Final Rule

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

42 CFR Parts 400, 403, 411, 417, and 423

RIN 0938-AN08

Medicare Program; Medicare Prescription Drug Benefit AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS. ACTION: Final rule.

SUMMARY: This final rule implements the provisions of the Social Security Act (the Act) establishing and regulating the Medicare Prescription Drug Benefit. The new voluntary prescription drug benefit program was enacted into law on December 8, 2003 in section 101 of Title I of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173). Although this final rule specifies most of the requirements for implementing the new prescription drug program, readers should note that we are also issuing a closely related rule that concerns Medicare Advantage organizations, which, if they offer coordinated care plans, must offer at least one plan that combines medical coverage under Parts A and B with prescription drug coverage. Readers should also note that separate CMS guidance on many operational details appears or will soon appear on the CMS website, such as materials on formulary review criteria, risk plan and fallback plan solicitations, bid instructions, solvency standards and pricing tools, plan benefit packages.

The addition of a prescription drug benefit to Medicare represents a landmark change to the Medicare program that will significantly improve the healthcare coverage available to millions of Medicare beneficiaries. The MMA specifies that the prescription drug benefit program will become available to beneficiaries beginning on January 1, 2006.

Generally, coverage for the prescription drug benefit will be provided under private prescription drug plans (PDPs), which will offer only prescription drug coverage, or through Medicare Advantage prescription drug plans (MA PDs), which will offer prescription drug coverage that is integrated with the healthcare coverage they provide to Medicare beneficiaries under Part C of Medicare. PDPs must offer a basic prescription drug benefit. MA-PDs must offer either a basic benefit or broader coverage for no additional cost. If this required level of coverage is offered, MA-PDs or PDPs, but not fallback PDPs may also offer supplemental benefits through enhanced alternative coverage for an additional premium. All organizations offering drug plans will have flexibility in the design of the prescription drug benefit. Consistent with the MMA, this final rule also provides for subsidy payments to sponsors of qualified retiree prescription drug plans to encourage retention of employer-sponsored benefits.

We are implementing the drug benefit in a way that permits and encourages a range of options for Medicare beneficiaries to augment the standard Medicare coverage. These options include facilitating additional coverage through employer plans, MA-PD plans and high-option PDPs, and through charity organizations and State pharmaceutical assistance programs. See sections II.C, II.J, and II.P, and II.R of this preamble for further details on these issues.

The proposed rule identified options and alternatives to the provisions we proposed and we strongly encouraged comments and ideas on our approach and on alternatives to help us design the Medicare Prescription Drug Benefit Program to operate as effectively and efficiently as possible in meeting the needs of Medicare beneficiaries.

DATES: These regulations are effective on March 22, 2005.

FOR FURTHER INFORMATION CONTACT: [This Final Rule contains a long list of contacts similar to the one shown above for the Proposed Rule; the list is omitted here.]

Table of Contents [Condensed]

I. Background

A. Medicare Prescription Drug, Improvement, and Modernization Act of 2003

B. Codification of Regulations

C. Organizational Overview of Part 423

II. Discussion of the Provisions ofthe Final Rule

A. General Provisions

B. Eligibility and Enrollment

C. Voluntary Prescription Benefits and Beneficiary Protections

D. Cost Control and Quality Improvement Requirements for Part D Plans


F. Submission of Bids and Monthly Beneficiary Premiums: Plan Approval

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


I. Organization Compliance with State Law and Preemption by Federal Law

J. Coordination Under Part D Plans with Other Prescription Drug Coverage

K. Application Procedures and Contracts with PDP Sponsors L. Effect of Change of Ownership or Leasing of Facilities during the Term of Contract

M. Grievances, Coverage Determinations, and Appeals N. Medicare Contract Determinations and Appeals O. Intermediate Sanctions

P. Premiums and Cost-Sharing Subsidies for Low-Income Individuals

Q. Guaranteeing Access to a Choice of Coverage (Fallback Prescription

Drug Plans)

R. Payments to Sponsors of Retiree Prescription Drug Plans

S. Special Rules for States-Eligibility Determinations for Low-Income

Subsidies, and General Payment Provisions

T. PartD Provisions Affecting Physician Self-Referral, Cost-Based HMO,

PACE, and Medigap Requirements


Provisions of the Final Rule


Collection of Information Requirements


Regulatory Impact Analysis

SOURCE: Excerpted from Federal Register. 2005. "Rules and Regulations." Federal Register 70

(18): 4193-4242.

A proposed rule is effectively a draft of a rule or set of rules that will be used to guide the implementation of a law while the final rules are still under development. Rules can be added, deleted, or modified over the life ofa public law; thus rulemaking is an ongoing component in the life of any public law. Publication ofa proposed rule is an open invitation for all parties with an interest in the rule to react before it becomes final. For example, in 1989, Congress amended the Medicare policy to change the way physicians who treat Medicare patients are paid for their services. This procedure—which used resource-based relative value scales (RBRVS)—sought to base payment on the actual demands of professional work involved in various physician-provided services and to capture for each service the relevant physician practice expenses, liability insurance costs, and regional norms. The net effect of this change in policy was to decrease the amount of payment for many procedure-based services, such as surgery, and to increase payment for many primary care services. Publication in FR of the proposed rules to implement this change literally served as an invitation to physicians who would be affected by this change, and their interest groups, to bargain and negotiate the new levels of payment for their services (Moon 1993). As might be expected, many accepted the invitation.

Changes in proposed rules often result from the interactions between officials of implementing organizations and those whom the rules will affect directly. In fact, these interactions, triggered by the publication of a proposed rule, are among the most active points ofinvolvement in the entire policymak-ing process for individuals, health-related organizations, and interest groups with a stake in how a particular public law is implemented. The role of interest groups is especially potent at this point in the process.

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