an endorsed sponsor's endorsement or the
program.
Under the Privacy Rule, most uses or disclosures of protected
health information to make marketing communications require individual
authorization. The Privacy Rule at 45 CFR 164.501, however, defines the
term ``marketing'' to mean the making of a communication about a
product or service that encourages the recipient of the communication
to purchase or use the product or service, with the exception of
communications that--
(1) Describe a health-related product or service (or payment for
such product or service) that is provided by, or included in a plan of
benefits of, the covered entity making the communication;
(2) Are for treatment of the individual; or
(3) Are for case management or care coordination, or to direct or
recommend alternative treatments, therapies, health care providers, or
settings of care to the individual.
Since information and outreach under the Medicare drug discount
program is limited to communicating about products and services offered
within the scope of endorsement, these activities fall within the
exception to the definition of marketing under the Privacy Rule for
describing health-related products or services provided by the covered
entity. Thus, using or disclosing beneficiary protected health
information to provide information and outreach is not marketing under
the Privacy Rule, but rather, as described above, is permitted without
beneficiary authorization as part of the endorsed sponsor's health care
operations.
To use or disclose protected health information to make
communications that do not fall within the exceptions to the definition
of ``marketing'' under the Privacy Rule at 45 CFR 164.501, a covered
entity must obtain individual authorization in accordance with 45 CFR
164.508(a)(3). However, section 1860D-31(h)(7)(B) of the Act limits the
marketing that may be conducted by endorsed sponsors to only that which
pertains to products and services offered under the Medicare drug
discount program or discounts on over-the-counter drugs. For purposes
of this marketing prohibition, we will consider a communication to be
marketing if the communication is about a product or service and
encourages recipients of the communication to purchase or use the
product or service. Thus, a sponsor may not market if the marketing
involves products or services falling outside the endorsed sponsor's
endorsement, that is, services that do not directly relate to a covered
discount card drug, or to discounts for a non-prescription drug.
Section 403.813(a)(2) of our regulations expressly provides that an
endorsed sponsor may not request of a drug card applicant or enrollee
the use or disclosure of protected health information to market any
products or services not offered under the program. Thus, endorsed
sponsors may not market such products or services under Sec.
403.806(d)(3) of our regulations even if they obtain authorization from
discount card enrollees to do so, as permitted by the Privacy Rule. Due
to this prohibition, endorsed sponsors are not permitted, at the time
of enrollment or any other time, to ask beneficiaries if they would be
interested in receiving marketing materials related to products and
services offered outside the program. Similarly, endorsed sponsors may
not commingle any information and outreach materials that describe
their endorsed program with any marketing materials related to products
and services offered outside the program.
This prohibition applies regardless of whether the marketing of
products or services outside the program involves the use or disclosure
of protected health information of discount card enrollees.
Accordingly, marketing of a product or service outside the program that
does not involve the use of discount card enrollees' protected health
information, such as advertising for contact lenses or travel on an
endorsed sponsor's Web site, is not permitted under the Medicare drug
discount card program, even though such marketing would not involve the
use of protected health information.
Many entities that sponsor an endorsed program also may engage in
activities outside the Medicare drug discount card program. For
example, a Part C organization may be both a sponsor of an endorsed
program and operate a Part C plan. The marketing prohibition set forth
under section 1860D-31(h)(7)(B) of the Act only applies to entities
when acting in their capacity as an endorsed sponsor. Accordingly,
although an entity in its endorsed sponsor capacity may not commingle
with other marketing materials any information and outreach materials
related to products and services offered under its endorsed program, it
may commingle such materials when acting in another capacity, to the
extent otherwise permitted under law. For example, a Part C
organization which sponsors an endorsed program may, in its role as a
Part C plan, commingle information and outreach materials describing
its endorsed program with Part C plan marketing materials to the extent
permitted under the Privacy Rule and the Part C marketing rules under
Medicare Part C. We will deem an entity as acting in its capacity as an
endorsed sponsor when it either (1) uses beneficiaries' information
created, collected or maintained under its endorsed program to conduct
marketing, or (2) targets its marketing to all or a subset of its
discount card enrollees (or potential discount card enrollees). We will
deem an entity as acting in another capacity when it (1) does not use
beneficiaries' information created, collected or maintained under its
endorsed program to conduct marketing, and (2) does not target its
marketing to all or a subset of its discount card enrollees (or
potential discount card enrollees). For example, we will consider a
Part C organization as acting in its endorsed sponsor capacity if it
targets its marketing to members of its
[[Page 69873]]
Part C plan who are also enrolled in its endorsed program, to the
exclusion of other plan members. In contrast, we will consider a Part C
organization as acting in its capacity as a Part C plan if it directs
its marketing to all or a subset of its Part C plan membership,
including those not enrolled in its endorsed program, and, to the
extent it uses individual information, such information was not
collected or maintained under the Part C organization's endorsed
program. Similarly, we will consider an organization's Web site listing
its full range of products and services, including but not limited to
its endorsed program, as targeted to the public at-large; however, we
will consider its web pages specifically describing its endorsed
program as targeting potential discount card enrollees, and therefore
such web pages may not include information related to products and
services offered outside the scope of endorsement.
Section 403.813(a) of our regulations is not enforceable under
HIPAA but will be enforced by CMS under the Medicare drug discount card
program.
5. Other Uses and Disclosures Without Authorization
Under 1860D-31(i)(1) of the Act and as discussed in section II.A.,
II.C., and II.F. of this document, endorsed sponsors are required to
disclose to the Secretary certain information, some of which may
contain protected health information. The Privacy Rule at 45 CFR
164.512(a) permits covered entities to use or disclose protected health
information without individual authorization where the use or
disclosure is required by other law. Thus, the Privacy Rule permits
endorsed sponsors to make the required disclosures to the Secretary
without beneficiary authorization. Similarly, the Privacy Rule at 45
CFR 164.512(d) permits covered entities to use or disclose protected
health information without individual authorization to a health
oversight agency for oversight activities that are authorized by law.
Both of these provisions would permit endorsed sponsors to provide CMS
with the information needed for the Secretary's oversight and reporting
requirements.
6. Uses and Disclosures Requiring an Authorization
For uses and disclosures of protected health information that are
not otherwise permitted under the Privacy Rule, an endorsed sponsor
must obtain a beneficiary's written authorization for such uses or
disclosures in accordance with 45 CFR 164.508. For example, a Medicare
beneficiary may authorize the endorsed sponsor to disclose his/her
protected health information to a third party, such as an employer.
However, as explained above and provided for in Sec. 403.813(a)(2) of
our regulations, an endorsed sponsor may not market products or
services outside the scope of its endorsement under the Medicare drug
discount card program even if it obtains from discount card enrollees
authorization to do so. Additional information about this marketing
prohibition can be found above in this section and also in section
II.C.5 of this document.
7. Notice of Privacy Practices
In accordance with the Privacy Rule at 45 CFR 164.520, prior to
enrolling a beneficiary in its endorsed program, or at the time of
enrollment, an endorsed sponsor must notify each beneficiary as to how
the endorsed sponsor is permitted or required to use and disclose the
beneficiary's protected health information, as well as of the
beneficiary's rights and the endorsed sponsor's duties with respect to
that information. The notice must be in plain language and clearly
explain these rights and the uses and disclosures permitted or required
under this rule and other applicable law, including that the endorsed
sponsor may use or disclose protected health information to communicate
about products and services offered by an endorsed sponsor inside, and
only inside, the scope of its endorsement. The notice may be combined
with other information and outreach materials, provided that the
content requirements of the Privacy Rule are fully met.
8. Endorsed Sponsors as Business Associates
As defined in the Privacy Rule, a business associate is a person or
entity that performs or assists in the performance of certain functions
or activities on behalf of, or provides certain services to, a covered
entity, that involve the use or disclosure of individually identifiable
health information. The Privacy Rule requires that the covered entity
obtain satisfactory assurances, usually in the form of a written
contract, from the business associate that the business associate will
appropriately safeguard the protected health information it creates or
receives on behalf of the covered entity. The contract or other written
arrangement between the covered entity and its business associate must
meet the requirements at 45 CFR 164.504(e).
For purposes of administering transitional assistance, endorsed
sponsors are business associates of CMS under the Privacy Rule.
Transitional assistance will be a benefit offered and paid for by the
Medicare program, a health plan, with CMS contracting with endorsed
sponsors to administer transitional assistance on behalf of CMS in
conjunction with their other responsibilities under the Medicare drug
discount card program. As such, the contract between CMS and endorsed
sponsors will include the terms necessary to satisfy the requirements
of the Privacy Rule at 45 CFR 164.504(e).
The application of the Privacy Rule to endorsed sponsors under our
regulations does not affect business associate arrangements or
requirements between the endorsed sponsor and one or more covered
entities for activities that are outside of the endorsed drug card
program. However, because an endorsed sponsor is also a covered entity,
when an endorsed sponsor is acting as a business associate of another
covered entity, the endorsed sponsor will violate the Privacy Rule if
it violates its business associate contract with the other covered
entity (see 45 CFR 164.502(e)(1)(iii)).
9. Enforcement by the HHS Office for Civil Rights
The HHS Office for Civil Rights (OCR) is responsible for
implementing and enforcing the HIPAA Privacy Rule. OCR has authority to
investigate complaints and to conduct compliance reviews, and may
impose civil money penalties on covered entities for violations where
appropriate. Thus, any violations by an endorsed sponsor with respect
to its obligations under the Privacy Rule as a covered entity are
subject to such enforcement by OCR. OCR maintains a Web site with
Frequently Asked Questions and other compliance guidance at http://hhs.gov/ocr/hipaa
.
OCR's enforcement authority pertains only to the HIPAA Privacy
Rule. Thus, any violations with respect to compliance with the other
HIPAA Administrative Simplification Rules or proper operation of an
endorsed program will be enforced by CMS. In addition, if an endorsed
sponsor's actions also violate the requirements of the Medicare drug
discount card program, such actions also may be sanctioned under Sec.
403.820(a) of our regulations. See section II.F. of this document for
further information about CMS oversight and monitoring of endorsed
sponsors.
[[Page 69874]]
d. Administrative Data Standards
As covered entities, endorsed sponsors must comply with any
applicable standards, implementation specifications, and requirements
set forth in 45 CFR part 162, subparts I et seq., when conducting a
transaction (as that term is defined under section 1173 (a) of the Act
and 45 CFR 160.103) as of the compliance date of a final rule issued
under that Part. In addition, such sponsors are business associates of
the Medicare program (a health plan covered entity), as they perform
certain administrative functions related to transitional assistance on
our behalf. We will, therefore, require in our contracts with endorsed
sponsors that, when conducting all or part of a transaction on our
behalf, they comply with, and require their agents and subcontractors
to comply with, all requirements under 45 CFR part 162 applicable to
CMS as a covered entity.
e. National Identifiers
As covered entities, endorsed sponsors must comply with the
standards, implementation specifications, and requirements of 45 CFR
parts 160 and 162, relating to the use of national identifiers, as of
the compliance date of any final rule issued under part 162.
f. Security
As covered entities, endorsed sponsors must comply with the
standards, implementation specifications, and requirements of the HIPAA
Security Rule (``Security Rule'') set forth in 45 CFR parts 160 and
164, subparts A and C to ensure the confidentiality, integrity, and
availability of all electronic protected health information they
create, receive, maintain or transmit as of the compliance date of the
final Security Rule (April 15, 2005). In addition, endorsed sponsors as
covered entities must have appropriate administrative, technical and
physical safeguards in place to protect the privacy of beneficiary
information under 45 CFR 164.530(c) of the Privacy Rule. An applicant
must include in its application the following:
[sbull] An attestation that as of the date upon which it will begin
enrollment activities, appropriate administrative, technical and
physical safeguards will be in place to protect the privacy of
protected health information in accordance with 45 CFR 164.530(c); and
[sbull] An attestation that it will meet the standards,
requirements, and implementation specifications as set forth in the
Security Rule as of the date it begins enrolling beneficiaries in its
endorsed programs, or, if the endorsed sponsor will be unable to
provide this attestation, the applicant's plan for coming into
compliance with the specifications as set forth in the Security Rule as
of the compliance date for the Security Rule.
Endorsed sponsors are encouraged, but not required, to use
Information Security Program references as provided by the National
Institute of Standards and Technology (NIST), in documenting their
efforts to implement reasonable security measures.
We believe these attestation requirements are critical to
beneficiary confidence in the Medicare drug discount card program and
their decision to enroll in an endorsed program. Furthermore, as
endorsed sponsors are using the Medicare name and acting on our behalf
in administering transitional assistance, we believe these requirements
are important to promoting the continued confidence of beneficiaries in
the Medicare program. We specifically require that applicants attest
that they will be in compliance with the Security Rule as of their
initiation of enrollment activities, or provide their plan for coming
into compliance as of the compliance date. This approach will allow us
to evaluate whether their information security measures will comply
with the Privacy Rule standard under 45 CFR 164.530(c) and whether they
will adequately protect the confidentiality, integrity, and
availability of discount card enrollees' electronic protected health
information.
10. Document Retention
Section 403.813(b) of our regulations requires endorsed sponsors to
retain records that they or their subcontractors create, collect, or
maintain while participating in the Medicare drug discount card program
for at least six years following termination of the transition period.
This retention period may be extended by the Secretary if an endorsed
sponsor's records relate to an ongoing investigation, litigation, or
negotiation by the Secretary, the OIG, the Department of Justice, or a
State, or such documents otherwise relate to suspicions of fraud and
abuse or violations of Federal or State law.
We recognize that under the Privacy Rule, CMS, as a covered entity,
must require its business associates, upon termination of the contract,
to return or destroy protected health information created or received
in their capacity as business associates, or if such return or
destruction is not feasible, to extend the contract protections to the
retained information and limit further uses and disclosures to the
purposes that made the return or destruction infeasible. Our record
retention policy will make it infeasible for endorsed sponsors to
return or destroy protected health information, as they will be
required to retain all program information for at least six years after
termination of the program. Therefore, as required by the Privacy Rule,
the business associate contract protections for the retained
information will continue to be applied and any further use or
disclosure of the information will be limited to health care operations
and health oversight activities that made return or destruction of the
information infeasible, as well as other uses or disclosures that may
be required by law.
In addition, our record retention policy will require endorsed
sponsors to continue to apply security and privacy protections to the
record and the information contained therein to the same extent
endorsed sponsors are required to do so prior to termination. We
establish this requirement under the authority granted the Secretary
under section 1860D-31(h)(8) of the Act to protect and promote the
interests of beneficiaries. The interests of beneficiaries are
furthered by continuing to protect the confidentiality, integrity, and
availability of their protected health information for so long as these
records are retained by an endorsed sponsor.
We believe our retention policy is necessary to preserve our
ability and that of other Federal and State agencies to exercise
appropriate oversight over endorsed sponsors and protect the interests
of beneficiaries. We believe six years represents an appropriate time
period for this requirement because there is a six year statute of
limitations on bringing actions for civil monetary damages under
section 1860D-31(i)(3) of the Act against endorsed sponsors that
knowingly engage in conduct that violates the requirements of section
1860D-31 or our regulations. Our record retention policy is subject to
enforcement under Sec. 403.820(a) of our regulations.
11. Endorsed Sponsor Reporting
Section 1860D-31(h)(4) of the Act provides that endorsed sponsors
shall pass on negotiated prices to discount card enrollees, including
discounts with pharmacies and manufacturers, to the extent disclosed to
the Secretary. Further, section 1860D-31(i)(1) of the Act provides that
endorsed sponsors shall disclose to the Secretary (in a manner
specified by the Secretary) information relating to program
[[Page 69875]]
performance, use of prescription drugs by discount card enrollees, the
extent to which discounts, rebates or other remunerations or price
concessions made available to the endorsed sponsor by a manufacturer
are passed through to discount card enrollees through pharmacies or
otherwise, and such other information as the Secretary may specify. As
provided under these authorities and in order to promote and protect
the interests of beneficiaries, endorsed sponsors are required to
maintain for auditing purposes, data and other information that will
accomplish oversight objectives.
Additionally, we will collect information as part of our education
and outreach efforts described in Section II.E, to provide
beneficiaries comparative prices on covered discount card drugs across
all endorsed programs.
To meet these objectives, we specifically require in Sec.
403.806(i) of our regulations that endorsed sponsors report certain
types of information. Examples include:
[sbull] Savings obtained through rebates, discounts, and other
price concessions from pharmacies and manufacturers;
[sbull] Savings shared with discount card enrollees by
manufacturer, by all retail pharmacies, by all mail order pharmacies,
and by all brand name and generic covered discount card drugs;
[sbull] Dispensing fees;
[sbull] Certified (by the chief financial officer) financial
accounting records on transitional assistance used by the transitional
assistance enrollees in each month;
[sbull] Participant utilization and spending statements;
[sbull] Performance on customer service metrics such as call center
performance;
[sbull] Grievance logs;
[sbull] Compliance with the pharmacy network access standards; and
[sbull] Notice of, and the rationale for, negotiated price
increases, except for increases during the week of November 15, 2004,
due to reasons other than changes in average wholesale price (AWP),
including submission of an attestation that, based on best knowledge,
information, and belief, the rationale for the price increase is
accurate, complete, truthful, and supportable.
In addition, to support our education and outreach efforts endorsed
sponsors must report the following--
[sbull] Customer service hours,
[sbull] Customer service contact information,
[sbull] Endorsed program Web site address,
[sbull] Annual enrollment fee, and
[sbull] Negotiated prices (including any applicable dispensing fee)
for every covered discount card drug included in the endorsed program's
offering.
This is not an exhaustive list of the types of card program
performance we will monitor and evaluate, as we will, as described in
section II.F. of the preamble, also conduct activities independent of
this information to, for example, monitor whether marketing materials
are properly used; evaluate beneficiary experience under the endorsed
programs; and conduct program integrity activities.
The data and information that endorsed sponsors will be required to
report consist of performance measures and indicators typically
provided by third party administrators of pharmacy benefits in the
current drug industry. Endorsed sponsors must certify the validity and
completeness of the data and other information they report.
Further, during the endorsement period, endorsed sponsors will be
required to notify us of any material modifications to their endorsed
programs if the modification could put them at risk of no longer
meeting any of the terms of the endorsement.
Section 1860D-31(i)(1) of the Act provides that section
1927(b)(3)(D) of the Act, which guides the protection of proprietary
pricing information under the Medicaid program, shall also apply to the
drug pricing data (other than aggregated data) under the Medicare drug
discount card program. Consistent with the requirements of
1927(b)(3)(D) of the Act, we will handle any non-aggregated pricing
information in a manner that ensures that the non-aggregated discounts
or rebates or other remuneration or price concessions from
manufacturers to endorsed sponsors, and reported by the endorsed
sponsors, will not be made available in a format that discloses the
identity of particular drugs, manufacturers, or wholesalers. However,
the information may be disclosed in the circumstances described in
section 1927(b)(3)(D)--
(1) As the Secretary deems necessary to carry out section 1860D-31
of the Act;
(2) To permit the Comptroller General to review the information
provided; and
(3) To permit the Director of the Congressional Budget Office to
review the information provided.
We will provide a reporting tool to ensure consistent and
comparable reporting by endorsed sponsors. In developing the tool, we
will make an effort to minimize the reporting burden on endorsed
sponsors.
D. CMS Reimbursement of Transitional Assistance
All endorsed sponsors must enter into an agreement with CMS that
will provide for reimbursement from CMS to endorsed sponsors for any
transitional assistance applied toward the cost of covered discount
card drugs obtained by transitional assistance enrollees in accordance
with section 1860D-31(g)(3) of the Act. Under the contract, sponsors
will submit requests to debit each enrollee's transitional assistance
balance via the Department of Health and Human Services' Payment
Management System. These amounts will be reported to CMS and used to
reconcile payments, as provided in Sec. 403.822(c) of our regulations.
Endorsed sponsors will be required to submit monthly reports
detailing the total amount of transitional assistance applied toward
the cost of covered discount card drugs obtained by transitional
assistance enrollees. These reports will be reconciled against
transitional assistance balance reports used to authorize payments to
endorsed sponsors.
Endorsed sponsors will only be reimbursed for transitional
assistance applied toward the cost of covered discount card drugs for
claims that are fully adjudicated for payment; we will not reimburse
endorsed sponsors for pending claims. Further, as provided in Sec.
403.822(e) of our regulations, Federal funding in excess of the amount
of the balance included in CMS' systems is not permitted.
We also expect endorsed sponsors to establish a process for holding
pharmacies harmless, that is reimbursing pharmacies for their costs if
the endorsed sponsor erroneously informs the pharmacy that the amount
of transitional assistance remaining available to a transitional
assistance enrollee is more than the amount actually available to the
transitional assistance enrollee.
As discussed above in section II.C.6. of this document, should a
discount card enrollee be determined eligible for transitional
assistance after already enrolling in an endorsed program, we will pay
the annual enrollment fee and the endorsed sponsor must immediately
refund to the card enrollee, or any State that has paid the enrollment
fee on behalf of the discount card enrollee, any annual enrollment fee
for the calendar year previously paid by the discount card enrollee or
State. The endorsed sponsor would include this payment in its report to
us for our reimbursement.
Endorsed sponsors will be required to have a process for managing
payment
[[Page 69876]]
against an individual's transitional assistance cap to ensure that not
more than the amount of transitional assistance available is provided
to the individual. Additionally, endorsed sponsors will need to have a
process for managing transitional assistance in the event a
transitional assistance enrollee switches endorsed discount card
programs with a transitional assistance balance remaining. In this
case, the endorsed sponsor must ensure that the amount of transitional
assistance reported to CMS as remaining available for transfer to the
new endorsed program is a final number; that is, CMS will not adjust
the number at a later date to account for outstanding claims at the
time the amount was reported, nor will CMS provide additional
reimbursement to the endorsed sponsor to make up any difference. In
their applications, applicants must describe their processes for (1)
managing payment against transitional assistance caps, and (2) managing
payment such that remaining transitional assistance balances reported
to CMS at the time of an enrollee's disenrollment represent final
amounts. If processes that endorsed sponsors put in place to manage
payment in these cases could create a financial liability for a
transitional assistance enrollee, endorsed sponsors will be required to
inform these enrollees of such circumstances and any special
procedures.
Our procedures for reimbursing endorsed sponsors for transitional
assistance will be discussed in further detail in the solicitation and
pre-application conference.
E. CMS-Provided Beneficiary Education
1. General
In accordance with section 1860D-31(d)(1) of the Act, we plan to
disseminate to beneficiaries eligible for the discount card general
information about the availability of the program and general program
features, such as the limitation of enrollment to only one discount
card at a time, the initial enrollment date, and the potential use of
formularies containing the drugs on which discounts are available. We
also plan to disseminate general information about the availability of
transitional assistance and the qualifying standards for the
assistance. In addition to the general information, we plan to
disseminate specific comparison information to promote informed
consumer choice among endorsed discount card programs, including--
[sbull] Enrollment fee;
[sbull] Customer service hours;
[sbull] Contact information;
[sbull] Program Web site; and
[sbull] Negotiated prices, to include the dispensing fee.
Finally, we plan to develop messages that are understandable and
meaningful for beneficiaries to support specific information about the
program in order to increase beneficiary knowledge about and motivation
to consider this program.
Section 1860D-31(d)(1)(C) of the Act states that both the general
information and the specific comparative information should, ``to the
extent practicable,'' be disseminated so that ``discount card eligible
individuals are provided such information at least 30 days prior to the
initial enrollment date.'' We will make available general program
information and a subset of comparison information for each card
program 30 days before the initial enrollment date and will coordinate
later information dissemination activities with our annual coordinated
education campaign on Medicare options. The provided comparison
information will not contain negotiated prices. Provision of ``price
comparison'' information to the public requires populating a database
with data files from each endorsed sponsor, with a standard format and
terminology, of negotiated prices, to include dispensing fee
information for each covered discount card drug. To ensure the accuracy
of prices on the Web site, endorsed sponsors must be allowed to
validate their submitted price information. These activities cannot be
completed before the start of the initial enrollment date. In the 30
days prior to the initial enrollment date, discount card eligible
individuals will be able to access specific prices by contacting
endorsed sponsors through the contact information we will provide.
2. Medicare Web site and Toll-free Information Line
Both general and comparison information will be made available to
Medicare beneficiaries on our Web site, http://www.medicare.gov, as
well as through the toll-free Medicare information line (1-800-
MEDICARE), which is available 24 hours per day, 7 days a week. To
generate awareness about the program and resources available to answer
consumer questions, we plan to use paid advertising, including
television, to reach the general audience and the Hispanic market. We
also expect a Medicare publication describing program features will be
available on http://www.medicare.gov and through 1-800 Medicare 30 days
prior to the initial enrollment date. We also expect to include an
overview of this program in the 2005 Medicare & You handbook, which
will reach beneficiaries in time to elect a new drug card for 2005. In
addition, we will strive to disseminate information to community level
organizations, State Health Insurance Assistance Programs, and our
other partners that represent the needs and the interests of the
diverse Medicare beneficiary population.
To report on negotiated prices, as requested in section 1860D-
31(d)(1)(B)(i) of the Act, we will provide, through http://www.medicare.gov
, a price comparison Web site that will include
maximum, and possibly ranges of, negotiated prices, including the
dispensing fee, in actual dollars for the purpose of comparing across
endorsed discount card programs. These prices will reflect an estimate
of the maximum price charged at the point of sale. This Web site should
also include information about generic substitutes. All of this
comparative information will assist beneficiaries in deciding which
Medicare discount card will offer them the greatest financial
advantage. We will provide education that drugs and prices may vary
over time.
As described in Sec. 403.806(i)(4)(v), to support the price
comparison Web site, drug card sponsors may submit updated data files
on a weekly basis to include information on customer service hours,
contact information, program Web site, enrollment fee, and negotiated
prices, including the dispensing fee. We will specify a standard file
format and timing for submitting these data elements to us in the
solicitation for endorsed sponsors. At a minimum, each file will
include the maximum negotiated price for every covered discount card
drug under the card program. As required in Sec. 403.806(d)(5) of our
regulations, maximum negotiated prices available under the endorsed
discount card program must match those reported on the price comparison
Web site. We believe that a weekly update of information is frequent
enough to allow endorsed sponsors to adjust to fluctuating supply
prices, but also ensures that accurate price information is available
to discount card eligible individuals and card enrollees at all times.
The effort to allow more frequent updates is not practical because we
must coordinate creating a new database of prices from all endorsed
sponsors.
As discussed in section II.C.7. of this document, in order to
communicate the Secretary's endorsement of a prescription drug discount
card program, as required in section 1860D-31(a)(1)(A) of the Act, we
will create
[[Page 69877]]
and authorize the use of a Medicare-Endorsed Prescription Drug Card
emblem. This emblem will be used to communicate that Medicare has
endorsed a stable and reputable drug card. We will develop standards
for use of the emblem to be included in the Information and Outreach
Guidelines.
In addition to answering beneficiary questions about the drug
discount card program, the 1-800 MEDICARE call center will also log and
help triage discount card members' complaints for resolution through
the complaints tracking process discussed in greater detail under
section II.F. of this document.
Physicians and pharmacists are an important source of information
for discount card eligible beneficiaries. Although not required by the
legislation, we also plan to conduct provider outreach activities
through a variety of channels to make physicians and pharmacists aware
of this program and to educate them about the specific features. We
hope that increased physician and pharmacist awareness will bolster
beneficiary awareness and improve the quality of their card choice and
their ultimate cost-savings. We also believe that physician and
pharmacist promotion of the program will encourage low-income
individuals to enroll and access the available transitional assistance.
F. CMS Oversight and Monitoring
1. General
Consistent with section 1860D-31(i)(2) of the Act, we will develop
a drug discount card program oversight system to ensure compliance with
program requirements.
We will develop and operate a complaint (also referred to as
``grievance'') tracking system to monitor and manage complaints that
are not satisfactorily resolved through the endorsed sponsors' customer
complaints process. In accordance with section 1860D-31(d)(1)(D) of the
Act, we will develop a system for collecting beneficiary complaints
through our 1-800-MEDICARE toll-free telephone number. This system will
likely be augmented by a system for gathering and responding to
complaints acquired through the http://www.medicare.gov Web site as
well as through Congressional and other types of correspondence. We
will also analyze the reports provided by endorsed sponsors on their
program performance. In addition, we plan to conduct mystery shopping
and a beneficiary satisfaction survey. We plan to use these various
sources of information to observe possible trends that indicate less
than satisfactory performance, significant departures from the marketed
card program offering, or fraud or other violations of State and
Federal laws. We anticipate tracking complaints related to--
[sbull] Deceptive marketing and enrollment practices;
[sbull] Violations of the confidentiality provisions;
[sbull] Persistent inconsistencies in formulary or pricing
information compared to those available at the point of sale;
[sbull] Inadequate endorsed sponsor customer service;
[sbull] Persistent problems with pharmacy network services or
providers;
[sbull] Denying transitional assistance to qualified beneficiaries;
[sbull] Arbitrary variations in negotiated prices offered; and
[sbull] Any additional changes that put the endorsed sponsor at
risk of failing to continue to meet the endorsement requirements.
