06/12/08

Final and Proposed Revisions to RDS Regulations in the Federal Register

On April 15, 2008, CMS published in the Federal Register final revisions to the RDS regulations. Many of the final revisions provide additional flexibility for Plan Sponsors, and reflect existing policy that CMS has already published in other documents.

Also, on May 16, 2008, CMS published in the Federal Register proposed revisions to the RDS regulations which would add definitions of several terms, and revise definitions of several other terms that already appear in the regulations.

The Final Revisions

Among the final revisions:

• When performing the actuarial equivalence test, a noncalendar year RDS plan's actuary can use either the current or subsequent year's Medicare Part D initial coverage limit, cost-sharing amounts, and annual out-of-pocket threshold for defined standard drug coverage, when the attestation is submitted within 60 days of the publication of the following year's cost limits.
• CMS has the discretion to set an end-of-month deadline for RDS applications. An end-of-month deadline would be administratively simpler for both Plan Sponsors and CMS to track, as opposed to the current deadline, which is 90 days prior to the beginning of a Plan Sponsor's RDS plan year. (Note: This change will not occur unless and until CMS issues further guidance.)
• Plan Sponsors can aggregate a subset of the benefit options in a qualified retiree prescription drug plan for the actuarial equivalence net test, in addition to aggregating all the options or evaluating each option individually.
• A Plan Sponsor must actually provide supplemental drug coverage for their retirees who elect to enroll in a Medicare Part D plan, in order to take advantage of the Medicare supplemental adjustment when determining whether its qualified retiree prescription drug plan is actuarially equivalent to Medicare standard prescription drug coverage.
• Plan Sponsors must provide an actuarial attestation no later than 90 days before the implementation of a material change to the Plan Sponsor's drug coverage, and the term "material change" means the addition of a benefit option that does NOT have the impact of causing the actuarial value of the retiree prescription drug coverage to fail the actuarial equivalence standards set forth in the regulations. The final regulation also states that a Plan Sponsor must notify CMS, in a form and manner specified by CMS, no later than 90 days before the implementation of a change to the drug coverage that DOES have the impact of causing the actuarial value of the retiree prescription drug coverage to fail the actuarial equivalence standards set forth in the regulations.

The final revisions to the regulations formally took effect June 9, 2008, although many of the revisions are clarifications to existing guidance that is already in effect. The final revisions can be found on page 20486 of the April 15, 2008 Federal Register (73 FR 20486). To view the document, go to: Final Revisions to RDS Regulations (pdf, 210 KB).

The Proposed Revisions

The proposed revisions would add definitions for the following terms:

• Actually paid
• Administrative costs
• Negotiated prices

The proposed revisions would also revise definitions that already appear in the regulations for the following terms:

• Allowable retiree costs
• Gross covered retiree plan-related prescription drug costs

CMS is proposing to add and revise these definitions to ensure continued consistency in policy between the RDS Program and the Medicare Part D program. By applying these definitions, Plan Sponsors would be required to report Medicare Part D drug costs that reflect the amount the Plan Sponsor's contracted Pharmacy Benefit Manager (PBM) or other intermediary contracting organization pays a pharmacy, as opposed to the amount the Plan Sponsor pays the PBM. Presently, reported costs can be based on either approach.

By applying these definitions, CMS would be codifying existing policy requiring Plan Sponsors to report rebates and other price concessions retained by a PBM or other intermediary contracting organization, regardless of the terms of the contract between the Plan Sponsor and the PBM or intermediary contracting organization. As stated in existing CMS guidance, this policy is already in effect for RDS plan years that start on or after January 1, 2007. Go to: Important Reminder About CMS Guidance on Calculating and Reporting Rebates - UPDATED.

The proposed revisions are located on page 28556 of the May 16, 2008 Federal Register (73 FR 28556). Comments on the proposed revisions to the regulations are being accepted if received by 5:00 PM on July 15, 2008. Instructions on how to submit comments are included in the proposed revisions to the regulations. To view the document, go to: Proposed Revisions to RDS Regulations (pdf, 326 KB).

If you have any questions about the final or proposed revisions to the RDS regulations, please refer to the contact information listed in the respective set of regulations for the Subpart R provisions.

Note: RDS Secure Web Site users were notified by e-mail in April 2008 and May 2008 of these final and proposed revisions to the RDS regulations.

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