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Proposed Rule2022-24114

Administrative Simplification: Modifications of Health Insurance Portability and Accountability Act of 1996 (HIPAA) National Council for Prescription Drug Programs (NCPDP) Retail Pharmacy Standards; and Adoption of Pharmacy Subrogation Standard

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Published

November 9, 2022

Issuing agencies

Health and Human Services Department

Abstract

This proposed rule would adopt updated versions of the retail pharmacy standards for electronic transactions adopted under the Administrative Simplification subtitle of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). These updated versions would be modifications to the currently adopted standards for the following retail pharmacy transactions: health care claims or equivalent encounter information; eligibility for a health plan; referral certification and authorization; and coordination of benefits. The proposed rule would also broaden the applicability of the Medicaid pharmacy subrogation transaction to all health plans. To that end, the rule would rename and revise the definition of the transaction and adopt an updated standard, which would be a modification for state Medicaid agencies and an initial standard for all other health plans.

Full Text

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<title>Federal Register, Volume 87 Issue 216 (Wednesday, November 9, 2022)</title>
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[Federal Register Volume 87, Number 216 (Wednesday, November 9, 2022)]
[Proposed Rules]
[Pages 67634-67660]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24114]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 162

[CMS-0056-P]
RIN 0938-AT38

Administrative Simplification: Modifications of Health Insurance
Portability and Accountability Act of 1996 (HIPAA) National Council for
Prescription Drug Programs (NCPDP) Retail Pharmacy Standards; and
Adoption of Pharmacy Subrogation Standard

AGENCY: Office of the Secretary, Department of Health and Human
Services (HHS).

ACTION: Proposed rule.

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SUMMARY: This proposed rule would adopt updated versions of the retail
pharmacy standards for electronic transactions adopted under the
Administrative Simplification subtitle of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). These updated
versions would be modifications to the currently adopted standards for
the following retail pharmacy transactions: health care claims or
equivalent encounter information; eligibility for a health plan;
referral certification and authorization; and coordination of benefits.
The proposed rule would also broaden the applicability of the Medicaid
pharmacy subrogation transaction to all health plans. To that end, the
rule would rename and revise the definition of the transaction and
adopt an updated standard, which would be a modification for state
Medicaid agencies and an initial standard for all other health plans.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, January 9, 2023.

ADDRESSES: In commenting, please refer to file code CMS-0056-P.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-0056-P, P.O. Box 8013,
Baltimore, MD 21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-0056-P, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.

FOR FURTHER INFORMATION CONTACT: Geanelle G. Herring, (410) 786-4466,
Beth A. Karpiak, (312) 353-1351, or Christopher S. Wilson, (410) 786-
3178.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following
website as soon as possible after they have been received: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the search instructions on that website to
view public comments. The Centers for Medicare & Medicaid Services
(CMS) will not post on <a href="http://Regulations.gov">Regulations.gov</a> public comments that make
threats to individuals or institutions or suggest that the individual
will take actions to harm the individual. CMS continues to encourage
individuals not to submit duplicative comments. We will post acceptable
comments from multiple unique commenters even if the content is
identical or nearly identical to other comments.

I. Executive Summary

A. Purpose

This rule proposes to adopt modifications to standards for
electronic retail pharmacy transactions and a subrogation standard
adopted under the Administrative Simplification subtitle of the Health
Insurance Portability and Accountability Act of 1996 (HIPAA), and to
broaden the applicability of the HIPAA subrogation transaction.

[[Page 67635]]

a. Need for the Regulatory Action
The rule proposes to modify the currently adopted retail pharmacy
standards and adopt a new standard. These proposals would provide
improvements such as more robust data exchange, improved coordination
of benefits, and expanded financial fields that would avoid the need to
manually enter free text, split claims, or prepare and submit a paper
Universal Claim Form.
But for a small modification to the requirement for the use of a
particular data field, adopted in 2020, the presently adopted pharmacy
standards were finalized in 2009. Since then, the National Committee on
Vital and Health Statistics (NCVHS) has recommended that HHS publish a
proposed rule adopting more recent standards to address evolving
industry changing business needs. Consistent with NCVHS recommendations
and collaborative industry and stakeholder input, we believe the
updated retail pharmacy standards we propose here are sufficiently
mature for adoption and that covered entities are ready to implement
them.
b. Legal Authority for the Regulatory Action
Sections 1171 et seq. of the Social Security Act (the Act) are the
legal authority for this regulatory action.

B. Summary of the Major Provisions

The provisions in this proposed ruled would adopt the NCPDP
Telecommunication Standard Implementation Guide, Version F6 (Version
F6) and equivalent NCPDP Batch Standard Implementation Guide, Version
15 (Version 15); and NCPDP Batch Standard Pharmacy Subrogation
Implementation Guide, Version 10, for non-Medicaid health plans. These
updated standards would replace the currently adopted NCPDP
Telecommunication Standard Implementation Guide, Version D, Release 0
(Version D.0) and the equivalent NCPDP Batch Standard Implementation
Guide, Version 1, Release 2 (Version 1.2); and NCPDP Batch Standard
Medicaid Subrogation Implementation Guide, Version 3.0, Release 0.
Industry stakeholders report that Version F6 would bring much
needed upgrades over Version D.0, such as improvements to the
information attached to controlled substance claims, including
refinement to the quantity prescribed field. This change would enable
refills to be distinguished from multiple dispensing events for a
single fill, which would increase patient safety. Version F6 provides
more specific fields to differentiate various types of fees, including
taxes, regulatory fees, and medication administration fees. Finally,
Version F6 increases the dollar amount field length and would simplify
coverage under prescription benefits of new innovative drug therapies
priced at, or in excess of, $1 million. The current adopted Version D.0
does not support this business need.
The current Medicaid Subrogation Implementation Guide Version 3.0
(Version 3.0) was adopted to support federal and state requirements for
state Medicaid agencies to seek reimbursement from the correct
responsible health plan. However, industry stakeholders reported that
there is a need to expand the use of the subrogation transaction beyond
Medicaid agencies, and noted that the use of a subrogation standard
that would apply to other payers would be a positive step for the
industry. Whereas HIPAA regulations currently require only Medicaid
agencies to use Version 3.0 in conducting the Medicaid pharmacy
subrogation transaction, all health plans would be required to use the
Pharmacy Subrogation Implementation Guide for Batch Standard, Version
10, to transmit pharmacy subrogation transactions, which would allow
better tracking of subrogation efforts and results across all health
plans, and support cost containment efforts.
Should these proposals be adopted as proposed, it would require
covered entities to comply 24 months after the effective date of the
final rule. Small health plans would have 36 months after the effective
date of the final rule to comply.

C. Summary of Costs and Benefits

We estimate that the overall cost for pharmacies, pharmacy benefit
plans, and chain drug stores to move to the updated versions of the
pharmacy standards and the initial adoption of the pharmacy subrogation
transaction standard would be approximately $386.3 million. The cost
estimate is based on the need for technical development,
implementation, testing, initial training, and a 24-month compliance
timeframe. We believe that HIPAA covered entities or their contracted
vendors have already largely invested in the hardware, software, and
connectivity necessary to conduct the transactions with the updated
versions of the pharmacy standards.

II. Background

A. Legislative Authority for Administrative Simplification

This background discussion presents a history of statutory
provisions and regulations that are relevant for purposes of this
proposed rule.
Congress addressed the need for a consistent framework for
electronic transactions and other administrative simplification issues
in HIPAA (Pub. L. 104-191, enacted on August 21, 1996). Through
subtitle F of title II of HIPAA, Congress added to title XI of the Act
a new Part C, titled ``Administrative Simplification,'' which required
the Secretary of the Department of Health and Human Services (the
Secretary) to adopt standards for certain transactions to enable health
information to be exchanged more efficiently and to achieve greater
uniformity in the transmission of health information. For purposes of
this and later discussion in this proposed rule, we sometimes refer to
this statute as the ``original'' HIPAA.
Section 1172(a) of the Act states that ``[a]ny standard adopted
under [HIPAA] shall apply, in whole or in part, to . . . (1) A health
plan. (2) A health care clearinghouse. (3) A health care provider who
transmits any health information in electronic form in connection with
a [HIPAA transaction],'' which are collectively referred to as
``covered entities.'' Generally, section 1172 of the Act requires any
standard adopted under HIPAA to be developed, adopted, or modified by a
standard setting organization (SSO). In adopting a standard, the
Secretary must rely upon recommendations of the NCVHS, in consultation
with the organizations referred to in section 1172(c)(3)(B) of the Act,
and appropriate federal and state agencies and private organizations.
Section 1172(b) of the Act requires that a standard adopted under
HIPAA be consistent with the objective of reducing the administrative
costs of providing and paying for health care. The transaction
standards adopted under HIPAA enable financial and administrative
electronic data interchange (EDI) using a common structure, as opposed
to the many varied, often proprietary, transaction formats on which
industry had previously relied and that, due to lack of uniformity,
engendered administrative burden. Section 1173(g)(1) of the Act, which
was added by section 1104(b) of the Patient Protection and Affordable
Care Act, further addresses the goal of uniformity by requiring the
Secretary to adopt a single set of operating rules for each

[[Page 67636]]