We will also refer complaints to Federal and State authorities when
violations of laws under the jurisdictions of these agencies are in
question.
a. Marketing and Enrollment Policies
We will also review information from our own enrollment systems for
data that may indicate endorsed sponsors' failure to comply with the
program's marketing or enrollment policies. We will examine claims and
pricing data reported by endorsed sponsors to determine whether
enrollees are receiving the savings promised through their discount
cards. Finally, we will review the grievance logs submitted by each of
the endorsed sponsors to examine trends in types of complaints and to
ascertain whether endorsed sponsors are responding appropriately to
enrollee service complaints.
b. Transitional Assistance Payments
We will also monitor the allocation and tracking of the annual
transitional assistance payments for eligible enrollees. As a
qualification for endorsement, under section 1860D-31(h)(1)(C) of the
Act, endorsed sponsors are required to have satisfactory arrangements
to account for the transitional assistance. To ensure that transitional
assistance is made available on behalf of the proper beneficiaries and
that it is used only to purchase covered discount card drugs, we will
contract with auditors to analyze select claims and other information
maintained by the sponsors related to the payment and tracking of the
transitional assistance. As necessary, we will exercise our authority,
under section 1860D-31(i)(2) of the Act, to conduct audits and to
inspect the records of endorsed sponsors related to the operation of
the drug discount card program.
2. Intermediate Sanctions
Under section 1860D-31(i)(3) of the Act, we may impose intermediate
sanctions against endorsed sponsors in the form of suspended marketing
and enrollment activities in a manner similar to the sanctioning
process under Part C. In Sec. 403.820(a)(3), we have identified the
following bases related to significant performance requirements for the
imposition of intermediate sanctions--
(1) Substantial failure to maintain an adequate contracted retail
pharmacy network;
(2) Substantial failure to comply with our information and outreach
guidelines;
(3) Substantial failure to provide enrollees with negotiated prices
consistent with information provided on our price comparison Web site
and/or reported by the sponsor;
(4) Except during the week of November 15, 2004 (which coincides
with the beginning of the annual coordinated election period),
substantial failure to ensure that the negotiated price for a covered
discount card drug does not exceed an amount proportionately greater
than the change in the drug's average wholesale price (AWP), and/or an
amount proportionate to 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);
(5) Charging card program enrollees additional fees beyond the $30
enrollment fee;
(6) Charging transitional assistance enrollees any enrollment fee;
(7) Charging a coinsurance rate higher than 10 percent for those
above 100 percent of the poverty line and up to 135 percent of the
poverty line, or charging a coinsurance rate higher than 5 percent for
those at or below 100 percent of the poverty line;
(8) Substantial failure to properly administer the transitional
assistance funding for transitional assistance enrollees;
(9) Substantial failure to provide us or our designees with
requested information related to the endorsed sponsor's drug card
operations;
(10) Substantial failure to comply with the requirements of the
[[Page 69878]]
endorsement, including failing to perform the operational requirements
of this program, or the failure to submit an acceptable plan of
correction within the time frame specified by CMS; and
Upon determining that at least one basis exists for imposing an
intermediate sanction, our regulations at Sec. 403.820(a)(4) provide
that we will notify the non-compliant endorsed sponsor of our intent to
impose sanctions. The endorsed sponsor will have 15 days to challenge
the accuracy of our finding. If the endorsed sponsor does not challenge
the finding, the sanctions will go into effect 15 days after the
endorsed sponsor received the sanction notice from us. If the endorsed
sponsor does challenge the finding, we will notify the sponsor of the
effective date in the reconsideration determination notice that we will
send to the endorsed sponsor. Once intermediate sanctions are imposed,
the endorsed sponsor will be required to demonstrate to us that it has
come into compliance with card program requirements before the
sanctions are lifted.
3. Civil Monetary Penalties
Section 1860D-31(i)(3) of the Act authorizes the imposition of
civil monetary penalties (CMP) against endorsed sponsors that knowingly
engage in conduct that violates the requirements of section 1860D-31 of
the Act or engage in false or misleading marketing practices. In Sec.
403.820(b) of our regulations, we interpret this to mean that those
endorsed sponsors that knowingly engage in conduct that violates the
conditions of their endorsement agreement with us or that constitutes
false or misleading marketing practices may be subject to CMPs.
We have divided the sanction authority between CMS and the
Department of Health and Human Services Office of the Inspector General
(OIG). As in Part C, where CMP authority is shared between these two
agencies, we have assigned sanction authority to OIG for those
violations that concern misleading or defrauding a beneficiary. We have
also assigned sanction authority to the OIG for misuse of transitional
assistance funds. On the other hand, we will have the authority to
impose CMPs in those instances where the endorsed sponsor's conduct
constitutes non-compliance with an operational requirement not directly
related to beneficiary protection. Accordingly, as provided in Sec.
403.820(b)(1) of our regulations, OIG will have the authority to impose
CMPs against an endorsed sponsor whom it determines has knowingly--
(1) Misrepresented or falsified information in information and
outreach or comparable material provided to a program enrollee or other
persons;
(2) Charged a program enrollee in violation of the terms of the
endorsement contract; or
(3) Used transitional assistance funds in any manner that is
inconsistent with the purpose of the transitional assistance program.
As provided in Sec. 403.820(b)(2) of our regulations, we will have
the authority to impose CMPs for an endorsed sponsor's--
(1) Substantial failure to maintain an adequate retail pharmacy
network;
(2) Substantial failure to comply with our information and outreach
guidelines;
(3) Substantial failure to provide us or our designees with
requested information related to the endorsed sponsor's drug card
operations;
(4) Substantial failure to provide enrollees with levels of
discounts or prices consistent with information provided in its
marketing materials;
(5) Charging card program enrollees additional fees beyond an
enrollment fee, charging transitional assistance-qualified enrollees
any enrollment fee, charging a co-payment higher than 10 percent for
those above 100 percent of the poverty line and up to 135 percent of
the poverty line, or charging a co-payment higher than 5 percent for
those at or below 100 percent of the poverty line;
(6) Substantial failure to administer properly the transitional
assistance, including the charging of coinsurance, for the endorsed
sponsor's eligible enrollees;
(7) Except during the week of November 15, 2004 (which coincides
with the beginning of the annual coordinated election period),
substantial failure to ensure that the negotiated price for a covered
discount card drug 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 materials changes to any discounts, rebates, or other price
concessions the sponsor receives from a pharmaceutical manufacturer or
pharmacy); or
(8) Any other failure to substantially comply with the requirements
of the endorsement, or the failure to submit an acceptable plan of
correction within the timeframe specified by CMS.
The CMS and the OIG may impose CMPs of up to $10,000 per violation.
We will impose CMPs and afford endorsed sponsor appeal rights according
to the procedures stated in 42 CFR parts 1003 and 1005.
We note that in addition to the sanctions described above, a card
sponsor's misuse of the Medicare name or emblem may subject them to the
penalties stated at 42 U.S.C. 1320b-10, which prohibits the misuse of
the Medicare name or emblem. In general, the statute authorizes the OIG
to impose penalties on any person who misuses the term, ``Medicare,''
or other names associated with DHHS in a manner which the person knows
or should know gives the false impression that it is approved,
endorsed, or authorized by DHHS. Offenders are subject to fines of up
to $5000 per violation or, in the case of a broadcast or telecast
violation, $25,000.
4. Termination by CMS
Pursuant to section 1860D-31(i)(3) of the Act, and as provided in
Sec. 403.820(c) we may terminate the contract of any endorsed sponsor
upon a determination that the sponsor no longer meets the requirements
for participation in the Medicare drug discount card program or that
the sponsor has engaged in false or misleading marketing practices (for
example, use of non-CMS-approved marketing materials, marketing outside
the approved service area, use of beneficiary information to market
services not directly related to the endorsed sponsor's Medicare card
program). The bases stated above for the imposition of intermediate
sanctions also serve as the bases for termination for failure to meet
the requirements for participation in the Medicare drug discount card
program. Prior to terminating a contract, we will afford the endorsed
sponsor an opportunity to develop and execute a CMS-approved corrective
action plan.
We will afford an endorsed sponsor the opportunity to appeal our
decision to terminate an endorsement contract as well as our decision
not to enter into a contract with an entity that applied for
endorsement. In each case, we will provide notice to the endorsed
sponsor stating the reasons for terminating the contract or failing to
endorse the program. These sponsors will have 15 days from the date of
the notice to file a request in writing for reconsideration to us. We
will then designate a hearing officer who is impartial and has no
interest in the matter pending for decision. CMS and the sponsor will
have the opportunity to submit evidence and participate in a hearing
convened by the hearing officer. The hearing officer will issue a
decision as soon as
[[Page 69879]]
practicable after the hearing. This decision is final and binding on
the parties and, as provided in Sec. 403.820(f)(11) of our
regulations, is not subject to judicial review.
Endorsed sponsors whose endorsement we terminate must notify all of
their card program enrollees in writing within 10 days of receiving our
notice of termination.
5. Termination by Endorsed Sponsor
An endorsed sponsor may terminate its contract with us in the event
that we substantially fail to perform our obligations related to this
program, as provided in Sec. 403.820(d). These obligations would
include, but are not limited to, our operation of the drug card
enrollment system, price comparison Web site, and reimbursement for
transitional assistance, as well as payment of enrollment fees for
beneficiaries eligible for transitional assistance and timely review of
marketing materials. An endorsed sponsor entering into a contract with
us has a reasonable business expectation that we will adequately
support the operation of the discount card program and that it will not
be held to the contract in the event that we are in significant breach
of that contract. Accordingly, we are adopting this termination
provision to promote the efficient administration of the Medicare drug
discount card program, consistent with section 1102 of the Act.
The endorsed sponsor will be required to provide a notice of
termination to us 90 days prior to its intended effective date and to
its enrollees by mail 60 days prior to the same date. The notice will
provide affected enrollees with a description of remaining endorsed
discount card programs available in its own area and the process for
enrolling in a new endorsed discount card program.
6. Termination by Mutual Consent
As provided in Sec. 403.820(e) of our regulations, CMS and an
endorsed sponsor may agree to terminate or modify an existing contract.
If a contract is terminated by mutual consent, the endorsed sponsor
must follow the enrollee notice procedures as required in the case of a
termination of the contract by an endorsed sponsor. We have adopted the
provision, as specified in Sec. 403.820(e), for mutual modification or
termination to address those circumstances when both parties may agree
that a contract termination is in the best interests of the endorsed
sponsor, taxpayers, Medicare beneficiaries, and the Medicare program,
allowing us to terminate an endorsed sponsor's endorsement contract
before its term expires. This is also a contracting provision that we
are adopting to promote the efficient administration of the Medicare
drug discount card program, consistent with section 1102 of the Act.
G. Special Rules Concerning Medicare Managed Care Organizations
1. General Requirements for Medicare Managed Care Organizations
As discussed in section II.C.1 of this document and codified in
Sec. Sec. 403.804(b) and 403.804(c) of our regulations, section 1860D-
31(h)(1)(A)(iv) of the Act provides that a Part C organization is
eligible to be an endorsed sponsor if it meets the requirements for
endorsement either individually or in combination with one or more
other entities. Sections 403.804(b) and 403.804(c) of our regulations
also make reasonable cost reimbursement plans eligible to be endorsed
sponsors provided they meet the requirements for endorsement. Medicare
managed care organizations--organizations offering coordinated care
plans as described in section 1851(a)(2)(A) of the Act and reasonable
cost reimbursement plans under section 1876(h) of the Act--qualifying
for endorsement may offer their endorsed program to all discount card
eligible individuals residing in their service area(s) or only to those
discount card eligible individuals enrolled in one or more of the
Medicare managed care organization's plan(s). All other Part C
organizations qualifying for endorsement must offer their endorsed
program to all discount card eligible individuals residing in their
service area(s). Part C organizations and reasonable cost reimbursement
contracts that offer an endorsed program to all discount card eligible
individuals must meet the requirements for endorsement applicable to
all other applicants endorsed sponsors. However, as discussed below in
section II.G.2.a of this document, special rules apply to Medicare
managed care organizations that limit enrollment in their endorsed
program to members of one or more of their Medicare managed care plans.
Under section 1860D-31(g)(7) of the Act, any nonuniformity in
benefits offered by a Part C organization to its Part C plan members
resulting from implementation of the Medicare drug discount card
program, including payment or waiver of any enrollment fee for an
endorsed program and limiting transitional assistance to transitional
assistance enrollees, will not be taken into account in applying the
requirement, set forth in section 1854(f)(1)(D) of the Act that any
additional benefits offered by a Part C organization be provided
uniformly to all Part C plan members. Accordingly, as provided in Sec.
403.814(c) of our regulations, a Part C organization will not be
violation of this uniformity of benefits rule if it:
[sbull] Pays the annual enrollment fee, if any, for its Part C plan
members choosing to enroll in an endorsed program--whether operated by
the Part C organization or another endorsed sponsor--provided that any
such benefit is reflected in the Part C plan's Adjusted Community Rate
(ACR) filing;
[sbull] Waives the annual enrollment fee for its Part C plan
members enrolling in its endorsed program, provided that any such
benefit is reflected in the Part C plan's Adjusted Community Rate (ACR)
filing;
[sbull] Provides transitional assistance to transitional assistance
enrollees.
Although section 1860D-31 of the Act does not explicitly state that
it is creating an exception to the uniform premium rule under section
1854(c) of the Act and 42 CFR 422.100(d)(2), it authorized Part C plans
to offer non-uniform benefits that would be inconsistent with the rule.
For the reasons set forth below, we believe that in doing so, Congress
created a new implicit statutory exception to the uniform premium rule.
Under the uniform premium rule, as implemented in regulations, a Part C
organization must offer its Part C plan at a uniform premium, with
uniform benefits and cost-sharing levels throughout the plan's service
area (or segment of the plan's service area as provided in 42 CFR
422.304(b)(2)). Absent an exception to this rule, a Part C organization
offering its endorsed program to members of its Part C plan as an
optional supplemental benefit would be required to offer the benefit to
all of its members within the plan's service area (or segment of the
service area), and charge them the same annual enrollment fee. However,
as discussed above in section G.1. of this document, a Part C
organization is prohibited by statute from offering its endorsed
program to members of its Part C plan(s) that are not eligible for the
Medicare drug discount card program. Similarly, a Part C organization
offering an endorsed program may not collect an annual enrollment fee
from transitional assistance enrollees, but instead must collect this
fee from CMS. Consequently, a Part C organization offering an endorsed
program to members of its Part C plan(s) cannot comply with the
requirements of section 1860D-31 without violating the uniform premium
rule.
[[Page 69880]]
As discussed in Norman J. Singer's Statutes and Statutory
Construction (6th ed.), where two statutory provisions irreconcilably
conflict, courts generally hold that the more recently enacted
statutory provision prevails. Applying this principle, we believe that
in enacting the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003, Congress intended implicitly to except from
the uniform premium rule under Part C any non-uniformity resulting from
a Part C organization's implementation of its endorsed program. We
further note that in section 1860D-31(g)(7) of the Act Congress clearly
indicated its intent to allow non-uniformity in benefits among a Part C
plan's members as a result of a Part C organization's implementation of
its endorsed program. Accordingly, as provided in Sec. 403.814(c) of
our regulations, a Part C organization would not be violation of the
uniform premium rules under section 1854(c) of the Act and 42 CFR
422.100(d)(2) if it:
[sbull] Offers its endorsed program to members of its Part C plan
who are discount card eligible individuals, to the exclusion of those
members who are not discount card eligible individuals; or
[sbull] Collects an annual enrollment fee only from discount card
enrollees who are not eligible for transitional assistance.
Section 18060D-31(a)(3) provides that discount card eligible
individuals cannot be required to enroll in an endorsed program. In
keeping with the voluntary nature of the Medicare discount drug card
program, and as specified in Sec. 403.814(a) of our regulations, a
Part C organization or reasonable cost reimbursement plan may not
require enrollment in any endorsed program, whether operated by the
organization or another entity, as a condition of enrollment in any of
its Part C or reasonable cost reimbursement plans.
In addition, a Part C or reasonable cost reimbursement organization
may not require transitional assistance enrollees enrolled in its Part
C or reasonable cost reimbursement plan to exhaust their transitional
assistance prior to obtaining covered discount card drugs under any
drug benefit offered by its Part C or reasonable cost reimbursement
plan. We believe this policy is consistent with the Part C rules under
42 CFR 422.100(d)(2) and section 1876(g)(2) of the Act which require
that any additional benefit offered by a Part C or reasonable cost
reimbursement plan must be offered uniformly to all plan members.
Requiring transitional assistance enrollees to utilize their
transitional assistance prior to obtaining covered discount card drugs
under their Part C or reasonable cost reimbursement plan drug benefit
would violate these uniformity of benefits rules because non-
transitional assistance enrollees would be entitled to obtain covered
discount card drugs under the Part C or reasonable cost reimbursement
plan drug benefit while transitional assistance enrollees would be
prohibited from doing so until they exhaust their transitional
assistance. In other words, non-transitional assistance enrollees would
receive more generous drug coverage under the Part C or reasonable cost
reimbursement plan than transitional assistance enrollees. (Section
1860D-31(g)(7) of the Act waives the uniformity of benefits rule under
Part C only for purposes of implementing the Medicare drug card
program; that is, when non-uniformity directly results from
implementation of the drug card statutory provisions. Because any
requirement that transitional assistance enrollees first exhaust their
transitional assistance would stem not from implementation of the
Medicare drug discount card program but from the benefits package
offered under a Part C plan, the uniformity of benefits waiver under
section 1860D-31(g)(7) of the Act would not apply.) We also note that
our prohibiting Part C organizations from requiring their transitional
assistance enrollees to first exhaust their transitional assistance
prior to utilizing their drug benefit under their Part C plan means
Part C plans will not need to take transitional assistance into account
in their annual ACR filings.
As discussed in II.A.6. of this document and provided in our
regulations at Sec. 403.811(b)(2)(iii), discount card enrollees may
disenroll from their endorsed program and enroll in a new endorsed
program during a special election period when enrolling in or
disenrolling from a Part C or reasonable cost reimbursement plan
offering an endorsed program, irrespective of whether the Part C or
reasonable cost reimbursement plan offers an endorsed program of any
kind. We will automatically disenroll card enrollees from their
endorsed program when they enroll in or disenroll from a Medicare
manage care plan offering an exclusive card program. Further, in
accordance with our regulations at Sec. 403.808(f)(3), any
transitional assistance remaining available to a transitional
assistance enrollee electing to switch to a new endorsed program
following his or her enrollment in or disenrollment from a Part C or
reasonable cost reimbursement plan offering an endorsed program will
follow the transitional assistance enrollee to his or her new endorsed
program.
2. Special Rules for Applicants Seeking To Offer Exclusive Card
Programs
a. Endorsement Requirements for Applicants Seeking To Offer Exclusive
Card Programs
Applicants seeking to offer an exclusive card program must indicate
their intent to do so on their applications. For Medicare managed care
organizations seeking to offer an exclusive card program, if the
Medicare managed care organization combines with one or more other
entities eligible to meet the requirements of endorsement, the Medicare
managed care organization must be the applicant, as required under
Sec. 403.814(b)(1) of our regulations. We require this because we want
to ensure that our endorsed sponsor contract--and, ultimately,
accountability for an endorsed program--is with the Medicare managed
care organization itself, and not with any of the entities with which
it combines to offer an endorsed program. If a Medicare managed care
organization will not offer an exclusive card program, we will permit
another entity with which the Medicare managed care organization
combines to be the applicant.
We will not require Medicare managed care organizations operating
more than one Medicare managed care plan to offer its exclusive card
program to members of all of its Medicare managed care plans; rather,
the Medicare managed care organization may limit enrollment in its
exclusive card program to members of only certain Medicare managed care
plans it operates. Members of the organization's other Medicare managed
care plans are free to enroll in any other endorsed program, including
any non-exclusive endorsed program offered by the Medicare managed care
organization, provided they meet the eligibility criteria for the
program.
Section 1860D-31(h)(9)(B) of the Act exempts exclusive card
sponsors from certain requirements generally applicable to endorsed
sponsors, including: (1) The requirement set forth in section 1860D-
31(h)(3) of the Act and Sec. 403.806(f)(1) and Sec. 403.806(f)(2) of
our regulations concerning minimum service areas; and (2) the pharmacy
access standard under section 1860D-31(e)(1)(B) of the Act and Sec.
403.806(f)(3) of our regulations.
Although a Medicare managed care organization may limit enrollment
in its
[[Page 69881]]
exclusive card program to members of one or more of its Medicare
managed care plans that include the exclusive card program as part of
the plans' benefit package, the Medicare managed care organization must
offer its exclusive card program to all discount card eligible
individuals enrolled in those specific Medicare managed care plan(s). A
Medicare managed care organization may not limit enrollment in its
exclusive card program to only some discount card eligible individuals
enrolled in those Medicare managed care plan(s) to the exclusion of
other discount card eligible individuals because this would violate the
uniformity of benefits provisions under section 1854(f)(1)(D) of the
Act and 42 CFR 422.100(d)(2).
We also implement the exception from pharmacy access standards in
section 1860D-31(h)(9)(B)(ii) of the Act and Sec. 403.814(b)(3)(i) of
our regulations by deeming exclusive card sponsors as having met such
standards if--
[sbull] The network is not limited to mail-order pharmacies; and
[sbull] The network is equivalent to the pharmacy network under any
outpatient drug benefit offered under the Medicare managed care
organization's Medicare managed care plan which was previously approved
by us under the Medicare Part C or Section 1876 rules.
If the Medicare managed care organization does not offer a drug
benefit under its Medicare managed care plan, we will evaluate whether
the network provides sufficient access to covered discount card drugs
at negotiated prices for discount card enrollees using the same
considerations we currently use to evaluate Medicare managed care
plans' other provider networks under 42 CFR 422.112.
We are not applying the standards of Sec. 403.806(f)(3) of our
regulation because these standards may be impracticable for exclusive
card sponsors. Medicare managed care organizations currently do not
have to follow these standards in establishing their pharmacy networks.
We presume that many exclusive card sponsors will wish to use the same
pharmacy networks under their endorsed program as they currently use to
provide prescription drugs under any prescription drug benefit they may
offer to their Medicare managed care plan members. Moreover, given the
size of exclusive card sponsors' service areas relative to the
statewide service areas of other sponsors, the pharmacy access
standards contained in Sec. 403.806(f)(3) of our regulation may be too
restrictive. In addition, Medicare managed care organizations that use
plan-owned pharmacy networks would have a difficult time meeting these
access standards.
In addition to the requirements Congress specifically waived in
section 1860D-31(h)(9)(B) of the Act, section 1860D-31(h)(9)(B)(iii)
authorizes the Secretary to waive other endorsed sponsor requirements
if those requirements are duplicative of or conflict with requirements
applicable to Medicare managed care organizations under Part C (and the
regulations promulgated thereunder) or section 1876 (and the
regulations promulgated thereunder), as the case might be, or if waiver
of the requirements would improve coordination of the benefits
available under the Medicare drug discount card program and Medicare
managed care plan programs. We believe the following requirements,
discussed in section II.C of this document, are duplicative of, or
conflict with, requirements applicable to Medicare managed care
organizations under Medicare managed care plan programs, or that waiver
of such requirements would improve coordination of the Medicare drug
discount card program with Medicare managed care plan benefits--
(1) The covered lives requirement in Sec. 403.806(a)(3) of the
regulations;
(2) The requirement set forth in Sec. 403.806(e)(2) of our
regulations that transitional assistance be applied only toward costs
incurred for covered discount card drugs obtained through the Medicare
drug discount card program. Instead, we also permit transitional
assistance to be used to pay for coinsurance, copayments, or other
cost-sharing charged under a Medicare managed care plan drug benefit
when beneficiaries purchase covered discount card drugs.
In addition, although applicants seeking to offer an exclusive card
program must meet the business integrity and financial stability
requirements in Sec. 403.806(b) of our regulations, we will not
require their applications to include the documentation we generally
require of applicants to demonstrate compliance with this requirement,
as described in section II.C.1. of this document, because such
documentation would be duplicative of what these organizations already
must demonstrate to us under the provisions of Part C and section 1876
of the Act.
We believe it is appropriate to waive the 1 million covered lives
requirement for exclusive card programs because 1 million covered lives
is more than most Medicare managed care organizations currently enroll
in their Medicare managed care plans and is far higher than the minimum
enrollment requirements for Medicare managed care organizations under
42 CFR 422.514 and 42 CFR 417.413(b). Moreover, the service area for
exclusive card programs will be limited to the affiliated Medicare
managed care plan service area, which could be as low as several
thousand individuals for some plans. Therefore, the 1 million covered
lives standard potentially would conflict with the minimum enrollment
requirements for Medicare managed care plans and pose challenges for
certain Medicare managed care organizations seeking to coordinate
benefits under their Medicare managed care plans and newly created
endorsed programs. Our failure to waive the 1 million covered lives
requirement for exclusive card programs likely would have the effect of
excluding from the Medicare drug discount card program small Medicare
managed care organizations that might otherwise meet the endorsement
requirements.
We believe it is appropriate to waive the transitional assistance
requirements in Sec. 403.806(e)(2) of our regulations. We believe
exclusive card sponsors should be permitted to apply transitional
assistance toward any copay, coinsurance, and deductible amounts
incurred by transitional assistance enrollees for covered discount card
drugs obtained under their Medicare managed care plan's outpatient drug
benefit in order to improve coordination between the benefits provided
under their endorsed programs and Medicare managed care plans. Because
of differences between the cost-sharing structure under a Medicare
managed care plan's outpatient prescription drug benefit and the
coinsurance requirements under the Medicare drug discount card program,
as required under section 1860D-31(g)(1)(B) of the Act, transitional
assistance enrollees could be responsible for a larger portion of a
drug's costs if obtained under the Medicare managed care plan drug
benefit than under the Medicare drug discount card program. Allowing
transitional assistance enrollees to apply transitional assistance
toward any cost-sharing amounts incurred for covered discount card
drugs obtained under their Medicare managed care plan drug benefit
would address this problem while allowing for more seamless drug
coverage.
Although applicants seeking to offer an exclusive card program must
meet the business integrity and financial stability requirements under
Sec. 403.806(b) of our regulations, we believe the process for
demonstrating compliance with this requirement, as
[[Page 69882]]
described in section II.C.1 of this document, is duplicative of aspects
of the qualification process that already exists under Part C and
section 1876 of the Act. Medicare managed care organizations are
currently required, under 42 CFR 422.400 or 42 CFR 417.120 and 42 CFR
417.122, to be licensed under State law as risk-bearing entities or,
alternatively, to obtain certification from a State that they meet the
financial solvency and other standards that the State may require for
the entity to operate as a managed care plan. Under these licensure or
certification requirements, Medicare managed care organizations must
demonstrate a level of business stability and integrity that generally
exceeds our standards for endorsed program applicants. Because
exclusive card sponsors already demonstrate business stability and
integrity through alternative processes, neither they nor their
subcontractors will be required to present documentation demonstrating
they meet the business stability and financial stability requirement
set forth in Sec. 403.806(b) of our regulations.
In addition to the aforementioned waivers, we will allow applicants
seeking to offer exclusive card programs to request in their
applications for endorsement that we waive or modify additional
requirements applicable to endorsed sponsors. Applicants making such
requests must demonstrate that the requirements at issue are
duplicative of, or conflict with, requirements applicable to Medicare
managed care organizations under Part C, or that they interfere with
coordination of the benefits offered under the Medicare drug discount
card program with benefits provided under Part C. If we determine that
waiver of any additional requirements applicable to endorsed sponsors
would be appropriate with respect to exclusive card sponsors, the
waivers will apply to all similarly situated exclusive card sponsors.
