The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) created a new Medicare Part D to provide additional prescription drug benefits to Medicare beneficiaries that choose to enroll. This new coverage becomes effective January 1, 2006. A proposed rule related to the implementation of Part D was published in the Federal Register on August 4, 2004. After reviewing more than 7,500 comments, CMS published the final rule on January 28, 2005. Provisions of the final rule and CMS’ comments are of special interest to pharmacies that are currently providing Part B covered drugs, and those that may want to expand their services to include Part D drugs.

Anyone who is entitled to Medicare Part A or who is enrolled in Part B is eligible to enroll for Part D coverage. Beneficiaries who wish to remain in traditional Medicare may elect to join a “prescription drug only” plan (PDP) that adds the Part D drug benefits to regular Medicare coverage. Alternatively, a beneficiary can choose a Medicare Advantage plan (MA-PD) which will provide an integrated benefit encompassing hospital, physician, and drug coverage.

Lisa Smith, JD

Initial enrollment will begin November 15, 2005, and end on May 15, 2006. If the beneficiary is enrolled by December 31, 2005, coverage will begin January 1, 2006. If the beneficiary enrolls after December 31, coverage will be effective the first day of the month following enrollment. In subsequent years, open enrollment will run from November 15 to December 31, with coverage commencing on January 1.

The Part D Standard Drug Benefit includes:
  • a monthly premium of approximately $35
  • an annual deductible of $250
  • coinsurance of 25%, up to an initial coverage limit of $2,250

There is protection against high out-of-pocket prescription drug costs, with copayments of generally $2 for generics and preferred multiple source drugs, and $5 for all other drugs or 5% of the price once an enrollee’s out-of-pocket costs reach $3,600 (note: there is a gap in coverage before the $3,600 amount is reached). Although drug plan sponsors may change some of the specifications listed above, the benefit offered must at least be equal to the Standard Benefit.

A more generous benefit package is provided for beneficiaries with limited savings and low incomes. Beneficiaries with incomes between 135% and 150% of the federal poverty level will receive:
  • a sliding monthly premium that will be approximately $35 for beneficiaries with incomes of 150% of the federal poverty level
  • a $50 annual deductible
  • coinsurance of 15% up to the out-of-pocket limit
  • no gap in coverage
  • copayments of $2 for generics and preferred multiple source drugs, and $5 for all other drugs once the out-of-pocket limit is reached

Beneficiaries with incomes below 135% of the federal poverty level will receive:
  • a $0 premium
  • a $0 deductible
  • copayments of $2 for generics and preferred multiple source drugs, and $5 for all other drugs up to the out-of-pocket limit
  • no gap in coverage
  • $0 copayment for all prescriptions once the out-of-pocket limit is reached

PDPs and MA-PDs will have specified service areas. A beneficiary must live within the service area of a PDP or MA-PD to enroll with that plan. CMS’ goal is for each beneficiary to have a choice of at least two PDPs or a PDP and a MA-PD.

Part D Excludes Drugs Already Covered by Medicare
The definition of “covered Part D drug” excludes any drug for which payment would be available under Medicare Part A or B, as prescribed and dispensed or administered for that individual (even though a deductible may apply). Essentially, this means that pharmacies currently billing Medicare Part B for covered drugs will continue to do so after January 1, 2006. For the present, Part D will not encompass drugs currently reimbursed under Part A or Part B, and the Part D benefit does not alter current coverage rules for those drugs. However, the MMA requires that a study on transitioning Part B drug coverage to Part D be submitted to Congress no later than January 1, 2005. Obviously, that deadline has not been met, but after such a study is prepared and presented, it is possible that some or all of Part B drugs will be shifted to Part D.

In the comments concerning the determination of whether a drug for a particular patient is eligible for Part D coverage, CMS notes that providers and plans will have to determine whether Part B or Part D should be billed based on the drug and the status of the beneficiary. For example, in the case of drugs used in immunosuppressive therapy, Part B should be billed in the case of a beneficiary whose transplant was covered by Medicare, and Part D should be billed in all other instances.

CMS clarifies that a drug will not be covered under Part D if coverage under Part A or B would be available if the individual were enrolled. In other words, if a drug would be covered under Part A or Part B, but is not simply because the eligible beneficiary is not enrolled, the drug will not be covered by Part D. Similarly, CMS states that drugs that would otherwise be covered by Part B will not be covered by Part D when the beneficiary obtains the drug from a pharmacy that does not have a Medicare supplier number. CMS states that in such instances, coverage would have been available under Part B had the beneficiary obtained the drug at a pharmacy with a Medicare supplier number.

Pharmacy Access and Any Willing Pharmacy Provisions
In general, a Part D plan must have a contracted pharmacy network consisting of retail pharmacies sufficient to ensure that for beneficiaries residing in each state in the plan’s service area:

1) In urban areas, at least 90% of Medicare beneficiaries, on average, live within two miles of a network retail pharmacy; 2) In suburban areas, at least 90% of Medicare beneficiaries, on average, live within five miles of a network retail pharmacy; and 3) In rural areas, at least 70% of Medicare beneficiaries, on average, live within 15 miles of a network retail pharmacy.