HIPAA transaction. These operating rules are required to be consensus-
based and reflect the necessary business rules that affect health plans
and health care providers and the manner in which they operate pursuant
to HIPAA standards.
Section 1173(a) of the Act requires that the Secretary adopt
standards for financial and administrative transactions, and data
elements for those transactions, to enable health information to be
exchanged electronically. The original HIPAA provisions require the
Secretary to adopt standards for the following transactions: health
claims or equivalent encounter information; health claims attachments;
enrollment and disenrollment in a health plan; eligibility for a health
plan; health care payment and remittance advice; health plan premium
payments; first report of injury; health claim status; and referral
certification and authorization. The Patient Protection and Affordable
Care Act (Pub. L. 111-148) additionally required the Secretary to
develop standards for electronic funds transfers transactions. Section
1173(a)(1)(B) of the Act requires the Secretary to adopt standards for
any other financial and administrative transactions the Secretary
determines appropriate. Section 1173(a)(4) of the Act requires that the
standards and operating rules, to the extent feasible and appropriate:
enable determination of an individual's eligibility and financial
responsibility for specific services prior to or at the point of care;
be comprehensive, requiring minimal augmentation by paper or other
communications; provide for timely acknowledgment, response, and status
reporting that supports a transparent claims and denial management
process; describe all data elements in unambiguous terms, require that
such data elements be required or conditioned upon set terms in other
fields, and generally prohibit additional conditions; and reduce
clerical burden on patients and providers.
Section 1174 of the Act requires the Secretary to review the
adopted standards and adopt modifications to them, including additions
to the standards, as appropriate, but not more frequently than once
every 12 months, unless the Secretary determines that the modification
is necessary in order to permit compliance with the standard.
Section 1175(a) of the Act prohibits health plans from refusing to
conduct a transaction as a standard transaction. Section 1175(a)(3) of
the Act also prohibits health plans from delaying the transaction or
adversely affecting or attempting to adversely affect a person or the
transaction itself on the grounds that the transaction is in standard
format. Section 1175(b) of the Act provides for a compliance date not
later than 24 months after the date on which an initial standard or
implementation specification is adopted for all covered entities except
small health plans, which must comply not later than 36 months after
such adoption. If the Secretary adopts a modification to a HIPAA
standard or implementation specification, the compliance date for the
modification may not be earlier than 180 days following the date of the
adoption of the modification. The Secretary must consider the time
needed to comply due to the nature and extent of the modification when
determining compliance dates, and may extend the time for compliance
for small health plans if he deems it appropriate.
Sections 1176 and 1177 of the Act establish civil money penalties
(CMPs) and criminal penalties to which covered entities may be subject
for violations of HIPAA Administrative Simplification rules. HHS
administers the CMPs under section 1176 of the Act and the U.S.
Department of Justice administers the criminal penalties under section
1177 of the Act. Section 1176(b) sets out limitations on the
Secretary's authority and provides the Secretary certain discretion
with respect to imposing CMPs. This section provides that no CMPs may
be imposed with respect to an act if a penalty has been imposed under
section 1177 with respect to such act. This section also generally
precludes the Secretary from imposing a CMP for a violation corrected
during the 30-day period beginning when an individual knew or, by
exercising reasonable diligence, would have known that the failure to
comply occurred.

B. Prior Rulemaking

In the August 17, 2000 Federal Register, we published a final rule
entitled ``Health Insurance Reform: Standards for Electronic
Transactions'' (65 FR 50312) (hereinafter referred to as the
Transactions and Code Sets final rule). That rule implemented some of
the HIPAA Administrative Simplification requirements by adopting
standards for electronic health care transactions developed by SSOs,
and medical code sets to be used in those transactions. We adopted X12
Version 4010 standards for administrative transactions, and the
National Council for Prescription Drug Programs (NCPDP)
Telecommunication Version 5.1 standard for retail pharmacy transactions
at 45 CFR part 162, subparts K through R.
Since initially adopting the HIPAA standards in the Transactions
and Code Sets final rule, we have adopted a number of modifications to
them. The most extensive modifications were adopted in a final rule
titled ``Health Insurance Reform; Modifications to the Health Insurance
Portability and Accountability Act (HIPAA) Electronic Transaction
Standards'' in the January 16, 2009 Federal Register (74 FR 3296)
(hereinafter referred to as the 2009 Modifications final rule). Among
other things, that rule adopted updated X12 and NCPDP standards, moving
from X12 Version 4010 to X12 Version 5010, and NCPDP Version 5.1 and
equivalent Batch Standard Implementation Guide Version 1, Release 1, to
NCPDP Version D.0 and equivalent Batch Standard Implementation Guide
Version 1, Release 2. In that rule, we also adopted the NCPDP Batch
Standard Medicaid Subrogation Implementation Guide, Version 3.0
standard for the Medicaid pharmacy subrogation transaction. Covered
entities were required to comply with these standards beginning on and
after January 1, 2012, with the exception of small health plans, which
were required to comply on and after January 1, 2013.
In the Transactions and Code Sets final rule, we defined the terms
``modification'' and ``maintenance.'' We explained that when a change
is substantial enough to justify publication of a new version of an
implementation specification, such change is considered a modification
and must be adopted by the Secretary through regulation (65 FR 50322).
Conversely, maintenance describes the activities necessary to support
the use of a standard, including technical corrections to an
implementation specification. Maintenance changes are typically
corrections that are obvious to readers of the implementation guides,
not controversial, and essential to implementation (68 FR 8388,
February 20, 2003). Maintenance changes to Version D.0 were identified
by the industry, balloted and approved through the NCPDP, and are
contained in the NCPDP Version D.0 Editorial. In an October 13, 2010
Federal Register notification titled ``Health Insurance Reform;
Announcement of Maintenance Changes to Electronic Data Transaction
Standards Adopted Under the Health Insurance Portability and
Accountability Act of 1996'' (75 FR 62684), the Secretary announced the
maintenance changes and the availability of the NCPDP Version D.0
Editorial and how it could be obtained. The NCPDP Version D.0 Editorial
can

[[Page 67637]]

now be obtained free of charge in the HIPAA Information Section of the
NCPDP website, at <a href="https://www.ncpdp.org/NCPDP/media/pdf/VersionD-Questions.pdf">https://www.ncpdp.org/NCPDP/media/pdf/VersionD-Questions.pdf</a>. This document is a consolidated reference point for
questions that have been posed based on the review and implementation
of the NCPDP Telecommunication Standard Implementation Guide for
Version D.0.
In a final rule titled ``Administrative Simplification:
Modification of the Requirements for the Use of Health Insurance
Portability and Accountability Act of 1996 (HIPAA) National Council for
Prescription Drug Programs (NCPDP) D.0 Standard,'' published in the
January 24, 2020 Federal Register (85 FR 4236) (hereafter, Modification
of Version D.0 Requirements final rule), the Secretary adopted a
modification of the requirements for the use of the Quantity Prescribed
(460-ET) field of the August 2007 publication of Version D.0. The
modification required covered entities to treat the Quantity Prescribed
(460-ET) field as required where a transmission uses Version D.0,
August 2007, for a Schedule II drug for these transactions: (1) health
care claims or equivalent encounter information; (2) referral
certification and authorization; and (3) coordination of benefits.
In that rulemaking, the Secretary noted that the NCPDP had issued a
subsequent publication, the October 2017 Telecommunication Standard
Implementation Guide, Version F2 (Version F2), that, among many other
unrelated changes, revised the situational circumstances to specify an
even broader use of the Quantity Prescribed (460-ET) field. The change
described the field as ``required only if the claim is for a controlled
substance or for other products as required by law; otherwise, not
available for use.'' We explained that we chose not to adopt Version F2
at that time because, given the public health emergency caused by the
opioid crisis and the urgent need to find ways to yield data and
information to help combat it, we believed it was more appropriate to
take a narrow, targeted approach while taking additional time to
further evaluate the impact of a new version change on covered
entities.

C. Standards Adoption and Modification

The law generally requires at section 1172(c) that any standard
adopted under HIPAA be developed, adopted, or modified by an SSO.
Section 1171 of the Act defines an SSO as an SSO accredited by the
American National Standards Institute (ANSI), including the NCPDP (the
SSO applicable to this proposed rule) that develops standards for
information transactions, data, or any standard that is necessary to,
or will facilitate the implementation of, Administrative
Simplification. Information about the NCPDP's balloting process, the
process by which it vets and approves the standards it develops and any
changes thereto, is available on its website, <a href="https://www.ncpdp.org">https://www.ncpdp.org</a>.
a. Designated Standards Maintenance Organizations (DSMO)
In the Transactions and Code Sets final rule, the Secretary adopted
procedures to maintain and modify existing, and adopt new, HIPAA
standards and established a new organization type called the
``Designated Standard Maintenance Organization'' (DSMO). Regulations at
45 CFR 162.910 provide that the Secretary may designate as a DSMO an
organization that agrees to conduct, to the satisfaction of the
Secretary, the functions of maintaining the adopted standard, and
receiving and processing requests for adopting a new standard or
modifying an adopted standard. In an August 17, 2000 notice titled
``Health Insurance Reform: Announcement of Designated Standard
Maintenance Organizations'' (65 FR 50373), the Secretary designated the
following six DSMOs: X12, NCPDP, Health Level Seven, the National
Uniform Billing Committee (NUBC), the National Uniform Claim Committee
(NUCC), and the Dental Content Committee (DCC) of the American Dental
Association.
b. Process for Adopting Initial Standards, Maintenance to Standards,
and Modifications to Standards
In general, HIPAA requires the Secretary to adopt standards that
have been developed by an SSO. The process for adopting a new standard
or a modification to an existing standard is described in the
Transactions and Code Sets final rule (65 FR 50344) and implemented at
Sec. 162.910. Under Sec. 162.910, the Secretary considers
recommendations for proposed modifications to existing standards or a
proposed new standard if the recommendations are developed through a
process that provides for: open public access; coordination with other
DSMOs; an appeals process for the requestor of the proposal or the DSMO
that participated in the review and analysis if either of the preceding
were dissatisfied with the decision on the request; an expedited
process to address HIPAA content needs identified within the industry;
and submission of the recommendation to the NCVHS.
Any entity may submit change requests with a documented business
case to support its recommendation to the DSMO. The DSMO receives and
manages those change requests, including reviewing them and notifying
the SSO of its recommendation for approval or rejection. If the changes
are recommended for approval, the DSMO also notifies the NCVHS and
suggests that a recommendation for adoption be made to the Secretary.
The foregoing processes were followed with respect to the
modifications and new standard proposed in this rule, and stemmed from
the following change requests the NCPDP submitted to the DSMO: (1) DSMO
request 1201 requested replacing the adopted NCPDP Telecommunication
Standard Implementation Guide, Version D.0 and the equivalent Batch
Standard Implementation Guide Version 1.2 with updated versions, the
NCPDP Telecommunication Standard Implementation Guide, Version F2 and
the equivalent Batch Standard Implementation Guide, Version 15; (2)
DSMO request 1202 requested replacing the adopted NCPDP Batch Standard
Medicaid Subrogation Implementation Guide, Version 3.0, for use by
Medicaid agencies, with the NCPDP Batch Standard Subrogation
Implementation Guide, Version 10, for use by all health plans; and (3)
DSMO request 1208 updated DSMO request 1201 requested adopting an
updated version of the NCPDP Telecommunication Standard Implementation
Guide, Version F6 instead of Version F2.
c. NCVHS Recommendations
The NCVHS was established by statute in 1949; it serves as an
advisory committee to the Secretary and is statutorily conferred a
significant role in the Secretary's adoption and modification of HIPAA
standards. In 2018, the NCVHS conducted two days of hearings seeking
the input of health care providers, health plans, clearinghouses,
vendors, and interested stakeholders regarding the NCPDP
Telecommunication Standard, Version F2, as a potential replacement for
NCPDP Version D.0, and the equivalent Batch Standard Implementation
Guide, Version 15, as a potential replacement for Version 1.2.
Testimony was also presented in support of replacing the NCPDP Batch
Standard Medicaid Subrogation Implementation Guide, Version 3.0, with
the Batch Standard Subrogation Implementation Guide, Version 10. In
addition to the NCPDP, organizations submitting testimony