We are considering providing a streamlined application process for
applicants seeking to offer exclusive card programs that parallel the
discount cards currently offered under their Medicare managed care
plans. We will provide further guidance on this issue in the
solicitation.
b. Enrollment and Enrollment Fees in Exclusive Card Programs
As discussed in section II.A.3 of this document, and under section
1860D-31(c)(1)(E) of the Act, discount card eligible individuals
enrolled in a Medicare managed care plan offering an exclusive card
program may only enroll in the exclusive card program and may not
enroll in another endorsed sponsor's endorsed program. Discount card
eligible individuals enrolled in Medicare managed care plans that do
not offer an exclusive card program may enroll in any endorsed program
available in their service area.
As discussed above in section II.A.3 of this document and as
described in Sec. 403.814(b)(5) our regulations, we will allow
Medicare managed care organizations offering exclusive card programs to
group enroll their eligible Medicare managed care plan members into
their exclusive card programs--defined as simultaneous enrollment of
all or many members of a Medicare managed care plan into an exclusive
card program. However, prior to doing so, an exclusive card sponsor
must disclose to its Medicare managed care plan members its intent to
group enroll them into its exclusive card program and provide them the
opportunity to actively decline such enrollment.
c. Application Process
Section 403.804(a) of our regulations provides that only those
applicants submitting their applications for endorsement of their
prescription drug discount card programs by the deadline announced in
the solicitation will be eligible for endorsement. However, in
recognition of the advantages to members of Medicare managed care plans
from improved coordination between the benefits available under the
Medicare drug discount card program and their Medicare managed care
plans, we will permit certain Medicare managed care organizations to
apply for endorsement of their prescription drug card programs after
the official application deadline.
As discussed above, section 1860D-31(h)(9)(B)(iii) of the Act
authorizes the Secretary to waive requirements applicable to endorsed
sponsors for exclusive card sponsors if such waiver would improve
coordination of the benefits available under the Medicare drug discount
card program and Medicare managed care plan programs. One of the major
features of the Medicare discount drug card program is that it allows
Part C organizations to offer members in their plans a prescription
drug plan that integrates access to negotiated prices and transitional
assistance available under a drug card with the unique package of
benefits available in that Part C plan, including any prescription drug
benefit. Beneficiaries who choose to enroll in a new Medicare managed
care plan should have the same access to these coordinated discount
card programs as members of existing Part C plans. Therefore, as
provided under Sec. 403.804(a)(2) of our regulations, we will permit
an entity that is applying to enter into a new contract with CMS under
Part C to offer a new coordinated care plan or plans, as described in
section 1851(a)(2)(A) of the Act, to simultaneously apply to offer an
exclusive card program. We will approve such organization's application
to offer an exclusive card program provided we approve its Part C
application, the Part C organization demonstrates to CMS that it meets
all applicable requirements for endorsement, and the Part C
organization is ready to initiate enrollment in and fully operate its
exclusive card program upon approval of its Part C and endorsement
applications.
H. Special Rules Concerning States
1. State Pharmacy Assistance Programs
As described above in section II.A.1. of this document, under
section 1860D-31(b)(1)(A)(ii) of the Act and Sec. 403.810(a)(2) of
this regulation, beneficiaries with outpatient prescription drug
coverage under Title XIX (Medicaid) or a section 1115 waiver
demonstration are ineligible for the Medicare drug discount card
program. Conversely, beneficiaries with outpatient prescription drug
coverage under certain other sources may be eligible for the program
provided they meet all other eligibility criteria. For example, many
State and local governments provide outpatient prescription drug
coverage to individuals through State pharmacy assistance programs
(SPAP). Because these programs are operated separately from Title XIX
and section 1115 waiver demonstrations and are funded in whole or in
part by the State or local governments, without any Federal financial
participation, individuals enrolled in these programs still may be
eligible for the Medicare drug discount card program. The SPAPs have
flexibility in deciding how to work in partnership with endorsed
programs. For example, if a State has an SPAP operated by an entity
that meets the requirements for endorsement under Sec. 403.800 through
Sec. 403.822 of our regulations, that entity could apply to become an
endorsed sponsor. However, the entity would be required to meet all
requirements for endorsement, including the requirement that an
endorsed sponsor offer its endorsed program to all discount card
eligible individuals residing in the endorsed program's service area,
which may include individuals not eligible for the
[[Page 69883]]
SPAP. Should this or any other requirement for endorsement conflict
with the endorsed sponsor's arrangement with the State under its SPAP,
the endorsed sponsor and State would have to resolve this conflict.
Alternatively, a State could coordinate its SPAP with the Medicare drug
discount card program by contracting with an endorsed sponsor to
administer the SPAP and designing the SPAP benefits so as to wrap
around the benefits offered under the Medicare drug discount card
program, provided that the endorsed sponsor complies with all
applicable requirements of section 1860D-31 of the Act and our
regulations. Coordination between a SPAP and an endorsed program could
promote their offering a seamless outpatient drug benefit to
beneficiaries enrolled in both the SPAP and Medicare drug discount card
program.
2. Optional State Payment of Enrollment Fee
Section 1860D-31(c)(2)(F)(i) of the Act specifies that the
Secretary will establish an arrangement under which a State voluntarily
may provide for payment of some or all of the enrollment fee for some
or all discount card enrollees in the State who are not transitional
assistance enrollees. The portion of the enrollment fee paid by the
State and the category of discount card enrollees (other than
transitional assistance enrollees) entitled to State payment of all or
some of their enrollment fees is left to a State's discretion. Any
enrollment fee paid in whole or part by a State must be paid directly
to the endorsed sponsor. We want to provide States flexibility in
designing these arrangements to address circumstances particular to
that State. Therefore, rather than prescribe a single, specific method
for States to work in partnership with endorsed sponsors to pay the
enrollment fee on behalf of discount card enrollees, we simply provide
at Sec. 403.815(a)(1) of our regulations that States may enter into
payment arrangements with endorsed sponsors to provide payment of some
or all of the enrollment fee for discount card enrollees, provided the
enrollment fee is paid directly by the State to the endorsed sponsor.
Section 1860D-31(c)(2)(F)(ii) of the Act specifies that Federal
matching payments will not be available under titles XIX and XXI for
State expenditures for enrollment fees under the Medicare drug discount
card program. To implement this requirement, we are setting forth a new
provision at Sec. 403.815(a)(2) of our regulations that mirrors the
statutory provision.
3. Optional State Payment of Coinsurance
As discussed above, under section 1860D-31(g)(1)(B) of the Act,
available transitional assistance may be applied toward 90 or 95
percent of the cost of a covered discount card drug obtained under the
Medicare drug discount card program, with the transitional assistance
enrollees responsible for a 5 or 10 percent coinsurance amount,
depending on their income, unless the pharmacy waives those coinsurance
amounts. Section 1860D-31(g)(4)(B)(i) of the Act specifies that the
Secretary must establish an arrangement under which a State may provide
for payment of some or all of these coinsurance amounts for some or all
transitional assistance enrollees residing in the State. If a State
will pay all or some of these coinsurance amounts, the payment must be
paid directly by the State to the pharmacy involved. We want to allow
States flexibility in the design of these arrangements to address
circumstances particular to that State. Therefore, rather than
prescribe a single, specific method for States to work in partnership
with pharmacies to pay coinsurance on behalf of transitional assistance
enrollees, we are providing at Sec. 403.815(b)(1) of our regulation
that States may enter into payment arrangements with pharmacies to
provide payment of some or all of the coinsurance for transitional
assistance enrollees, provided the coinsurance is paid directly by the
State to the pharmacy involved. We leave it to the State's discretion
whether it will pay all or a portion of these coinsurance amounts, as
well as the category of transitional assistance enrollees entitled to
State payment of all or some of their coinsurance.
Under section 1902(a)(10)(E)(i) of the Act, States are required to
pay the coinsurance obligations (as defined in section 1905(p)(3)(B) of
the Act) for certain Medicare beneficiaries, with the Federal
government, in turn, reimbursing States for a portion of these payment
amounts. However, section 1860D-31(g)(4)(B)(ii) of the Act provides
that any State expenditures for the coinsurance of transitional
assistance enrollees will not be considered State expenditures for
which Federal matching payments are available under titles XIX and XXI.
To implement this requirement, we are setting forth a provision at
Sec. 403.815(b)(2) of our regulations that mirrors the statutory
provision.
Section 1860D-31(g)(4)(B)(iii) of the Act provides that the
coinsurance liability of transitional assistance enrollees is not a
cost-sharing obligation set forth in section 1905(p)(3)(B) of the Act.
This means that States are not required to pay the coinsurance
liability incurred by transitional assistance enrollees who are also
Qualified Medicare Beneficiaries (QMBs) (as defined in section
1905(p)(1) of the Act) under the Medicaid program. To implement this
requirement, we are setting forth a provision at Sec. 403.815(c) of
our regulations that mirrors the statutory provision.
4. State Data
As discussed in section II.A.1. of this document, under section
1860D-31(b)(1) of the Act and Sec. 403.810(a)(2) of our regulations,
beneficiaries residing in the 50 States or the District of Columbia
with outpatient prescription drug coverage under Title XIX (Medicaid)
or a section 1115 waiver demonstration are ineligible for the Medicare
drug discount card program. As discussed in section II.A.2 of this
document, we will verify beneficiaries' eligibility for the program. To
perform this function, we require data from the 50 States and the
District of Columbia that will allow us to identify those Medicare
beneficiaries eligible under Medicaid or a section 1115 waiver
demonstration for outpatient drug coverage. Section 1860D-
31(f)(3)(C)(ii) of the Act provides the 50 States and the District of
Columbia must provide to us information relating to our verification
process under the program, in the manner specified by us, as a
condition of the provision of Federal financial participation to a
State under Title XIX. Section 1935(a)(1) of the Act similarly
conditions receipt of Federal financial assistance under Title XIX upon
a State's provision this data. Finally, section 1902(a)(66) of the Act
provides that a State plan under Title XIX must provide for making
eligibility determinations under section 1935(a) of the Act, which as
previously noted includes the provision of eligibility data to us. We
will specify the data we require and the manner in which states should
provide us the data in a future communication to the State Medicaid
directors.
Section 1935(a)(3) of the Act provides that amounts expended by a
State in carrying out 1935(a) of the Act, including the provision of
data related to our eligibility process, are State expenditures
reimbursable under the ``appropriate paragraph'' of section 1903(a) of
the Act, which sets forth the Federal share of State expenditures
[[Page 69884]]
under a State plan under Title XIX. As States' expenditures related to
the provision of this data do not fall within the activities covered
under sections 1903(a)(1) through (6) of the Act, we believe the only
paragraph under section 1903(a) of the Act that would capture these
expenditures is section 1903(a)(7) of the Act. Section 1903(a)(7) of
the Act provides for a federal share of 50 percent for State
expenditures ``found necessary by the Secretary for the proper and
efficient administration of the State plan'' that are not already
covered under sections 1903(a)(1) through (6) of the Act. Because
States are required to provide us the eligibility data under their
State plan, we believe related State expenditures are necessary for the
proper administration of the State plan. Section 403.815(d)(2) of our
regulations therefore provides that expenditures made by a State in
connection with providing us eligibility data will be treated as State
expenditures for which Federal matching payments are available under
section 1903(a)(7) of the Act. Accordingly, States will be reimbursed
50 percent of these expenditures.
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
Section 1860D-31(g)(5)(A) of the Act provides that the Secretary
shall establish procedures and may waive requirements as necessary to
negotiate arrangements with sponsors to provide arrangements with
pharmacies that support long term care facilities in order to ensure
access to transitional assistance for transitional assistance eligible
individuals who reside in long term care facilities.
Further, section 1860D-31(g)(5)(B) provides that the Secretary
shall establish procedures and may waive requirements to ensure that,
for purposes of providing transitional assistance, Indian Health
Service, Indian Tribe and Tribal Organization, and Urban Indian
Organization (I/T/U) pharmacies have the opportunity to participate in
the pharmacy networks of at least two endorsed discount card programs
in each of the 50 States and the District of Columbia where such a
pharmacy operates.
In the United States, there are approximately 16,380 Medicare and
Medicaid certified skilled nursing facilities and nursing facilities
(source: On-Line Survey and Certification and Reporting (OSCAR) System,
August, 2003). About 1.3 million Medicare beneficiaries are residents
of extended-stay skilled nursing facilities and nursing facilities
(Source: 2001 Medicare Current Beneficiary Survey). Among the 1.3
million, the vast majority of these individuals (72 percent) are
enrolled in both Medicare and Medicaid, and therefore will be
ineligible for the Medicare endorsed discount card program if they have
drug coverage through Medicaid. Of the remaining approximately 400,000
Medicare nursing home residents, some portion--perhaps as many as
200,000--may be eligible for transitional assistance under this
program. Approximately 3,000 pharmacies support these facilities
(source: American Society of Consultant Pharmacists, verbal
communication, August 2003.).
Generally speaking, long term care pharmacies provide access to
prescription drugs to residents of skilled nursing facilities and
nursing facilities through medical benefits that are coordinated by the
long term care facilities in cooperation with the long term care
pharmacies. Further, the medications provided are often specially
packaged to provide quality control. These, among other circumstances,
contribute to such pharmacies not being well integrated into the
private networks maintained by the pharmacy benefit management
industry. The provisions of section 1860D-31(g)(5)(A) of the Act
provide an opportunity for long term care pharmacies to provide
prescriptions to residents of long term care facilities through the
usual distribution channels established by these facilities, while
offsetting the cost borne by such residents when their medical coverage
either does not apply or has been exhausted.
We estimate that there are approximately 87,000 AI/ANs over the age
of 65 who use the services of the Indian Health Service, and another
20,000 or so such individuals who are under the age of 65 years and
eligible for Medicare by virtue of a disability (source: Indian Health
Service). Of the total, about 36,000 are covered by Medicaid and we
estimate that a total of about 18,000 may be eligible for transitional
assistance. There are 201 I/T/U pharmacies in 27 States, with 152
operating in ambulatory settings and 49 operating in hospitals. Table 3
depicts the number of these pharmacies by State.
Generally speaking, I/T/U pharmacies provide access to prescription
drugs off of the Federal Supply Schedule to AI/ANs, and these
pharmacies are not well integrated into the private networks maintained
by the pharmacy benefit management industry. The provisions of section
1860D-31(g)(5)(B) of the Act provide an opportunity for I/T/U
pharmacies to provide prescriptions to AI/ANs at the low Federal Supply
Schedule rate, whereby coverage of the cost of such drugs would in Part
Come from transitional assistance funds, and in part from Indian Health
Service funds.
To meet the requirements of section 1860D-31(g)(5) of the Act, we
are strongly encouraging endorsed sponsors to offer a plan in their
application for endorsement to include long term care and/or I/T/U
pharmacies in their networks for the purpose of administering
transitional assistance. As will be provided in greater detail in the
solicitation, CMS intends to employ a competitive process to select for
``special endorsement,'' among interested applicants, in each of the 50
States and the District of Columbia, at least two applicants that, in
accordance with Sec. 403.816(b)(2) of our regulations, agree to
contract with any willing long term care pharmacy provider in the
endorsed sponsors' service areas seeking to participate in their
pharmacy networks. Similarly, CMS intends to select at least two
applicants for ``special endorsement'' in each of the 50 States and the
District of Columbia where I/T/U pharmacies operate, in accordance with
Sec. 403.816(d)(2) of our regulations, to contract with any I/T/U
pharmacy in the endorsed sponsors' service areas seeking to participate
in their networks.
Selection criteria will be further discussed in the solicitation
and will include understanding and accommodation of, as well as prior
experience with, the unique circumstances of these special pharmacies,
the percent of all long term care and/or I/T/U pharmacies within the
proposed service areas to be provided contracts, the expansiveness of
the proposed service area, completeness and feasibility of the plan for
favorable access, and timeliness of implementation. The selected
applicants, also called special endorsed sponsors, will provide for
terms in these special pharmacy contracts to accommodate certain unique
attributes of these pharmacies, described below, which are intended to
improve access to needed prescription drugs and transitional assistance
by long term care residents and AI/ANs. Also, as described below, we
will work closely with interested applicants and special endorsed
sponsors to provide technical assistance and other incentives.
As described above, the Secretary must ensure that transitional
assistance-
[[Page 69885]]
eligible residents of long term care facilities have access to
transitional assistance. Additionally, the Secretary must ensure that
I/T/U pharmacies utilized by AI/ANs have the opportunity to participate
in the pharmacy networks of at least two discount cards for the purpose
of providing transitional assistance. We believe the best way to ensure
that AI/ANs and residents of long term care facilities have the
opportunity to receive transitional assistance is to promote a
competition for ``special endorsement'' to serve these beneficiaries.
We believe a competition among interested sponsors will encourage
better, more thoughtful plans for access to a market generally untapped
by the pharmacy benefit management industry.
As discussed previously, pharmacies supporting long term care
facilities and AI/ANs are not generally included in the traditional
pharmacy networks of the pharmacy benefit management industry, thus
representing potentially new lines of business for some applicants, or
possibly leveraging an existing niche market for some pharmacy benefit
management organizations. The competition will guarantee to the special
endorsed sponsors additional covered lives, an opportune business
strategy to grow enrolled lives and subsequent utilization, leading to
additional revenues. A ``guaranteed'' volume of new covered lives would
be needed to cover the fixed costs associated with starting up the
special provisions of these special pharmacy contracts. We believe that
the promise of a guaranteed volume for the winning applicant will be a
critical factor in whether the applicant decides to submit a plan that
covers long term care and/or I/T/U pharmacies. Without the competition,
we think that there is a high risk of drug discount card program
applicants not offering a plan. Literally speaking, we believe the
competition is necessary to assure these populations will have access
to any endorsed card program. Further, the competition will provide to
the special endorsed sponsors a ``special endorsement'' they can
market.
An added benefit of the competition to beneficiaries is that the
negotiations between these pharmacies and special endorsed sponsors to
accommodate these pharmacies' special circumstances, along with
technical assistance provided by CMS, can be accomplished relatively
quickly compared to the process necessary if all endorsed sponsors had
to accommodate these special circumstances. This will lead to a timely
implementation of these special provisions, improving access to
prescription drugs. In the case of long term care pharmacies, if
interested pharmacy benefit management organizations with niche
expertise in this area are able to meet our requirements and compete
successfully for the special endorsement, then participation may also
improve the timeliness of implementation and access to transitional
assistance for long term care residents.
The applicants selected for special endorsement will receive
assistance and support from CMS in setting up special contracting
arrangements with these pharmacies as needed. We intend to hold a
special break out session at the pre-application conference and, to the
extent that this would be useful to interested applicants and, if
feasible, CMS would arrange for the participation of the long term care
pharmacy industry and the Indian Health Service, to the extent
possible, provide a list of all pharmacies that support long term care
facilities and I/T/U pharmacies; provide for an expedited marketing
review to the extent possible; and provide special recognition for
these special endorsed sponsors on the CMS Web site that describes
their programs.
Additionally, as discussed in section II.C.1. of this document,
endorsed sponsors must provide us with sample copies of their contracts
with pharmacies participating in their network prior to commencing
outreach and enrollment activities. Because the arrangements between
special endorsed sponsors and long-term care and I/T/U pharmacies will
present unique challenges and represent new types of arrangements for
most special endorsed sponsors, special endorsed sponsors must only
make a good faith effort to finalize these arrangements as soon as
practicable; we will not require that these arrangements be finalized
and approved by us prior to the start of the special endorsed sponsor's
commencement of outreach and enrollment activities under its general
endorsement, if applicable.
One of the goals of the technical assistance will be to help
special endorsed sponsors understand the operations of these pharmacies
which may require that special contracting provisions be included in
the contracts between the special endorsed sponsors and these
pharmacies. Both types of pharmacies have a number of unique
characteristics that distinguish them from other retail pharmacies that
will be participating in the drug discount card program. For instance,
I/T/U pharmacies purchase drugs off the Federal supply schedule;
generally can only serve AI/ANs; are required by law to waive
copayments; and generally stock a more limited range of drugs compared
to other retail pharmacies. Further, a few may not have point of sale
technology.
Long term care pharmacies generally provide the drugs directly to
the skilled nursing facilities and nursing facilities where the patient
resides, not directly to the patient, under a medical benefit. They
also engage in a significant coordination of benefits effort that would
require at least some claims processed against the transitional
assistance to be processed off-line, not in real time.
Thus, as cited in Sec. 403.816 of our regulations, we may require
of special endorsed sponsors certain contracting provisions. First, we
will require that these sponsors contract with any willing provider of
these types in their service areas (Sec. 403.816(b)(2) and Sec.
403.816 (d)(2) of our regulations). Other likely special provisions in
the contracts between special endorsed sponsors and these pharmacies
include (Sec. 403.816(b)(4) and Sec. 403.816(d)(3) of our
regulations):
[sbull] For long term care: Long term care pharmacies are permitted
to provide covered discount card drugs only to transitional assistance
enrollees of the special endorsed sponsor's endorsed program who reside
in long term care facilities served by the pharmacy; special endorsed
sponsor may need to process special transaction type depending on
whether the pharmacy is recognized under HIPAA as a retail pharmacy
(that is, X12 versus NCPDP); and the special endorsed sponsor must
agree to process ``late'' claims without penalty as payer of last
resort after other insurance has been processed first.
[sbull] For I/T/U pharmacies: the pharmacy generally can only serve
AI/ANs (special endorsed sponsor must structure network and educate
enrollees so that non-AI/ANs understand these pharmacies generally are
not available to them); and pharmacy is not required to stock all
drugs.
An additional requirement, as provided in Sec. 403.816(b)(3) of
the regulation, special endorsed sponsors for long term care residents
will be required to process claims from any out-of-network long term
care pharmacies that supply covered discount card drugs to long term
care facility residents enrolled in the drug discount card program when
such beneficiaries have a transitional assistance balance remaining. As
residents in skilled nursing facilities and nursing facilities are
generally required by these entities to use the facility's selected
long term care pharmacy, this provision will
[[Page 69886]]
accommodate long term care pharmacies in the event they do not decide
to join the special endorsed sponsor's network.
Section 1860D-31(g)(5) of the Act grants the Secretary the
authority to waive requirements of the Medicare drug discount card
program as necessary to ensure that transitional assistance may be
applied toward covered discount card drugs obtained from long-term care
and I/T/U pharmacies. In recognition of the unique challenges facing
special endorsed sponsors who agree to include these pharmacies in
their pharmacy networks, we will waive application of certain
requirements if doing so is necessary to: (1) Ensure that a sufficient
number of applicants seek special endorsement; (2) enable the Medicare
drug discount program to start within 6 months of enactment of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003;
and (3) accommodate the unique needs of long-term care and I/T/U
pharmacies.
Section 403.806(e)(4) of our regulations require endorsed sponsors
to ensure that their pharmacies make available to transitional
assistance enrollees at the point of sale, either electronically or by
telephone, the amount of transitional assistance remaining available to
them. Because long-term care pharmacies may process claims off-line due
to coordination of benefit issues, there may be a lag in updating the
transitional assistance amount to reflect recent transactions involving
transitional assistance funds. Consequently, transitional assistance
enrollees could be informed that they have more transitional assistance
available to them than actually available if prior claims are still
pending. Because I/T/U pharmacies do not charge AI/ANs for drugs
obtained by them, AI/ANs obtaining drugs from these pharmacies will not
have any out-of-pocket expenditures, and therefore their drug
purchasing decisions will not be influenced by the amount of
transitional assistance remaining available to them. Therefore, as
provided in Sec. 403.816(c)(ii) and Sec. 403.816(e)(ii) of our
regulations, special endorsed sponsors are not required to ensure that
their long-term care and I/T/U pharmacies make available to
transitional assistance enrollees at the point of sale the amount of
transitional assistance remaining available to them.
In addition, section 1860D-31(g)(5) requires the availability of
transitional assistance to long-term care residents and those using I/
T/U pharmacies, but it does not discuss negotiated prices. Therefore,
under Sec. Sec. 403.816(c) and 403.816 (e) of our regulations, we
provide that special endorsed sponsors will not be required to provide
card enrollees access to negotiated prices at long-term care and I/T/U
pharmacies. Special endorsed sponsors will be required to provide AI/
ANs access to negotiated prices through non-I/T/U pharmacies included
in the endorsed sponsor's network. We believe that waiving this
provision is consistent with the statute as provided in section 1860D-
31(g)(5) of the Act, and the resultant reduction in administrative
burden is necessary so that applicants will be more likely to apply to
become a special endorsed sponsor.
As permitted under section 1860D-31(g)(5) of the Act, we will allow
applicants seeking special endorsement to request that we waive
application of one or more of the other requirements of the Medicare
drug discount card program. For instance, an applicant that intends to
solely contract with long term care pharmacies for the purpose of
administering transitional assistance through special endorsement, but
who is not interested in otherwise becoming an endorsed sponsor under
the Medicare drug discount card program, might request general waivers
of certain requirements pertaining to endorsement. In its application,
the applicant must cite the statutory or regulatory provision(s) it
wishes us to waive, and explain why: (1) Such waiver is necessary to
enable the applicant to either initiate enrollment activities within
six months of enactment of the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003 or accommodate the unique needs of long-
term care and/or I/T/U pharmacies; or (2) compliance with the
requirement(s) in question would be impracticable or inefficient.
Applicants also must provide an assessment of the impact of waiving the
requirement(s) in question on long-term care residents and/or AI/ANs.
If we grant the waiver, we will waive the applicable requirement(s) for
all similarly situated applicants seeking special endorsement.
Table 3.--I/T/U Pharmacies by State
------------------------------------------------------------------------
------------------------------------------------------------------------
Alaska......................................................... 14
Alabama........................................................ 1
Arizona........................................................ 21
California..................................................... 11
Colorado....................................................... 2
Connecticut.................................................... 1
Idaho.......................................................... 3
Kansas......................................................... 3
Maine.......................................................... 3
Michigan....................................................... 5
Minnesota...................................................... 6
Mississippi.................................................... 1
Montana........................................................ 13
North Carolina................................................. 1
North Dakota................................................... 6
Nebraska....................................................... 3
New Mexico..................................................... 20
Nevada......................................................... 8
New York....................................................... 3
Oklahoma....................................................... 37
Oregon......................................................... 7
South Dakota................................................... 11
Texas.......................................................... 1
Utah........................................................... 1
Washington..................................................... 11
Wisconsin...................................................... 6
Wyoming........................................................ 2
--------
Total...................................................... 201
------------------------------------------------------------------------
J. Special Rules Concerning Territories
1. Background
As discussed above in section II.A. of this document, Medicare
beneficiaries residing in the territories may be eligible for the
Medicare drug discount card program, but are not eligible for
transitional assistance under the program. However, as provided for
under section 1860D-31(j)(2) of the Act, the territories may establish
their own programs providing transitional assistance to low-income
beneficiaries. This section first discusses special rules for
applicants seeking to offer endorsed programs in the territories,
followed by a discussion of the transitional assistance available to
beneficiaries residing in the territories under programs established by
the territories. As background, Table 4 provides the total number of
Medicare beneficiaries in each of the U.S. Territories.
Table 4.--Medicare Beneficiaries by U.S. Territory
------------------------------------------------------------------------
Total
Medicare
Territory beneficiaries
as of 07/01/
2003
------------------------------------------------------------------------
American Samoa........................................... 2,977
Commonwealth of the Northern Mariana Islands............. 1,257
Guam..................................................... 9,372
Puerto Rico.............................................. 573,468
Virgin Islands........................................... 11,797
------------------------------------------------------------------------
Source: Medicare Enrollment Database
2. Discount Card
Medicare beneficiaries residing in the U.S. territories, which
include American Samoa, Commonwealth of the Northern Mariana Islands,
Guam, Puerto Rico, and Virgin Islands, are eligible to enroll in the
Medicare drug discount card program. Whereas Medicare beneficiaries
residing in the 50 States or
[[Page 69887]]
the District of Columbia are ineligible for the program if they have
outpatient prescription drug coverage under Medicaid or a section 1115
waiver demonstration, section 1860D-31(j)(1) of the Act grants the
Secretary the discretion to find Medicare beneficiaries residing in the
territories eligible for the program even if they receive outpatient
prescription drug coverage under Medicaid or a section 1115 waiver
demonstration. As provided in Sec. 403.817(d) of our regulations,
beneficiaries residing in the territories who have outpatient
prescription drug coverage under these sources will be eligible for the
program.
