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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Veterans Affairs Department

CFR Citation: 42 CFR Parts 403 and 408

RIN ID: RIN 0938-AM71

CMS ID: [CMS-4063-IFC]

NOTICE: Part III

DOCUMENT ACTION: Interim final rule with comment period.

SUBJECT CATEGORY: Medicare Program; Medicare Prescription Drug Discount Card

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.

DOCUMENT 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 Medicareendorsed 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 programsMedicaid, 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 Medicareendorsed 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 lowincome beneficiaries; and publicize information that will allow Medicare beneficiaries to compare the various Medicareendorsed drug discount card programs.

SUMMARY: Health and Human Services Department, Centers for Medicare & Medicaid Services,

SUPPLEMENTAL 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 money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 5121800 (or toll free at 18882936498) or by faxing to (202) 5122250. The cost for each copy is $10. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register. This Federal 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) 7867197.

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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 MedicareEndorsed 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. CMSProvided 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 Longterm 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 1860D31 of the Social Security Act (the ``Act'').

Section 1860D31(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 30day 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 60day 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 1860D31 of the Act is enjoined, the order will not affect the remaining provisions of section 1860D31.

To meet the sixmonth 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 beneficiariesparticularly those lacking outpatient drug coveragewith access to negotiated prices on prescription drugs through enrollment in Medicareendorsed drug discount card programs operated by endorsed sponsors. In addition, to help lowincome 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 lowcost prescription drugs by building upon best practices in the private drug benefit market today.
C. Relationship to MedicareEndorsed Prescription Drug Card Assistance Initiative

On September 4, 2002, we published a final rule (67 FR 56618) establishing the MedicareEndorsed 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. 101508). 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 authoritythe Medicare Prescription Drug, Improvement, and Modernization Act of 2003than 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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 reenroll in the program, he or she must reapply and requalify for the program for 2005.

Section 1860D31(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
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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 1860D31(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. 300gg91), 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. 300gg91(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 1860D31(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 1860D31(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 systemsbased 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 shortterm program, the statute directs us to determine eligibility based on selfcertification, 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 1860D31(f) of the Act, the statute directs us to determine eligibility based on selfcertification, with CMS to verify selfcertified 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 1860D31(f)(3)(C)(i) of the Act gives the Secretary the authority to find
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that Medicare beneficiaries eligible under title XIX as Qualified Medicare Beneficiaries (QMBs), Specified LowIncome 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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(g)(2)(A) of the Act provides that transitional assistance beneficiaries may receive up to $600 each year in transitional assistance. However, section 1860D31(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
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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 1March 31, 2005..................................... $600 April 1June 30, 2005........................................ 450 July 1September 30, 2005.................................... 300 October 1December 31, 2005.................................. 150

In accordance with section 1860D31(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 reenroll 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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 1860D31(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 60day time frame should be extended.

Section 1860D31(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 1860D31(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 reapply and requalify under two conditionsduring the annual coordinated election period or during a special election period, as described below.

Section 1860D31(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 1860D31(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 1860D31(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 1860D31(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.
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(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 1860D31(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 reapply 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 reapply 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 reenroll.

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 1860D31(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 1860D31(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 reapply and requalify for transitional assistance for the second year of the program should they wish to receive additional transitional assistance. The earliest an individual may reapply 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 reapply for transitional assistance in accordance with Sec. 403.808(b) of our regulations.

Section 1860D31(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 ``Medicareapproved.''

Although under section 1860D31(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 ``longterm 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 longterm 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 preapplication 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 1860D31(a)(2)(C)(i)(I) of the Act will terminate on December 31, 2005. Section 1860D31(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 1860D31(a)(1)(A) of the Act requires the Secretary to endorse qualified applicants seeking to offer endorsed discount card programs to Medicare beneficiaries. Section 1860D31 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 1860D31(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.
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Rules governing these exclusive card programs are discussed in section II.G. of this document.

Applicants seeking special endorsementthat is, applicants wishing to offer an endorsed program in the U.S. territories and/or applicants willing to include within their pharmacy networks' longterm care and/ or I/T/U pharmaciesalso 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 1860D31(h)(1)(A) of the Act, the Secretary is authorized to designate the type of nongovernmental 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 1860D31(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

FOR FURTHER INFORMATION CONTACT Teresa DeCaro, (410) 786-6604.