[[Page 67638]]

included the Centers for Medicare & Medicaid Services' Medicare Part D
program, the National Association of Chain Drug Stores (NACDS), Ohio
Medicaid, Pharmerica, CVS Health, and an independent pharmacy, Sam's
Health Mart.\1\
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\1\ <a href="https://ncvhs.hhs.gov/meetings/agenda-of-the-march-26-2018-hearing-on-ncpdp-standards-updates/">https://ncvhs.hhs.gov/meetings/agenda-of-the-march-26-2018-hearing-on-ncpdp-standards-updates/</a>.
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In a letter \2\ dated May 17, 2018, the NCVHS recommended that the
Secretary adopt the updated versions of the standards, including the
pharmacy subrogation standard. As discussed, in part, in section III.B.
of this rule, we believed that proposing a modification to the retail
pharmacy standard required further evaluation, including an assessment
of the impact of implementing the modification, given the many
significant changes a version change would require covered entities to
undertake. Therefore, we did not propose to adopt Version F2 based on
that NCVHS recommendation in our 2019 proposed rule entitled
``Administrative Simplification: Modification of the Requirements for
the Use of Health Insurance Portability and Accountability Act of 1996
(HIPAA) National Council for Prescription Drug Programs (NCPDP) D.0
Standard,'' published in the January 31, 2019 Federal Register (84 FR
633), which led to the January 24, 2020 Modification of Version D.0
Requirements final rule.
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\2\ <a href="https://ncvhs.hhs.gov/wp-content/uploads/2018/08/Letter-to-Secretary-NCVHS-Recommendations-on-NCPDP-Pharmacy-Standards-Update.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2018/08/Letter-to-Secretary-NCVHS-Recommendations-on-NCPDP-Pharmacy-Standards-Update.pdf</a>.
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During the March 24, 2020 NCVHS full committee meeting, there was a
hearing to discuss Change Request 1208 regarding the NCPDP
Telecommunication Standard, Version F6, as a potential update to the
NCVHS 2018 recommendation to the Secretary to adopt Version F2. During
the hearing, the NCPDP noted that several key Version F2 limitations
had been resolved by Telecommunication Standard Implementation Guide,
Version F6. Significantly, with respect to the number of digits in the
dollar field, Version F2 would not support dollar fields of $1 million
or more. To that point, since receipt of the NCVHS's May 17, 2018
recommendation, several new drugs priced at, or in excess of, $1
million have entered the market and researchers and analysts anticipate
that over the next several years dozens of new drugs priced similarly
or higher may enter the market, while hundreds more likely high-priced
therapies, including for gene therapies that target certain cancers and
rare diseases, are under development. To meet emerging business needs,
the NCPDP updated the Telecommunication Standard to support dollar
fields equal to, or in excess of, $1 million and made other updates,
including enhancements to improve coordination of benefits processes,
prescriber validation fields, plan benefit transparency, codification
of clinical and patient data, harmonization with related standards, and
controlled substance reporting, that necessitated the new version, F6.
The transcript and testimony from the March 24, 2020 full committee
meeting is available at <a href="https://ncvhs.hhs.gov/meetings/full-committee-meeting-4/">https://ncvhs.hhs.gov/meetings/full-committee-meeting-4/</a>.
In a letter dated April 22, 2020,\3\ the NCVHS recommended that the
Secretary adopt Version F6 to replace Version D.0. and provide a 3-year
pre-implementation window following publication of the final rule. The
recommendation letter stated that allowing the industry to use either
Version D.0 or Version F6 would enable an effective live-testing and
transition period. The NCVHS advised that the Secretary should require
full compliance with Version F6 beginning May 1, 2025, and also urged
that HHS act on its May 2018 recommendations to adopt the NCPDP Batch
Standard Implementation Guide Version 15 and the NCPDP Batch Standard
Subrogation Implementation Guide Version 10.
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\3\ <a href="https://ncvhs.hhs.gov/wp-content/uploads/2020/04/Recommendation-Letter-Adoption-of-New-Pharmacy-Standard-Under-HIPAA-April-22-2020-508.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2020/04/Recommendation-Letter-Adoption-of-New-Pharmacy-Standard-Under-HIPAA-April-22-2020-508.pdf</a>.
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III. Provisions of the Proposed Rule

A. Proposed Modifications to NCPDP Telecommunication Standard
Implementation Guide Version F6 (Version F6) and Equivalent Batch
Standard, Version 15 (Version 15) for Retail Pharmacy Transactions

1. Overview
Should they be finalized as proposed herein, the NCPDP
Telecommunication Standard Implementation Guide, Version F6 (Version
F6) and equivalent NCPDP Batch Standard Implementation Guide, Version
15 (Version 15) would replace the currently adopted NCPDP
Telecommunication Standard Implementation Guide, Version D, Release 0
(Version D.0) and the equivalent NCPDP Batch Standard Implementation
Guide, Version 1, Release 2 (Version 1.2). Version F6 includes a number
of changes from Version D.0 that alter the use or structure of data
fields, insert new data segments, and add new functionality. Adopting
Version F6 to replace Version D.0 would constitute a HIPAA
modification.
We are proposing to adopt modifications to the current HIPAA retail
pharmacy standards for the following transactions: health care claims
or equivalent encounter information; eligibility for a health plan;
referral certification and authorization; and coordination of benefits.
Covered entities conducting the following HIPAA transactions would be
required to use Version F6:
<bullet> Health care claims or equivalent encounter information
(Sec. 162.1101).
++ Retail pharmacy drug claims.
++ Retail pharmacy supplies and professional claims.
<bullet> Eligibility for a health plan (Sec. 162.1201).
++ Retail pharmacy drugs.
<bullet> Referral certification and authorization (Sec. 162.1301).
++ Retail pharmacy drugs.
<bullet> Coordination of benefits (Sec. 162.1801).
In its April 22, 2020 letter to the Secretary, the NCVHS considered
industry testimony and recommended that HHS propose to replace Version
D.0 with Version F6 as the HIPAA standard for retail pharmacy
transactions. Testifiers at the March 2020 NCVHS full committee meeting
advocated for HHS to adopt updated versions of the retail pharmacy
standards to better accommodate business requirements that have changed
significantly for covered entities since 2009 when Version D.0 was
adopted, and also since Version F2 was approved. The NCVHS
recommendation, and industry testimony from both the May 2018 hearing
and the March 2020 full committee meeting, highlighted the benefits
Version F6 would provide over Version D.0, to include benefits
introduced in Version F2 that are incorporated into Version F6:
<bullet> Accommodation of very expensive drug therapies--Version F6
accommodates the expansion of financial fields needed for drug products
priced at, or in excess of, $1 million that are now available in the
market. While such products are still rare, their numbers are expected
to increase, and without this functionality pharmacies must employ
disparate and burdensome payor-specific methods for split claims or
manual billing, which increases the risk of billing errors.
<bullet> More robust data exchange between long-term care providers
and payers--Version F6 includes information needed for prior
authorizations and enhancements to the drug utilization review (DUR)
fields in the claim response transaction. This change can

[[Page 67639]]