For purposes of meeting these pharmacy access standards, contracted pharmacies operated by the Indian Health Services, Indian tribe, or tribal organization, and pharmacies operated by Federally Qualified Health Centers and Rural Health Centers will be included as network retail pharmacies. A Part D plan’s contracted pharmacy network must also provide “adequate” access to home infusion pharmacies and long-term care pharmacies, in accordance with written policy guidelines and other CMS instructions to be developed.

Certain exceptions to these access standards apply for MA-PD plans that provide access through pharmacies owned and operated by the MA organization.

The final rules require that a Part D plan must contract with any pharmacy that meets the plan’s standard terms and conditions, which cannot include accepting insurance risk as a condition of participation. In its comments, CMS clarifies that “standard terms and conditions” (particularly payment terms) may vary based on the type of pharmacy or geographic area, and that this is acceptable so long as all “similarly situated” pharmacies are offered the same standard terms and conditions.

For example, a Part D plan that offers all retail pharmacies in a particular area the same standard terms and conditions can offer separate standard terms and conditions to mail-order pharmacies. CMS also clarifies that the “standard terms and conditions” are a “floor” of minimum requirements for all similarly situated pharmacies, but that Part D plans can modify some of these terms and conditions to encourage participation by particular pharmacies.

Notwithstanding the “any willing pharmacy” provision, Part D plans can still construct networks of preferred and nonpreferred pharmacies, with different requirements for beneficiary cost sharing. Both preferred and nonpreferred pharmacies in the network will be included in determining whether the access standard is met.

Pharmacies will not be provided additional protection by state “any willing pharmacy” laws because the MMA provides for preemption of state “any willing pharmacy” laws in connection with Part D plans.

Retail vs Mail Order
Both the MMA and the final rule require Part D plans to permit beneficiaries to receive an extended supply (90-day supply) of Part D covered drugs through a network retail pharmacy, rather than through mail-order only. However, Part D plans can still use economic incentives for beneficiaries to use mail-order pharmacies by designating such pharmacies as preferred pharmacies, with lower cost sharing by the beneficiary.

Dispensing Fees Under Part D
The final rule defines dispensing fee to include only pharmacy costs associated with ensuring that possession of the appropriate covered Part D drug is transferred to a Part D enrollee. Pharmacy costs include, but are not limited to, any reasonable costs associated with a pharmacist’s time in checking the computer for information about an individual’s coverage, performing quality assurance activities consistent with §423.153(c)(2), measurement or mixing of the covered Part D drug, filling the container, physically providing the completed prescription to the Part D enrollee, delivery, special packaging, and overhead associated with maintaining the facility and equipment necessary to operate the pharmacy.

The proposed rule suggested two other options for the dispensing fee, which would also include supplies and equipment necessary for effective administration of the drug, and other activities to ensure proper ongoing administration of the drug, such as skilled nursing visits and monitoring by a clinical pharmacist. By adopting the more restrictive definition in the final rule, Part D will not reimburse for supplies, equipment, and professional services associated with home infusion drugs.

Only supplies associated with the injection of insulin are covered under Part D. Thus, heparin and saline flushes for home infusion therapy are also not covered.

CMS comments make clear that “reasonable costs” will depend on the costs appropriate for the typical beneficiary in that particular pharmacy setting, and that for this reason, dispensing fees can vary between types of pharmacies. For example, CMS notes that it would be appropriate for Part D to reimburse long-term care, mail-order, and home infusion pharmacies for home delivery costs through the dispensing fee, while this would not be appropriate for retail pharmacies since the typical retail customer does not require home delivery, although the pharmacy may offer such a service. CMS also comments that Part D plans may need to increase dispensing fees paid to rural or long-term care pharmacies in order to obtain their participation in networks in order to meet the pharmacy access standards.

CMS makes clear that the definition of “dispensing fee” for Part D is not applicable to Part B.

At present, suppliers of drugs covered by Part B will continue to bill Part B after the implementation of the Part D drug benefit effective January 1, 2006. Part D will not change the current Part B rules concerning coverage or dispensing fees. However, the MMA requires that a study on transitioning Part B drug coverage to Part D be submitted to Congress, and it is possible that some or all Part B covered drugs will be shifted to Part D in the future.

Pharmacies that are currently providing Part B covered drugs, and that are interested in expanding services to include Part D, have an opportunity to do so. The Part D plan rules attempt to level the playing field somewhat by 1) providing an “any willing pharmacy” provision, and 2) requiring plans to allow beneficiaries to obtain an extended drug supply from a retail pharmacy, as opposed to mail-order only. However, the benefit of these provisions is tempered by the ability of the Part D plan to designate “preferred” pharmacies and offer beneficiaries economic incentives through reduced cost sharing to use such pharmacies.

Lisa K. Smith, JD, is an attorney with the Health Care Group of Brown & Fortunato PC, Amarillo, Tex. Smith represents DME companies, pharmacies, and other health care providers throughout the United States and Puerto Rico. She can be reached via email: lsmith@bf-law.com.