[Federal Register Volume 77, Number 8 (Thursday, January 12, 2012)]
[Rules and Regulations]
[Pages 1877-1883]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-473]
[[Page 1877]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 423
[CMS-4131-F2]
RIN 0938-AP64
Medicare Program; Medicare Advantage and Prescription Drug
Benefit Programs: Negotiated Pricing and Remaining Revisions;
Prescription Drug Benefit Program: Payments to Sponsors of Retiree
Prescription Drug Plans
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule implements and finalizes provisions regarding
the reporting of gross covered retiree plan-related prescription drug
costs (gross retiree costs) and retained rebates by Retiree Drug
Subsidy (RDS) sponsors; and the scope of our waiver authority under the
Social Security Act (the Act).
DATES: Effective Date: These regulations are effective on March 12,
2012.
FOR FURTHER INFORMATION CONTACT:
John Campbell, (410) 786-0542.
Joseph Hefter, (410) 786-5751.
James Slade, (410) 786-1073.
SUPPLEMENTARY INFORMATION:
I. Background
The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established
a new ``Part C'' in the Medicare statute (sections 1851 through 1859 of
the Social Security Act (the Act)) that established the Medicare+Choice
(M+C) program. Under section 1851(a)(1) of the Act, every individual
entitled to Medicare Part A and enrolled under Medicare Part B, except
for most individuals with end-stage renal disease (ESRD), could elect
to receive benefits either through the original Medicare program or an
M+C plan, if one was offered where he or she lived.
Subsequently, the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173) was enacted on
December 8, 2003. This legislation established the Medicare
prescription drug benefit program (Part D) and made significant
revisions to the provisions in Medicare Part C, governing what was
renamed the Medicare Advantage (MA) program (formerly Medicare+Choice).
The MMA directed that important aspects of the new Medicare
prescription drug benefit program under Part D be similar to and
coordinated with regulations for the MA program. The MMA also created a
subsidy program involving payments to sponsors of Retiree Prescription
Drug Programs, or the Retiree Drug Subsidy (RDS) Program. This program
allows subsidy payments to sponsors of qualified retiree prescription
drug plans for Part D drug costs for individuals who are eligible for,
but not enrolled in, a Medicare Part D plan. The MMA also specified
that implementation of the prescription drug benefit and revised MA
program provisions take place by January 1, 2006. Thus, we published
final rules for the MA and Part D prescription drug programs in the
January 28, 2005 Federal Register (70 FR 4588 through 4741 and 70 FR
4194 through 4585, respectively).
We published a proposed rule on May 16, 2008 (73 FR 28556) that
proposed to make the Part D and RDS policies the same with respect to
the reporting of negotiated prices and retained rebates. The May 2008
proposed rule would have required that Prescription Drug Benefit
Program (Part D) and Retiree Drug Subsidy (RDS) sponsors report the
pass-through negotiated prices and included a proposed definition of
``negotiated price'' to be included at Sec. 423.882 that paralleled
the definition at Sec. 423.100. The May 2008 proposed rule also
proposed to include definitions of ``actually paid,'' ``administrative
costs,'' ``allowable retiree costs,'' and ``gross covered retiree plan-
related prescription drug costs'' that reflected Part D policy on
retained rebates and ``pass-through'' negotiated prices, and proposed
to apply the policies to the RDS Program. Thus, our proposed rule would
have also required RDS sponsors to report rebates retained by an
intermediary contracting organization, such as a pharmacy benefit
manager (PBM), that may have been received by an intermediary
contracting organization based on the utilization by the RDS sponsor's
enrollees, but not passed through to the plan sponsor.
In the January 12, 2009 Federal Register (74 FR 1494), we published
a final rule with comment period that responded to comments on the May
16, 2008 proposed rule and finalized Part C and Part D regulations from
that proposed rule that either were not impacted by Medicare
Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L.
110-275), which was enacted on July 15, 2008, or that complemented
MIPPA provisions. In addition, the final rule with comment period--(1)
Deferred finalizing the RDS definition of ``negotiated prices'' and
implemented, on an interim final basis, definitions of the other terms
that reflected existing RDS policy, but did not reflect the new Part D
policy on negotiated prices and retained rebates; (2) solicited public
comment on whether we have the authority to adopt different reporting
structures for Part D versus the RDS Program; and (3) set forth three
theories under which we might have such authority.