improve communication from the payer to the pharmacy, thus enabling the
pharmacy to act more quickly to the benefit of the patient.\4\
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\4\ <a href="https://ncvhs.hhs.gov/wp-content/uploads/2018/05/Session-A-Schoettmer-Written-508.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2018/05/Session-A-Schoettmer-Written-508.pdf</a>.
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<bullet> Coordination of benefits (COB)--Version F6 includes new
COB segment fields that would improve the identification of the
previous payer and its program type, such as Medicare, Medicaid,
workers compensation, or self-pay program, eliminating the need to use
manual processes to identify this information. Pharmacy providers and
payers that engage in COB must identify the previous payer and its
program type in order to process the claim in accordance with
applicable requirements, including requirements related to primary
payment responsibility and payer order. For example, the new data
segment fields would support compliance with the payer processing order
with Medicaid as the payer of last resort, as well as prevent
inappropriate access to pharmaceutical manufacturer copay coupons for
drugs paid under federal programs, including Medicare Part D.
<bullet> Prescriber Validation--Medicare Part D program
requirements to improve the validity of prescriber identifiers and
improve program integrity controls have driven the need for new
prescriber segment fields in Version F6 to enhance prescriber
validation, such as the ability to capture a Drug Enforcement
Administration (DEA) number, in addition to the National Provider
Identifier (NPI), and a Prescriber Place of Service to identify
telehealth. Enhancements also include new reject codes and related
messaging fields to provide additional information on limitations in
prescriptive authority, such as to confirm assignment as the patient's
designated prescriber for opioids.
<bullet> Controlled Substances Reporting--Version F6 makes a number
of updates to controlled substances reporting that would permit the
exchange of more information for better monitoring and documentation of
compliance with state and federal requirements. Changes to the Claim
Billing and Response Claim segments provide additional information to
enhance patient safety controls for controlled substance prescriptions.
For instance, Version F6 would enable claims processors, including, for
example, pharmacy benefit managers (PBMs) and health plans that process
their pharmacy claims in-house, to be informed of the exact
prescription quantity and fill information, improve edits from the
processor, and reduce confusion that can occur today and that sometimes
requires patients to obtain a new prescription. Other specific
enhancements include adding a Do Not Dispense Before Date field to
support providers writing multiple, 1-month prescriptions for
controlled substances. This field also supports compliance with
requirements certain states have on the number of days a patient has to
fill a controlled substance from the date written.
<bullet> Harmonization with Related Standards--Version F6
accommodates business needs to comply with other industry standard
requirements, such as the ability to comply with ANSI expanded field-
length requirements for the Issuer Identification Number (IIN),
formerly known as the Bank Identification Number. The IIN is used to
identify and route the transaction to the appropriate PBM. ANSI
expanded the IIN field length to accommodate more unique numbers.
Version F6 also accommodates FDA-required Unique Device Identifiers
(UDI) that are now up to 40 characters in length, whereas Version D.0
only allows for 11 characters.
<bullet> Codification of Clinical and Patient Data--Pharmacy and
payer workflows are enhanced in Version F6 by replacing many clinical
and non-clinical free-text fields in Pharmacy Claim and Payer Claim
Response segments with discrete codified fields. The computable data in
discrete fields can then be utilized to automatically trigger
workflows, such as those to help combat opioid misuse or to communicate
relevant information to enhance patient safety.
<bullet> Plan Benefit Transparency--Interoperability between the
payer and pharmacy is improved in Version F6 with the ability to
exchange more actionable plan-specific information. New Payer Response
fields enhance the ability to target plan benefit package detail
associated with the specific patient. The availability of this
information may avoid prior authorization interruptions, as well as
allow pharmacists to have more informative discussions with patients
and provide valuable information about alternative drug or therapy
solutions, which can reduce delays in therapy and improve patient
adherence.
2. Partial Fill of Controlled Substances--Quantity Prescribed (460-ET)
Field
As discussed in section I. of this proposed rule, in the
Modification of Version D.0 Requirements final rule (85 FR 4236), we
adopted the requirements that the Quantity Prescribed (460-ET) field in
Version D.0 must be treated as a required field where the transmission
is for a Schedule II drug in any of the following three HIPAA
transactions: (1) health care claims or equivalent encounter
information; (2) referral certification and authorization; and (3)
coordination of benefits. Version F6 requires the use of the 460-ET
field for all controlled substances. Therefore, we would no longer need
to explicitly require its situational use, and we would revise the
regulation text at Sec. Sec. 162.1102(d), 162.1302(d), and 162.1802(d)
accordingly.
3. Batch Standard, Version 15 (Version 15) for Retail Pharmacy
Transactions
Batch mode can be used for processing large volumes of
transactions. For example, a retail pharmacy that has several locations
can send one batch mode transaction, containing multiple claims
collected over time from the various locations, to an entity with which
it has contracted, or otherwise to a centralized entity, that will
route each claim in the transaction to the appropriate payer. The NCPDP
Batch Standard, Version 15, better supports retail pharmacy batch mode
transactions than the currently adopted Version 1.2 because it was
developed in coordination with F6 and includes the same benefits as
Version F6, but in batch mode, including the updates that improve
coordination of benefits processes, prescriber validation fields, plan
benefit transparency, codification of clinical and patient data,
harmonization with related standards, and controlled substance
reporting.
In sum, we believe adopting Version F6 and its equivalent Batch
Standard, Version 15 to replace Version D.0 and Version 1.2 would
result in greater interoperability for entities exchanging prescription
information, improve patient care, provide better data for drug
utilization monitoring, and reduce provider burden. Because Version F6
and Version 15 would better support the business needs of the industry
than Version D.0 and Version 1.2, we propose to adopt them as the
standards for the following retail pharmacy transactions: health care
claims or equivalent encounter information; eligibility for a health
plan; referral certification and authorization; and coordination of
benefits. We would revise Sec. Sec. 162.1102, 162.1202, 162.1302, and
162.1802 accordingly.
We solicit comments regarding our proposal to adopt Version F6 to
replace Version D.0 and Version 15 to replace Version 1.2.

[[Page 67640]]

B. Proposed Modification of the Pharmacy Subrogation Transaction
Standard for State Medicaid Agencies and Initial Adoption of the
Pharmacy Subrogation Standard for Non-Medicaid Health Plans

In the 2009 Modifications final rule, we adopted the Batch Standard
Medicaid Subrogation Implementation Guide, Version 3.0, Release 0
(Version 3.0) as the standard for the Medicaid pharmacy subrogation
transaction. In that rule, we discussed that state Medicaid agencies
sometimes pay claims for which a third party may be legally
responsible, and where the state is required to seek recovery. This can
occur when the Medicaid agency is not aware of the existence of other
coverage, though there are also specific circumstances in which states
are required by federal law to pay claims and then seek reimbursement
afterward. For the full discussion, refer to 74 FR 3296.
1. Proposed Modification to the Definition of Medicaid Subrogation
Transaction
Because we are proposing to broaden the scope of the subrogation
transaction to apply to all health plans, not just state Medicaid
agencies, we are proposing to revise the definition of the transaction.
The Medicaid pharmacy subrogation transaction is defined at Sec.
162.1901 as the transmission of a claim from a Medicaid agency to a
payer for the purpose of seeking reimbursement from the responsible
health plan for a pharmacy claim the state has paid on behalf of a
Medicaid recipient. We are proposing to change the name of the
transaction at Sec. 162.1901 to the ``Pharmacy subrogation
transaction'' and define the transaction as the transmission of a
request for reimbursement of a pharmacy claim from a health plan that
paid the claim, for which it did not have payment responsibility, to
the health plan responsible for the claim.
There are a few notable differences between the current and
proposed transaction definitions. First, the current definition defines
the transaction such that it only applies to state Medicaid agencies,
in their role as health plans, as the sender of the transaction.
Because we are proposing to broaden the scope of the transaction to
apply to all health plans, not just state Medicaid agencies, the
Pharmacy subrogation transaction definition would specify that the
sender of the transaction is ``a health plan that paid the claim''
instead of a ``Medicaid agency.'' In addition, the current definition
identifies that the sender of the transaction is requesting
``reimbursement for a pharmacy claim the state has paid on behalf of a
Medicaid recipient.'' To align this aspect of the current definition
with the broadened scope that would apply to all health plans, the
proposed definition identifies that the sender health plan has paid a
claim ``for which it did not have payment responsibility.''
Second, the current definition identifies a pharmacy subrogation
transaction as the ``transmission of a claim.'' The proposed definition
would specify that a pharmacy subrogation transaction is the
transmission of a ``request for reimbursement of a pharmacy claim.'' We
use the term ``claim'' in a specific way with regard to the HIPAA
transaction defined at 45 CFR 162.1101 to describe a provider's request
to obtain payment from a health plan. We never intended that the
subrogation transaction be defined as a ``claim'' in the strict sense
of the word. We believe replacing ``claim'' with ``request for
reimbursement'' would clarify that the purpose of a pharmacy
subrogation transaction is to transmit request to be reimbursed for a
claim rather than to transmit a claim.
We are proposing that the current definition of the Medicaid
pharmacy subrogation transaction would remain in the regulatory text at
Sec. 162.1901(a) and the proposed definition of the Pharmacy
subrogation transaction would be added at Sec. 162.1901(b). The
Medicaid pharmacy subrogation transaction would continue to apply until
the compliance date of the Pharmacy subrogation transaction, in
accordance with the proposed compliance dates discussed in section
III.C.2. of this proposed rule. Then, beginning on the compliance date
for the Pharmacy subrogation transaction, the Medicaid pharmacy
subrogation transaction would no longer be in effect and all covered
entities would be required to comply with the proposed standard for the
Pharmacy subrogation transaction.
2. Proposed Initial Adoption of the NCPDP Batch Standard Pharmacy
Subrogation Implementation Guide, Version 10, for Non-Medicaid Health
Plans
As discussed previously, the current HIPAA standard, Version 3.0,
for the Medicaid pharmacy subrogation transaction, only applies to
state Medicaid agencies seeking reimbursement from health plans
responsible for paying pharmacy claims. The standard does not address
business needs for other payers, such as Medicare Part D, state
assistance programs, or private health plans that would seek similar
reimbursement. Section 1173(a)(2) of the Act lists financial and
administrative transactions for which the Secretary is required to
adopt standards. The Pharmacy subrogation transaction is not a named
transaction in section 1173(a)(2) of the Act, but section 1172(a)(1)(B)
of the Act authorizes the Secretary to adopt standards for other
financial and administrative transactions as the Secretary determines
appropriate, consistent with the goals of improving the operation of
the health care system and reducing administrative costs. Adopting a
standard for a broader subrogation transaction that would apply to all
health plans, not just Medicaid agencies, would facilitate the
efficiency and effectiveness of data exchange and transaction processes
for all payers involved in post-payment of pharmacy claims and would
support greater payment accuracy across the industry.
At the NCVHS March 2018 hearing,\5\ industry stakeholders cited in
their testimony the benefits and potential burden reduction that could
be achieved by adoption of the NCPDP Batch Standard Pharmacy
Subrogation Implementation Guide, Version 10 (hereinafter referred to
as Version 10). Testimony to the NCVHS by the NCPDP and other
stakeholders explained that the health care system could benefit from
greater uniformity in pharmacy subrogation transactions for both
Medicaid and non-Medicaid health plans. One testifier reported that an
updated pharmacy subrogation transaction would reduce administrative
costs and increase interoperability by requiring a standard that could
be used by Medicaid and non-Medicaid plans, which would support a
uniform approach across all health plans to efficiently process post-
payment subrogation claims and eliminate the need for numerous custom
formats that industry currently uses. Further testimony supported that
an updated standard would aid in reducing the manual processes non-
Medicaid payers must perform to pay these types of claims. For example,
one testifier explained that, presently, Medicare Part D commercial
payer subrogation transactions are submitted for payment to responsible
health plans as a spreadsheet or a paper-based universal claim form
that requires manual processing by parties on both sides of the
transaction. We believe our proposal

[[Page 67641]]

would automate, and hence ease, much of that effort.
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\5\ <a href="https://ncvhs.hhs.gov/meetings/agenda-of-the-march-26-2018-hearing-on-ncpdp-standards-updates/">https://ncvhs.hhs.gov/meetings/agenda-of-the-march-26-2018-hearing-on-ncpdp-standards-updates/</a>.
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3. Proposed Modification of the Pharmacy Subrogation Transaction
Standard for State Medicaid Agencies
We are proposing to replace the NCPDP Batch Standard Medicaid
Subrogation Implementation Guide, Version 3.0, Release 0, with the
NCPDP Batch Standard Pharmacy Subrogation Implementation Guide, Version
10 as the standard for Pharmacy subrogation transactions at Sec.
162.1902(b). For state Medicaid agencies, this proposal would be a
modification from Version 3.0. While Version 10 is called the
``Pharmacy Subrogation Implementation Guide'' rather than the
``Medicaid Subrogation Implementation Guide,'' Version 10 still applies
to subrogation transactions originating from Medicaid agencies and
preserves the data elements in Version 3.0 except in the following
instances, the purpose of which is to accommodate non-Medicaid plans'
use of the modified standard:
<bullet> The Medicaid Agency Number definition is changed to
accommodate use of the field by Medicaid and non-Medicaid health plans.
<bullet> The Medicaid Subrogation Internal Control Number/
Transaction Control Number field, which is designated as ``not used''
in Version 3.0. is replaced with the required use of the Reconciliation
ID field.
<bullet> The Medicaid Paid Amount field, which is designated as
``not used'' in Version 3.0, is replaced with the required use of the
Subrogation Amount Requested field.
<bullet> The Medicaid ID Number field, which is a required field in
Version 3.0, is changed to a situational field that is only required
when one of the health plans involved in the transaction is a Medicaid
agency.
While state Medicaid agencies would be required to implement these
changes in order to comply with Version 10, the changes would be de
minimis and state Medicaid agencies' use of the modified standard would
essentially be the same as their use of the current standard.
We solicit comments on our proposal related to the adoption of
Version 10.