To ensure that eligible individuals residing in the territories
have access to endorsed programs offering negotiated prices, we will
select for special endorsement at least one applicant to provide
discounts for covered drugs in the territories. In accordance with
Sec. 403.817(a) of our regulations, these applicants must agree to
offer endorsed programs to residents of all the territories. Section
1860D-31(j)(1) of the Act allows us to waive the requirement for two
endorsed sponsors per State in section 1860D-31(h)(2)(D) of the Act, if
necessary to secure access to negotiated prices for beneficiaries in
the territories. Therefore, we will elect to limit the number of
special endorsed sponsors operating in each of the territories to at
least one in order to assure that a sufficient number of beneficiaries
will enroll in special endorsed sponsors' endorsed programs in the
territories, thereby justifying from a business perspective their
offering such programs. We believe these volume considerations will be
a critical factor in whether an applicant seeks special endorsement in
the territories.
We are concerned that in the absence of a competitive process for
special endorsement in the territories, an insufficient number of
applicants will seek to offer endorsed programs in the territories and
we therefore will be unable to ensure that residents of the territories
have access to negotiated prices.
Selection criteria for special endorsement in the territories will
include understanding, as well as prior experience with, the unique
challenges of providing a drug discount card in the territories, the
extensiveness of an applicant's pharmacy network in the territories,
the feasibility of the applicant's plan for offering an endorsed
program in the territories, and timeliness of implementation of its
plan. We will further discuss the selection criteria and the
competitive process for special endorsement in the solicitation.
As permitted by section 1860D-31(j)(1) of the Act, we will waive
certain sponsor requirements of the Medicare drug discount card program
in the territories if doing so is necessary to: (1) Ensure that a
sufficient number of applicants seek special endorsement in the
territories; (2) enable the Medicare drug discount card program to
start within six months of enactment of the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003; and (3) accommodate the
unique challenges faced by special endorsed sponsors in the
territories.
As provided in Sec. 403.817(c)(2) of our regulations, special
endorsed endorsed sponsors in the territories will not be required to
meet the pharmacy network access standard set forth in Sec. 403.806(f)
of our regulations and as explained in section II.C.3 of this document.
In addition, special endorsed sponsors are not required to maintain a
service area covering an entire territory if it proves impracticable to
do so, as otherwise required in Sec. 403.806(f)(2) of our regulations.
The pharmacy access standard provides that the pharmacies included in
an endorsed sponsor's network may not dispense drugs solely by mail-
order and must be located within certain distances of most
beneficiaries. We waive the distance requirement because in some
territories there are few retail pharmacies, and relative to pharmacies
in the 50 States and the District of Columbia, these pharmacies
generally are less inclined to participate in pharmacy networks
established by pharmacy benefit managers, discount drug cards, and
similar programs. Special endorsed sponsors therefore may be unable to
secure the participation of a sufficient number of pharmacies in the
territories to meet our pharmacy access standard. For this reason, if
after a good faith effort a special endorsed sponsor in the territories
is unable to secure the participation of a retail pharmacy in a
particular locale, they may offer a mail-order only pharmacy in that
locale. Because it may be impracticable to provide drugs by mail to
residents in more remote areas within a territory, we do not require
special endorsed sponsors to provide residents of these particular
areas with access to mail-order pharmacies, but the special endorsed
sponsor must demonstrate that a good faith effort has been made to
provide residents of these remote areas with discounts through retail
pharmacies, and must explain the reason why mail order is
impracticable. Provided endorsed sponsors make a good faith effort to
secure the participation in their networks of retail and mail-order
pharmacies throughout a territory, we will deem the service area
requirement set forth in Sec. 403.806(f)(2) and the network access
requirement set forth in Sec. 403.806(f)(3) of our regulations to be
met, as provided in Sec. 403.817(c)(2) of our regulations.
In recognition of the special challenges involved in delivering
mail-order drugs to residents of the territories, special endorsed
sponsors will need to educate their card enrollees in the territories
about any considerations they need to take into account to assure that
they receive safe and timely access to their prescription drugs, such
as the need to order their drugs in advance of their need for such
drugs. We recognize that in some cases special packaging needs (for
example, refrigeration) for particular covered discount card drugs may
make it impracticable to ship specific medications to the territories.
Card enrollees should be made aware of these limitations.
As provided in Sec. 403.817(c)(1)(ii) of our regulations, special
endorsed sponsors in the territories will not be required to comply
with Sec. 403.806(d)(8) of our regulations requiring that retail
pharmacies inform card enrollees of any differential between the price
of the drug to the card enrollee under their endorsed program and the
price to the card enrollee of the lowest priced generic covered
discount card drug that is therapeutically equivalent and bioequivalent
under the program. In recognition that few discount drug cards
currently have contractual relationships with retail pharmacies in the
territories, we are waiving this requirement to reduce the
administrative complexity of special endorsed sponsors' contracts with
participating retail pharmacies in the territories, which we believe we
will enhance applicants' willingness to apply for special endorsement
in the territories. However, mail-order drugs sent to residents in the
territories should include this price differential information in the
same manner such information is provided to card enrollees in the 50
States and District of Columbia who obtain mail-order drugs under the
program.
Because the arrangements between special sponsors and pharmacies in
the territories represent new types of arrangements for most special
endorsed sponsors, as with special endorsed sponsors agreeing to
include long-term care and for I/T/U pharmacies in their networks, we
only require that special endorsed sponsors in the territories make a
good faith effort to finalize these arrangements as soon as
practicable; we
[[Page 69888]]
will not require that these arrangements be finalized and approved by
us within 6 months after the date of enactment of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003.
As permitted under section 1860D-31(j)(1) of the Act, we will allow
applicants seeking special endorsement in the territories to request
that we waive application of one or more of the other requirements of
the Medicare drug discount card program. In its application the
applicant must cite the statutory or regulatory provision(s) it wishes
us to waive, and explain why: (1) Such waiver is necessary to enable
the applicant to either initiate enrollment activities in the
territories within six months of enactment of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 or accommodate the
unique needs of pharmacies in the territories; or (2) compliance with
the requirement(s) in question would be impracticable or inefficient.
Applicants also must provide an assessment of the impact of waiving the
requirement(s) in question on beneficiaries residing in the
territories. If we grant the waiver, we will waive the applicable
requirement(s) for all similarly situated applicants seeking special
endorsement.
We will provide technical assistance to applicants seeking to offer
endorsed programs in the territories, including holding a special
break-out session at the pre-application conference. In addition, as
additional incentives to encourage applicants to offer endorsed
programs in the territories, we will, to the extent possible, provide
expedited marketing review of special endorsed sponsors' information
and outreach materials, and provide special recognition for these
sponsors on the Medicare drug discount card Web site.
Applicants should note that special endorsed sponsors in the
territories will not be asked to administer transitional assistance on
behalf of CMS; rather, transitional assistance provided to residents in
the territories will be a separate program independently operated by
each territory, as described below.
3. Transitional Assistance
Section 1860D-31(j)(2)(A) of the Act provides that a territory may
provide transitional assistance to some or all individuals residing in
the territory who are entitled to benefits under part A or enrolled
under part B with incomes no more than 135 percent of the poverty line
for their family size, regardless of whether the individual receives an
outpatient drug benefit under Medicaid or any other coverage sources
(such as FEHBP, Tricare, or employer-sponsored health insurance). In
accordance with section 1860D-31(j)(2)(B) of the Act, a territory
wishing to provide transitional assistance to eligible beneficiaries
must submit to CMS for our approval a plan describing its proposed
transitional assistance program, including:
[sbull] The territory's criteria and process for determining
beneficiaries' eligibility for transitional assistance (including its
definition of income and family size) for individuals who reside in the
territories, who are entitled to benefits under Medicare Part A or
enrolled under Medicare Part B, and who have income at or below 135
percent of the poverty line for the contiguous United States; and
[sbull] The process for ensuring that allotment provided to the
territory under section 1860D-31(j)(2) of the Act will be used only to
provided covered discount card drugs to those individuals determined
eligible for transitional assistance; and
[sbull] The territory's assurance that it will operate its
transitional assistance plan as approved.
Section 1860D-31(j)(2)(C) of the Act provides that territories with
approved transitional assistance plans will receive in the aggregate
$35 million for the duration of the Medicare drug discount card
program, which will be allocated among such territories in the manner
described below. Territories must submit their plans to CMS within 90
days of the publication of this rule so as to allow us adequate time to
review and approve their plans and determine each territory's allocated
share of the $35 million.
CMS may request reports or information to substantiate that the
territories have administered the program consistent with the
territory's approved transitional assistance plan.
Section 1860D-31(j)(2)(D) of the Act provides that the Secretary
shall calculate the portion of the $35 million allocated to a territory
with an approved plan for transitional assistance by multiplying
$35,000,000 by the ratio of--
(1) The number of individuals who are entitled to benefits under
part A or enrolled under part B and who reside in the territory (as
determined by the Secretary as of July 1, 2003), to
(2) The sum of such number for all territories with an approved
plan under this program.
Section 1860D-31(j)(2)(D) provides that amounts made available to a
territory for transitional assistance which are not used to provide
transitional assistance will be added to the amount available to that
territory for purposes of carrying out the Medicare Part D drug
benefit.
K. Special Rules and Part B Premium and Appropriations
1860D-31(k)(2)(B) states that amounts payable from the Transitional
Assistance Account shall not be taken into account in computing the
actuarial rates or premium amounts under section 1839 of the Act.
Similarly, section 105(a) amends section 1839(g) of the Act by ensuring
that any estimations used to calculate the Part B monthly premium rate
shall exclude estimates attributable to the Medicare prescription drug
discount card and transitional assistance program under section 1860D-
31 of the Act. We have accordingly made changes to the regulations in
42 CFR 408.20 to reflect these statutory provisions.
IV. Regulatory Impact Analysis and Regulatory Flexibility Act Analysis
A. Overall Impact
We have examined the impacts of this rule under Executive Order
12866 (September 1993, Regulatory Planning and Review), the Regulatory
Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), section
1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of
1995 (Pub. L. 104-4), and Executive Order 13132.
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more annually). While the ultimate
impact of this program will depend upon the final designs of endorsed
discount card sponsors' programs, our estimate is that this rule is
economically significant as measured by the $100 million standard. The
savings to beneficiaries from discount card activities, including
negotiated prices on prescription drugs and education about generic
substitution by endorsed sponsors, will represent an economic impact
ranging from $1.4 billion to $1.8 billion in the last nine months of
2004 (assuming for the purposes of this impact analysis implementation
beginning second quarter 2004), $2.0 billion to $2.7 billion in 2005,
and $0.4 billion to $0.6 billion in the first four and one-half months
of 2006. This impact would not affect the
[[Page 69889]]
Federal budget, but would be a transfer of money due to a decrease in
the revenues of entities providing the supply of drugs to consumers.
This represents at most 1.18 percent of projected total retail
prescription drug spending during the respective periods of 2004
($153.5 billion for the last nine months of the year), 2005 ($228.6
billion), and 2006 ($95.3 billion for the first four and one-half
months of the year), based on the most recent published National Health
Expenditures projections (released in February 2003).
In addition to savings from discount card activities, a subset of
discount card enrollees--those who qualify for transitional
assistance--are projected to save an additional $2.4 billion in 2004,
$2.6 billion in 2005, and up to $0.1 billion in 2006 due to the annual
$600 transitional assistance. Beneficiary savings from transitional
assistance are funded through the Federal budget, so these savings are
a transfer from budget revenue to beneficiaries.
This rule also generates costs and benefits for drug sponsors in
the new market created by the Medicare-endorsed drug discount card
programs. Net benefits in this new market are generally projected to be
positive but small relative to the savings generated for beneficiaries.
The net present value benefits range from near zero to approximately
$10 million.
This rule is a major rule as defined in Title 5, United States
Code, section 804(2). Accordingly, we have prepared an impact analysis
for this rule.
B. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a rule that may result in
expenditure in any one year by State, local, or tribal governments, in
the aggregate, or by the private sector, of $110 million. The UMRA
stipulates that this is a requirement before an agency promulgates a
notice of proposed rulemaking or promulgates a final rule for which a
notice of proposed rulemaking had previously been issued. Since
Congress specifically authorized us to dispense with a notice of
proposed rulemaking, we believe that the UMRA requirements do not apply
to this rule. Regardless, we do not anticipate that this rule would
impose costs approaching the $110 million UMRA threshold.
While this rule does include a data reporting requirement for
States, the State costs associated with this activity are expected to
be relatively small. As discussed in this document, States will be
required to provide data to CMS that will allow us to identify those
beneficiaries who would be ineligible for the Medicare prescription
drug discount card program due to the receipt of drug coverage through
Medicaid or a section 1115 waiver demonstration. Aggregate State costs
associated with this data reporting, including expenses related to data
transmissions, quality assurance, and any needed systems changes, are
expected to be substantially less than the $110 million UMRA threshold.
Furthermore, as discussed in this document, States will receive Federal
reimbursement for a share of these expenditures at the Federal matching
rate for administrative expenses under 1903(a)(7).
In terms of territories and tribal governments, this rule imposes
no mandatory requirements for these entities, while offering them an
additional source of funding that they can elect to take advantage of.
As discussed in this document, funds are available for a territory to
provide prescription drug assistance to eligible low-income
beneficiaries in the territory, if they elect to do so and submit a
plan to CMS about how they intend to do it. For tribal governments
(specifically pharmacies operated by Indian Tribes and Tribal
Organizations, and Urban Indian Organizations (as defined in section 4
of the Indian Health Care Improvement Act)), the rule makes special
provisions for these pharmacies to have the opportunity to participate
in the networks of at least two endorsed programs in each of the 50
States and the District of Columbia where such pharmacies operate.
In addition, we have determined that this rule would not be an
unfunded mandate related to the private sector as defined by the UMRA.
In particular, section 101 of the UMRA only requires estimation of
direct costs to comply with the definition of a private sector unfunded
mandate. While the rule will have an impact on the private sector, we
do not expect that this will require direct costs or outlays
approaching UMRA's $110 million threshold.
C. Federalism
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a rule that imposes substantial
direct requirement costs on State and local governments, preempts State
law, or otherwise has Federalism implications. As noted earlier in this
document, a State may choose, on a voluntary basis, to partner with
private drug card sponsors to coordinate its State Pharmacy Assistance
Program with the Medicare prescription drug discount card program.
States also have the option of paying for some or all of the enrollment
fee for some or all non-transitional assistance eligible beneficiaries
and the option of paying for some or all of the beneficiary coinsurance
liability for some or all transitional assistance enrollees in a State.
In addition, some States may decide to educate beneficiaries,
particularly dual eligibles who would qualify for transitional
assistance (that is, QMBs, SLMBs, & QIs without Medicaid drug coverage)
and beneficiaries in State Pharmacy Assistance Programs, about benefits
available through the Medicare prescription drug discount card program.
All of these are voluntary opportunities for States, and have no
Federalism implications. In addition, States with State Pharmacy
Assistance Programs may realize savings related to the Medicare
prescription drug discount card program to the extent that they provide
for coordination of their program with the new Medicare program.
We have also determined that this rule would not impose substantial
direct requirement costs on State and local governments. As discussed
above, States would likely incur some costs related to data submission
activities, but these costs are expected to be small and substantially
less than the $110 million UMRA threshold. Furthermore, CMS has taken a
number of steps to minimize the costs related to this program for
States. CMS has consulted with State Medicaid Directors on the data
submissions process and what mechanisms would be least burdensome and
costly to States. In addition, CMS has already held and plans to hold
additional information sessions for State officials to help them
anticipate and prepare for implementation of this program. Further, we
are taking measures to ensure that States are provided with training
materials and beneficiary resources so that States can have ready
access to materials that they can use if they receive questions from
beneficiaries about the program.
D. Limitations of Our Analyses
The following analyses present projected effects of this rule on
Medicare beneficiaries, the Medicare program, total national retail
prescription drug spending, small entities, and endorsed sponsors. This
section discusses limitations of the analyses conducted in especially
sections E and I of this regulatory impact analysis.
[[Page 69890]]
Because this will be the first year of the Medicare prescription
drug discount card program, we do not have the benefit of the
experience of prior years. Therefore, we present a range rather than a
single estimate for the amount of beneficiary savings resulting from
negotiated prices obtained by endorsed sponsors. Another limitation of
this particular analysis is that our most recent available data on
beneficiary use of prescription drugs come from self-reported survey
data from the 2000 Medicare Current Beneficiary Survey (MCBS). The MCBS
is a continuous multipurpose survey of a representative sample of the
Medicare population. We have adjusted the data for projected growth in
drug spending and for under reporting.
Another limitation of our analysis is that we make no adjustments
to the savings estimates to take into account that some beneficiaries
who enroll in this program already receive sizable discounts on drugs,
and thus the savings potential from this program may be overstated for
these individuals. For example, estimated savings from discount card
activities may be overstated for beneficiaries enrolled in Medicare
managed care organizations and beneficiaries participating in
manufacturer discount card programs, since both are likely to already
receive significant discounts.
As we discuss later in this document, other limitations to our
analysis include that we have made no adjustments to take into account:
possible effects of the program on beneficiary drug utilization and
possible changes in the type of outlets through which beneficiaries
purchase prescription drugs. We did not believe that we had adequate
data to inform assumptions concerning these issues.
Additional limitations of the analysis relate to our estimate of
the number of beneficiaries who enroll in the Medicare prescription
drug discount card program. First, our estimate of the number of
beneficiaries with standardized Medigap drug coverage who will enroll
in the Medicare prescription drug discount card program may be somewhat
imprecise. As discussed in more detail later in the analysis, we
believe some beneficiaries who have drug coverage through standardized
Medigap policies are likely to enroll in the Medicare prescription drug
discount card program. The MCBS provides data on the number of
beneficiaries with ``individually purchased'' insurance policies, which
includes but is not limited to the standardized Medigap policies. Using
data on beneficiaries who have drug coverage through individually
purchased insurance policies, we developed a rough estimate of the
number of beneficiaries with Medigap standardized drug coverage by
excluding from this group individuals who appeared unlikely to have
standardized Medigap drug coverage. In particular, we excluded
individuals whose out-of-pocket drug spending was less than $250 and
whose individually purchased insurance plan covered some drug costs,
since this is inconsistent with the benefit structure of the
standardized Medigap plans. However, some beneficiaries with
individually purchased policies that are not the standardized Medigap
drug coverage policies are still likely to be included in our
estimates. In addition, some beneficiaries have multiple sources of
coverage, for example, some beneficiaries are enrolled in
Medicare+Choice (M+C) but also report having individually purchased
supplemental insurance. Therefore, we also excluded from the estimate
of the number of beneficiaries with Medigap drug coverage anyone who
was also enrolled in M+C during at least one month of the year since we
believe that the drug coverage was more likely to come from a M+C plan
than from a Medigap plan.
Second, our enrollment estimates do not factor in the possibility
that some Medicare managed care plans that are exclusive card sponsors
may decide to group enroll all of their members into an endorsed
discount card program that they are sponsoring. If this occurs, overall
enrollment in the Medicare prescription drug discount card program may
be somewhat higher than we have estimated. However, given that we are
uncertain about the frequency with which this might occur, we have
taken a conservative approach and used the same assumptions concerning
enrollment rates for beneficiaries in M+C and Medicare Fee-For-Service.
Savings estimates from discount card activities are unlikely to be
affected by group enrollment since beneficiaries who might be
recipients of group enrollment into an endorsed discount card program
by a Medicare managed care organization are likely to have already been
obtaining discounts on prescription drugs through their plan, so this
would not represent new savings for these beneficiaries. However, it is
possible that estimated savings from the $600 transitional assistance
may be slightly understated due to this issue.
Third, while we are able to exclude most beneficiaries who have
drug coverage through Medicaid from our enrollment estimates (since
these beneficiaries are ineligible for the drug card), difficulties
with identifying those beneficiaries who have drug coverage through
Medicaid via 1115 Pharmacy Plus Waivers means that some of these
beneficiaries may not have been excluded from our enrollment estimates.
Similarly, difficulties with precisely identifying in the data the
source of a beneficiary's drug coverage, particularly TRICARE and
employer-sponsored individually purchased Medigap coverage, means that
some beneficiaries not eligible for transitional assistance (that is,
those with TRICARE drug coverage) may not have been fully excluded from
transitional assistance enrollment estimates, while some beneficiaries
eligible for transitional assistance (that is, those with employer-
sponsored individually purchased Medigap drug coverage) may not have
been fully incorporated into the transitional assistance enrollment
estimates.
Finally, as discussed later in this document, we did not make any
differential assumptions concerning program uptake for beneficiaries
currently enrolled in manufacturer discount card programs--that is, we
assumed beneficiaries currently participating in manufacturer card
programs will enroll in the Medicare prescription drug discount card
program at the same rate as other beneficiaries. It is difficult to
predict how both manufacturer card programs and beneficiaries currently
enrolled in those programs will behave in terms of participation in the
Medicare prescription drug discount card program. Consequently, it is
possible that our enrollment estimates for this group of beneficiaries
could be overstated or understated. Furthermore, as noted previously in
this document, for beneficiaries currently enrolled in manufacturer
card programs there are not likely to be significant additional savings
beyond what they currently obtain; thus we may be overstating savings
on their behalf to some extent. However, it should be noted that the
manufacturer card programs generally cover a limited set of drugs, and
the Medicare prescription drug discount card program may offer these
beneficiaries discounts on a wider set of drugs.
E. Anticipated Effects on Medicare Beneficiaries
1. Enrollment Assumptions
Although the Medicare prescription drug discount card program will
be available to all Medicare beneficiaries except for those with drug
coverage
[[Page 69891]]
through Medicaid, we anticipate that the discount card will have the
highest uptake among those eligible for transitional assistance. As
discussed in this document, beneficiaries are eligible for transitional
assistance if their income does not exceed 135 percent of the official
poverty line and they do not have drug coverage through Medicaid,
employer sponsored insurance (except for employer purchased coverage
under a Part C plan or employer purchased individual Medigap policies),
the U.S. Office of Personnel Management, or TRICARE. Based on data on
drug coverage and income from the MCBS and the Current Population
Survey, we estimates that there will be about 7.2 million beneficiaries
eligible for transitional assistance in 2004. Of the 7.2 million, we
assume that 65 percent, or 4.7 million, would enroll in an endorsed
discount card program in 2004. This uptake assumption was developed
considering a variety of factors including: uptake rates in similar
means-tested programs, the nature and duration of this program, and the
eligibility and enrollment processes involved in this program.
Among those beneficiaries not eligible for transitional assistance,
we anticipate that those most likely to benefit from the program will
be those without drug coverage. There are projected to be about 6.1
million beneficiaries with incomes greater than 135 percent of the
official poverty line and without drug coverage in 2004. We anticipate
that the rate at which these beneficiaries enroll in the Medicare
prescription drug discount card program will vary by their level of
drug spending. In addition, we expect that the maximum $30 annual
enrollment fee and the interim nature of this program (with
implementation of a Medicare drug benefit scheduled to occur in less
than 2 years) will factor into these beneficiaries' enrollment
decision.
In Table 5, we show the specific assumptions regarding the
percentage of these beneficiaries enrolling in an endorsed discount
card program. We assume that beneficiaries without drug coverage who
have relatively higher drug spending will be more likely to enroll than
those with generally very low or no spending. For example, we assume a
5 percent enrollment rate among beneficiaries with spending not
exceeding $200--the point at which the maximum $30 annual enrollment
fee could be recouped assuming 15 percent savings. For beneficiaries
with the highest levels of drug spending--more than $600--we assume a
50 percent enrollment rate. Based on the assumptions in Table 5 and the
distribution of drug spending among these beneficiaries without drug
coverage, we estimate that about 35 percent of them will enroll in the
Medicare prescription drug discount card program.
Another group of beneficiaries likely to benefit from the Medicare
prescription drug discount card program will be those with Medigap drug
coverage. The standardized Medigap plans that offer prescription drug
coverage (standardized plans H, I, and J) are designed with a cap on
the amount of drug spending covered by the plan. The drug benefit in
standardized plans has a $250 deductible, 50 percent coinsurance, and a
benefit cap of $1,250 (plans H and I) or $3,000 (plan J). Because many
Medigap plans do not actively negotiate discounts for enrollees, we
believe that Medicare beneficiaries with standardized Medigap drug
coverage will benefit from a discount card program, particularly for
spending above the benefit cap.
We project that there will be about 2.1 million beneficiaries who
have incomes greater than 135 percent of the official poverty line and
have drug coverage from a Medigap policy in 2004. Table 6 shows the
assumptions regarding the percentage of these beneficiaries enrolling
in an endorsed discount card program. Similar to the enrollment
assumptions for beneficiaries without drug coverage, we assume that the
enrollment rate for these beneficiaries with Medigap drug coverage
varies by the level of drug spending. For beneficiaries with the
highest levels of drug spending, we assumed a slightly higher uptake
rate (60 percent) among those with Medigap drug coverage than among
those without drug coverage (50 percent). We believe that beneficiaries
with Medigap coverage for prescription drugs will be more risk averse
than the average beneficiary and will therefore have a somewhat higher
propensity to enroll.
We assume that beneficiaries with Medigap drug coverage would use
the drug card for spending exceeding the Medigap benefit cap. Thus, the
table shows enrollment rate assumptions by the level of drug spending
involved in the Medicare prescription drug discount card program (not
by the level of total drug spending). Based on the assumptions in Table
6 and the distribution of drug spending for these beneficiaries, we
estimate that about 24 percent of these beneficiaries will enroll in
the Medicare prescription drug discount card program. The 24 percent
average enrollment rate stems from the fact that most beneficiaries
with Medigap drug coverage have low levels of spending above the
Medigap benefit cap, and thus we assume a low uptake rate for these
individuals for this time limited program with an annual enrollment fee
of up to $30.
These estimates of Medicare beneficiary enrollment in the Medicare
prescription drug discount card program are one of the elements in our
estimates of the impact of the program.
Table 5--Estimated Enrollment Rate of Medicare Beneficiaries With No
Drug Coverage and With Income Greater Than 135 Percent of the Official
Poverty Line 2004 to 2005
------------------------------------------------------------------------
Percent
Annual drug spending enrolling
------------------------------------------------------------------------
0-200.00................................................... 5
200.01-300.00.............................................. 10
300.01-400.00.............................................. 20
400.01-500.00.............................................. 30
500.01-600.00.............................................. 40
600.01+.................................................... 50
------------------------------------------------------------------------
Table 6--Estimated Enrollment Rate of Medicare Beneficiaries With
Medigap Drug Coverage and With Income Greater Than 135 Percent of the
Official Poverty Line 2004 to 2005
------------------------------------------------------------------------
Annual drug spending subject to the Medicare drug discount Percent
card enrolling
------------------------------------------------------------------------
$0-200.00.................................................. 5
200.01-300.00.............................................. 10
300.01-400.00.............................................. 20
400.01-500.00.............................................. 30
500.01-600.00.............................................. 40
600.01-700.00.............................................. 50
700.01+.................................................... 60
------------------------------------------------------------------------
As discussed previously in this document, we assume the same uptake
rate in the Medicare prescription drug discount card program for
beneficiaries currently participating in manufacturer discount card
programs as for other beneficiaries. During the first half of 2002,
several drug manufacturers established drug card programs that offer
low-income Medicare beneficiaries without drug coverage significant
discounts or low copayments on drugs they manufacture. Eli Lilly,
Novartis, and Pfizer have each established co-pay cards. Eight drug
manufacturers (Abbott Laboratories, AstraZeneca, Aventis, Bristol-Myers
Squibb Company, GlaxoSmithKline, Janssen Pharmaceutical Products, L.P.,
Novartis, and Ortho-McNeil Pharmaceutical, Inc.) have established
Together Rx, a discount card. In addition,
[[Page 69892]]
GlaxoSmithKline--one of the participants in Together Rx--also operates
a separate discount card program. The income limits of the manufacturer
cards vary, ranging from $18,000 to $30,000 for individuals and from
$24,000 to $40,000 for couples. In terms of enrollment, Together Rx is
the largest of these programs, reporting more than 1 million enrollees
(as of September 2003). Enrollment for the other manufacturer card
programs is reported to be more than 355,000 in the Pfizer card (as of
May 2003), about 100,000 in the Eli Lilly card (as of October 2002),
about 100,000 in the GlaxoSmithKline card (as of November 2002), and
about 15,000 in the Novartis card (as of April 2002).