Also in the January 12, 2009 Federal Register, we published a
proposed rule that would make regulatory revisions based on a change in
our interpretation of section 1860D-22(b) of the Act. This provision
would be interpreted as providing us with the authority to waive or
modify requirements that hinder the design of, the offering of, or
enrollment in an RDS plan.
II. Provisions of the Rules and Analysis and Response to Public
Comments
Based on comments on the May 2008 proposed rule, in our January 12,
2009 final rule with comment period (74 FR 1494), we deferred
finalizing the definition of ``negotiated prices'' and implemented, on
an interim final basis, definitions of the other terms that reflected
existing RDS policy, but did not reflect the new Part D policy on
negotiated prices and retained rebates. Stakeholders that commented on
the May 2008 proposed rule argued that the majority of RDS sponsors are
large employers that are sophisticated purchasers with a great amount
of leverage, and are in the best negotiating position to decide which
pricing structure is most appropriate for them. Commenters on the May
2008 proposed rule also argued that to extend the Part D policy of
requiring the reporting of pass-through prices (and retained rebates)
would cause RDS sponsors to leave the program and place retirees in the
Medicare Part D program.
We also at that time requested comment on whether we have the
authority to adopt different reporting structures for Part D versus the
RDS Program, and our final rule with comment period set forth three
theories under which we might have such authority. These legal theories
are described in detail in our January 12, 2009 final rule with comment
period (74 FR 1494, 74 FR 1516, and 74 FR 1519). Although the three
legal theories were articulated in connection with our decision to
defer finalizing the proposed definition of ``negotiated prices'' in
the RDS regulations (which would have tracked the Part D definition at
Sec. 423.100), we also stated in the January 12, 2009 final rule with
comment period that we believed these three legal theories also could
have applicability to
[[Page 1878]]
the issue of whether we could adopt a policy for retained rebates that
differed between RDS and Part D, and we sought comment on that issue as
well.
A. Provisions of the Final Rule With Comment Period
In the January 12, 2009 Federal Register (74 FR 1494), we published
a final rule with comment period that finalized certain requirements
relating to the MA and Part D Programs, and implemented certain
requirements for the RDS Program on an interim basis. In the preamble
discussion of these interim final regulations, we indicated that we
agree with concerns expressed by commenters regarding the application
to the RDS program of two Part D policies that were being finalized. We
also indicated that the interim final regulations preserve the status
quo for the RDS program with respect to these policies while we invited
comment on three different legal theories under which we could
potentially apply different cost reporting structures between the Part
D and RDS Programs. That is, under Part D, sponsors are required to
report pass-through pricing and retained rebates, but under the RDS
Program, sponsors would be permitted to choose whether or not to report
drug costs on a pass-through or lock-in basis, and could choose to
report rebates and other price concessions that are retained by a
pharmacy benefit management company or other intermediary contracting
organization. In addition, the January 2009 proposed rule noted that we
were specifically soliciting comments on the possibility of applying
one or more of these legal theories.
We received comments from 10 stakeholders on the final rule with
comment period. Commenters included advocacy groups representing the
insurance industry, and employers and other organizations that sponsor
or administer retirement and health benefits; pharmacy benefit
managers; a health care consortium; and a consultant.
Commenters generally supported allowing the RDS Program reporting
structure to be different from the Part D reporting structure, and
commenters generally believed that we have the authority to allow
differing reporting structures. In this final rule, based on the
comments received both on the interim final portions of the January 12,
2009 final rule with comment period, as well as comments received on
the proposed rule published the same day, we are finalizing the RDS
language as specified in the January 2009 final rule with comment
period (73 FR 1494) (with the correction discussed in section II.C. of
this final rule), and the proposed regulatory changes for part 423
subpart J in the January 2009 proposed rule (74 FR 1550). Therefore we
are finalizing the definitions of ``actually paid,'' ``administrative
costs,'' ``allowable retiree costs,'' ``gross covered retiree plan-
related prescription drug costs, or gross retiree costs,'' as they were
published in the January 12, 2009 final rule with comment period. We
are also finalizing the revision of Sec. 423.888(b)(5)(i) so that it
references the term ``gross covered plan-related retiree prescription
drug costs,'' which is a term defined in part 423 subpart R, rather
than ``gross prescription drug costs,'' which is not. Finally, we are
making the one technical change to the definition of ``actually paid''
to make clear that direct and indirect remuneration can be from any
source, as opposed to only from manufacturers or pharmacies. (We are
also finalizing the regulatory waiver language set out in Sec.
423.458(c) as proposed on the same day in the January 2009 proposed
rule, as discussed in this section.)