C. Proposed Compliance and Effective Dates

1. Proposed Compliance Date for Version F6 and Version 15
Section 1175(b)(2) of the Act addresses the timeframe for
compliance with modified standards. The section provides that the
Secretary must set the compliance date for a modification at such time
as the Secretary determines appropriate, taking into account the time
needed to comply due to the nature and extent of the modification.
However, the compliance date may not be sooner than 180 days after the
effective date of the final rule. In the discussion later in this rule,
we explain why we are proposing that all covered entities would need to
be in compliance with Version F6 and its equivalent Batch Standard
Version 15 for retail pharmacy transactions 24 months after the
effective date of the final rule, which we would reflect in Sec. Sec.
162.1102, 162.1202, 162.1302, and 162.1802.
In its April 22, 2020 recommendation letter to the Secretary,
discussed in section I.C.3. of this proposed rule, the NCVHS, upon
consideration of industry feedback, recommended the following
implementation timelines and dates for Version F6 and Version 15: \6\
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\6\ <a href="https://ncvhs.hhs.gov/wp-content/uploads/20s20/04/Recommendation-Letter-Adoption-of-New-Pharmacy-Standard-Under-HIPAA-April-22-2020-508.pdf">https://ncvhs.hhs.gov/wp-content/uploads/20s20/04/Recommendation-Letter-Adoption-of-New-Pharmacy-Standard-Under-HIPAA-April-22-2020-508.pdf</a>. NCVHS April 22, 2020 Recommendation letter.
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<bullet> Provide a 3-year pre-implementation window following
publication of the final rule, allowing (but not requiring) industry
use beginning at the end of the three years.
<bullet> Allow both Versions D.0 and F6 to be used for an 8-month
period after the 3-year pre-implementation window, which the NCVHS
suggested would enable an effective live-testing and transition period.
<bullet> Require full compliance by the end of the third year, that
is, exclusive use of Version F6, after the 8-month period.
After carefully considering the NCVHS's recommended implementation
timelines and dates, for the following reasons we are not proposing a
3-year pre-implementation compliance window or an 8-month transition
period. While industry feedback on which the NCVHS relied to make its
recommendations did include some discussion on specific changes
necessary to implement Version F6 (for example, the expansion of the
financial fields), the majority of feedback was not specific to Version
F6, but, rather, concerned general challenges that would be associated
with implementing any standard modification. For example, feedback
related to concerns about general budget constraints, as well as
compliance dates that conflict with other pharmacy industry priorities
such as the immunization season or times of year where prescription
benefits plans typically experience heavy new member enrollment. In
addition, several industry stakeholders, including the NCPDP, stated
that they were not aware of any significant implementation barriers
specific to Version F6. In its May 17, 2018 letter industry testimony
asserted, and the NCVHS agreed, that the process to implement Version
F6 would be similar to the process necessary to implement Version
F2.\7\ Therefore, we are proposing a 24-month compliance timeframe that
aligns with the recommendation that the NCVHS made in its May 17, 2018
letter to implement Version F2.\8\
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\7\ <a href="https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf</a>.
\8\ <a href="https://ncvhs.hhs.gov/wp-content/uploads/2018/08/Letter-to-Secretary-NCVHS-Recommendations-on-NCPDP-Pharmacy-Standards-Update.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2018/08/Letter-to-Secretary-NCVHS-Recommendations-on-NCPDP-Pharmacy-Standards-Update.pdf</a>.
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Additionally, the proposed modification, to move from Version D.0
to Version F6, pertains only to retail pharmacy transactions. That is
different in scope, for example, from the modifications finalized in
the 2009 Modifications final rule (74 FR 3296), which affected all of
the then-current HIPAA transactions. There, we implemented an extended
compliance date for the modified standards in response to the numerous
comments advocating for it given the extensive changes in Versions 5010
and D.0 from Versions 4010 and 5.1, which commenters asserted
necessitated a coordinated implementation and testing schedule. Given
that the scope of the modification in this proposed rule is limited to
just retail pharmacy transactions, we believe the industry has the
capability of implementing the modification within a 24-month period
after the effective date of the final rule.
Further, we believe the benefits that would be derived from
implementing Version F6 and Version 15 (discussed in section III.A.1.
of this proposed rule) as soon as possible are significant. Those
benefits include mitigating existing inefficient work-arounds, allowing
for more robust data exchanges between long-term care providers and
payers, improving coordination of benefits information, improving
controlled substances reporting, codifying clinical and patient data,
harmonizing with related standards, and improving plan benefit
transparency. We solicit industry comment on the proposed 24-month
compliance date for F6 and Version 15, including any barriers specific
to compliance with Version F6 and Version 15 that would require
additional time for compliance.

[[Page 67642]]

2. Proposed Compliance Dates for the Batch Standard Subrogation
Implementation Guide, Version 10 (Version 10), September 2019, National
Council for Prescription Drug Programs
As discussed previously, we are proposing to adopt a Pharmacy
subrogation transaction standard that would apply to all health plans,
not just state Medicaid agencies. As we discuss in section III.B. of
this proposed rule, Version 10 would be a modification for state
Medicaid agencies, which would be moving to Version 10 from Version
3.0. For all other health plans, Version 10 would be an initial
standard. As previously noted, section 1175(b)(2) of the Act addresses
the timeframe for compliance with modified standards. That section
requires the Secretary to set the compliance date for a modification at
such time as the Secretary determines appropriate, taking into account
the time needed to comply due to the nature and extent of the
modification, but no sooner than 180 days after the effective date of
the final rule in which we adopt that modification. Section 1175(b)(1)
of the Act requires that the compliance date for initial standards--
which Version 10 would be for covered entities that are not state
Medicaid agencies--is no later than 24 months after the date of
adoption for all covered entities, except small health plans, which
must comply no later than 36 months after adoption.
We are proposing to align the compliance dates for state Medicaid
agencies and all other health plans (except small health plans) to
comply with Version 10. Should we not to do this, some health plans
would need to use Version 10 at the same time as state Medicaid
agencies in order to conduct Pharmacy subrogation transactions with
those state Medicaid agencies, while other health plans could use
different standards. Aligning the compliance timeframes would reduce
confusion and administrative burden that would arise were there
concurrent standards in effect. Thus, we propose to require all health
plans (except small health plans) to comply at the same time. The
alignment of compliance dates also makes it more feasible for state
Medicaid agencies and non-Medicaid health plans to invest in system
upgrades to accommodate one specific standard rather than divide
resources to maintain two concurrent transaction standards. Therefore,
we propose to revise Sec. 162.1902(b) to reflect that all health
plans, except small health plans, would be required to comply with
Version 10 for Pharmacy subrogation transactions 24 months after the
effective date of the final rule. We would also revise Sec.
162.1902(a) to reflect that state Medicaid agencies would be required
to comply with the current standard, Version 3.0, until the compliance
date of Version 10.
Small health plans, as defined in 45 CFR 160.103, are those health
plans with annual receipts of $5 million or less. In accordance with
section 1175(b)(1) of the Act, we are proposing that small health
plans, other than small health plans that are state Medicaid agencies,
would be required to comply with the new standard 36 months after the
effective date of the final rule.
We solicit industry and other stakeholder comments on our proposed
compliance dates.

D. Proposed Incorporation by Reference

This proposed rule proposes to incorporate by reference: (1) the
Telecommunication Standard Implementation Guide Version F6 (Version
F6), January 2020; (2) equivalent Batch Standard Implementation Guide,
Version 15 (Version 15) October 2017; and (3) the Batch Standard
Subrogation Implementation Guide, Version 10 (Version 10), September
2019 National Council for Prescription Drug Programs.
The Telecommunication Standard Implementation Guide, Version 6
contains the formats, billing units, and operating rules used for real-
time pharmacy claims submission. The equivalent Batch Standard
Implementation Guide, Version 15, provides instructions on the batch
file submission standard that is to be used between pharmacies and
processors or among pharmacies and processors. Both implementation
guides contain the data dictionary, which provides a full reference to
fields and values used in telecommunication and its equivalent batch
standard.
The Batch Subrogation Implementation Guide, Version 10, is intended
to meet business needs when a health plan has paid a claim that is
subsequently determined to be the responsibility of another health plan
within the pharmacy services sector. This guide provides practical
guidelines for software developers throughout the industry as they
begin to implement the subrogation transaction, and to ensure a
consistent implementation throughout the pharmacy industry.
The materials we propose to incorporate by reference are available
to interested parties and can be inspected at the CMS Information
Resource Center, 7500 Security Boulevard, Baltimore, MD 21244-1850.
Copies may be obtained from the National Council for Prescription Drug
Programs, 9240 East Raintree Drive, Scottsdale, AZ 85260. Telephone
(480) 477-1000; FAX (480) 767-1042. They are also available through the
internet at <a href="https://www.ncpdp.org">https://www.ncpdp.org</a>. A fee is charged for all NCPDP
Implementation Guides. Charging for such publications is consistent
with the policies of other publishers of standards. If we wish to adopt
any changes in this edition of the Code, we would submit the revised
document to notice and comment rulemaking.

IV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act
of 1995 requires that we solicit comment on the following issues:
<bullet> The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
<bullet> The accuracy of our estimate of the information collection
burden.
<bullet> The quality, utility, and clarity of the information to be
collected.
<bullet> Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.