Many beneficiaries who might benefit from the Medicare prescription
drug discount card program may currently be enrolled in or eligible for
manufacturer card programs. We use the same uptake assumptions for
these beneficiaries as for the general beneficiary population, since it
is difficult to predict how both manufacturer card programs and
beneficiaries currently enrolled in those programs will behave in terms
of participation in the Medicare prescription drug discount card
program. For example, it is unknown whether the manufacturer card
programs will seek Medicare endorsement. If these programs do seek and
obtain Medicare endorsement, their enrollees will be included in the
enrollment count for the Medicare prescription drug discount card
program. On the other hand, if manufacturer card programs do not seek
Medicare endorsement, some beneficiaries may opt to enroll in both the
manufacturer cards and a Medicare endorsed discount card program. For
example, we would expect that many low-income beneficiaries currently
enrolled in manufacturer card programs would likely also enroll in an
endorsed discount card program to take advantage of the $600
transitional assistance. In addition, since the manufacturer cards
provide savings only on specific drugs and endorsed programs have a low
annual enrollment fee, we believe that some beneficiaries, depending on
the mix of prescription drugs they use and their income levels, may
find it beneficial to enroll in both types of programs as well.
While we expect there will be a phase-in of beneficiary enrollment
in the Medicare prescription drug discount card program, we believe
that because of the recognition and acceptance of the Medicare name,
the educational efforts undertaken, and the proration policy for the
$600 transitional assistance discussed in this document, beneficiaries
wishing to enroll will do so over a relatively short period of time.
For the purposes of this impact analysis, we assume that the program is
implemented beginning second quarter (April) 2004 and that all
beneficiaries expected to enroll in 2004 do so at the program outset.
For beneficiaries who become eligible for Medicare between April 2004
and December 2005, we assume enrollment at the time they become
Medicare eligible.
2. Beneficiary Savings Assumptions
The Medicare prescription drug discount card program will generate
two types of savings from the perspective of beneficiaries. First,
beneficiaries enrolled in an endorsed discount card program will derive
savings from discount card activities undertaken by endorsed sponsors,
such as negotiating lower prices on prescription drugs and educating
beneficiaries about generic equivalents. Second, for the subset of
Medicare prescription drug discount card enrollees who qualify for the
transitional assistance, they will also derive savings from the
government funded $600 transitional assistance. For ease of reference
in the remainder of the regulatory impact analysis, we will refer to
these two different types of savings as ``savings from discount card
activities'' and ``savings from transitional assistance,''
respectively.
a. Savings From Discount Card Activities
An April 2000 study prepared by HHS entitled, ``A Report to the
President: Prescription Drug Coverage, Spending, Utilization and
Prices,'' indicated a significant price differential between
individuals paying cash for prescriptions at a retail pharmacy versus
individuals with insurance. This was true for both the Medicare and
non-Medicare populations. According to the study, in 1999 the price
paid by cash customers was nearly 15 percent more than the total price
paid under prescription drug insurance, including the enrollee cost
sharing. For 25 percent of the most commonly prescribed drugs, this
price difference was higher--over 20 percent. Thus, in today's market,
individual Medicare beneficiaries without drug coverage and the related
market purchasing leverage, not only face having to pay the full cost
for medications from their own pockets, but ironically are also charged
the highest prices. Furthermore, the HHS study did not include the
effect of rebates on total prices paid. It did, however, note industry
experts as indicating that insurers and employers typically receive 70
to 90 percent of the rebates negotiated for their enrollees. While
currently, rebates in insured products may not necessarily reduce
prices paid at the retail point of sale, the rebates do lower the per-
prescription cost for plan sponsors, and thus tend to lower premiums or
program costs for insured beneficiaries.
A March 2003 study by the Brandeis University Schneider Institute
for Health Policy, entitled ``PBM-Administered Prescription Drug
Discount Cards: Savings for Uninsured Seniors,'' examined
administrative data on eight national drug discount card programs
operated by 3 PBMs to analyze the level of discounts available through
these types of discount programs. Looking at drugs most commonly used
among individuals age 65 and over, the study found that on average the
card programs provided discounts (over and above any other discounts
uninsured individuals received at retail pharmacies) of 14 percent for
brand drugs, 26 percent for generic drugs, and 15 percent overall.
We anticipate that the estimated savings for Medicare beneficiaries
from discount card activities, such as negotiated prices and education
about generic substitution, under the Medicare drug discount card
program will be a first step toward the savings that could be achieved
under an insurance product. Based on information on savings from
insurance products and information on the current discount card market,
we assumed that beneficiaries enrolling in the endorsed programs will
save as a result of discount card activities, on average, between 10
and 15 percent of their total drug costs compared to their spending in
the absence of this program. While savings of 10 to 15 percent are
anticipated on total drug expenditures, the discounts on individual
drugs will vary and may be substantially higher for certain products,
particularly generics, due to their lower prices. If endorsed discount
card programs rely heavily on the use of formularies, we expect that
manufacturer rebates or discounts will be greater in response.
The beneficiary savings from discount card activities will be
attributable to the combination of lower prices paid at the point of
sale as a result of manufacturer and pharmacy discounts, as well as the
effects of beneficiary education leading to greater use of generic
drugs and more effective management of prescription drug expenses by
beneficiaries. Because pharmacy discounts are increasingly available to
beneficiaries through existing voluntary card programs, we expect that
manufacturer rebates or
[[Page 69893]]
discounts and savings from a better understanding of generic
alternatives and managing prescription drug expenses will be important
sources of savings in this program. For purposes of estimating
beneficiary savings from discount card activities, we assume average
overall savings of 15 percent off of drug spending. These estimates do
not take into account the possible increased use of prescription drugs
by Medicare beneficiaries resulting from paying reduced out-of-pocket
amounts due to savings from discount card activities. They also do not
take into account the likelihood that use of prescription drugs will
increase somewhat in response to the $600 transitional assistance.
In a December 2001 report from the General Accounting Office (GAO)
entitled ``Prescription Drugs: Prices Available Through Discount Cards
and From Other Sources,'' the GAO collected specific price data on 12
brand name and 5 generic commonly used prescription drugs from one
regional and four large discount card programs, as well as pharmacies'
prices for the same prescription drugs in four selected geographic
areas. In September 2003, GAO issued another report entitled
``Prescription Drug Discount Cards: Savings Depend on Pharmacy and Type
of Card Used.'' For 9 drugs (7 brand and 2 generic) commonly used by
Medicare beneficiaries, the report provided the median price for each
drug across five PBM-administered discount card programs and comparison
data on the median retail pharmacy price for each drug in 3 geographic
areas. In these studies, pharmacy prices were inclusive of senior
discounts for those pharmacies that offered them. The GAO simply
reported prices on each drug; they did not calculate average discount
card savings. The average discounts that could be calculated from the
GAO reported data are difficult to compare to our estimate of roughly
10 to 15 percent savings off total beneficiary drug spending for
several reasons.
First, savings for the program are not estimated on a per-
prescription basis. For certain drugs for which manufacturer rebates or
discounts are secured, we expect to see, under this program, drug-
specific discounts comparable to insured products, which are often 25
to 30 percent, or sometimes more, per prescription.
Second, the price data collected by the GAO do not include all
drugs or indicate the relative market share that each drug represents;
that is, they are not weighted. Savings estimates calculated by simply
averaging selected drug prices do not account for the differences in
utilization, and thus, market share.
Finally, the Medicare prescription drug discount card program
requires that endorsed discount card sponsors obtain manufacturer
rebates or discounts and pass a share of the rebates or discounts
through to beneficiaries in the form of lower prices. We believe that
this differs from the practices of some of the discount card programs
in the GAO studies. Two of the five programs in the 2003 GAO study
reported that the pharmacy is not paid for any of the difference
between the pharmacies' usual price and the price the cardholder pays.
Because the endorsed discount card programs will be modeled after
insured products in terms of enrollment and the use of formularies,
combined with the competitive model and the requirement of manufacturer
rebates or discounts, we expect that the endorsed programs will achieve
new beneficiary savings from manufacturer rebates or discounts. The
share of savings will vary depending on the drug, but savings from
manufacturers are expected to be substantially greater than those
available through existing voluntary cards. According to the HHS study,
industry experts report that private insurance plans garner rebates on
individual brand name drugs ranging from 2 to 35 percent. To the extent
that endorsed discount card sponsors design formularies to mimic those
of insured products, the ability to garner manufacturer rebates or
discounts will increase.
For purposes of estimating beneficiary savings, it is necessary to
make some assumptions concerning the portion of spending that will be
affected by discount card activities by endorsed sponsors such as
negotiating lower prices and promoting generic substitution. The
requirements for endorsement include provision of a discount on one
brand name or generic drug in each therapeutic grouping commonly used
by Medicare beneficiaries. However, we expect that endorsed programs
probably will provide discounts on more than one drug per grouping and
be highly likely to provide discounts on commonly used drugs.
We have estimated the percent of total drug spending accounted for
by the most commonly used drugs among Medicare beneficiaries based on
analysis of the top drugs in terms of both utilization and spending
using the 2000 MCBS data (including a special analysis related to
disabled beneficiaries). As of 2000, the drugs most commonly used or
having the greatest spending by Medicare beneficiaries accounted for
approximately 72 percent of total drug spending for beneficiaries
without drug coverage.
The drug classification listing in Table 2, for which endorsed
sponsors must include at least one drug, is more extensive than the
specific top drug list that was used to estimate 72 percent. In
addition, we assume that many endorsed sponsors will choose to include
more than one drug for the required drug grouping. Consequently, we set
our lower bound estimate of the share of drug card enrollees' total
drug spending that will be affected by the program at 75 percent.
We also assume that it is possible that endorsed programs will
include a discount on all drugs. To calculate this upper bound, we
assume that all beneficiary drug expenditures will be affected by the
Medicare prescription drug discount card program. We note, however,
that we have made no adjustment to take into account that some
beneficiaries currently receive discounts and that some of the savings
to beneficiaries will come from generic substitution and not just price
reductions.
b. Savings From Transitional Assistance
Those drug card enrollees who qualify for transitional savings will
realize savings from the annual $600 transitional assistance. The
aggregate amount of savings from the transitional assistance depends in
part on the level of drug spending among these beneficiaries. Many of
these beneficiaries will exhaust the $600 transitional assistance each
year; however, those who do not will be allowed to roll over any
unspent funds from one year to the next. While those beneficiaries with
transitional assistance dollars remaining at the end of 2005 will be
able to roll over the funds through the first four and one-half months
of 2006 or up to the point that they enroll in Medicare Part D
(whichever is earlier), it is likely that a small portion will not
exhaust the transitional assistance dollars fully by the end of the
program. Our estimates of total transitional assistance savings in each
year take into account both this roll-over phenomenon and the
likelihood that a small portion of beneficiaries will not exhaust the
full transitional assistance by the end of the program. In estimating
savings from the transitional assistance, we also factor in the
proration policy and the tiered coinsurance.
[[Page 69894]]
3. Projection Assumptions
Since our data on Medicare beneficiary prescription drug spending
are based on 2000 MCBS data, it is necessary to make several
adjustments in order to prepare 2004 estimates. In order to trend 2000
spending to 2004 dollars, we use prescription drug spending projections
based on per capita drug expenditure growth from the National Health
Expenditure (NHE) Projections 2002 to 2012. These projections can be
found on our Web site at: http://www.cms.hhs.gov/statistics/nhe/projections-2002/t11.asp
.
MCBS data on prescription drug utilization are self-reported by
beneficiaries, and consequently are subject to under reporting. We are
studying this under reporting in order to develop adjustment factors to
be used for estimating purposes. For purposes of the estimates in this
rule, the spending data from the MCBS has been increased by 20.5
percent to adjust for under reporting that has been identified through
our research thus far. It is also necessary to adjust for future growth
in the Medicare beneficiary population. The adjustments are made based
on the assumptions about growth in the overall Medicare population from
the 2003 Medicare Trustees Reports and assumptions about growth in the
dual eligible population (that is, the group of beneficiaries not
eligible for the program).
These assumptions are detailed in Table 7, which shows the
projected increase in Medicare enrollment and per capita drug
expenditures from 2000 to 2004, and annually from 2004 to 2006, using
2000 as the base year for the projections. As discussed in more detail
in later sections of the impact analysis, the table also shows
projections for total national aggregate retail drug expenditures, drug
expenditures involved in the program, beneficiary savings from discount
card activities (both upper bound and lower bound estimates), the
impact of beneficiary savings from discount card activities as a
percent of total national aggregate retail drug sales, and estimated
total beneficiary savings resulting from the transitional assistance.
To estimate the impact of the program on national retail
prescription drug sales, we use the Office of the Actuary's National
Health Expenditures projections of retail prescription drug sales,
which are part of the National Health Accounts. To prepare the
estimates, OACT obtains data on prescription drug sales from a variety
of sources, including the National Prescription Audit conducted by IMS
Health. OACT has data on retail prescription drug spending through
2001, and prepares 10-year projections. OACT adjusts the data from the
National Prescription Audit to take into account a number of factors.
The major factors involved in these adjustments include: benchmarking
to the Economic Census, subtracting prescription drug sales to nursing
homes (which are accounted for in nursing home spending), and adjusting
the data to subtract an estimate of manufacturer rebates provided to
health insurers related to insurance coverage for prescription drugs.
Thus, in some respects, the National Health Accounts estimate of
prescription drug spending reflects a sales level that is somewhat
lower than the revenue actually received by pharmacies, drug stores,
and other retail business outlets selling prescription drugs.
Consequently, when National Health Accounts figures are used as the
denominator in calculating the percentage impact on revenues (as we do
later in this impact analysis), the result is somewhat larger than is
actually the case. Nevertheless, we believe that these projections for
prescription drug spending are the most appropriate to use for analysis
of the impact of this program on prescription drug revenues. These
estimates are specific to the prescription drug market, and the
National Health Accounts are recognized as a public source of data on
health care spending.
Table 7.--Estimated Impact
----------------------------------------------------------------------------------------------------------------
2000 2004 (Apr- 2005 (Jan- 2006 (Jan-
(Baseline) Dec) May) Dec)
----------------------------------------------------------------------------------------------------------------
Increase in Medicare Enrollment................. .............. 4.6%* 1.4% 1.3%
Increase in Per Capita Drug Expenditures........ .............. 62.7%* 10.8% 10.2%
Total National Aggregate Retail Drug $121.5 $153.5 $228.6 $95.3
Expenditures ($ billions)......................
Discount Card Enrollees Who Qualify for
Transitional Assistance
---------------------------------------------------------------
Projected Number of Enrollees (millions).... .............. 4.7 4.7 4.7
Projected Prescription Drug Spending Under 6.2 8.0 11.9 2.5
the Drug Discount Card Programs (billions).
Lower & Upper Bound Beneficiary Savings from .............. 0.9-1.2 1.3-1.8 0.3-0.4
Discount Card Activities (billions)........
Estimated Beneficiary Savings From .............. 2.4 2.6 0.1
Transitional Assistance (billions).........
Discount Card Enrollees Who Do Not Qualify for
Transitional Assistance
---------------------------------------------------------------
Projected Number of Enrollees (millions).... .............. 2.6 2.7 2.7
Projected Prescription Drug Spending Under 3.2 4.1 6.1 1.3
the Drug Discount Card Programs (billions).
Lower & Upper Bound Beneficiary Savings from .............. 0.5-0.6 0.7-0.9 0.1-0.2
Discount Card Activities (billions)**......
Total--All Discount Card Enrollees
---------------------------------------------------------------
Projected Number of Enrollees (millions).... .............. 7.3 7.4 7.4
Projected Prescription Drug Spending Under 9.4 12.0 18.0 3.7
the Drug Discount Card Programs (billions).
Lower & Upper Bound Estimated Beneficiary .............. 1.4-1.8 2.0-2.7 0.4-0.6
Savings from Discount Card Activities (not
including savings from $600 transitional
assistance) (billions)**...................
[[Page 69895]]
Lower & Upper Bound Impact of Beneficiary .............. 0.88%-1.18% 0.89%-1.18% 0.44%-0.59%
Savings from Discount Card Activities as a
Percent of National Aggregate Retail Drug
Expenditures...............................
----------------------------------------------------------------------------------------------------------------
* For 2004, the increase in Medicare enrollment and per capita drug expenditures shown in the table reflect the
percent change between 2000 and 2004.
** These savings estimates do not take into account the costs associated with beneficiary enrollment fees.
Beneficiary savings may be up to $0.08 billion lower in 2004 and 2005 due to the maximum annual enrollment
fees of $30 that card sponsors may charge enrollees in those years who do not qualify for transitional
assistance.
Note: Numbers may not sum due to rounding.
4. Impact Estimates
We estimate that 7.3 million Medicare beneficiaries will be
enrolled in endorsed discount card programs in the last nine months of
2004 and 7.4 million in 2005. In addition, depending on when
beneficiaries choose to enroll in Medicare Part D, it is possible that
up to 7.4 million beneficiaries may be enrolled in endorsed discount
card programs during at least some portion of the first four and one-
half months of 2006. For 2006, we assume that enrollees remain in the
Medicare prescription drug discount card program on average for two and
one-quarter months in 2006. Of the 7.3 million beneficiaries estimated
to enroll in the Medicare prescription drug discount card program, an
estimated 4.7 million would qualify for transitional assistance (as
well as discount card savings) while an estimated 2.6 million would
receive standard discount card services only.
As discussed previously, we assume that Medicare beneficiaries
enrolled in an endorsed discount card program will save between 10 and
15 percent of their total drug costs as a result of savings from
discount card activities (with 15 percent savings being assumed in the
impact estimates). However, this will vary by the mix of drugs
beneficiaries use, and as noted previously, may be even higher
depending on the ultimate program design used by endorsed sponsors. It
is also possible, as discussed previously in this document, that
savings from discount card activities could be lower for some
beneficiaries. For example, beneficiaries who currently may receive a
sizeable discounts under manufacturer discount card programs may not
experience additional discounts for those same drugs under the Medicare
prescription drug discount card program.
As shown in Table 7, for the estimated 7.3 million beneficiaries
who will be enrolled in an endorsed discount card program in the last
nine months of 2004 and the 7.4 million who are estimated to be
enrolled in 2005 and the first part of 2006, the base for total drug
expenditures involved in the Medicare prescription drug discount card
program is projected to be $12.0 billion in the last nine months of
2004, $18.0 billion in 2005, and $3.7 billion in the transition period
in 2006 before the savings achieved through the program. Total
estimated savings for these beneficiaries from discount card activities
range from $1.4 billion to $1.8 billion in the last nine months of
2004, $2.0 billion to $2.7 billion in 2005, and $0.4 billion to $0.6
billion in the transition period in 2006. Furthermore, the subset of
enrolled beneficiaries (an estimated 4.7 million) who qualify for
transitional assistance are estimated to save an additional $2.4
billion in 2004 (last nine months), $2.6 billion in 2005, and $0.1
billion in 2006 (first four and one-half months) from the annual $600
transitional assistance. Savings from transitional assistance in 2006
are very small because they only reflect carryover spending for
beneficiaries with low drug spending who do not exhaust the full
transitional assistance during 2005.
Beneficiaries may be required to pay an annual enrollment fee of up
to $30 to join an endorsed discount card program. The Federal
government pays the enrollment fee for beneficiaries who qualify for
transitional assistance. If all of the non-transitional assistance
eligible Medicare beneficiaries who are projected to enroll in the
Medicare prescription drug discount card program (2.6 million
beneficiaries in 2004 and 2.7 million in 2005) pay the maximum $30
annual enrollment fee, the total beneficiary savings overall and
specifically for this group of beneficiaries will be reduced by roughly
$78 million in 2004 and $81 million in 2005.
Regardless of whether or not endorsed sponsors charge the full $30
enrollment fee, this is a voluntary program. Beneficiaries have a
choice of which program to enroll in, or not to join a program at all.
Therefore, beneficiaries will only join a program if their expected
gain is greater than the enrollment fee. In addition, those who choose
to enroll in an endorsed program will still be free to buy a drug at
any price outside of the program, so they can only be helped by the
estimated savings and educational efforts from the program.
F. Anticipated Effects on the Medicare Program
Beneficiary savings from transitional assistance are funded through
the Federal budget, while beneficiary savings from discount activities
do not affect the Federal budget. We estimate that Medicare program
spending will increase by $2.5 billion in calendar year (CY) 2004, $2.7
billion in CY 2005, and $0.1 billion in CY 2006, due to the
transitional assistance. The vast majority of this spending is for the
$600 transitional assistance ($2.4 billion in 2004, $2.6 billion in
2005, and 0.1 billion in 2006), with the remaining spending, $0.14
billion in 2004 and 2005, for payment of the enrollment fee for
transitional assistance eligible beneficiaries. In addition, we
estimate that CMS' administrative expenses to implement this program
will be $134 million.
We also expect that the Medicare prescription drug discount card
program will have several positive effects on the Medicare program.
While not quantifiable, a positive impact of the rebate and discount
reporting requirements of the program will be to provide us with
experience in understanding issues in the pharmaceutical industry
before implementation of a Medicare drug benefit. We will increase our
knowledge concerning pricing and payment issues, information technology
requirements, and increasing the effectiveness of pharmacy quality
improvement programs. The pharmaceutical industry will also gain more
experience in working with the Medicare population before
implementation of a drug benefit. We expect that this experience will
make the transition to a Medicare
[[Page 69896]]
prescription drug benefit faster and more efficient.
G. Anticipated Effects on National Retail Prescription Drug Spending
Total national retail spending (spending for the total population,
not just Medicare beneficiaries) on prescription drugs is projected to
be $153.5 billion in 2004 (last nine months), $228.6 billion in 2005,
and $95.3 billion in 2006 (first four-and-one-half months). (http://www.cms.hhs.gov/statistics/nhe/projections-2002/t11.asp
).
In the last nine months of 2004, the total economic impact of
savings from discount card activities under the Medicare prescription
drug discount card program is estimated to range from $1.4 billion to
$1.8 billion, representing 0.88 percent to 1.18 percent of total
national aggregate retail prescription drug expenditures during that
period. In 2005, the total impact is estimated to range from $2.0
billion to $2.7 billion, or 0.89 percent to 1.18 percent of total
national aggregate retail expenditures for prescription drugs. In the
first four-and-one-half months of 2006, we estimate the total impact to
range from $0.4 to $0.6 billion, or 0.44 percent to 0.59 percent of
total national aggregate retail drug expenditures during that period.
Thus, the economic impact is estimated to be at most 1.18 percent of
total retail prescription drug spending.
One of the factors underlying these estimates of economic impact is
our assumptions concerning enrollment in this program. While we believe
that our uptake assumptions are reasonable estimates of the likely
level of enrollment in this program, we have conducted an additional
analysis to provide a sense of how these impact estimates would change
if actual program uptake differed somewhat from the assumed levels. In
the first 9 months of 2004, if program uptake was anywhere between 15
percent below to 15 percent above the assumed levels, estimated savings
from discount card activities would range from $1.2 billion to $2.1
billion (assuming capita spending among enrollees remained unchanged),
with these savings representing between 0.75 percent to 1.35 percent of
national retail prescription drug sales in 2004.
We expect that the various sectors involved in the prescription
drug industry will adjust to the impact of this program without
significant disruption, just as the industry adjusted to discounts
being extended to the privately insured population during the 1990s.
The 1990s saw a significant increase in reliance on pharmacy benefit
management and the tools commonly used to manage pharmaceutical benefit
costs.
For example, evidence of market adjustment can be seen in the
changes in pharmacies' acquisition costs during the 1990s. In the
August 2001 HHS Office of Inspector General (OIG) Report entitled
``Medicaid Pharmacy--Actual Acquisition Cost of Brand Name Prescription
Drug Products,'' the OIG reports on changes in pharmacy acquisition
costs for both single source and multi-source brand name drugs. The OIG
uses the common industry pricing metric of average wholesale price
(AWP). The findings from the OIG study indicate that the acquisition
prices pharmacies face for a broad spectrum of brand name drugs have
been declining as a percentage of AWP during the period 1994 to 1999.
Based on 1994 pricing data, the OIG estimates that pharmacies acquired
brand name drugs (both single source and multi-source) at a discount of
18.30 percent below AWP. For 1999 pricing data, the OIG estimates a
discount of 21.84 below AWP. The OIG reports that this represents an
increase of 19.3 percent in the average discount below AWP for which
pharmacies were able to purchase a mixture of single source and multi-
source brand name drugs. The OIG conducted a similar analysis on the
pharmacy acquisition costs related to generic drugs. The OIG March 2002
report ``Medicaid Pharmacy--Actual Acquisition Cost of Generic
Prescription Drug Products'' reported that for generic drugs there was
an increase of over 55 percent in the average discount below AWP from
1994 to 1999 at which pharmacies were able to acquire generic drugs
(from 42.45 percent below AWP in 1994 to 65.93 percent below AWP in
1999). Thus, during the 1990s, as more customers secured discounts on
the purchase of prescription drugs, pharmacies acquired drugs at larger
discounts from AWP.
The acquisition costs reported by the OIG are similar to those
reported in the PricewaterhouseCoopers (PWC) study conducted for us
entitled ``A Study of Pharmaceutical Benefit Management,'' June 2001.
That study reported that pharmacies generally now acquire brand name
drugs at AWP minus 20 to 25 percent. According to the PWC report,
absent a discount arrangement (such as a pharmacy-sponsored senior
discount), pharmacies, on average, sell to the uninsured population at
full retail price, roughly AWP plus a dispensing fee (generally $2 to
$3).
We also believe that the Medicare prescription drug discount card
program will accelerate the use of generic drugs. The HHS study reports
that, generally, pharmacies earn higher margins on generic drugs. In
addition, PWC found that generic manufacturers sometimes provide
pricing incentives to pharmacies based on generic volume or market
share. These are other examples of adjustments that take place related
to the market place in pharmaceuticals.
It is also possible that the requirements of price publication and
the establishment of a large number of competing discount cards will
lead to greater manufacturer discounts. We expect that access to modern
competitive tools will assist in controlling prescription drug costs
and improving the quality and efficiency of prescription drug services.
We also expect that this program will somewhat level the playing field
between the insured and uninsured, and the current differential in
pricing between populations with drug coverage and Medicare
beneficiaries without drug coverage will be ameliorated.
Further, we do not expect that this program will have any impact on
the number of Medicare beneficiaries with drug coverage through
employer-sponsored health insurance. Since this program is short-term
and it provides $600 transitional assistance only to a subset of
beneficiaries (those with incomes that do not exceed 135 percent of the
official poverty line), we do not anticipate that employers will alter
their drug coverage in response to this program.
H. Analysis of Effects on Small Entities
The Regulatory Flexibility Act (RFA) requires agencies to determine
whether a rule will have a significant economic impact on a substantial
number of small entities. If a rule is expected to have a significant
economic impact on a substantial number of small entities, the RFA
requires that a regulatory flexibility analysis be performed. However,
the RFA stipulates that these requirements are applicable to a notice
of proposed rulemaking or a rule for which an agency has published a
notice of proposed rulemaking. Since Congress specifically authorized
us to dispense with a notice of proposed rulemaking, we believe that a
regulatory flexibility analysis is not required for this rule.
Nevertheless, a regulatory flexibility analysis follows.
The Medicare prescription drug discount card program may involve
some impact on a substantial number of small businesses. The current
market for delivery of pharmaceutical products, by its nature involves
small businesses, similar to other professional health care services
such as physician services. The current health insurance market
[[Page 69897]]
demonstrates that insurance companies, pharmaceutical benefit managers,
and others such as health maintenance organizations (HMOs) have been
able to enter into arrangements similar to those in this program
involving the participation of large and small pharmacy and drug store
firms. These arrangements have resulted in lower prescription drug
prices being made available to consumers who have insurance coverage
for prescription drugs. There is evidence that both large and small
pharmacies and drug stores participate in these arrangements with
pharmaceutical benefit managers, and that pharmaceutical benefit
managers are able to offer (employer) clients pharmacy networks
containing the majority of retail pharmacy outlets. In addition, many
pharmacies, including small pharmacies, offer senior discounts, and
doing so in the context of this Medicare program may not be
significantly different than current practice for some pharmacies.
The role of individual pharmacies, including small pharmacies, in
this program is a critical one: they will be an integral part of the
pharmacy networks of endorsed discount card programs, serving Medicare
beneficiaries at the point of retail sale. The objectives of the
program and the related design requirements will preclude an individual
pharmacy or drug store from operating the full scale of contemplated
activities that will be necessary to obtain an endorsement. Individual
pharmacies could participate in the program by voluntarily entering
into a drug card program's network with other pharmacies. Individual
pharmacies are not in a market position to meet the requirements for
endorsement, including the ability to serve a large number of enrollees
and to garner manufacturer rebates. Retail pharmacy chains could
possibly be organized to meet the requirements of Medicare endorsement
explained elsewhere in this rule because of their size, type of
experience and infrastructure.