While we believe the Part D and RDS Programs are mutually exclusive
programs, both are established under Part D-Voluntary Prescription Drug
Benefit Program, and implemented under 42 CFR part 423. Therefore, we
believe it is best to interpret parallel statutory language in the same
manner, but use waiver authority to waive RDS requirements that, if
interpreted consistently with parallel Part D requirements, would
hinder the offering of, design of, or enrollment in, RDS plans.
1. Legal Theory 1: Interpretation of ``Actually Paid''
In our January 12, 2009 final rule with comment period (74 FR
1516), we articulated our first of three legal theories that would
authorize us to adopt a different reporting policy for RDS than for
Part D. Under this theory, when an RDS sponsor makes a payment to an
entity (such as a PBM) that includes amounts for Part D drug ingredient
and dispensing costs and amounts to manage the sponsor's drug benefit
plan, the amount of that payment represents the ``costs that are
actually paid by the sponsor'' for purposes of calculating the subsidy.
Under this argument, we would calculate the subsidy payment based on
the RDS sponsor's payment to the PBM, excluding discounts, chargebacks,
and average percentage rebates. A problem with this theory is that it
would arguably read out of the statute the phrase ``for the portion of
the retiree's gross covered retiree plan-related prescription drug
costs'' because the amount actually paid could include administrative
costs.
Comment: Several commenters indicated that they view the Part D and
RDS programs as mutually exclusive programs and that, as a result, we
could interpret statutory provisions governing the two programs
differently, even if the statutory language in the two provisions were
the same. One commenter stated that based on Congressional intent it
did not believe policy changes in Part D need to be in lockstep with
other programs. One commenter specifically pointed out that the term
``administrative costs'' does not have to be interpreted in the same
manner between the Part D and RDS Programs. Another commenter indicated
that, in light of fact that section 1860D-22 of the Act is titled
``Special Rules for Employer-Sponsored Programs,'' the MMA intended
special treatment for retiree plans compared to Part D Plans.
Response: We agree that the Part D program and the RDS program are
different programs with different purposes, and as such, merit
different treatment when appropriate to serve those different purposes.
We also agree that the heading for section 1860D-22 of the Act implies
that the RDS program merits special treatment. That said, we also
believe that because the relevant provision uses the same statutory
language in both programs to describe program costs, we should
interpret the language consistently. Given these considerations, as
described in further detail later in this section, we will use our
waiver authority under section 1860D-22(b) of the Act to waive or
modify the RDS statutory requirements that would otherwise require that
RDS sponsors report costs in the same manner as Part D sponsors.
Comment: A commenter contended that the RDS sponsor incurs
integrated costs that are directly related to the drug benefit
management services necessary for the plan's operation and therefore
they should be considered costs ``actually paid.'' Another commenter
believes that the ``actually paid'' theory is not very strong because
it reads out of the statute the prohibition on including administrative
costs when determining a retiree's ``allowable retiree costs.'' Another
commenter believed that if CMS views costs a sponsor pays to a PBM
under lock-in as ``drug costs incurred to purchase or reimburse the
purchase of Part D drugs,'' and not as administrative costs, the
prohibition on including administrative costs would not be read out of
the statute. One commenter stated that the same term can be interpreted
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differently for different programs and that courts give deference to an
agency's reasonable interpretation of a statutory term. Another
commenter believes that ``actually paid'' means the lock-in price
rather than the pass-through price.
Response: We appreciate the comments on this issue. Based on the
totality of the comments on our final rule with comment and proposed
rule, however, we have determined that the best approach is to adopt
legal theory 3, discussed in further detail below. Such an approach
will permit us to impose reporting requirements on RDS sponsors that
diverge from those under Part D without having to interpret parallel
language in two different sections of the Part D statute (namely,
sections 1860D-15 and 1860D-22 of the Act) inconsistently. Under the
approach we are adopting, when an RDS sponsor makes a payment to an
entity (such as a PBM) that includes amounts for Part D ingredient and
dispensing costs and amounts to manage the sponsor's drug benefit plan,
the total amount of the payment can be used for purposes of calculating
the subsidy; otherwise referred to as ``lock-in'' pricing. This lock-in
amount paid will be sufficient for us to calculate the subsidy payment,
excluding discounts, chargebacks, and average percentage rebates. Under
this approach, RDS sponsors can choose to report either the lock-in or
the pass-through price for reporting drug costs for purposes of subsidy
payments (and can choose to report retained rebates).