A. Submission of Paperwork Reduction Act (PRA)-Related Comments

In this proposed rule we are soliciting public comment on each of
these issues for the following sections of the rule that contain
proposed ``collection of information'' requirements as defined under 5
CFR 1320.3(c) of the PRA's implementing regulations. If regulations
impose administrative costs on reviewers, such as the time needed to
read and interpret this proposed rule, then we should estimate the cost
associated with regulatory review. We estimate there are currently 104
affected entities (which also includes PBMs and vendors), (416
reviewers total). We assume each entity will have four designated staff
members who will review the entire proposed rule. The particular staff
members involved in this review will vary from entity to entity, but
will generally consist of lawyers responsible for compliance activities
and individuals familiar with the NCPDP standards at the level of a

[[Page 67643]]

computer and information systems manager.
In this proposed rule we are soliciting public comment on each of
these issues for the following sections of the rule that contain
proposed ``collection of information'' requirements as defined under 5
CFR 1320.3(c) of the PRA's implementing regulations. If regulations
impose administrative costs on reviewers, such as the time needed to
read and interpret this proposed, then we should estimate the cost
associated with regulatory review. We estimate there are 104 affected
entities (which also includes PBMs and vendors). We assume each entity
will have four designated staff member who would review the entire
rule, for a total of 416 reviewers. The particular staff involved in
this review will vary from entity to entity, but will generally consist
individuals familiar with the NCPDP standards at the level of a
computer and information systems manager and lawyers responsible for
compliance activities.
Using the wage information from the Bureau of Labor Statistics
(BLS) for computer and information systems managers (code 11-3021), we
estimate that the labor cost of having two computer and information
systems managers reviewing this proposed rule is $95.56 per hour,
including fringe benefits and overhead costs (<a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>). Assuming an average reading speed, we estimate
that it will take approximately 4 hours for the two computer and
information systems managers to review this proposed rule. For each
entity that has two computer and information systems managers reviewing
this proposed rule, the estimated cost is, therefore, $764.48 (4 hours
x $95.56 x 2 staff). Therefore, we estimate that the total cost of when
two computer and information systems manager review this proposed rule
is $78,742 ($764.48 x 104 entities).
We are also assuming that an entity would have two lawyers
reviewing this proposed rule. Using the wage information from the BLS
for lawyers (code 23-1011), we estimate that their cost of reviewing
this proposed rule is $113.12 per hour per lawyer, including fringe
benefits and overhead costs (<a href="https://www.bls.gov/oes/current/oes_nat.htm">https://www.bls.gov/oes/current/oes_nat.htm</a>). Assuming an average reading speed, we estimate that it
will take approximately 4 hours for two lawyers to review this proposed
rule. For each entity that has two lawyers reviewing this proposed
rule, the estimated cost is, therefore, $904.96 (4 hours x $113.12 x 2
staff). Therefore, we estimate that the total cost of when two lawyers
reviews this proposed rule is $93,211 ($904.96 x 104 entities).
We solicit comments on our assumptions and calculations.

B. Modification to Retail Pharmacy Standards (Information Collection
Requirement (ICR))

The following requirements and burden associated with the
information collection requirements contained in Sec. Sec. 162.1102,
162.1202, 162.1302, 162.1802, and 162.1902 of this document are subject
to the PRA; however, this one-time burden was previously approved and
accounted for in the information collection request previously approved
under OMB control number 0938-0866 and titled ``CMS-R-218: HIPAA
Standards for Coding Electronic Transactions.''
OMB has determined that the establishment of standards for
electronic transactions under HIPAA (which mandate that the private
sector disclose information and do so in a particular format)
constitutes an agency-sponsored third-party disclosure as defined under
the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.).
(See 65 FR 50350 (August 17, 2000)) With respect to the scope of its
review under the PRA, however, OMB has concluded that its review would
be limited to the review and approval of initial standards, and to
changes in industry standards that would substantially reduce
administrative costs. (See 65 FR 50350 (August 17, 2000)) This
document, which proposes to update adopted electronic transaction
standards that are being used, would usually constitute an information
collection requirement because it would require third-party
disclosures. However, because of OMB's determination, as previously
noted, there is no need for OMB review under the PRA. But see 5 CFR
1320.3(b)(2) (time, effort, and financial resources necessary to comply
with an information collection that would otherwise be incurred in the
normal course of business can be excluded from PRA ``burden'' if the
agency demonstrates that such activities needed to comply with the
information collection are usual and customary).
Should our assumptions be incorrect, this information collection
request will be revised and reinstated to incorporate any proposed
additional transaction standards and proposed modifications to
transaction standards that were previously covered in the PRA package
associated with OMB approval number 0938-0866.

V. Regulatory Impact Analysis

A. Statement of Need

This rule proposes modifications and an initial adoption to
standards for electronic retail pharmacy transactions adopted under the
Administrative Simplification subtitle of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA). Under HIPAA, the
National Committee on Vital and Health Statistics (NCVHS) recommends
standards and operating rules to the Secretary of the Department of
Health and Human Services (HHS) following review and approval of
standards or updates to standards from the applicable SSO--in this
case, the National Council for Prescription Drug Programs (NCPDP). The
HHS Secretary must generally promulgate notice and comment rulemaking
to adopt new or updated standards before they can be utilized to
improve industry processes.
On May 17, 2018, the NCVHS recommended that the Secretary adopt the
NCPDP Telecommunications Implementation Guide Version F2 (Version F2)
and two related batch standards: Batch Standard Implementation Guide,
Version 15, and the Batch Standard Subrogation Implementation Guide,
Version 10 (Version 10). On April 22, 2020, the NCVHS recommended that
the Secretary adopt NCPDP Telecommunications Implementation Guide
Version F6 (Version F6) in lieu of Version F2, as well as the two batch
standard recommendations set forth in the May 2018 letter. (For
purposes of this analysis, Version F6 and its equivalent Batch Standard
Version 15 are collectively referred to as Version F6.) These standards
have been developed through consensus-based processes and subjected to
public comment which indicated, without opposition, that the updates
are required for current and future business processes. Based on
informal communication with industry, should the updates to the
standards not be adopted, industry will need to continue using NCPDP
Version D.0 and the associated work arounds, including manual claims
processing and claims splitting for drugs priced at or in excess of $1
million.

B. Overall Impact

We have examined the proposed impacts of this rule as required by
Executive Order 12866 on Regulatory Planning and Review (September 30,
1993), Executive Order 13563 on Improving Regulation and Regulatory
Review (January 18, 2011), the Regulatory Flexibility Act (September

[[Page 67644]]

19, 1980; Pub. L. 96-35496354), Executive Order 13272 on Proper
Consideration of Small Entities in Agency Rulemaking (August 13, 2002),
section 1102(b) of the Act, section 202 of the Unfunded Mandates Reform
Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive Order 13132 on
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C.
804(2)).
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as economically significant); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive order.
A Regulatory Impact Analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any 1
year). This proposed rule is anticipated to have an annual effect on
the economy in costs, benefits, or transfers of $100 million or more.
Based on our estimates, OMB's Office of Information and Regulatory
Affairs has determined this rulemaking is ``economically significant''
as measured by the $100 million threshold, and hence also a major rule
under Subtitle E of the Small Business Regulatory Enforcement Fairness
Act of 1996 (also known as the Congressional Review Act).
We have prepared an RIA that, to the best of our ability, presents
the costs and benefits of this proposed rulemaking. We anticipate that
the adoption of these new versions of the retail pharmacy standard
would result in costs that would be outweighed by the benefits.

C. Limitations of the Analysis

1. Data Sources
This portion of the analysis is based in part on industry research
conducted in 2019 and 2020 by the CMS Alliance to Modernize Healthcare
(CAMH), a Federally Funded Research and Development Center, to assess
the costs and benefits associated with the potential adoption of
Versions F2 and F6. As part of this effort, CAMH did the following:
identified the relevant stakeholders that would be affected by the
adoption of a new HIPAA standard for retail pharmacy drug transactions;
obtained expert opinion, expressed qualitatively and quantitatively, on
impacts on affected stakeholders of moving from the current version to
the updated standards; and developed a high-level aggregate estimate of
stakeholder impacts, based on available information from public sources
and interviews. References to conversations with industry stakeholders
in this section of the proposed rule are based on the interviews
conducted by CAMH unless otherwise noted.
In conversations with industry stakeholders, we have been informed
that entity-specific financial impact analyses of modifications to
HIPAA transaction standards are not initiated until formal HHS
rulemaking has been initiated, since proposed timing is a critical
variable in cost development. For instance, in public comments
submitted to the NCVHS,\9\ the NCPDP urged that a timeline be
communicated as soon as possible to allow stakeholders to begin
budgeting, planning, development work, and coordinating the necessary
trading partner agreements. Another commenter noted that corporate
information technology (IT) budgets and timelines are dependent on the
rulemaking process. We further understand that stakeholders likely
would choose to implement only components of standards relevant to
their business use cases, such that irrelevant components (and any
additional expense they might require) may simply be disregarded.
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\9\ NCVHS Subcommittee on Standards Comments Received in
Response to Request for Comment Federal Register Notice 85 FR 11375.
<a href="https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf</a>.
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In lieu of financial cost estimates, industry stakeholders have
provided preliminary assessments that the conversion to Version F6
would entail between two to four times the level of effort as the
previous HIPAA pharmacy standard conversion from Version 5.1 to Version
D.0. But, we do not have reliable baseline data on the actual costs of
that previous conversion to which to apply the multipliers because we:
(1) are not aware of any available information on the final costs of
the conversion to Version D.0; (2) have been told that stakeholders do
not track expenditures in this way; and (3) our previous regulatory
estimates combined the Version D.0 implementation with the concurrent
X12 Version 5010 conversion, and so would be ambiguous at best.
Moreover, as discussed in connection with comments received on the 2009
Modifications proposed rule generally, many commenters mentioned
underestimated costs or overestimated benefits of transitioning to the
new versions, but few provided substantive data to improve the
regulatory estimates.\10\ Therefore, we use certain estimates provided
in public comments reported in the 2009 Modifications final rule as the
starting point for our cost estimates. Our general approach is to
develop estimates of the true baseline D.0 conversion costs and then
apply a Version F6 multiplier.
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\10\ 74 FR 3314 (January 16, 2009); see also ``Modifications to
the Health Insurance Portability and Accountability Act (HIPAA)
Electronic Transaction Standards'' proposed rule (73 FR 49796
(August 22, 2008)) (hereinafter referred to as the 2009
Modifications proposed rule).
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With respect to benefits, we are not aware of any available
information or testimony specifically quantifying cost savings or other
benefits, although there is ample testimony supporting the business
need and benefits of the proposed changes.
2. Interpreting Cost
Standard economics recognizes cost in several different ways.
Marginal cost describes the resources needed to produce one additional
unit of a good. Rule-induced costs may include new inputs of labor,
materials, capital, etc.; but exclude sunk costs (already invested).
The recommended methodology for a RIA considers government intervention
to impose costs.\11\ It assumes that stakeholders must make new
expenditures to change their business systems. Under this
interpretation, pharmacies and vendors would hire coders and other
software development and testing specialists or consultants to modify
their production code to accommodate Version F6. This one-time, out-of-
pocket expenditure would constitute a cost attributable to the proposed
rule. Costs to transmit transactions using the F6 standard after
business systems have been modified to implement the proposed standard,
as