Convenient access to retail pharmacies, regardless of size or
ownership, by Medicare beneficiaries will be an important feature of
the program. As discussed elsewhere in this rule, a discount card
sponsor will have to have a contracted pharmacy network of sufficient
size to demonstrate that at least 90 percent of Medicare beneficiaries
in urban areas served by the program live within 2 miles of a
contracted pharmacy (90/2), at least 90 percent of Medicare
beneficiaries in suburban areas served by the program live within 5
miles of a contracted pharmacy (90/5), and at least 70 percent of
Medicare beneficiaries in rural areas served by the program live within
15 miles of a contracted pharmacy (70/15). These access ratio
requirements, which are based on the Department of Defense TRICARE
Retail Pharmacy (TRRx) program, are similar to the access standards in
many commercial insured products and we believe they will require
endorsed sponsors to support an extremely broad network of retail
pharmacies.
Given the access ratio requirements and the provision that endorsed
programs will not be allowed to offer a mail order only option, we
believe that most pharmacies and drug stores (both chain and
independent) will be invited and encouraged to participate in endorsed
programs' networks, particularly small pharmacies in rural areas. This
is generally the case in the current insured market and the TRRx
program, and we do not anticipate significantly narrower networks in
the endorsed programs. There are over 55,000 retail pharmacies in the
United States. According to a report prepared for us by
PricewaterhouseCoopers (PWC) (``Study of the Pharmaceutical Benefit
Management Industry,'' June 2001), pharmacy benefit managers (PBMs)
offer, as a general practice, standard national pharmacy networks, with
42,000 pharmacies in the typical network. Similarly, the Department of
Defense reports that the TRRx program has more than 40,000 pharmacies
in its network (as of June 2003). Furthermore, the PWC study reports
that one leading PBM has 50,000 pharmacies in its more restricted
network. Also, according to PWC, two large national PBMs have 98
percent of all pharmacies in the United States in their standard
networks.
The inclusive access standard required for Medicare endorsement,
coupled with the industry norm for broad pharmacy networks, lead us to
believe that a very large number of small pharmacies and drug stores
will be included in the networks of endorsed discount card programs.
Further, we believe that small entities in rural areas especially will
be included in order to meet the rural 70/15 standard for endorsement.
1. Estimated Impact on Small Entities
HHS uses as its measure of significant economic impact on a
substantial number of small entities a change in revenues of more than
3 to 5 percent. To assess whether the Medicare prescription drug
discount card program meets these HHS criteria, we estimated the number
of small entities affected and the average percentage impact on
revenues. We also conducted a sensitivity analysis to estimate the
impact on revenues for pharmacies with a higher than average rate of
customer participation in the Medicare prescription drug discount card
program. These analyses found that while the program is expected to
have some impact on a substantial number of small entities, it is not
expected to have a significant economic impact. Based on these
analyses, we certify that the Medicare prescription drug discount card
program does not have a significant economic impact on a substantial
number of small entities.
As a result, even if the RFA applied to this rule (which as
discussed previously, we believe it does not) we would still not be
required to perform a regulatory flexibility analysis. Nevertheless,
due to the possibility that concerns may be voiced by some about the
potential effects of the rule on small businesses, we have included in
this section or in other sections of this document the various issues
that are to be included in a regulatory flexibility analysis. To avoid
repetition, we have not duplicated each of them here. In preceding
sections of this document, we have included a description of the
program and its objectives. In this and subsequent sections of this
document, we include an estimate of the number of small entities
affected; an estimate of the economic impact on small pharmacies
including a sensitivity analysis assessing the potential for
differential distributional effects on small pharmacies; a discussion
of reporting, recordkeeping, and other compliance requirements; and a
description of the alternatives considered to minimize the economic
impact on small pharmacies.
2. Number of Small Entities Affected
For purposes of the RFA, small entities include small businesses,
nonprofit organizations, and small governmental jurisdictions.
Individuals and States are not included in the definition of a small
entity. The Small Business Administration (SBA), on its Web site
(http://www.sba.gov/size/naicstb2-ret.html), provides a size standard
for pharmacies and drug stores (NAICS code 446110 or SIC code 5912) of
revenues of $6 million or less annually for the purpose of determining
whether entities are small businesses. The revenue standard for small
pharmacies and drug stores was recently increased from $5 million to $6
million in February 2002 to account for inflation.
To assess the number of small entities affected by this program,
and the amount of revenue involved for these
[[Page 69898]]
entities, we analyzed data from several sources. We examined data from
the U.S. Census Bureau's 1997 Economic Census (Table 4 on Retail
Trade--Subject Series), which provides data on the number of pharmacies
and drug stores by level of revenue. To identify small pharmacies and
drug stores, we looked at firms with less than $5 million in revenues.
Although SBA's revenue standard for small pharmacies and drug stores
was increased to $6 million in 2002 to account for inflation, we use $5
million as the standard in our analysis because we are working with
1997 data so an inflation adjustment is not needed. According to the
Census Bureau data, there were a total of 20,815 business firms that
were pharmacies and drug stores that operated for the entire year in
1997. Those 20,815 firms operated 41,228 establishments (some entities
selling prescription drug products are not included in this count,
including supermarkets and mass merchants). Of the total firms, 20,126
(or 96.7 percent) were firms that had sales of less than $5 million,
and these same firms operated 21,226 establishments or 51.5 percent of
the pharmacies and drug store class of trade in the Census Bureau data.
In addition to traditional pharmacies and drug stores, prescription
drugs are sold through supermarkets and mass merchants. The National
Association of Chain Drug Stores (NACDS) offers data that include these
outlets, so we examined this data source as well. The NACDS analyzes
industry data from a variety of sources, including IMS Health, the
National Council of Prescription Drug Programs, and American Business
Information, and reports industry statistics on their Web site (http://www.nacds.org
). For 1997, NACDS reports a total of 51,170 community
retail pharmacy outlets, of which 20,844 were independent and 19,119
were chain drug stores (for a total of 39,963)--a number very similar
to the Census Bureau's 1997 count of 41,228 pharmacy and drug store
establishments. We assume that there is a great deal of overlap between
the 21,226 establishments that the Census Bureau identifies as those
with sales of less than $5 million and the NACDS report of 20,844
independent pharmacies in 1997. For 2002, NACDS reports 55,200
community retail pharmacy outlets, of which 19,749 are identified as
independent drug stores.
In addition to the number of outlets, we examined revenues. The
Census Bureau data indicate that, in 1997, total pharmacy and drug
store sales for firms operating the entire year were $97.47 billion, of
which firms with $5 million or less in sales accounted for 25.5 percent
($24.82 billion). However, these sales include more than just
prescription drugs, as most pharmacies and drug stores sell other
products. Since firms may differ in the proportion of revenues obtained
from prescription drugs, we think that the analysis should focus, to
the extent possible, on revenues from prescription drugs, rather than
the broader set of sales occurring through pharmacies and drug stores,
so we also examined IMS' National Prescription Audit data obtained by
our Office of the Actuary (OACT). It is important to note that focusing
only on prescription drug sales, rather than all sales through this
class of trade, yields an estimated impact that is larger than the
actual impact on total sales.
From the data obtained by OACT, it is possible to estimate the
portion of sales occurring through independent and chain pharmacies.
The data do not permit analysis by firm size. However, these data are
specific to prescription drug sales for a more recent time period.
Furthermore, we believe that there is a great deal of overlap between
the firms identified as independent pharmacies and the small pharmacy
and drug store firms identified in the Census data. Consequently, we
think that the data from the Prescription Drug Audit are an appropriate
source for analysis.
For 1997, those data indicate that 29.2 percent of sales were
through independent drug stores--a figure slightly higher than the
share (25.5 percent) indicated by the Census data. For 2002, the data
indicate that 23.5 percent of sales were through independent
pharmacies. For purposes of calculating the share of revenues from
prescription drug sales through small firms, we think it is reasonable
to use the more recent estimate of prescription drug sales through
independent pharmacies obtained from analysis of the Prescription Drug
Audit for 2002.
The Census Bureau data contain information on supermarkets (NAICS
code 445110) and mass merchants (discount or mass merchandising
department stores--NAICS code 4521102, and warehouse clubs and
superstores--NAICS code 45291). We assume that for both supermarkets
and the mass merchants, prescription drug sales comprise a small share
of sales, and consequently have not included them in this small
business analysis. This assumption is supported by data from the Census
Bureau, Prescription Drug Audit, and NACDS Web site. The 1997 Census
data indicate that total supermarket product sales were $351.4 billion.
Analysis of 1997 data from the Prescription Drug Audit indicates that
$8.8 billion in prescription drug sales occurred through food stores,
or 2.5 percent of total product sales. Similarly, the 1997 Census data
indicate that total product sales for the two categories of mass
merchants, as defined by NAICS, were $208 billion. Since data from the
Prescription Drug Audit include mass merchants with other chain stores,
we used prescription drug sales data from the NACDS Web site. The NACDS
Web site indicates that prescription drug sales through the mass
merchant category were $9.6 billion in 1997, or 4.6 percent of total
product sales. Furthermore, the fact that businesses are identified as
supermarkets and mass merchandisers seems to indicate that prescription
drugs are not their major line of trade.
3. Average Estimated Economic Impact on Small Pharmacies
As indicated previously, HHS uses as its measure of significant
economic impact on a substantial number of small entities a change in
revenues of more than 3 to 5 percent. To develop an estimate of the
impact of the program on prescription drug retail sales associated with
small pharmacies and drug stores, we take our national estimates in
Table 7 and make assumptions about the percent of total retail
prescription drug sales through small pharmacies. In addition, we make
assumptions about the distribution across large and small pharmacies
and drug stores of prescription drug sales to endorsed discount card
program enrollees.
Assuming that 23.5 percent of total retail pharmacy sales are
through small pharmacies (based on analysis of data from IMS'
Prescription Drug Audit on the share of total retail sales through
independent pharmacies in 2002), the share of total national
prescription drug sales through small pharmacies and drug stores will
be $36.1 billion in the last nine months of 2004, $53.7 billion in
2005, and $22.4 billion in the first four and one-half months of 2006.
If we assume that the population most likely to enroll in the Medicare
prescription drug discount card program splits its purchases between
large and small pharmacies in the same proportion as the total
population, then the estimated sales involved in the Medicare
prescription drug discount card program through small pharmacies and
drug stores will be $2.8 billion in the last nine months of 2004, $4.2
billion in 2005, and $0.9 billion in the first four and one-half months
of 2006, accounting for less than 8 percent of prescription drug sales
through small pharmacies. Consequently, the portion of the estimated
beneficiary savings
[[Page 69899]]
from discount card activities occurring through sales in small
pharmacies and drug stores ranges from: $0.32 to $0.42 billion in 2004
(last nine months), $0.48 to $0.64 billion in 2005, and from $0.10
billion to $0.13 billion in 2006 (first four and one-half months).
These amounts, as a share of the national retail prescription drug
sales occurring through small pharmacies and drug stores, represent a
range of 0.88 percent to 1.18 percent in 2004, from 0.89 to 1.18
percent in 2005, and from 0.44 to 0.59 percent in 2006.
This is likely to be an overestimate of the economic impact on
small pharmacies and drug stores, as this economic impact will not be
borne entirely by pharmacies. Endorsed sponsors will be required to
obtain manufacturer rebates or discounts that will defray the cost to
pharmacies of providing discounts on retail drug prices. In addition,
to the extent that the endorsed programs achieve larger savings from
drug manufacturers than are reflected in our estimate, the additional
beneficiary savings could come from drug manufacturers and not local
pharmacies. In addition, because of the educational aspects of the
program, some of the savings to beneficiaries will come as a result of
increased use of generic drugs.
Other caveats to consider are the following: Our spending estimates
assume no effects of the Medicare prescription drug discount card
program on beneficiary drug use. It is likely that the transitional
assistance will lead to somewhat greater use of prescription drugs,
resulting in a smaller impact on pharmacy revenues. In addition, it is
possible that lower drug prices may lead to greater use of prescription
drugs, possibly further reducing the impact on pharmacy revenues. On
the other hand, it is possible that pharmacy services associated with
the card will lead to some drug substitution, simplification of drug
regimens, or avoidance of complications that require further drug
therapy, leading to a somewhat greater impact on pharmacy revenues.
4. Sensitivity Analysis
In order to assess the potential for differing distributional
impacts among pharmacies, we conducted a sensitivity analysis. We
estimate that the total prescription drug spending involved in the
Medicare prescription drug discount card program will comprise, on
average, less than 8 percent of revenues, with the economic impact of
the discount card activities on total revenues related to prescription
drugs estimated to be at most 1.18 percent. For purposes of a
sensitivity analysis, we estimate that in order to reach the HHS
measure of significant economic impact of 3 to 5 percent of revenues,
it will be necessary to have prescription drug revenues resulting from
the program account for at least 20 percent of a business's revenues.
In the sensitivity analysis, we developed a hypothetical geographic
locality skewed to contain a large Medicare beneficiary population with
a large share of the beneficiary population having characteristics
making them likely to enroll in this program. Under this highly skewed
assumption, we estimated a maximum share of 15.7 percent of a
business's total prescription drug revenues would be associated with
the Medicare prescription drug discount card program, with the program
having an economic impact of 2.36 percent of prescription drug sales.
As noted previously, this economic impact will not be borne
entirely by pharmacies, because endorsed sponsors will be required to
obtain manufacturer rebates or discounts that will defray the cost of
pharmacies providing discounts on retail drug prices. In addition, part
of the savings to beneficiaries also comes from increased use of
generic drugs. Nevertheless, the sensitivity analysis still yielded an
impact level below the 3 to 5 percent of revenues used by HHS to
measure significant economic impact. The following discussion describes
the assumptions and supporting data used in the sensitivity analysis.
In order to prepare the sensitivity analysis, we identified key
variables that could change the market share of revenues accounted for
by enrollees in this program and the consequent impact resulting from
the Medicare prescription drug discount card program. One key variable
is the Medicare population as a portion of a pharmacy's geographic
locality customer base. We assume that a pharmacy's customer base is
derived in large part from the population in close geographic proximity
to its business location. Therefore, we examined the variation in the
geographic distribution of the Medicare population. On average
nationally, Medicare beneficiaries were 13.8 percent of the total
population as of July 2000. Using several States with the highest
Medicare population rates, we examined, at the county level, the
percent of the population over age 65 based on Census Bureau data. For
counties with high elderly population compositions, we obtained the
actual counts of Medicare enrollment (aged and disabled) and calculated
Medicare enrollment as a percentage of the counties' populations. Based
on this analysis at the county level, we estimate in a high-end
scenario that Medicare beneficiaries could potentially comprise up to
approximately 36 percent of a geographic area's population.
A second key variable that we assume could alter the revenues being
impacted is the percent of the Medicare population in an area that may
enroll in Medicare prescription drug discount card programs. As
discussed previously, we think that the beneficiaries most likely to
enroll in the program will be those beneficiaries with income less than
or equal to 135 percent of the official poverty line who are eligible
for the $600 transitional assistance, beneficiaries not eligible for
transitional assistance who do not have insurance coverage for
prescription drugs (including those with supplemental insurance
coverage that does not include prescription drugs), and beneficiaries
not eligible for transitional assistance who have Medigap drug
coverage. To develop upper bound estimates for the percent of Medicare
beneficiaries in an area who might fall into one of these three groups
of potential enrollees, we use the prevalence rates of beneficiaries
with these characteristics in non-metropolitan areas. Based on analysis
of MCBS data for non-metropolitan areas, we assume that 21 percent of
beneficiaries in the hypothetical geographic area were eligible for the
$600 transitional assistance (compared with 18 percent nationally). We
also assume that among beneficiaries in the hypothetical area, 20
percent had no drug coverage and were ineligible for the transitional
assistance (compared with 15 percent nationally), while another 8
percent had Medigap drug coverage and were ineligible for the
transitional assistance (compared with 5 percent nationally).
Nationally, we estimate that more than 7 million Medicare
beneficiaries will enroll in Medicare prescription drug discount card
programs in 2004, accounting for an estimated 2.5 percent of the total
U.S. population. Adjusting the data, using the population and drug
coverage weighting factors for the sensitivity analysis and using the
overall uptake assumptions (65 percent uptake among transitional
assistance eligible beneficiaries, 35 percent uptake among
beneficiaries not eligible for transitional assistance who do not have
drug coverage, and 24 percent uptake among beneficiaries not eligible
for transitional assistance who have Medigap drug coverage), results in
the hypothetical area having approximately 8.15 percent of its total
population participating in the Medicare prescription drug discount
card program. Therefore, about 91.85 percent
[[Page 69900]]
of the total hypothetical area's population will not participate in the
program, including both Medicare beneficiaries and non-Medicare
beneficiaries.
To estimate the impact of the program on prescription drug revenues
in the hypothetical locality, we estimated the per capita drug spending
for program participants and non-participants in the hypothetical area.
We estimated per capita drug spending to be $2187 for participants and
$1039 for non-participants in the hypothetical locality in 2004. These
figures differ from per capita estimates for participants and non-
participants at the national level due to the skewed demographic
composition of the hypothetical area (which would have a large Medicare
population and have beneficiaries with Medigap drug coverage comprising
a slightly greater share of drug discount card program participants
than at the national level). The per capita spending estimates for both
participants and non-participants include individuals without drug
expenditures.
For participants in the Medicare prescription drug discount card
program, the per capita value consists of the estimated total spending
for enrolled transitional assistance eligible beneficiaries, plus
estimated total spending for enrolled beneficiaries not eligible for
transitional assistance who do not have drug coverage, plus the share
of spending for the Medigap enrollees that is purchased through the
program, divided by the total number of participants.
For purposes of calculating the per capita spending for non-
participants in the Medicare prescription drug discount card program,
we used prescription drug spending data from the National Health
Accounts and estimates from the MCBS to develop per capita drug
spending estimates for the non-Medicare population and for the Medicare
population not participating in the program. These two per capita
values for non-participants were then weighted relative to the
population distribution they represented in the hypothetical area's
non-participant population to create a per capita drug spending
estimate for non-card participants.
We then adjusted per capita drug spending for non-participants to
include participants' drug spending that was not purchased through the
Medicare prescription drug discount card program (that is, the portion
of drug spending covered by Medigap plans) to yield an estimate of
total drug spending outside of the program. Consequently, this
inclusion of the Medigap covered drug spending means that the per
capita drug spending figure for non-participants is this adjusted per
capita (including the Medigap related spending) for the hypothetical
area rather than the actual per capita for the non-participant
population in the hypothetical area. For purposes of the sensitivity
analysis calculation of the impact of the program, we used the upper
bound figure of all drug spending being effected by the program as a
high-end assumption.
The results of the sensitivity analysis are shown in Table 8. For
the hypothetical area that is skewed to have a large Medicare
beneficiary population with a large share of that beneficiary
population having characteristics making them likely to enroll in this
program, the negative impact on prescription drug revenues reached 2.36
percent, still below the HHS measure for significant economic impact of
3 to 5 percent of revenues. Furthermore, as noted above, not all of the
2.36 percent will be borne by the pharmacy, since discount card
sponsors will be required to obtain manufacturer rebates or discounts
and pass those through to beneficiaries and pharmacies in order to
receive Medicare endorsement. In addition, part of the savings also
comes as a result of beneficiary use of lower cost generic drugs.
Similar to the additional analyses performed earlier in this document
looking at how varying the uptake assumptions by 15 percent would
affect the impact on national retail prescription drug spending, we
performed additional analyses here further skewing enrollment in this
hypothetical area to assume 15 percent higher uptake rates among
beneficiaries. Even under those assumptions, the economic impact on
prescription drug revenues in the hypothetical area would still be
below the HHS standard for significant impact of 3 to 5 percent of
revenues.
We recognize that reliance of the sensitivity analysis on
nationally calculated per capita averages weighted for different
demographic compositions has limitations, and pharmacies may have
customer populations with per capita drug spending levels that differ
from the population specific averages calculated at a national level.
However, lacking such pharmacy level data, this sensitivity analysis
represents our best estimate of the maximum potential effect of the
program on small pharmacies and drug stores in a hypothetical area with
substantially higher than average program enrollment.
Table 8.--National Average Versus Sensitivity Analysis--Hypothetical Example
----------------------------------------------------------------------------------------------------------------
Discount card
Discount card Non- Total
2004 participants participants population
(percent) (percent) (percent)
----------------------------------------------------------------------------------------------------------------
National Average for Comparison Purposes:
Percent of Total Population................................. 2.49 97.51 100.00
Percent of Total Prescription Drug Sales.................... 7.84 92.16 100.00
Estimated Beneficiary Savings From Discount Card Activities 15.00 0.00 1.18
as a Percent of Drug Sales.................................
Hypothetical Example:
Percent of Total Population................................. 8.15 91.85 100.00
Percent of Total Prescription Drug Sales.................... 15.73 84.27 100.00
Estimated Beneficiary Savings From Discount Card Activities 15.00 0.00 2.36
as a Percent of Drug Sales.................................
----------------------------------------------------------------------------------------------------------------
5. Reporting, Recordkeeping, and Other Compliance Requirements for
Small Pharmacies
Requirements related to reporting, recordkeeping, and other
compliance activities for small pharmacies under this program are
minimal. There are only two requirements of this type for pharmacies
that participate in an endorsed discount card sponsor's network.
Pharmacies are required to notify the beneficiary at the point of sale
of the differential between the price of the drug to the beneficiary
and the lowest priced generic covered drug under the program that is
therapeutically equivalent and bioequivalent and available at the
[[Page 69901]]
pharmacy. While it is possible that this requirement could represent
some burden, we anticipate that the burden would be at most marginal.
The pharmacy community routinely indicates that it is common practice
for pharmacies to promote the use of generic drugs. Thus, this
requirement is unlikely to represent a change in current practice for
most pharmacies. The costs of the systems infrastructure required to
furnish this pricing information will be borne by endorsed sponsors.
The only cost to pharmacies would be the time involved in conveying the
information to the beneficiary, which we anticipated would be small.
Pharmacies are also required upon request from the beneficiary to
determine--either electronically or by telephone--how much of the
beneficiary's transitional assistance dollars remain. The costs
associated with this activity for pharmacies are expected to be small
for several reasons. First, we anticipate that the costs associated
with the development of the infrastructure for providing the balance of
the transitional assistance dollars at the point of sale will be borne
by endorsed sponsors, not network pharmacies. Second, we expect that
the time involved in pharmacies determining the balance either
electronically or by phone will be small. Finally, providing to
beneficiaries the transitional assistance balance is not required to
occur at the point of every sale, only at the beneficiary's request.
Beneficiaries will have other options for accessing their card balances
outside of the retail pharmacy, including through the endorsed
sponsor's toll free line, which is likely to lessen the extent to which
beneficiaries request balance determinations by pharmacies.
6. Small Rural Hospitals
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a rule may have a significant impact on the
operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. This rule will not affect
small rural hospitals since the program will be directed at outpatient
prescription drugs, not drugs provided during a hospital stay.
Prescription drugs provided during hospital stays are covered under
Medicare as part of Medicare payments to hospitals. Therefore, we are
not providing an analysis.
7. Alternatives Considered for, Especially, Small Pharmacies
In developing this program, we recognized that the statute already
provided for a number of major program features that act to mitigate
the potential effects of this program on retail pharmacies, including
small pharmacies. First, we interpret the statute as reflecting
Congressional intent that endorsed sponsors obtain manufacturer
rebates, discounts, or other price concessions on some covered discount
card drugs and that endorsed sponsors pass through some of these price
concessions to enrollees in the form of lower prices. In addition, as
discussed elsewhere in this rule, prices under this program will not be
taken into account for the purposes of establishing ``best price.''
Together, these program features relieve pressure from pharmacies, by
ensuring that manufacturer rebates and discounts will be an important
component of savings in this program and that endorsed sponsors will
not rely solely on pharmacy discounts to compete for customers.
Second, the statute prohibits a mail order-only option. Mail order
programs have some popularity and may be a convenient option for some
beneficiaries. However, the prohibition of mail order only programs
ensures that strong access to retail pharmacies will be an important
feature of this program.
Finally, the program includes broad network access requirements
that ensure that convenient access to retail pharmacies, including
small pharmacies, will be a critical component of this program.
Endorsed sponsors are required to have a pharmacy network of sufficient
size to demonstrate that at least 90 percent of beneficiaries in urban
areas served by the program live within 2 miles of a network pharmacy,
at least 90 percent of beneficiaries in suburban areas served by the
program live within 5 miles of a network pharmacy, and at least 70
percent of beneficiaries in rural areas served by the program live
within 15 miles of a network pharmacy. Given these network access
requirements, coupled with the industry norm for broad pharmacy
networks, and the prohibition of a mail order only option, we
anticipate that a very large number of small pharmacies and drug stores
will be included in the networks of endorsed sponsors.
In addition to these statutory-related features of the program that
mitigate its potential effects on pharmacies, we considered whether or
not to require that endorsed sponsors negotiate discounts on all drugs.
We decided to only require that endorsed sponsors offer a discount on
at least one drug in the therapeutic categories representing the drugs
most commonly needed by beneficiaries. Since endorsed sponsors are less
likely to negotiate manufacturer discounts on every drug dispensed, we
believe our decision not to require discounts on every drug relieves
pressure on pharmacies to provide discounts.
I. Estimated Administrative Costs and Anticipated Revenues of Endorsed
Card Sponsors
1. Introduction
The statutory requirement that this program be provided by private,
endorsed card sponsors places program success in providing savings and
transitional assistance to Medicare beneficiaries on the participation
of potential card sponsors. In light of this, we estimated the
administrative costs and revenues faced by potential card sponsors to
assess the willingness of private organizations to participate in the
Medicare prescription drug discount card program. There are several
incentives for organizations with pharmacy benefit management
experience to choose to participate as endorsed card sponsors. We know
that Medicare beneficiaries trust the Medicare name and are more
confident about product offerings when they are Medicare approved or
backed by the Medicare name. Receiving a Medicare endorsement will give
potential card sponsors credibility with Medicare beneficiaries. In
light of this, we believe that Medicare's endorsement of a discount
program, and especially the availability of transitional assistance,
will result in much greater enrollment with these organizations than
the same entities might achieve if they decided to offer a discount
program on their own. Greater enrollment means revenue from enrollment
fees and more lives with which to negotiate manufacturer rebates. In
addition, participation in the Medicare prescription drug discount card
program may offer organizations the opportunity to gain experience
working with Medicare beneficiaries and contracting with CMS prior to
implementation of Medicare Part D.
The following cost and benefit analysis reflects the estimated
major administrative costs and benefits incurred by an endorsed sponsor
to implement the Medicare prescription drug discount card program. The
administrative costs include start-up and program implementation
activities, the production and distribution of
[[Page 69902]]
information and outreach materials, eligibility determination and
enrollment processing of beneficiaries, processing claims for retail
and mail-order prescriptions, operation of a customer service call
center, account maintenance, and logging and responding to beneficiary
complaints and grievances. This analysis provides a range for each cost
component, from low to high, that reflect possible endorsed sponsor
differences in the level of technical efficiency and business
investment decisions for offering the discussed initiative. For
purposes of this analysis, estimated benefits are limited to the
legislated enrollment fee, a maximum of $30 per year in 2004 and 2005.
This analysis demonstrates that a maximum annual enrollment fee of $30
can cover all or almost all administrative costs over the life of the
program. Finally, we believe that the low costs estimated in this
analysis maybe more accurate because CMS received many applications
from potential card sponsors during our previous attempts to enact a
fairly comparable program, suggesting that these organizations believed
expected returns to be positive.
2. Sources of Administrative Cost Estimates
We used several sources in estimating administrative costs for this
analysis. First, CMS has extensive experience pricing and contracting
for some of the activities we require of endorsed sponsors,
specifically call center operations for the Medicare population and
producing and mailing printed information and outreach materials. We
thoroughly explored internal sources to estimate costs for information
and outreach, and for call center and customer service activities.
Early this year, 2003, as the President's plan for Medicare reform
was being considered by Congress, CMS contracted for research of
discount drug card call center operations to better inform our
understanding of endorsed sponsor customer service and possible impacts
on 1-800 Medicare.\5\
---------------------------------------------------------------------------
\5\ The Health Strategies Consultancy LLC. Call Center
Parameters and Regulatory Authority for Drug Discount Cards. May 20,
2003.
---------------------------------------------------------------------------
Other administrative costs of this program, such as account
management and claims processing costs for pharmacy benefit management
services, are not publicly available in a standardized format. In part,
this is due to a general lack of transparency in the financial
reporting of the pharmacy benefit management industry. Administrative
cost information is considered proprietary by the industry and is not
clearly itemized in financial reports.