Comment: One commenter supported applying the Part D negotiated
price definition to the RDS Program, but asked that adequate time be
allowed to implement the changes needed to report costs based on pass-
through, because the terms of its contracts with PBMs, and, in turn,
the PBMs' contracts with pharmacies and other providers, may need to be
changed to accommodate the new reporting requirements. Most other
commenters supported the existing RDS negotiated price policy, which
allows an RDS sponsor to report either the lock-in or pass-through
price, because it will promote continued participation of employers.
Response: For the reasons described later in this preamble, we are
not adopting a definition of negotiated prices for the RDS program.
Thus, the Part D policy with respect to the use of pass-through
negotiated prices does not apply to the RDS program.
2. Legal Theory 2: Prohibition on Interference With Benefit Design of
Retiree Drug Coverage
The second legal theory on which we invited public comment was the
theory that the RDS statute prohibits CMS from interfering in the
benefit design of retiree drug coverage, and that requiring use of the
``pass-through'' methodology to report drug costs would interfere with
the benefit design of qualified retiree prescription drug plans.
Section 1860D-22(a)(6)(D) of the Act provides that nothing in the
RDS statute shall be construed as ``preventing employers to provide for
flexibility in benefit design so long as the actuarial equivalence
requirement is met.'' Under this legal theory, requiring reporting of
the pass-through price (and retained rebates) would be administratively
burdensome, create an incentive for employers to redesign their RDS
plans and their contractual arrangements with PBMs, and perhaps
encourage employers to opt out of the RDS Program entirely.
This argument rests on the assumption that--(1) contractual
arrangements between an RDS sponsor and a PBM are ``benefit
design[s]''; and (2) requiring an RDS sponsor to report the pass-
through price for purposes of the subsidy would ``prevent'' employers
from providing flexibility in those benefit designs. Arguably, section
1860D-22(a)(6)(D) of the Act is most reasonably interpreted to prohibit
us from mandating a certain benefit package in retiree drug plans, and
not to prohibit us from imposing requirements that relate only to
reporting costs to us. The provision's context suggests that Congress
was concerned with the benefit design of a retiree drug plan itself,
and not with the relationship between an RDS sponsor and its
contractors.
Comment: We received several comments in favor of our adopting
legal theory 2. Several commenters noted that imposing Part D reporting
requirements on the RDS program would reduce sponsors' flexibility in
plan design, either directly or as a result of having to undertake
contract modifications. One commenter stated that to require the Part D
reporting structure for the RDS Program would alter the underpinnings
of employer plan operations and result in RDS sponsors' modifying their
plan benefits, because cost assumptions for prescriptions filled at a
pharmacy would no longer be fixed. The commenter stated its belief that
this cost variability, in turn, would likely result in changes in cost-
sharing and could constrain RDS sponsors' flexibility in benefit
design. Other commenters believe that requiring reporting of pass-
through prices would discourage RDS sponsors from offering retiree drug
coverage, which would push these retirees into Part D. Commenters also
stated that requiring pass-through reporting would require considerable
retooling of information systems.
Response: We appreciate the comments about the effect of the Part D
reporting requirements on RDS sponsors. Based on the comments, we agree
that imposing the Part D reporting requirements on RDS sponsors could
constrain plan flexibility and ultimately reduce the number of RDS
plans available to Part D eligible individuals. In other words, these
requirements could hinder the offering of, design of, or enrollment in
such plans. Although we are not foreclosing the possibility that we
could interpret section 1860D-22(a)(6) of the Act in the manner
described in our final rule with comment, we do not believe, given our
decision to adopt legal theory 3, that it is necessary to adopt legal
theory 2 at this time. Thus, using our waiver authority under 1860D-
22(b) of the Act, we will allow an RDS sponsor to report either the
lock-in or pass-through prices (and to choose whether or not to report
retained rebates). We believe this is the most prudent approach because
it will help keep Part D eligible individuals in health plans with
which they are satisfied.