[[Page 67645]]

well as costs to maintain those systems for compliance with the
standard, were not factored into this RIA. These ongoing costs are
currently incurred by affected entities that are required to use the
current standard and are attributable to conducting electronic
transactions in general. Therefore, in this RIA, we do not anticipate
any costs attributable to the proposed rule after completion of the
proposed 2-year compliance timeframe. We solicit comment, including
industry comment, on our cost interpretations.
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\11\ <a href="http://aspe.hhs.gov/pdf-report/guidelines-regulatory-impact-analysis">aspe.hhs.gov/pdf-report/guidelines-regulatory-impact-analysis</a>.
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Opportunity cost refers to the benefits forgone by choosing one
course of action instead of an alternative. A business that invests in
venture X loses the opportunity to use those same funds for venture Y.
Based on oral and written NCVHS testimony by the retail pharmacy
industry and pharmacy management system vendors, it was suggested that
their software development process for a HIPAA standard conversion
would represent an opportunity cost. For instance, some large pharmacy
chains maintain permanent technical staff to make day-to-day changes in
their pharmacy management systems and management adjusts staff
assignments according to the organization's needs. HIPAA standard
transaction version changes like the proposed Version F6
implementation, would, we believe, shift priorities for these staff,
potentially delaying other improvements or projects. In this scenario,
the opportunity cost consists of the time-value of delayed projects.
Other pharmacy firms have an ongoing relationship with their pharmacy
management software vendors. The purchaser generally obtains a hardware
and software package with an ongoing agreement that includes periodic
payments for maintenance, updates, upgrades, training, installation,
financing, etc. Thus, the software is expected to evolve, rather than
being just a one-time installation. The balance between upfront charges
and monthly maintenance fees more closely resembles a multiyear lease
than the one-time sale of an off-the-shelf application to a consumer.
Thus, the parties often contemplate an ongoing supplier relationship in
which maintenance and upgrades represent an opportunity cost.
Average cost equals total cost divided by the total units of
production. Average costs for goods and labor come from industry
surveys and public reports. Researchers can determine average cost
relatively easily, whereas marginal cost would require complex analyses
of a particular industry, firm, or production volume. This RIA uses
average costs because of their availability and verifiability.
However, the proposed changes to adopt Version F6 and Version 10
generally do not require new out-of-pocket expenditures, so average
cost may not describe the realities of actual budget impacts to firms.
We seek comment on these assumptions.

D. Anticipated Effects

The objective of this RIA is to summarize the costs and benefits of
the following proposals:
<bullet> Adopting modified real time and batch standards for retail
pharmacy transactions for health care claims or equivalent encounter
information; eligibility for a health plan; referral certification and
authorization; and coordination of benefits, transitioning from
Telecommunications Standard Version D.0 to Version F6.
<bullet> Adopting a new pharmacy subrogation transaction standard,
replacing the Batch Standard Medicaid Subrogation Implementation Guide,
Version 3, with the Batch Standard Subrogation Implementation Guide,
Version 10, applicable to all prescription drug payers.
Consistent with statutory and regulatory requirements, the NCVHS
recommends HIPAA standards, which are developed by Standard Setting
Organizations (SSOs), in this case the NCPDP, through an extensive
consensus-driven process that is open to all interested stakeholders.
The standards development process involves direct participatory input
from representatives of the industry stakeholders required to utilize
the transactions, including pharmacies (chain and independent), health
plans and other payers, PBMs, and other vendors that support related
services. We are not aware of any opposition to moving forward with
these updates.
We are proposing a 2-year compliance date following the effective
date of the final rule. For purposes of this analysis, we assume a 2-
year implementation period. The remainder of this section provides
details supporting the cost-benefit analysis for each of the proposals
referenced previously.
Table 1 is the compilation of the estimated costs for all of the
standards being proposed in this rule. To allocate costs over the
proposed 2-year implementation period, we assumed a 50-50 percent
allocation of IT expenses across the 2-year implementation period and
all training expenses in the second year. However, this is just an
informed guess, as we did not locate any source information on this
assumption. We note again that we are not aware of any data or
testimony describing quantifiable benefits or cost savings attributable
to these proposals, and have solicited comments on whether there are
significant quantifiable benefits or cost savings that should be
included in our analysis.
[GRAPHIC] [TIFF OMITTED] TP09NO22.008

[[Page 67646]]

1. Adoption of Version F6 (Including Equivalent Batch Standard Version
15)
The objective of this portion of the RIA is to summarize the costs
and benefits of implementing Version F6. We invite the industry or
other interested entities or individuals to comment on all of our
assumptions and projected cost estimates, and to provide current data
to support alternative theories or viewpoints throughout.
a. Affected Entities
Almost all pharmacies and all intermediaries that transfer and
process pharmacy claim-related information already use Version D.0 for
eligibility verification, claim and service billing, prior
authorization, predetermination of benefits, and information reporting
transaction exchanges (the latter two categories are not HIPAA-adopted
pharmacy standards). Pharmacies utilize technology referred to as
pharmacy management systems that encode Version D.0 to submit these
transactions for reimbursement on behalf of patients who have
prescription drug benefits through health and/or drug plan insurance
coverage (health plans). These submissions are generally routed through
two intermediaries: a telecommunication switching vendor (switch) and a
specialized third-party administrator for the health plan, generally a
PBM. Billing transactions may occur in one of two modes: real time or
batch. Pharmacy claims are generally transacted in real time as a
prerequisite to dispensing prescription medications. For instance,
Medicare Part D rules generally require each claim to be submitted
online in real time to permit accumulator balances to be updated after
every claim so cost sharing on each subsequent claim will accurately
reflect changes in benefit phases. The equivalent batch standard
enables transmission of non-real-time transactions. For instance, a
batch submission could be sent following a period when real-time
response systems were unavailable or following a retrospective change
in coverage. Technically, the batch standard uses the same syntax,
formatting, data set, and rules as the telecommunications standard,
``wraps'' the telecommunication standard around a detail record, and
then adds a batch header and trailer to form a batch file. The claims
processor may then process the batch file either within a real-time
system or in a batch-scheduling environment.
Based on the 2017 Census business data, pharmacies have a bimodal
size distribution. About 99 percent of firms have a single location,
predominantly the traditional independent, owner-operated storefront
and the remainder of fewer than 200 large firms operate an average of
approximately 150 establishments (locations) each. According to other
industry data, the largest five chain pharmacy firms represent over
28,000 locations, and the two largest chains each exceed 9,000
locations.\12\ However, the Census business data's Pharmacy and Drug
Store segment (North American Industry Classification System (NAICS)
code 446110) does not capture all pharmacy firms affected by this
proposed rule. While we believe this source is enough to capture most
small pharmacies, we need another data source to capture the additional
larger firms.
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\12\ 2019 ``U.S. National Pharmacy Market Summary.'' IQVIA.
<a href="https://www.onekeydata.com/downloads/reports/IQVIA_Report_US_Pharmacy_Market_Report_2019.pdf">https://www.onekeydata.com/downloads/reports/IQVIA_Report_US_Pharmacy_Market_Report_2019.pdf</a>.
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Pharmacies are typically classified by ownership as either chain or
independents. Health data analytics company IQVIA estimated \13\ in
2019 that there were 88,181 pharmacies, of which 55 percent (48,196)
were part of chains and 45 percent (39,985) were independents. Open-
door retail pharmacies, which provide access to the general public,
comprised the clear majority of pharmacy facility types at 91 percent
(80,057). The five largest pharmacy chains owned about 35 percent
(close to 28,000) of retail locations. The remaining 8 percent of
facility types included closed-door pharmacies, which provide
pharmaceutical care to a defined or exclusive group of patients because
they are treated or have an affiliation with a special entity such as a
long-term-care facility, as well as central fill, compounding,
internet, mail service, and hospital-based nuclear and outpatient
pharmacies. Most of these pharmacy types may be included in Medicare
Part D sponsor networks. We are aware that the largest pharmacy chains
are increasingly likely to operate multiple pharmacy business segments
(channels), such as retail, mail, specialty, and long-term care.
However, we are not aware of information that would allow us to treat
these non-open-door retail pharmacy firm types any more granularly than
our usual chain and independent categories. We welcome comments on
whether there are meaningful distinctions in cost structures that
should be considered, as well as on any publicly available data sources
to assist in quantifying entities in these segments and any potential
differential impacts.
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\13\ 2019 ``U.S. National Pharmacy Market Summary.'' IQVIA.
<a href="https://www.onekeydata.com/downloads/reports/IQVIA_Report_US_Pharmacy_Market_Report_2019.pdf">https://www.onekeydata.com/downloads/reports/IQVIA_Report_US_Pharmacy_Market_Report_2019.pdf</a>.
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As noted, pharmacies utilize pharmacy management systems to encode
Version D.0 for claim-related data exchanges via telecommunication
switches. Pharmacies that do not internally develop and maintain their
pharmacy management systems will contract with technology vendors for
these services. Based in part on communications with industry
representatives, such as the American Society for Automation in
Pharmacy, we believe there are approximately 30 technology firms
providing computer system design, hosting, and maintenance services in
this market. Based on testimony provided to the NCVHS, in 2018 this
market represented approximately 180 different software products.\14\
Some pharmacies may also utilize other vendors, generally
clearinghouses, for mapping Version D.0 claims to the X12 837 claim
format (for instance, to bill certain Medicare Part B claims). However,
since mapping between the X12 and NCPDP standards is not an element of
Version F6, we do not consider this practice in scope for this proposed
rule and do not account for it in this RIA.
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\14\ NCVHS Hearing on NCPDP Standards and Updates--March 26,
2018 Virtual Meeting. <a href="https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/">https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/</a>.
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Pharmacies also contract with telecommunication switches for
transaction routing. In addition to routing, switches validate the
format of pharmacy transactions prior to transmission to the payer and
then check the payer response to make sure it is formatted correctly
for the pharmacy to interpret. Based on conversations with industry
representatives, we believe there are three telecommunication switches
in this segment of the market.
Some healthcare providers that dispense medications directly to
their patients, known as dispensing physicians, may use Version D.0 to
submit these outpatient prescription drug claims on behalf of their
patients to health plans via health plans' PBMs. However, we do not
believe this practice to be widespread and therefore do not account for
it in this RIA.
Health plans generally provide some coverage for outpatient
prescription drugs, but do not generally contract and transact with
pharmacies directly. Instead, health plans typically contract with PBM
firms to receive and process pharmacy claim transactions for their
enrollees. We assume even the relatively