Of the information that is available, most is not standardized, and
therefore, not readily compared across discount card programs. A
pharmacy benefit management firm's administrative costs are unique to
its business structure. The structure of pharmacy benefit management
contracts also reduces the standardization of cost information. When
bidding on a Request for Proposal by an employer or health insurer to
provide pharmacy benefit management services, pharmacy benefit
management firms typically offer a package of administrative costs,
negotiated pricing for reimbursing drug costs, and rebate-sharing
arrangements. The package approach often includes a comprehensive
administrative fee that covers many bundled services, the content of
which vary by organization and proposal. The multifarious rebate-
sharing arrangements unique to each pharmacy benefit management firm
and other revenue flows mask the cost of some activities, contributing
even more to reduced comparability. In short, payments for costs taken
from multiple pharmacy benefit manager contracts cannot be readily
compared. For example, a recent investor report by Credit Suisse First
Boston demonstrates the impact of rebate-sharing arrangements on
administrative costs. The authors cite variation in per claim
processing costs paid by purchasers of $0.0 to $0.70.\6\
---------------------------------------------------------------------------
\6\ Berg, Kevin and Noah Yosha. July 14, 2003. Pharmacy Benefit
Managers and Specialty Pharmacies. Credit Suisse Equity Research for
First Boston: 5.
---------------------------------------------------------------------------
In order to best estimate these administrative costs, CMS
contracted with an independent, management-consulting firm to provide
technical support in developing estimates of administrative costs.\7\
For each of the major activities required to implement the Medicare
prescription drug discount card program, we identified seven categories
of economic costs that potential endorsed sponsors might incur in
implementing this program. These costs are discussed in detail later in
this analysis and presented in Table 9.
---------------------------------------------------------------------------
\7\ Booze, Allen, and Hamilton. December 2003. Discount Card
Administrative Costs to Support the Medicare Drug Discount Card
Program. CMS contract number 500-97-0437, Task Order 2006.
---------------------------------------------------------------------------
The consulting firm's analysis is based on interviews with
officials representing State senior discount card programs and
commercial organizations representing various categories of firms that
provide drug card program administration, throughout the United States.
These organizations include pharmacy benefit management firms
(independent and owned by managed care organizations) and other
commercial discount card program operators. In addition to conducting
interviews, the consulting firm also consulted industry experts on
purchasing pharmacy benefit management services.
The consulting firm interpolated costs from more generalized cost
information gathered in interviews about required labor and resources,
in some instances, in order to estimate specific, comparable costs for
all activities. This was necessary, in part, because commercial
organizations were cautious about sharing costs and uncertain about the
programmatic requirements of this regulation, which were not publicly
available at the time that these interviews were conducted. Also,
States and other purchasers did not always have the specific costs of
components included in bundled administrative fees.
3. General Assumptions, Limitations, and Scope
This program has two full operational years beginning in April 2004
and ending mid-May 2006. Although the program does not start in
January, we estimate costs for each calendar year of operation because
calendar years correspond to the source of revenue, the annual
enrollment fee, and to the coordination of the enrollment process with
the Annual Coordinated Election Period for Medicare. We refer to the
first nine months of 2004 as Year One, to 2005 as Year Two, and to the
first four and one-half months of 2006 as the Transition Period. For
Year One estimates, we adjust the costs associated with ongoing program
operations, including claims processing, account maintenance, and
responding to discount card enrollee complaints and grievances, to
reflect the nine-month operating period.
The four and one-half month transition period is a carryover period
during the initial open enrollment period for the new Medicare Part D
prescription drug benefit. During this period, no new enrollment is
allowed in the Medicare prescription drug discount card program, no new
transitional assistance is available, and endorsed sponsors may not
charge an annual enrollment fee. Current discount card enrollees retain
access to negotiated prices and transitional assistance enrollees may,
in most instances, use the balance of transitional assistance funds not
expended in Year Two to
[[Page 69903]]
assist with covering the costs of their covered discount card drugs
obtained during the transition period. Therefore the costs reflected
for this period include claims processing, account maintenance,
customer service and call center operations, and responding to discount
card enrollee complaints and grievances. We adjust all costs incurred
in this period for an average enrollment length of two and one-quarter
months, which is the same assumption made earlier in the beneficiary
impact estimates to reflect declining enrollment in the Medicare
prescription drug discount card program as individuals move to Part D.
We assume that all endorsed sponsors, or at least one of their
contractors, are experienced in pharmacy benefit management and have
the infrastructure in place to implement this program. The applicant,
or one of its subcontractors, at the time of application for
endorsement must have three years experience in adjudicating and
processing claims at the point of sale, negotiating with prescription
drug manufacturers and others for rebates and discounts on
prescriptions drugs, and administering an individual enrollee health
care subsidy or benefit in real time. Further, the applicant, or at
least one of its subcontractors, must serve at least 1 million covered
lives. For this reason, some requirements of this program are part of
standard business practices for administering a prescription drug
benefit or assistance program and are associated with negligible
additional costs.
Activities already conducted as standard business practice include
creating typical reports on discounts, pricing, and utilization for the
client, providing counseling on generic substitution, establishing a
pharmacy network, reimbursing network pharmacies for drugs covered by
transitional assistance, drug utilization review, formulary management,
and negotiating manufacturer and retail rebates. We assume marginal
cost incurred for these activities, if any, will be captured in our
estimates for account maintenance. Further, we believe that endorsed
sponsors will be compliant with HIPAA because their other lines of
business require such compliance. Regarding the HIPAA security rule,
which is not enforceable until 2005, based on our discussions with
potential endorsed sponsors, we assume they are already in compliance
with these provisions under the privacy rule and are preparing to
complete compliance with the security rule 2005 deadline for their
other lines of business.
We assume that total program enrollment is equal to 100 percent of
the number of beneficiaries that the impact analysis estimates will be
enrolled in each year of operation: 7.3 million in Year One, and 7.4
million in Year Two and the Transition Period. We used a growth
estimate of 1.4 percent to estimate enrollment in Year Two, which is
the estimate for growth in Medicare Part B enrollment. Part E of this
section discusses estimated program enrollment in greater detail. For
some of our enrollment application, and information and outreach
estimates, we assume that new enrollment in Year Two consists of those
individuals the impact analysis anticipates enrolling in the program in
Year Two and those individuals switching card programs. With regard to
the latter, we assume that roughly 10 percent of enrollees will
disenroll during Year One. As a simplifying assumption, we also assume
that this same number re-enrolls in a different card in Year Two. We
chose 10 percent as a modification of the 2001 Medicare managed care
disenrollment rate of 13 percent because the rate reflects a continuous
open enrollment policy. Our regulations limit enrollment to one
endorsed program each year, with the option to elect another endorsed
programs during the Annual Coordinated Election Period.
Exclusive card sponsors are Medicare managed care organizations
that limit their card program membership to their health plan
membership. We have chosen not to present separate cost estimates for
exclusive card sponsors for two reasons. First, we assume that we will
largely be endorsing existing card programs already in operation by
these organizations for their Medicare enrollees. Second, we believe
that the costs for exclusive card sponsors will be lower than those
incurred by other endorsed sponsors. Exclusive card sponsors can group
enroll their Medicare managed care organization enrollees, a known
population. They also will have lower costs for information and
outreach since they already engage in marketing activities for their
plan and can achieve efficiencies by including their discount card
information with other outreach efforts. Since the costs of enrollment,
and information and outreach are some of the highest cost components in
Year One, we expect exclusive endorsed sponsors will have costs
substantially lower than the maximum $30 enrollment fee.
We estimate that 812,637 individuals will be enrolled in a discount
drug card offered by an exclusive card sponsor in 2004, and 824,201
individuals will be enrolled in an exclusive card program in Year 2005
and the Transition Period. We derived this estimate by applying the
proportion of individuals enrolled in a Medicare managed care plan
(that is, Section 1876 cost plans, M+C plans, and preferred provider
and most other managed care demonstrations) in the Medicare population,
12 percent, to the number of individuals estimated to enroll in this
initiative who are not enrolled in Medigap, 6.8 million in 2004 and 6.9
million in 2005. Because we are not estimating costs for endorsed
sponsors that are also managed care organizations, we removed these
individuals from all enrollment assumptions made in this analysis.
Throughout the discussion of individual costs, we present estimated
costs for the whole program, by discount card enrollee, and for the
average fee-for-service (FFS) endorsed sponsor (meaning a endorsed
sponsor whose enrollment is made up mostly of beneficiaries in the
original Medicare program) whose average enrollment is based on the
total enrollment level calculated above divided by the number of FFS
programs we expect will apply and meet the requirements for
endorsement, as described below. In part, this is because our research
on administrative costs suggests that experienced administrators of
prescription drug benefits have comparable per discount card enrollee
and per prescription variable costs for programs of different sizes
that meet minimum endorsement requirements. However, endorsed sponsors
have the option of proposing a program for a service area as small as a
State.
The remainder of this analysis examines the impact on endorsed
sponsors that must comply with all components of this regulation and
serve primarily beneficiaries in fee-for-service. This includes the few
organizations that we expect may choose to offer a card for all
Medicare beneficiaries rather than limit enrollment to their health
plan membership. Only the latter are exclusive endorsed sponsors.
Having removed individuals in exclusive card programs, we estimate per
endorsed sponsor costs based on an average endorsed sponsor enrollment
of 431,865 in Year One and 438,010 in Year Two and the Transition
Period. We derived these numbers by dividing estimated enrollment less
our estimates for exclusive card program enrollment by 15, or 6,477,973
divided by 15 in Year One, and 6,570,150 divided by 15 in Year Two. In
2001, we received 28 applications, with approximately one-half
appearing to meet all of the
[[Page 69904]]
endorsement criteria to operate a discount card program.\8\
---------------------------------------------------------------------------
\8\ On November 5, 2001, the Federal Court for the District of
Columbia preliminarily enjoined CMS from proceeding with the
administration's proposal for a Medicare-Endorsed Prescription Drug
Discount Card program. In accordance with the court order, we
withdrew the solicitation, all work on the initiative ceased. CMS
did not make any Medicare endorsements on the basis of applications
received. However, we had, at that time, completed our review of all
applications and knew how many proposed programs would have been
endorsed.
---------------------------------------------------------------------------
This analysis estimates a range of high and low annual costs per
discount card enrollee, per endorsed sponsor, and for the whole
program, for each type of administrative cost incurred to implement
this program. The ranges serve to illustrate the sensitivity of
differences in possible administrative costs that are the result of
various levels of industry experience and technological efficiency, and
of business decisions about the level of investment for discretionary
activities, such as information and outreach. For example, efficient
pharmacy benefit management organizations with modern information
systems that are currently operating a card program and that
selectively target their marketing efforts are anticipated to have much
lower costs than organizations that must program older mainframe
systems, have less experience with direct enrollment, and make greater
investments in information and outreach materials. Further, some
organizations other than pharmacy benefit management firms that could
qualify to be endorsed sponsors may have less experience in some areas
of pharmacy management or may choose to outsource or partner with
another organization for some activities, resulting in alternative, and
possibly higher, cost structures.
The following estimates were made in 2003 dollars and have been
updated by 1.041 percent in Year One to reflect 2004 dollars, 1.085
percent in Year Two to reflect 2005 dollars, and 1.132 percent to
reflect 2006 dollars during the transition period. All dollar figures
discussed in greater detail in the next section and presented in Table
9 reflect the inflated rate for that identified year. Inflation
estimates are based on those for labor in the general population from
table III.A.1 of the 2003 Annual Report of the Board of Trustees, see
http://www.cms.hhs.gov/publications/trusteesreport/2003/.
Table 9.--Administrative Costs and Benefits by Period
[Year one (nine months) administrative costs in 2004 dollars]
----------------------------------------------------------------------------------------------------------------
Costs per endorsed sponsor Dollars per discount card
(431,865 enrolled) enrollee
-------------------------------------------------------------------
Low High Low High
----------------------------------------------------------------------------------------------------------------
Program Implementatioon.................... $1,561,500 $3,123,000 $3.62 $7.23
Information and Outreach................... 1,807,771 4,300,194 4.19 9.96
Eligibility Determination and Enrollment 2,261,793 2,945,591 5.24 6.82
Processing.................................
Customer Service Operations................ 2,899,735 4,366,461 6.71 10.11
Claims Processing and Claims Adjudication.. 541,677 1,764,862 1.25 4.09
Account Maintenance........................ 1,294,765 1,348,714 3.00 3.12
Logging and Responding to Grievances....... 30,346 40,461 0.07 0.09
-------------------------------------------------------------------
Total Administrative Costs.............. 10,397,588 17,889,284 24.08 41.42
Maximum Revenue Stream from Enrollment 12,955,945 12,955,945 30.00 30.00
Fee....................................
-------------------------------------------------------------------
Net Benefits........................ 2,558,357 (4,933,339) 5.92 (11.42)
----------------------------------------------------------------------------------------------------------------
[Year two administrative costs in 2005 dollars]
----------------------------------------------------------------------------------------------------------------
Costs per endorsed sponsor Dollars per discount card
(438,010 enrolled) enrollee
-------------------------------------------------------------------
Low High Low High
----------------------------------------------------------------------------------------------------------------
Program Implementation..................... $0 $0 $0.00 $0.00
Information and Outreach................... 858,543 1,513,041 1.96 3.45
Eligibility Determination and Enrollment 302,577 393,446 0.69 0.90
Processing.................................
Customer Service Operations................ 574,370 864,894 1.31 1.97
Claims Processing and Claims Adjudication.. 763,474 2,173,771 1.74 4.96
Account Maintenance........................ 1,824,925 1,900,963 4.17 4.34
Logging and Responding to Grievances........ 42,772 57,029 0.10 0.13
-------------------------------------------------------------------
Total Administrative Costs.............. 4,366,661 6,903,144 9.97 15.76
Maximum Revenue Stream from Enrollment 13,140,301 13,140,301 30.00 30.00
Fee....................................
-------------------------------------------------------------------
Net Benefits........................ 8,773,640 6,237,156 20.03 14.24
----------------------------------------------------------------------------------------------------------------
[[Page 69905]]
[Transition period (five and one-half months) administrative costs in 2006 dollars*]
----------------------------------------------------------------------------------------------------------------
Costs per endorsed sponsor Dollars per discount card
(438,010 enrolled) enrollee
-------------------------------------------------------------------
Low High Low High
----------------------------------------------------------------------------------------------------------------
Program Implementation..................... $0 $0 $0.00 $0.00
Information and Outreach................... 0 0 0.00 0.00
Eligibility Determination and Enrollment 0 0 0.00 0.00
Processing.................................
Customer Service Operations................ 107,694 162,168 0.25 0.37
Claims Processing and Claims Adjudication.. 149,352 305,325 0.34 0.70
Account Maintenance........................ 356,996 371,871 0.82 0.85
Logging and Responding to Grievances....... 8,367 11,156 0.02 0.03
-------------------------------------------------------------------
Total Administrative Costs.............. 622,410 850,519 1.42 1.94
Maximum Revenue Stream from Enrollment 0 0 0.00 0.00
Fee....................................
-------------------------------------------------------------------
Net Benefits........................ (622,410) (850,519) (1.42) (1.94)
----------------------------------------------------------------------------------------------------------------
* Costs assume an average of 2.25 months enrollment to match assumptions in section on beneficiary impact
analysis.
4. Specific Assumptions For Administrative Cost Estimates
In the following paragraphs, we discuss our assumptions for the
estimates provided in Table 9 for the 7 major types of administrative
costs anticipated for this program.
(a) Start-up, program implementation costs for infrastructure
enhancements, including software and hardware upgrades, programming for
many operations, and systems integration;
(b) Information and outreach activities, for example the production
and distribution of pre-enrollment application materials and a post-
enrollment welcome kit with a discount card;
(c) Eligibility determination and enrollment processing;
(d) Call center and customer service operations, including handling
calls asking for information and outreach materials and enrolling,
where applicable;
(e) Claims processing for administrating and adjudicating claims
transactions;
(f) Account maintenance, including staff time to run the program
and updates to various systems, to provide typical industry data
reports, including providing data to support the price comparison Web
site; and
(g) Logging and responding to beneficiary complaints and grievances
for reasons other than eligibility.
a. Program Implementation
Program implementation costs are those associated with setting up
the necessary infrastructure, mostly information systems, to run the
Medicare prescription drug discount card program.
We do not believe that endorsed sponsors will need to purchase
entirely new hardware or software. We believe that those organizations,
with their subcontractors, that will be eligible for the endorsement
already maintain the information system infrastructure, including
hardware and software, necessary to house the information systems
needed for this program. This infrastructure includes enrollment
databases, claims processing and adjudication, third-party
reimbursement, and call center operations. One exception is our
requirement that endorsed sponsors pay to install CMS software and test
connect with CMS data systems for exchanging eligibility and enrollment
information. However, CMS will pay for the program sponsor T1
connection and provide the ``connection software''. For this software,
we estimate installation costs of no more than $1,500 per endorsed
sponsor, or less than $0.01 per discount card enrollee, in 2003
dollars.
Endorsed sponsors will incur program implementation costs for
programming or enhancing current software systems and conducting the
systems integration necessary to accommodate the specific parameters of
this program. Impacted software systems include current enrollment
systems, drug price database, formulary management, pharmacy network
database, call center software, accounting systems to track
expenditures by beneficiary for the transitional assistance program,
updates to claims processing to provide rebates at the point-of-sale,
and setting up other data files associated with CMS reporting
requirements.
One representative of the pharmacy benefit management industry
interviewed for CMS, anticipated information system enhancement costs,
including upgrading and programming call center software, for a
Medicare prescription discount card program, to between $4 million and
$6 million for a program of 500,000 enrollees. Using our estimates of
431,865 enrolled per endorsed sponsor, these fixed costs become an
estimated per discount card enrollee annual cost between $9.26 and
$13.89 dollars. These estimates reflect costs known to this
organization as well as additional dollars to account for the
uncertainty of making estimates without programmatic specifics.
Interviews with other State and commercial discount card programs,
provided estimates of labor type and time required to program software
systems. Using the information, the consulting firm estimated start-up
program implementation costs for information systems between $54.5 and
$250 thousand in 2003 dollars. As an annual per discount card enrollee
cost for the average endorsed sponsor, this program implementation
estimate is negligible, ranging from $0.13 to $0.58. This program has
unique aspects whose costs are not fully known. So as to accommodate
for this and the limited experience that some types of firms may have
with programming specific software systems and new programming, such as
tracking beneficiary expenditure of transitional assistance, CMS has
chosen to estimate program implementation costs that are a compromise
of the higher cost estimates for program implementation anticipated by
one organization and the lower costs estimated by the consulting firm.
Specifically, we have chosen a per endorsed sponsor range between 1.5
million and $3 million dollars for program implementation for Year One
in 2003 dollars. We reduced the lowest industry number of $2 million by
a rough $500 thousand for upgrading call center software, as the
estimates for that
[[Page 69906]]
cost per call is reflected in section (d). We estimate that the
aggregate program implementation cost across all endorsed sponsors in
Year One is between $23 million and $47 million in 2004 dollars, with a
per endorsed sponsor cost between $1.6 million and $3.1 million. This
translates into a per discount card enrollee cost between $3.62 and
$7.23. There are no program implementation costs for Year Two or the
Transition Period.
b. Information and Outreach
Under this initiative, there will be costs associated with
information and outreach materials for each new discount card enrollee
in Year One and costs associated with distribution of program materials
to current discount card enrollees as well as to a small percentage of
new discount card enrollees and disenrollees choosing to reenroll in
Year Two. There are no information and outreach costs for the
Transition Period as no new enrollment is allowed after December 31,
2005. We assume that individuals will be notified that the Medicare
prescription drug discount card program will end in 2006 through the
annual notice of change mailed at the end of 2005.
We develop a range of estimates that reflect the production and
mailing of five types of information and outreach materials: a pre-
enrollment application kit with the standard enrollment form, a post-
enrollment welcome kit with the drug card, an annual notice of change,
an eligibility determination, and mailing back incomplete applications
that cannot be processed. These estimates do not include costs for
information and outreach through mass media as this is not a
requirement for endorsement.
Information and outreach is an area where endorsed sponsors can
choose to spend an extensive amount of money, depending on their long-
term business interests and plans. In their interviews with potential
endorsed sponsors and comparable State programs, the consulting firm
found large differences in information and outreach expenditures. For
example, expenditure for mass media advertising quickly increases costs
beyond those discussed here. The decision to invest in mass media
advertising is ultimately that of the endorsed sponsor.
CMS intends to assist endorsed sponsor information and outreach
efforts by launching an education campaign about the new Medicare
prescription drug discount card program. We plan on both television and
print advertising. Further, we expect 1-800 MEDICARE to serve as the
first source of information about the program. 1-800 MEDICARE provides
interested individuals with decision support, helping them identify the
programs that they are eligible to join. 1-800 MEDICARE also will mail
interested individuals a booklet describing the Medicare prescription
drug discount card program, transitional assistance, and how to enroll.
For these reasons, we expect that at least some of the financial burden
of generating awareness and educating Medicare beneficiaries about the
program will not fall on endorsed sponsors, reducing costs for
information and outreach.
For low estimates, we used production costs based on prices from
Federal contractors available through the General Services
Administration and in-house mail estimates. We priced simple, low-end,
serviceable materials with some color and limited design. For the high
estimates, we substituted the costs quoted for application kits
(overview materials and standard enrollment form) and welcome kits
(member handbook and drug card) by organizations interviewed for CMS,
for our in-house estimates. We assume these materials to be higher-end
commercial products. Both low and high estimates include postage and
use our in-house estimates for producing and mailing the other
information and outreach materials: mailing eligibility determination
notices, mailing back incomplete applications, and an annual notice of
program changes for each year.
Low and high estimates for producing and mailing a welcome kit to a
new member were $1.20, the Government's estimate, and $2.00, which was
based on costs reported by organizations interviewed for CMS.
Organization estimates for providing a welcome kit ranged from $0.12 to
$2.70 in 2003 dollars. However, most reported costs hovered between
$1.00 and $1.50. The $2.70 cost was for a kit compiled on demand with
few economies of scale, an approach we do not expect nor require
endorsed sponsors to take. We chose an estimate of $2.00 because it was
higher than most reported commercial costs but low enough to reflect
the expected requirements of this program. We also believe that we have
reduced the time endorsed sponsors may need to spend drafting marketing
materials by providing model information and outreach materials with
the solicitation.
We used the same approach in our low and high estimates of
application kits. Our government sources reported a cost of $0.65 to
produce and mail an application kit to interested individuals.
Commercial and State estimates for providing an application kit to
interested individuals ranged from a low of $0.45 to $2.12. We chose a
high estimate for the application kit of $2.00.
We have assumed that the total number of pre-enrollment application
kits mailed by endorsed sponsors will be three and one-half times the
number of new beneficiaries enrolling in the program each year. This
estimate is based on the midpoint of estimates gathered during
interviews by the consulting firm. The firm found that card programs
mailed applications to between two and five times the number of
individuals enrolled in their program. For Year Two, this number is
three and one-half times the number of individuals who are newly
eligible for Medicare and the individuals reenrolling in Year Two after
disenrolling in Year One.
Because the standard enrollment form in the application kit has
several required elements and because the Medicare population has lower
literacy levels and greater cognitive difficulties than some
populations, individuals may not properly complete the form for their
first submission. The regulation requires endorsed sponsors to ensure
the completeness of submitted applications. We have assumed information
and outreach costs also include an estimate for mailing back 30 percent
of applications.
We assume that 100 percent of beneficiaries who would actually
enroll in each year will receive a post-enrollment welcome kit. And, we
assume that 100 percent of enrolled beneficiaries will receive an
annual notice of change prior to the Annual Coordinated Election Period
in each year. In 2005, this notice will inform discount card enrollees
that the program is ending and direct them to information on Part D.
We assume that 30 percent of all individuals will request an
eligibility determination for transitional assistance and will not
immediately enroll in an endorsed card program because they are not
determined eligible for transitional assistance. This regulation
requires that endorsed card sponsors not immediately enroll individuals
who request transitional assistance at the time of enrollment if they
are not determined eligible for such assistance. We chose 30 percent to
capture a proportion of individuals ultimately choosing to enroll in
the discount card after finding that they are not eligible for
transitional assistance and a proportion of those never enrolling in
the program who request transitional assistance, but are determined
ineligible. In Year Two, we estimate that 30 percent of new discount
card enrollees will request an eligibility determination, and we
estimate an
[[Page 69907]]
additional five percent of those currently enrolled and not receiving
transitional assistance will request an eligibility determination
because their financial circumstances have changed during the year. For
this 30 percent of individuals, this regulation requires endorsed
sponsors to mail them a negative eligibility determination, and to
inform them of access to the reconsideration process.
We estimate a total information and outreach cost in Year One
between $27 million and $65 million. We estimate a per endorsed program
cost between $1.8 million and $4.3 million, and we estimate a per
discount card enrollee cost between $4.19 and $9.96. These cost ranges
are comparable to those estimated by the consulting firm for all
marketing activities except mass media, between $0.84 and $7.02 per new
member.
We estimate a total Year Two cost for information and outreach
between $12.9 and $22.7 million. We estimate a cost per endorsed
sponsor between $0.86 million and $1.5 million, and a per discount card
enrollee cost between $1.96 and $3.45. Reduced costs for information
and outreach in Year Two reflect information and outreach to a more
limited pool of individuals, those changing plans or becoming eligible
for the Medicare program, spread across the entire enrollment of the
endorsed program. Information and outreach activities are not required
during the Transition Period.
c. Eligibility Determination and Enrollment Processing
Endorsed discount endorsed sponsors will incur costs in
administering the eligibility determination and enrollment processes as
outlined in this regulation, but CMS has significantly reduced their
potential role by assuming much of the burden of these activities.
Specifically, we will develop an on-line enrollment and eligibility
system against which endorsed sponsors can check the eligibility of
individuals and enroll them in their endorsed programs. We also will
handle any grievances about eligibility determinations and address
requests for reconsideration of eligibility.
As our own eligibility determination process for transitional
assistance is means-tested, we believe that means-tested State senior
discount card programs are the best source of information about the
costs of conducting eligibility determination activities. The
interviews of several State programs and their contracted pharmacy
benefit management firms gathered actual cost information and/or labor
time to estimate costs of eligibility and enrollment.
To assess the sensitivity of our estimates, the consulting firm
interviewed State programs that differed in the amount of documentation
they required for an eligibility determination and in the level of
verification activity required. Enrollment and eligibility activities
for means-tested programs generally require some manual entry of
information from an application or manual correction of scanned
enrollment forms. Verification occurs either electronically or through
manual review of multiple sources of income, family size, State
residence, and health insurance. Some States require multiple forms of
income documentation and manual review, while others accept the
applicant's verbal certification that they meet income requirements.
Sometimes States conduct these activities, and sometimes this activity
is delegated to a private contractor providing pharmacy benefit
management services.
Endorsed sponsor responsibilities will include reviewing
applications, ensuring that applications are complete, screening
initial applications for transitional assistance, entering eligibility
information into a database, electronically requesting a determination
on eligibility and enrollment for an individual through CMS systems,
maintaining an enrollment database, and issuing eligibility
determination notices that refer individuals to the reconsideration
process as appropriate. We assume that endorsed sponsors will ensure
that submitted applications are complete, either by recontacting
individuals submitting incomplete applications, or by mailing
incomplete applications back to the applicant. We have accounted for
these mailing and telephone costs under estimates for information and
outreach, and for customer service.
For those individuals applying for transitional assistance, we will
require endorsed sponsors to first review applications for an
individual's prescription drug coverage and the income level that the
individual has certified as accurate, and identify individuals that
need to be checked against CMS' eligibility and enrollment databases.
The endorsed sponsor then will submit batch jobs of eligibility and
enrollment requests through a telecommunications data connection with
CMS, update their enrollment database with the results, and issue
notices of eligibility determination and enrollment. The costs of
mailing these notices are included in marketing estimates.
We assume that endorsed sponsors will process a total of 8.34
million applications in Year One. This application pool reflects 100
percent of program enrollment (6.4 million), plus an estimated
additional 30 percent of enrollment to capture costs for processing
reapplications to enroll in the discount card after receiving a
negative eligibility determination for transitional assistance. We use
the same 30 percent assumption when we estimate the number of
eligibility determination notices that endorsed sponsors will mail. We
chose 30 percent to capture a proportion of individuals ultimately
choosing to enroll in the discount card program after finding that they
are not eligible for transitional assistance and a proportion of those
never enrolling in the program who request transitional assistance, but
are determined ineligible. We assume that endorsed sponsors will
process a total 1.6 million applications in Year Two. This application
pool consists of 100 percent of individuals choosing to disenroll in
Year One and all newly eligible enrollees in Year Two, plus an
additional 30 percent of this total for reapplications and individuals
choosing not to enroll. We also assume an additional 5 percent of
discount card enrollees who are not receiving transitional assistance
will request an eligibility determination because their financial
status changed during the previous year.