3. Legal Theory 3: Change in Interpretation of Waiver Authority
The third legal theory on which we invited public comment involved
a change in our interpretation of waiver authority in section 1860D-
22(b) of the Act, and the use of that authority to modify requirements
for RDS sponsors. The waiver authority in section 1860D-22(b) of the
Act appears in a section of the Act that is otherwise devoted entirely
to provisions that apply to the RDS Program. It provides that employer
group waiver provisions in section 1857(i) of the Act (Medicare Part C)
apply with respect to ``prescription drug plans in relation to
employment based retiree health coverage'' in a manner similar to how
they apply to employment-based MA plans. Under ordinary principles of
statutory construction, when a term is defined in statute, the
definition applies when the same statute employs that term. Thus, the
plainest reading of the waiver authority in section 1860D-22(b) of the
Act is that it applies only to prescription drug plans (PDPs), and not
to qualified retiree prescription drug plans (QRPDP). However, given
the fact that this waiver authority appears in a section otherwise
devoted to the RDS program, and that the term ``qualified retiree
prescription drug plan'' includes the three words, ``prescription drug
plan,'' we believed an argument might be made in this case
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that the term ``prescription drug plan'' was intended to encompass both
a Part D ``prescription drug plan'' and a qualified retiree
``prescription drug plan'' (that is, this waiver authority extends both
to PDPs and QRPDPs), as long as the plan is offered ``in relation to
employment-based retiree health coverage'' in either case. In the
January 12, 2009 proposed rule, we proposed to change the regulations
in Subpart J that interpret the waiver authority as applying only to
Part D PDPs.
Comment: Some commenters believe that use of the waiver authority
is the strongest theory upon which to rely for purposes of permitting
diverging reporting requirements in RDS and Part D. Several commenters
agreed that the term ``qualified retiree prescription drug plan''
includes the words ``prescription drug plan,'' and therefore the waiver
authority applies to RDS sponsors as long as a plan is offered ``in
relation to employment based retiree health coverage.'' Several
commenters stated that we have the authority to construe the waiver
authority to include RDS plans because even though the term
``prescription drug plan'' is defined to include only Part D plans, the
phrase ``prescription drug plans in relation to employment based
retiree health coverage'' is not, and commenters argue that this phrase
could be construed to include RDS plans. Another commenter notes that
the statutory definition of a qualified retiree prescription drug plan
includes the term ``employment-based retiree health coverage.'' Other
commenters believe the term ``prescription drug plan'' can be
interpreted differently when used in different contexts, even in the
same statute, and that courts will give deference to how the agency
defines or interprets a term.
Other commenters expressed concern that the use of the waiver
authority to waive a Part D requirement that might hinder the RDS
Program is inconsistent with the statutory construct of the waiver
authority. One commenter notes that from a policy-perspective, Part D
plans are very different from RDS sponsors, and these differences made
the commenter uncertain whether waiver authority designed for MA and
Part D would apply to the RDS program because we do not have the same
type of authority over RDS sponsors as we do over MA organizations and
Part D plans.
Response: After consideration of these comments, we agree that we
can construe the waiver authority in section 1860D-22(b) of the Act to
apply to RDS plans if we read the phrase ``prescription drug plans in
relation to employment-based retiree coverage'' as a whole, and
interpret it to apply to RDS plans. Under this interpretation, we are
authorized to waive requirements that hinder the design of, the
offering of, or enrollment in RDS plans. We interpret the term ``gross
covered retiree plan-related prescription drug costs,'' as defined in
section 1860D-22(a)(3)(C)(ii) of the Act, in a manner consistent with
the term ``gross prescription drug costs,'' as defined in section
1860D-15(b)(3) of the Act. That is, we believe that the same
terminology used in these statutes must be interpreted the same way.
Using waiver authority, however, we are waiving the prohibition on
including administrative costs in the calculation of gross retiree
costs (at Sec. 423.882 and Sec. 423.888) when an RDS sponsor pays an
intermediary contracting organization on a lock-in basis to allow RDS
reporting requirements that diverge from Part D requirements (see 74 FR
1549). In other words, we are waiving the requirement that ``gross
covered retiree plan-related prescription drug costs'' exclude
administrative costs because to require their exclusion from the costs
RDS sponsors report to us--whether in the form of pass-through
negotiated prices or reporting of retained rebates--would hinder the
design of, the offering of, or enrollment in RDS plans. This waiver of
the prohibition on including administrative costs in the calculation of
gross retiree costs will apply to costs paid on a lock-in basis (and
the reporting of retained rebates) because we do not want to interfere
with the contracting arrangements between an RDS sponsor and its
intermediary contracting organization. Of course, an RDS sponsor may
exclude administrative costs from the calculation of gross retiree
costs, if it chooses to do so. Therefore, we are not, as commenters
suggest, using the waiver authority to waive Part D requirements;
rather, we are using the waiver authority to waive RDS requirements
that, if interpreted consistently with parallel language in the Part D
statute, would require that we apply RDS reporting requirements that
similarly parallel Part D requirements.
Regardless of whether an RDS sponsor chooses to report drug costs
on a lock-in or pass-through basis, or whether the RDS sponsor reports
retained rebates or not, for audit and other oversight purposes RDS
sponsors must document the method of reporting drug costs and rebates,
and produce the documentation in accordance with Sec. 423.888.
It is important to note that, with this authority, we are waiving
only the prohibition on including administrative costs in the
calculation of RDS payments, and only to the extent that such costs are
included in the payment to the PBM or other intermediate contracting
entity, whether as ``lock in'' prices or retained rebates. If RDS
sponsors include in their contracts with intermediary contracting
organizations specific administrative payments for specific
administrative services, such payments could not be included in the
calculation of RDS payments. We are not waiving any other RDS
requirements, nor are we adopting any waivers for the RDS Program that
exist relating to the EGHP Program. The converse is also true; we are
not applying waivers for the RDS program to the EGHP program.
If, in the future, we believe that we may need to waive another RDS
requirement, we will post a proposal on the RDS public Web site with
information on how stakeholders can comment on the proposal, and will
allow sufficient time for stakeholders to comment.
Comment: Commenters noted that the definition of ``gross covered
prescription drug costs'' is not defined in the RDS statute and that
the definition under the Part D statute is limited to Part D.
Response: We believe the commenter is referring to the statutory
definition of ``allowable retiree costs'' in section 1860D-
22(b)(3)(C)(i) of the Act, which uses the term ``gross covered
prescription drug costs,'' instead of the term ``gross covered retiree
plan-related prescription drug costs.'' We do not believe this
distinction is meaningful in light of section 1860D-22(a)(3) of the
Act, which includes the term ``gross covered prescription drug costs,''
but cross-references the definition of ``gross covered retiree plan-
related prescription drug costs'' at section 1860D-22(b)(3)(C)(ii) of
the Act. However, even if the distinction were meaningful, both terms
exclude administrative costs when calculating allowable costs, so this
prohibition must be waived for purposes of the regulations we are
finalizing in this final rule.
Comment: A commenter argues that if rebates are retained by the PBM
then they are not part of the cost of drugs for the RDS sponsor. If
such rebates are part of the RDS sponsor's PBM contract they will
change the cost paid by the plan and should be reported.
Response: Under the approach we are adopting for the RDS Program
with respect to retained rebates, RDS sponsors are not required to
report rebates that are retained by the PBM--we are waiving the
requirement that such retained rebates be considered administrative
costs that must be excluded from gross covered retiree plan-related
prescription drug costs. Of
[[Page 1881]]
course, if an RDS sponsor chooses to report the retained rebates, the
subsidy payment will be adjusted accordingly.
B. Provisions of the Proposed Rule
In the January 12, 2009 Federal Register (74 FR 1550), we published
a proposed rule that would amend the regulations pertaining to our
waiver authority under section 1860D-22(b) of the Act to broaden our
interpretation of the waiver authority. The proposed rule would permit
the waiver of requirements that hinder the design of, the offering of,
or the enrollment in an employer-sponsored group prescription drug
plan. In addition, the January 2009 proposed rule (74 FR 1551) noted
that we were specifically soliciting comments on the possibility of
applying one or more of those legal theories.
One of the legal theories discussed in the interim final rule with
comment involves interpreting the waiver authority under section 1860D-
22(b) of the Act (which incorporates waiver authority under section
1857(i) of the Act) to authorize us to waive requirements of the RDS
statute to permit differences between the RDS and Part D programs with
respect to the two policies in question. In our current regulations,
however, we have interpreted section 1860D-22(b) of the Act to apply
only to Medicare Part D plans, and not RDS plan sponsors. In order for
us to change our interpretation of the scope of our waiver authority,
therefore, we proposed to revise the regulations to specify that the
waiver authority applies to the RDS program.
Thus, to enable us potentially to adopt this legal theory, we
published the January 2009 proposed rule to invite public comment on
this proposed change. We also noted that after we have reviewed the
comments received on the proposed rule and the RDS interim final
regulations, we would determine whether to adopt any of the legal
theories discussed in the preamble discussion of the RDS interim final
rule, and whether to finalize the regulatory revisions based on our
change in interpretation of section 1860D-22(b) of the Act set forth in
the proposed rule.
We received seven timely comments from stakeholders on the January
12, 2009 proposed rule. Because the provisions of the January 2009
proposed rule are closely related to the legal theory provisions of the
final rule with comment period, we responded to the comments regarding
these provisions in section II.A. of this final rule.