From their interviews with State programs, the independent
consulting firm estimates the cost of eligibility processing costs for
a new application ranges from $3.87 to $16.68 in 2003 dollars. The low
cost is from a State program that has self-certification of income and
age, does not require review of any documentation for eligibility, and
requires reporting of limited data elements on its enrollment form. The
high cost is from a program that has a very complex eligibility process
including requiring a breakdown of income and assets into categories,
prospective adjustment of income for the coming year, and review of
multiple documents demonstrating income, residency, health insurance,
and age.
We chose to use $3.87 as our low estimate of conducting eligibility
determination and processing enrollment for a new application, because
the process CMS has created does not require labor-intensive processes
such as review of documents verifying income or family size or
prospective adjustment of income, however, it is not a simple
attestation process. We chose $5.04 as our high estimate because our
requirements on
[[Page 69908]]
endorsed sponsors are significantly less burdensome than the manual
processing implied by the $16.68 estimate and because the estimate of
$5.04 reflects the proportion of the high cost that accounts for data
entry and eligibility determination activities that CMS would require
of endorsed card sponsors.
We use the same cost estimate to approximate processing eligibility
and enrollment requests for individuals applying for transitional
assistance and those only applying to enroll in an endorsed program. We
believe the amount of effort required to process applications for both
populations is fairly comparable. If anything, we have slightly
overestimated the cost of processing enrollment for individuals not
applying for transitional assistance.
Combining our assumptions about the number of applications in each
year with our estimates of the costs to process a new application, we
estimate an aggregate eligibility determination and enrollment
processing cost across all sponsors for Year One between $34 million
and $44 million. We estimate a per endorsed sponsor cost for Year One
between $2.3 million and $3 million. This translates to a per discount
card enrollee cost between $5.24 and $6.82. In Year Two, we estimate an
aggregate program eligibility cost between $4.6 million and $5.9
million, with a per endorsed sponsor cost between $303 thousand and
$393 thousand. This translates to a per discount card enrollee cost
between $0.69 and $0.90. As with other cost elements, Year Two costs
are less because the cost to enroll the limited number of new discount
card enrollees is spread across total program enrollees. We assume that
there are no costs for eligibility determination and enrollment in the
Transition Period.
d. Customer Service Call Center
The following estimates reflect costs for both an interactive
voice-response system and access to live customer service
representatives by telephone. To accurately represent an endorsed
sponsor's call center costs, we rely on interviews conducted for CMS by
the independent consulting firm as well as the research on discount
drug card call center operations that CMS sponsored earlier this year.
We also rely on literature reflecting call volume within similar
program offerings.
We expect that Medicare beneficiaries will call an endorsed
sponsor's customer service center for a variety of reasons. First, we
believe that the majority of Medicare beneficiaries will call to gather
additional information about the program and with questions about
completing the enrollment form, especially those applying for
transitional assistance. Our research on discount drug card call center
operations also suggest that a small proportion of discount card
enrollees call for more mundane reasons, including locating a network
pharmacy, ordering a replacement card, and asking how to use the card
when purchasing drugs. In addition to these reasons, we also expect
that discount card enrollees will call to check drug prices, to
disenroll, to file a grievance, and for those receiving transitional
assistance, to check the balance of remaining funds.
With regard to call volume, we assume that endorsed sponsors will
receive calls equal to 1.5 times new enrollment in Year One. We believe
that the majority of call volume will be the result of initial
enrollment activities. Our research indicates that endorsed sponsors
expect Medicare beneficiaries who are considering enrolling in a card
to call around for price information prior to enrolling. The recent
report on the Pfizer Share Card program indicates call volume of
roughly 6 times total enrollment during the first year of operation.
Although this call volume includes income eligibility pre-screening for
all applicants.\9\ Further, both the independent consulting firm,
Pfizer, and our own experience with 1-800 Medicare indicate that call
volume increases after publicity and after information and outreach
activities. We assume that endorsed sponsors will have call volume
greater than enrollment but less than that documented by Pfizer for the
following reasons.
---------------------------------------------------------------------------
\9\ Pfizer U.S. Pharmaceuticals. Report to America. September
2003.
---------------------------------------------------------------------------
First, we assume that CMS' education efforts and the availability
of 1-800 Medicare and http://www.Medicare.gov will help reduce call
volume to endorsed sponsors. Specifically, we believe that the
availability of pre-screening tools through http://www.Medicare.gov and
through 1-800 Medicare will attract calls requesting pre-screening for
information and eligibility that might otherwise be addressed to
individual endorsed sponsors. We also believe CMS' provision of a price
comparison Web site will reduce call volume to endorsed sponsors
because it will help individuals to check prices before they choose a
card and, after they are enrolled, to check for changes in discounted
prices.
We also assume that endorsed sponsors will take proactive measures
to manage inquiries by discount card enrollees and others through
communication channels other than the telephone. Our research on
discount card call center operations suggests that endorsed sponsors
can take several steps to preempt calls, including repetitive
messaging, newsletters, Web sites, direct mail, and extensive FAQs
(frequently asked questions) in information and outreach materials.
In Year Two, we assume call volume will be 1.5 times new
enrollment. We also assume that 30 percent of those receiving
transitional assistance will call for reasons other than enrollment and
that 20 percent of those enrolled only in the discount card will call
for reasons other than enrollment. Research on drug card call centers
conducted for CMS indicate much lower call volume, less than 10 percent
of membership, from individuals enrolled in a discount drug card than
call volume in a funded benefit, roughly 30 percent of membership.
We assume that the endorsed sponsor's 1-800 customer service line
will include an interactive voice-response system (IVR). An IVR system
achieves call-savings by providing standard information without using
the more expensive resources of a live customer service representative.
If properly utilized, an IVR connected to various back office systems
for immediate automated information retrieval, may help reduce
significant call center costs to the sponsor. This allows for a good
customer service tool, by giving callers responses to simple questions
and easy access to various information. Many of the questions received
by drug discount cards are questions that can be handled in the IVR,
including requesting basic information about the program and
enrollment, services, ordering replacement cards, checking for a
network pharmacy, checking the discounted price of a specific drug, and
checking account balances. We believe that the IVR will not be able to
handle complex eligibility questions, questions regarding the balance
of transitional assistance, and a range of other questions, such as a
request for disenrollment.
We assume that an endorsed sponsor's IVR system can handle 50
percent of all incoming calls. We base this assumption on several
sources. First, it has been CMS experience with 1-800 MEDICARE that
traditionally 32 percent of all calls are handled in the IVR. Because
1-800 Medicare handles a range of questions about the Medicare program,
these calls are more likely, on average, to be time consuming as 1-800
MEDICARE customer service
[[Page 69909]]
representatives support beneficiaries in understanding their options
among endorsed cards and other pharmacy assistance alternatives. In
addition, the research conducted for CMS on discount drug card call
centers provides some information on the percentage of calls moving
from the IVR to a customer service representative. Two large call
centers reported that 30 and 60 percent of calls were handled in their
IVR respectively.\10\ We believe 50 percent of calls reflects the
simplicity of calls, other than those related to eligibility and
transitional assistance, that endorsed sponsors will receive. We assume
50 percent of calls are handled in the IVR for both years.
---------------------------------------------------------------------------
\10\ The Health Strategies Consultancy LLC. Call Center
Parameters and Regulatory Authority for Drug Discount Cards. May 20,
2003.
---------------------------------------------------------------------------
We estimate the cost of a completed call in the IVR to range
between $0.10 and $.35 cents. These estimates reflect a range of
differences in IVR structure and time.\11\ The independent consulting
firm also estimated completed calls in the IVR to cost between $0.22
and $0.30. These estimates are fully loaded and reflect the marginal
cost of each additional call, as we assume that each endorsed sponsor
or its subcontractor will already have the basic call center
infrastructure for IVR in place.
---------------------------------------------------------------------------
\11\ Personal communication with Elizabeth Herrell, Vice
President, Customer Experience, Forrester Research. October 29,
2003.
---------------------------------------------------------------------------
Using call volume assumptions and IVR cost information, we estimate
aggregate interactive voice-response system costs to range between $1
million to 3.5 million dollars, with a per endorsed sponsor cost of $67
thousand to $236 thousand dollars. The estimated per new discount card
enrollee cost is between $0.16 and $0.55 dollars.
For Year Two, we estimate aggregate interactive voice-response
system costs range between $200 thousand and $701 thousand dollars,
with a per endorsed sponsor cost of $13 thousand to $47 thousand
dollars. The estimated per discount card enrollee cost is between $0.03
and $0.11 dollars.
We assume that calls to a customer service representative will
average seven minutes in length. Interviews conducted by the
independent consulting firm suggests that average talk-time for the
senior population ranges from six to eight minutes. Our own internal
experience with 1-800 Medicare confirms this analysis. Based on our
assumptions about calls handled in the IVR, above, we assume that 50
percent of all calls are passed through. In Year One, this represents a
total of approximately 4.9 million calls, across all card programs. In
Year Two, applying 50 percent to our total call volume estimates
suggests that 924 thousand calls will be passed through to a customer
service representative. As mentioned earlier, we assume that most of
the first calls made by individuals will come into the Medicare 1-800,
thereby reducing the call volume and thus costs to the endorsed
sponsors.
We estimate the fully loaded cost of a call to a live customer
service agent per minute to range between $1.20 and $1.75. These
estimates reflect a range of differences in IVR structure and time as
well as CMS' experience contracting with call centers.\12\ These costs
include the costs of overhead and labor for conducting call center
operations. We assume these costs also include start-up costs, such as
programming call center software, increasing seat licenses, computers,
phones, phone lines and training customer service representatives. To
avoid double counting, we do not include costs for setting up call-
center operations in our estimates of program implementation.
---------------------------------------------------------------------------
\12\ Personal communication with Elizabeth Herrell, Vice
President, Customer Experience, Forrester Research. October 29,
2003.
---------------------------------------------------------------------------
The estimated Year One customer service representative costs across
all endorsed sponsors is between $42 million to $62 million dollars
with a per endorsed sponsor cost of $2.8 million to $4.1 million
dollars. This translates to a per discount card enrollee cost of $6.56
to $9.56 dollars. The estimated Year Two cost across all sponsors will
be $8.4 million to $12.3 million dollars, with a per endorsed sponsor
cost of $561 thousand to $818 thousand dollars. This translates to per
discount card enrollee costs between $1.28 and $1.87 dollars.
The total IVR and customer representative service costs for Year
One are between $44 million and $66 million across all sponsors, $2.9
million to $4.4 million per endorsed sponsor, and $6.71 to $10.11 per
discount card enrollee. This range of costs is slightly higher than the
per member estimates captured by the consulting firm in their
interviews with comparable drug card programs. They estimated between
$1.44 and $8.04 per member. The total IVR and customer representative
service costs for Year Two are between $8.6 million and $13 million
across all endorsed sponsors, $574 to $865 thousand, and $1.31 to $1.97
per discount card enrollee. For the Transition Period, the total IVR
and customer representative service costs are estimated between $1.6
million and $2.4 million across all endorsed sponsors, $108 thousand to
$162 thousand per endorsed sponsor, and $0.25 to $0.37 per discount
card enrollee.
e. Claims Processing
The following estimates reflect costs for claims processing by the
endorsed sponsors. Claims processing is the process performed by an
endorsed sponsor to adjudicate a claim. It includes checking an
eligibility database for program information, such as balance of
transitional assistance; verifying prices; and conducting Drug
Utilization Review (DUR). Consumer purchasing at a retail pharmacy is
almost always an automated process, with adjudication happening at the
point of sale. We anticipate that endorsed sponsors will use their
computerized management information systems to perform claims
processing. For purposes of this analysis, we assume that claims-
processing costs apply to processing all transactions, whether
providing a discount or processing an actual claim against transitional
assistance. Although processing a discount is generally less burdensome
because it does not require financial reimbursement and associated
reconciliation against third party payor funds, we have not reduced our
transaction estimates to account for this difference. Research
conducted for us concluded that the cost difference between these two
types of claims would be negligible.
Costs for processing claims in the literature range from $0.00 to
$.70.\13\ But, as already noted, these costs are not the true economic
cost of processing claims because they include the cost of other
services, such as account maintenance, and rebate-sharing arrangements.
Estimates of the cost of claims processing obtained through the
interviews conducted for CMS revealed true costs ranging from $0.05 to
$0.14 for electronic processing of a prescription in 2003 dollars. We
used this same range for our estimates of processing electronic claims.
Lastly, endorsed sponsors may choose to promote mail prescription
services for their enrollees. Some mail prescription fulfillments may
be as high as a 90-day supply and thus utilize one prescription. This
results in one prescription processing cost, instead of three claims
being processed, at a 30-day supply each, thereby substantially
reducing the overall cost component on the endorsed sponsor's expense
[[Page 69910]]
structure. We do not figure this into pricing the claims processing
cost described here.
---------------------------------------------------------------------------
\13\ Berg, Kevin and Noah Yosha. July 14, 2003. Pharmacy Benefit
Managers and Specialty Pharmacies. Credit Suisse Equity Research for
First Boston.
---------------------------------------------------------------------------
Some claims may be submitted on paper. Approximately one percent of
all claims processed for a funded benefit are paper claims.\14\ In our
estimates, we assume that any one endorsed sponsor will have to process
one percent of their claims manually for their endorsed program. To
process a paper claim, the endorsed sponsor must manually enter the
information into the claims processing system. Cost estimates for
processing paper claims range from $1.00 to $1.50 per claim.\15\ We
used this same range of costs for our estimates of processing paper
claims.
---------------------------------------------------------------------------
\14\ Price Waterhouse Coopers. June 2001. Study of
Pharmaceutical Benefit Management, CMS contract number 500-97-0399
Task Order 0097: 76.
\15\ Ibid.
---------------------------------------------------------------------------
Section 1860D-31(g)(5) of the Act requires that transitional
assistance through the endorsed sponsor be made available to
beneficiaries who qualify for transitional assistance and reside in
skilled nursing facilities and nursing facilities. These claims will be
more difficult to process than electronic claims because they are
likely to be submitted by pharmacies that are not in the endorsed
sponsor's pharmacy network and with whom the endorsed sponsor may not
have a formal relationship or electronic data exchange. We make this
assumption because we believe that pharmacies in long-term care and
skilled nursing facilities may not participate in an endorsed discount
card program; institution-based pharmacies have less incentive than
those in the community to join a discount card network.
To address the specific structure of the long-term care pharmacy
market, this regulation provides for CMS to award a ``special
endorsement'' to endorsed sponsors competing for the opportunity to
process claims from long-term care pharmacies. This competition limits
the processing of claims from pharmacies serving long-term care and
skilled nursing facilities to a few endorsed sponsors who have
experience processing such claims and who can garner economies of
scale. We expect that endorsed sponsors receiving a special endorsement
will have some pharmacies serving long-term care and skilled nursing
facilities in their pharmacy network. For purposes of this analysis, we
assume that two of the anticipated fifteen endorsed sponsors receive a
special endorsement from CMS. For each of these two ``special endorsed
sponsors,'' we assume that they continue to enroll the average number
of enrollees in a card program: 431,865 in Year One, and 438,010 in
Year Two and Transition Period, but that a sizable proportion of those
enrollees is institutionalized.
We estimate that roughly 200 thousand institutionalized individuals
will qualify for transitional assistance and use that transitional
assistance at the pharmacy in their facility. This estimate is derived
from the Medicare Current Beneficiary Survey (MCBS) and is used earlier
in this document. We also estimate that this enrollment is split across
the two special endorsed sponsors, thereby allocating 100 thousand
enrollees to each special endorsed sponsor. This means that, roughly,
one-quarter of the 430 thousand enrollees in a special card program are
institutionalized. With regard to cost, we estimate that each of the
special endorsed sponsors will receive about one-third of their claims
for the institutionalized from long-term care pharmacies in their
networks and that the cost per claim will be the same as processing any
electronic in-network claim. Also, we assume that each card sponsor
will achieve efficiencies in processing out-of-network claims from
long-term care pharmacies. Without better estimates of the burden of
processing out-of-network claims, we assume that the cost of processing
such claims is similar to that for processing paper claims, between
$1.00 to $1.50 per claim. In light of our assumption about available
economies of scale, we assume a cost estimate of $1.00 for processing
claims from out-of-network long-term care pharmacies.
We make a base assumption that beneficiaries using a discount card
will fill 27 prescriptions a year. We base this assumption on findings
from CMS Office of the Actuary, which obtains data on prescription drug
sales and prescription utilization from a variety of sources, including
the National Prescription Audit conducted by IMS Health. These are the
same numbers used in the Impact Analysis. In light of the nine-month
operating period for Year One, we assume that discount card enrollees
will fill an average of 20 prescriptions using their discount card in
Year One. We assume they will fill all 27 prescriptions during Year Two
and fill 5 prescriptions during the Transition Period.
For the purpose of claims submitted against transitional assistance
for beneficiaries in skilled nursing facilities and nursing facilities,
we estimate that institutionalized individuals will fill an average of
nine prescriptions for Year One and eight prescriptions for Year Two.
This assumes that their long-term care pharmacy will only process
claims against the balance of available transitional assistance. When
the balance of transitional assistance becomes depleted for the year,
we assume claims processing through the card program will cease. We
derived nine and eight prescriptions by dividing $600 by an average
prescription cost of $66 and $72, which is an average total
prescription price of $46.99 (derived from self-reported beneficiary
expenditures in MCBS 2000), adjusted to 2004 and 2005 dollars. We
assume that institutionalized enrollees will not use their card during
the Transition Period because they will have expended all of their
transitional assistance in Year Two.
Twenty prescriptions for each non-institutionalized enrollee and
nine prescriptions for each institutionalized care enrollee translates
to a total of 129 million prescriptions in Year One, with each of the
13 endorsed sponsors processing 8.7 million prescriptions and each of
the two special endorsed sponsors processing 7.6 million prescriptions.
In Year Two, twenty-seven prescriptions per non-institutionalized
enrollee and eight for institutionalized enrollees means a total of 174
million prescription across all beneficiaries, with each of the 13
endorsed sponsors processing 11.8 million prescriptions and each of the
two special endorsed sponsors processing 10 million prescriptions. Five
prescriptions for non-institutionalized enrollees in the Transition
Period means a total of 32 million prescriptions for all enrollees will
be processed, with each of the 13 endorsed sponsors processing 2.2
million prescriptions and each of the two special endorsed sponsors
processing 1.7 million prescriptions.
We used the cost and prescription utilization estimates listed
above to estimate costs for each of the 13 endorsed sponsors not
processing claims from long-term care pharmacies. We assume that these
endorsed sponsors only process in-network claims, both paper and
electronic. For Year One, we estimate a per endorsed sponsor cost
between $542 thousand and $1.4 million and a per enrollee cost between
$1.25 and $3.24. For Year Two, we estimate a per endorsed sponsor cost
between $763 thousand and $2 million and a per enrollee cost between
$1.74 and $4.50. For the Transition Period, we estimate a per endorsed
sponsor cost between $149 thousand and $386 thousand and a per enrollee
cost between $0.34 and $0.88.
We used the costs and prescription utilization estimates discussed
above to
[[Page 69911]]
estimate costs for each of the two special endorsed sponsors. We assume
that these special endorsed sponsors process in-network claims, both
paper and electronic, and process out-of-network claims for two-thirds
of their institutionalized enrollees. For Year One, we estimate a per
endorsed sponsor cost between $1 million and $1.8 million and a per
enrollee cost between $2.48 and $4.09. For Year Two, we estimate a per
endorsed sponsor cost between $1.2 million and $2.2 million and a per
enrollee cost between $2.75 and $4.96. For the Transition Period, we
estimate a per endorsed sponsor cost between $120 thousand and $305
thousand and a per enrollee cost between $0.28 and $0.70.
To accurately represent the full range of possible costs faced by
an endorsed sponsor, for our final estimates of claims processing, we
use the lowest per sponsor cost estimate, the low costs faced by each
of the 13 endorsed sponsors, as our low estimate. Similarly, we used
the highest per endorsed sponsor cost estimate, the high costs faced by
each of the two special endorsed sponsors, as our high estimate of
claims processing costs.
We estimate the total claims processing costs, including claims
from pharmacies in long-term care facilities and paper claims, across
all sponsors for Year One to be between $8 million and $22 million
dollars, with a per endorsed sponsor cost between $542 thousand and
$1.8 million dollars. This translates to a per discount card enrollee
cost between $1.25 and $4.09 dollars. For Year Two, the total program
cost is between $11.5 million and $30 million dollars, with a per
endorsed sponsor cost between $763 thousand and $2.2 million dollars.
This translates to a per discount card enrollee cost between $1.74 and
$4.96 dollars. For the Transition Period, we estimate the total cost
across all sponsors to be between $2.2 million and $5.6 million
dollars, with a per endorsed sponsor cost between $149 thousand and
$305 thousand dollars. This translates to a per discount card enrollee
cost between $0.34 and $0.70 dollars.
f. Account Maintenance
Endorsed programs generally require ongoing account maintenance to
maintain and update eligibility databases, input changes to the
formulary database, provide technology support, provide typical
industry data reports, and manage customer service for the purchaser.
Account maintenance does not include call center or information and
outreach activities. The cost of account maintenance is fairly minimal
and is often rolled into other costs, such as a claims-processing fee.
This clarifies, in part, the higher observed claims processing costs
observed in the literature than we are using in this analysis.
The independent consulting firm gathered estimates of current
account maintenance costs across commercial and State programs ranging
from $2.28 per discount card enrollee per year to $3.84 per discount
card enrollee per year in 2003 dollars. One firm that the consulting
firm interviewed believed account maintenance costs for this program
would be closer to $4.00 per discount card enrollee per year in 2003
dollars. For purposes of these estimates, we used $3.84 per discount
card enrollee for our low estimate and $4.00 per discount card enrollee
as our high estimate.
We believe these estimates capture the costs of producing data
files for price comparison and the type of reporting that CMS requires
to support monitoring. Further, the consulting firm found that most
data related reports provided by sponsors to their clients, based on
their clients' business needs, are negligible in cost. An example
provided by the consulting firm includes a data file of all claims for
a week long period. They Stated that the cost of such a report would be
between $100 to $200 and would include the retail purchase price
actually paid, the coded name and address of the store, and the name of
the drug. The consulting firm indicated that some of the types of
reporting likely to be required by CMS under the Medicare prescription
drug discount card program would, in the private sector, be treated as
a revenue generating product offering by sponsors. As such, sponsors
would typically charge their clients according to the value, not cost
that this data provides. In cases where the owner/producer of the data
is providing the data reports as a subcontractor to a client of CMS,
then whether the subcontractor chooses to charge the sponsor, at cost
or profit, is a business and contract decision for these two entities,
where, for example, the subcontractor is competing among other possible
subcontractors for the volume of business that the name of the front
organization may provide.
Adjusting account maintenance for the nine-month operating period
in Year One and for inflation, we estimate a per discount card enrollee
cost for Year One ranging from $3.00 to $3.12. This translates to a
total cost between $19.4 million and $20.2 million dollars for all
endorsed sponsors in Year One, with a per endorsed sponsor cost between
$1.3 million and $1.4 million. In Year Two, an aggregate account
maintenance cost is between $27 million and $29 million dollars with a
per endorsed sponsor cost between $1.8 million and $1.9 million
dollars. This translates to a per discount card enrollee cost between
$4.17 and $4.34 for Year Two. For the Transition Period, we estimate a
total program cost between $5.4 million and 5.6 million dollars, with a
per endorsed sponsor cost between $357 thousand and $372 thousand
dollars and a per discount card enrollee cost between $0.82 and $0.85
dollars.
g. Grievances
We anticipate that endorsed sponsors will incur minimal costs
providing an internal grievance mechanism to document and address
discount card enrollee complaints. Our endorsement criteria require
that endorsed sponsors maintain a grievance process dedicated to
complaints by discount card enrollees only about program operations,
not about requests for reconsideration of a negative eligibility
determination. Within a traditional benefit, medical-related grievances
are usually related to prior approval, medical necessity, or a previous
complaint. In means-tested prescription assistance programs, appeals
for negative eligibility determinations are also a common source of
complaints.
For this discount card program, discount drug endorsed sponsors
will not need to address the traditional appeals of a funded benefit,
those related to medical necessity determinations, or to address
appeals for means-tested programs, those of eligibility determination.
We expect grievances to be limited to programmatic issues such as
pharmacy participation and the size of discounts. These issues are not
complex and are straightforward to address.
The consulting firm gathered estimates of grievance processing in
State programs and reports and estimated that costs were less than
$0.01 per discount card enrollee per month. In light of this
information, we estimate a low of $0.09 and a high of $0.12 per
discount card enrollee per year in 2003 dollars.
For the nine-month operating period in Year One, we estimate a
range of total program costs between $455 thousand and $606 thousand
dollars. We estimate a per endorsed sponsor cost for grievances in Year
One between $30 thousand and $40 thousand and a per discount card
enrollee cost between $0.07 and $0.09. In Year Two, we estimate a total
costs between $642 thousand and $855 thousand, a per
[[Page 69912]]
endorsed sponsor costs between $43 thousand and $57 thousand, and a per
discount card enrollee cost between $0.10 and $0.13. For the Transition
Period, we estimate a total cost between $126 thousand and $167
thousand, a per endorsed sponsor cost between $8 and $11 thousand, and
a per discount card enrollee cost between $0.02 and $0.03.
Table 10.--Net Present Value Analysis by Average Endorsed Sponsor
----------------------------------------------------------------------------------------------------------------
Net present Transition
value Year 1 Year 2 period
----------------------------------------------------------------------------------------------------------------
Low.........................................
Net Benefits from Table 9 in 2003 NA $2,457,596 $8,086,304 ($549,832)
dollars................................
Discounted by 3%........................ 9,790,107 2,457,596 7,850,781 (518,269)
Discounted by 7%........................ 9,534,645 2,457,596 7,557,293 (480,244)
High........................................
Net Benefits from Table 9 in 2003 NA (4,739,038) 5,748,531 (751,342)
dollars................................
Discounted by 3%........................ 133,848 (4,739,038) 5,581,098 (708,212)
Discounted by 7%........................ (22,830) (4,739,038) 5,372,459 (656,251)
----------------------------------------------------------------------------------------------------------------
Table 11.--Cost Benefit Ratios by Endorsed sponsor
----------------------------------------------------------------------------------------------------------------
Transition
Year 1 Year 2 period
----------------------------------------------------------------------------------------------------------------
Benefits.................................................
From Table 9 in 2003 Dollars......................... $12,445,673 $12,110,876 $0
Discounted by 3%..................................... $12,445,673 $11,758,132 $0
Discounted by 7%..................................... $12,445,673 $11,318,576 $0
Costs....................................................
Low......................................................
Cost Stream from Table 9 in 2003 Dollars............. 9,988,077 4,024,572 549,832
Discounted by 3%..................................... 9,988,077 3,907,352 518,269
Discounted by 7%..................................... 9,988,077 3,761,282 480,244
High.....................................................
Cost Stream from Table 9 in 2003 Dollars............. 17,184,711 6,362,345 751,342
Discounted by 3%..................................... 17,184,711 6,177,034 708,212
Discounted by 7%..................................... 17,184,711 5,946,117 656,251
Present Value Benefit/Cost Ratios........................
Low--3%.............................................. 1.68 ................ ................
Low--7%.............................................. 1.67 ................ ................
High--3%............................................. 1.01 ................ ................
High--7%............................................. 1.00 ................ ................
----------------------------------------------------------------------------------------------------------------
Table 9, which appears earlier in this document at the beginning of
the discussion about individual administrative cost categories,
presents cost estimates for endorsed sponsors for each cost component
in nominal dollars, at both the program and per discount card enrollee
levels, relative to the maximum annual enrollment fee of $30. The total
low cost range represents the costs to a card sponsor incurring all low
administrative costs, and the total high cost range represents the
costs to a card sponsor incurring the highest administrative costs,
including those associated with claims processing for special endorsed
sponsors. We use the maximum annual enrollment fee as the only source
of revenue for endorsed sponsors in this analysis to demonstrate that
endorsed sponsors can cover their administrative costs with enrollment
fee revenue. These estimates do not account fo