After review of the comments, we are finalizing our proposed
changes to part 423, Subpart J to reflect the proposed interpretation
of our authority under section 1860D-22(b) of the Act. In addition, we
are finalizing the regulations for the RDS program as set forth in the
final rule with comment period. Specifically, we are declining to adopt
the Part D definition of ``negotiated price,'' we are not revising the
definition of ``actually paid'' to require RDS sponsors to report
retained rebates, and we are finalizing the other definitions set forth
in Sec. 423.882 and the provisions of Sec. 423.888, as set forth in
the final rule with comment period, subject to the modification
described in section II.C. of this final rule.
C. Technical Correction
During our review of the comments on these rules, we noticed an
inconsistency between the preamble discussions and the regulatory text
in the May 2008 proposed rule; and the regulations text of the January
2009 final rule with comment period regarding the definition of the RDS
term ``actually paid''.
Specifically, the preamble discussions of the RDS term ``actually
paid'' in the May 2008 and January 2009 proposed rule and final rule
with comment period, and the regulations text of the May 2008 proposed
rule (73 FR 28571, 73 FR 28602, and 74 FR 1515, respectively), all note
that direct and indirect remuneration can be from any source, and such
remuneration will cause the amounts that are actually paid to be
reduced. The regulatory text in the January 2009 final rule with
comment period incorrectly specified that the direct and indirect
remuneration may only be from any manufacturer or pharmacy.
The statutory definition of ``allowable retiree costs'', when
stating that such costs are costs that are actually paid (net of
discounts, chargebacks, and average percentage rebates), does not limit
the source from which these discounts, chargebacks, and average
percentage rebates come (see section 1860D-22(a)(3)(C)) of the Act (42
U.S.C. 1395w-132(a)(3)(C)). Limiting the source from which direct and
indirect remuneration may be derived is not consistent with the
proposed rule, or the preamble discussion in the interim final rule
(nor is it consistent with the Part D regulations).
Therefore, in this final rule, we are making a technical correction
to the definition of the RDS definition of ``actually paid'' (see Sec.
423.882) by revising the phrase ``from any manufacturer or pharmacy''
to read ``from any source'' because it does not matter from what source
direct or indirect remuneration comes, as long as the remuneration
serves to decrease the costs incurred under the qualified retiree
prescription drug plan. So the definition in Sec. 423.882 will read as
follows:
Actually paid means, that the costs must be actually incurred by
the qualified retiree prescription drug plan and must be net of any
direct or indirect remuneration (including discounts, charge backs
or rebates, cash discounts, free goods contingent on a purchase
agreement, up-front payments, coupons, goods in kind, free or
reduced-price services, grants, or other price concessions or
similar benefits offered to some or all purchasers) from any source
that would serve to decrease the costs incurred under the qualified
retiree prescription drug plan.
III. Provisions of the Final Rule
In this final rule, we are adopting the provisions of the January
2009 proposed rule and the provisions of the final rule with comment
period (see section II.B.3. of this final rule) with the technical
correction to Sec. 423.882 described in section II.C. of this final
rule.
IV. Collection of Information Requirements
This document does not impose information collection and
recordkeeping requirements. Consequently, it need not be reviewed by
the Office of Management and Budget under the authority of the
Paperwork Reduction Act of 1995.
V. Regulatory Impact Statement
A. Overall Impact
We have examined the impacts of this rule as required by Executive
Order 12866 on Regulatory Planning and Review (September 30, 1993), the
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, section 202 of the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C.
804(2)).
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 in any 1 year). This rule is
not a significant and/or an economically significant rule. This rule
will not impose added benefits or costs on stakeholders because it
allows
[[Page 1882]]
stakeholders the same reporting flexibilities that they exercise
currently.
The RFA requires agencies to analyze options for regulatory relief
of small entities, if a rule has a significant impact on a substantial
number of small entities. For purposes of the RFA, we estimate that
this rule will not have a significant impact on a substantial number of
small entities. In fact, the policy approach taken in this final rule
is intended to minimize impacts on any size business, including small
businesses, or other small entities. This final rule allows RDS
sponsors the flexibility to report drug costs on either a pass-through
or lock-in basis, so that they may negotiate arrangements most
beneficial to the RDS sponsor, and allows RDS sponsors to choose
whether they will report retained rebates. This rule does not affect
hospitals or other health care providers because the rule relates to
how an RDS sponsor reports drug costs in order to receive an RDS
payment. The amounts reported do not relate to the amounts actually
paid to hospitals and other providers because the subsidy is an after-
the-fact subsidy; meaning that the drug costs are incurred and paid and
then an RDS sponsor may receive an RDS payment. Therefore, the
Secretary has determined that this final rule will not have a
significant economic impact on a substantial number of small entities.
In addition, 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 have a
significant impact on small rural hospitals, because it does not relate
to small rural hospitals either directly or indirectly. Therefore, the
Secretary has determined that this final rule will not have a
significant impact on the operations of a substantial number of small
rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2011, that
threshold is approximately $136 million. This rule does not contain
mandates that will impose spending costs on State, local, or tribal
governments in the aggregate, or by the private sector, of $136 million
or more.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a final rule that imposes
substantial direct requirement costs on State and local governments,
preempts State law, or otherwise has Federalism implications. This rule
will not have a substantial direct effect on State or local
governments, nor will it preempt States, or otherwise have a Federalism
implication.
B. Anticipated Effects
We do not anticipate effects on RDS sponsors, other providers or
the Medicare program.
C. Alternatives Considered
We considered requiring RDS sponsors to report pass-through pricing
and to require the reporting of retained rebates but decided against
this approach because commenters believe that requiring these reporting
structures could cause RDS sponsors not to participate in the RDS
Program.
D. Conclusion
We do not believe that this rule will have an impact on RDS
sponsors or any other stakeholders. We do not believe that a regulatory
flexibility analysis, or an analysis required by section 1102(b) of the
Act, are required, beyond the analysis performed in this section and
the discussions provided in the section II. of this final rule.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.
List of Subjects in 42 CFR Part 423
Administrative practice and procedure, Emergency medical services,
Health facilities, Health maintenance organizations (HMO), Health
professionals, Medicare, Penalties, Privacy, Reporting and
recordkeeping requirements.
For the reasons set forth in the preamble, the Centers for Medicare
& Medicaid Services amends 42 CFR part 423 as set forth below:
PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT
0
1. The authority citation for part 423 continues to read as follows:
Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of the
Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152,
and 1395hh).
Subpart J--Coordination of Part D Plans With Other Prescription
Drug Coverage
0
2. Section 423.454 is amended by revising the definition ``Employer-
sponsored group prescription drug plan'' to read as follows:
Sec. 423.454 Definitions.
* * * * *
Employer-sponsored group prescription drug plan means, prescription
drug coverage offered to retirees who are Part D eligible individuals
under employment-based retiree health coverage. For purposes of this
subpart, employment-based retiree health coverage is such coverage (as
defined in Sec. 423.882) provided through a Medicare Part D plan, or
for which a plan sponsor could qualify for payments under Subpart R of
this part.
* * * * *
0
3. Section 423.458 is amended as follows:
0
A. Republishing the heading of paragraph (c).
0
B. Revising paragraph (c)(1).
0
B. Redesignating paragraph (c)(2) as paragraph (c)(3).
0
D. Adding a new paragraph (c)(2).
The revision and addition read as follows:
Sec. 423.458 Application of Part D rules to certain Part D plans on
and after January 1, 2006.
* * * * *
(c) Employer group waiver--(1) General rule for employer-sponsored
group prescription drug plans that are Medicare Part D plans. CMS may
waive or modify any requirement under this part that hinders the design
of, the offering of, or the enrollment in an employer-sponsored group
prescription drug plan, including authorizing the establishment of
separate premium amounts for enrollees of the employer-sponsored group
prescription drug plan and limitations on enrollment in such plan to
Part D eligible individuals participating in the sponsor's employment-
based retiree health coverage. Any entity seeking to offer, sponsor, or
administer an employer-sponsored group prescription drug plan may
request, in writing, a waiver or modification of additional
requirements under this Part that hinder its design of, the offering
of, or the enrollment in, such employer-sponsored group prescription
drug plan.
(2) General rule for employer-sponsored group prescription drug
plans for which a sponsor could qualify for payments under Subpart R of
this part. CMS may waive or modify any
[[Page 1883]]
requirement under this part that hinders the design of, the offering
of, or the enrollment in an employer-sponsored group prescription drug
plan.
* * * * *
Subpart R--Payments to Sponsors of Retiree Prescription Drug Plans
Sec. 423.882 [Amended]
0
4. In Sec. 423.882, the definition of ``Actually paid'' is amended by
removing the phrase ``manufacturer or pharmacy'' and adding the term
``source'' in its place.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
Dated: November 3, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare and Medicaid Services.
Approved: January 6, 2012
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-473 Filed 1-11-12; 8:45 am]
BILLING CODE 4120-01-P