[[Page 67647]]

few health plans that directly purchase prescription drugs for their
own pharmacies utilize PBMs, either owned or contracted, to manage
billing for drugs and pharmacy supplies. Likewise, the Department of
Veterans Affairs (VA) Pharmacy Benefits Management Services (VA PBM)
runs its own PBM unit for VA prescription drug operations.
As previously noted, in 2017 there were 745 Direct Health and
Medical Insurance Carriers and 27 Health Maintenance Organization (HMO)
Medical Centers--a total of 772 health plan firms. Comparable data
limited specifically to PBMs is not available, but based on Part D
experience, we estimate that approximately 40 firms conduct some PBM
functions involved with processing some pharmacy claim transactions.
Based on testimony provided to the NCVHS, in 2018 these 40 firms
represented approximately 700 different payer sheets,\15\ or payer-
specific endpoints and requirements for submitting pharmacy claims.
Industry analysis by Drug Channels Institute's website based on 2018
data \16\ indicated that the top six PBMs controlled approximately 95
percent of total U.S. equivalent prescription claims, and the top three
PBMs controlled 75 percent. We assume that the VA PBM is in addition to
these numbers, but that Medicaid claim processing PBMs are included in
the 40 firms. Industry trends include significant consolidation of
firms in these sectors and vertical integration among health plans,
PBMs, and pharmacies.
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\15\ NCVHS Hearing on NCPDP Standards and Updates--March 26,
2018 Virtual Meeting. <a href="https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/">https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/</a>.
\16\ CVS, Express Scripts, and the Evolution of the PBM Business
Model. Drug Channels. May 29, 2019. <a href="https://www.drugchannels.net/2019/05/cvs-express-scripts-and-evolution-of.html">https://www.drugchannels.net/2019/05/cvs-express-scripts-and-evolution-of.html</a>.
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b. Costs
(1) Chain Pharmacies
Pharmacies either internally develop or externally purchase
pharmacy management information systems to bill and communicate with
PBMs. Based on public comments related to Version F6 submitted to the
NCHVS, available at <a href="https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2020/03/Public-Comments-NCPDP-Change-Request-March-2020.pdf</a>, we are aware that
some chain pharmacy firms (with as many as 1,800 pharmacies) utilize
systems managed by third-party technology vendors. For purposes of this
RIA, we assume that, generally, the largest chain pharmacy firms
internally develop and manage their own pharmacy management system
upgrades and transaction standard conversion development,
implementation, testing, and training. We further assume that these
costs are generally incurred at the firm level. Based on the 2019 IQVIA
data, the top 25 pharmacy firms accounted for 38,464 stores. If these
top 25 firms represented chain-owned entities, they represented almost
80 percent (38,464/48,196) of total chain pharmacy stores in 2019. We
assume these 25 firms, as well as the VA and the Indian Health Service
(IHS), would finance and manage their pharmacy system conversion
requirements internally, and the remainder of chain pharmacy firms
would rely on their technology vendor for technical development,
implementation, testing, and initial training.
To determine whether our assumptions were reasonable, we met with
representatives from IHS. Based on those conversations, we understand
that IHS, tribal, and urban (I/T/U) facilities with pharmacies would
have multiple Version F6 implementation scenarios. Although these
facilities are not legally chain pharmacies, we believe their
implementation costs may be roughly similar and, thus, we treat I/T/U
facilities with pharmacies under this category for this analysis. IHS
manages a significant federal health information technology (HIT)
system with a suite of modules, including pharmacy dispensing and
billing, that supports IHS pharmacies, as well at least 16 urban
entities and 114 tribal entities; however not all of these entities
include pharmacies. In contrast to other pharmacy entities treated as
chain pharmacies, we understand that additional budget funding may be
required for IHS to implement Version F6 within the proposed
implementation timeframe. We estimate that IHS would incur
implementation costs at a level roughly equivalent to the VA system,
and that this expense would be a marginal cost for the IHS. We also
understand that approximately another 60 tribal entities and another 25
urban entities do not utilize the federal system, but, rather, contract
with commercial vendors for HIT; although again, not all of these
entities operate their own pharmacies. As a result, we estimate that
about 60 percent of these smaller I/T/U entities (51) would rely on
existing maintenance agreements with commercial vendors for
implementation and, like smaller chain pharmacies, would incur direct
implementation costs to support user training costs. We solicit
comments on our assumptions.
In the 2017 Census business data there were 190 firms classified as
Pharmacies and Drug Stores with more than 500 employees, representing
27,123 establishments. This classification does not include grocery
store pharmacies, which were elsewhere reported to number 9,026 in
2017, and to be decreasingly offered by smaller grocery chains in
2020.\17\ The 2017 Census business data includes 72 firms classified as
Supermarkets and Other Grocery (except Convenience) Stores with more
than 5,000 employees, which we assume is a proxy for the number of such
firms still offering grocery store pharmacies in 2020. (The Census
Bureau and Bureau of Labor Statistics [BLS] include ``big box''
department stores in this category.) Thus, we assume a total of 262
(190+72) chain pharmacy firms based on this data. Since we assume 25
firms would manage their Version F6 conversion costs internally, we
estimate the remainder of 237 (262-25) would rely upon their technology
vendor. As an alternative data point, Drug Channels Institute estimated
that the top 15 pharmacy organizations in 2019 represented over 76
percent market share in revenues.\18\ Although there is not complete
consistency between the top organizations listed in the two analyses,
both tend to support a view of the set of market participants as
heavily skewed toward smaller firms, with the very largest firms likely
to have multiple pharmacy channel segments.
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\17\ The Pharmacist Is Out: Supermarkets Close Pharmacy
Counters: Regional grocery chains get squeezed by consolidation,
shrinking profits in prescription drugs. By Sharon Terlep and Jaewon
Kang. Wall Street Journal. Updated Jan. 27, 2020 6:18 p.m. ET.
Accessed 10/13/2020 at: <a href="https://www.wsj.com/articles/the-pharmacist-is-out-supermarkets-close-pharmacy-counters-11580034600?mod=business_lead_pos3&utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top">https://www.wsj.com/articles/the-pharmacist-is-out-supermarkets-close-pharmacy-counters-11580034600?mod=business_lead_pos3&utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top</a>.
\18\ The Top 15 U.S. Pharmacies of 2019: Specialty Drugs Drive
the Industry's Evolution. Drug Channels Institute. Published March
3, 2020. <a href="https://www.drugchannels.net/2020/03/the-top-15-us-pharmacies-of-2019.html">https://www.drugchannels.net/2020/03/the-top-15-us-pharmacies-of-2019.html</a>.
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Based on conversations with a variety of industry representatives,
we understand that these larger firms retain the technical staff and/or
contractors that would undertake the Version F6 conversion efforts as
an ongoing business expense. Consequently, in practice the cost
estimates developed in this section do not represent new additional
expenditures for these firms, but rather opportunity costs for these
resources that would otherwise be deployed on other maintenance or
enhancement projects.
As previously noted, industry estimates of the costs of a
conversion

[[Page 67648]]

from current Version D.0 to Version F6 have been in the form of
multiples of the costs for the Version 5.1 to Version D.0 conversion.
As a technical matter, we assume these informal multiples account for
inflation. In a presentation to the NCVHS,\19\ the NCPDP indicated that
stakeholders' input indicated the level of effort and cost for Version
F6 to be at least double that of implementing NCPDP D.0. In public
comments to the NCVHS, a chain pharmacy association stated that
implementation costs would vary significantly among different pharmacy
chains based on size, scope of services provided, and business models,
and that hardware, software, and maintenance costs allocated
specifically to Version F6 are estimated to be in the tens of millions
of dollars. One of the largest pharmacy chains estimated costs
associated with Version F6 implementation to be three to four times
higher than the implementation of Version D.0, also in the tens of
millions of dollars. This commenter explained that much of these higher
costs is related to the expanded dollar fields, the structure of new
fields that require database expansion, and updates to many integrated
systems. Another of the largest pharmacy chains with integrated PBM
functions offered preliminary estimates in the range of two to three
times greater than the Version D.0 conversion, and noted that the
expanded dollar fields would impact all of the following systems: point
of service claim adjudication, all associated financial systems,
internal and external reporting programs, help desk programs, member/
client portals, and integrated data feeds. This same stakeholder stated
that the size of the transactions has also increased considerably due
to the inclusion of new segments and repeating fields and would require
new database storage hardware.
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\19\ NCVHS Full Committee Hearing, March 24-25, 2020. <a href="https://ncvhs.hhs.gov/meetings/full-committee-meeting-4/">https://ncvhs.hhs.gov/meetings/full-committee-meeting-4/</a>.
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The 2009 Modifications final rule discussed receiving estimates of
$1.5 million and $2 million from two large national pharmacy chains and
elected to use an estimate of $1 million for large pharmacy chains and
$100,000 for small pharmacy chains in the first implementation year.
That rule also discussed a few public comments disputing these large
chain estimates,\20\ suggesting in one case an alternative $2 million
estimate inclusive of Version 5010 costs, and, in another, a 2-year
cost of $4.9 million without specification of which costs were
included. Another retail pharmacy commenter that self-identified as
neither a chain nor an independent estimated a cost of implementation
of both standards of $250,000, with 90 percent of the cost attributable
to Version 5010 and, thus, $25,000 attributable to Version D.0. Using
these estimates, we develop a rough estimate of the true baseline D.0
conversion costs and then apply a Version F6 multiplier. We solicit
comments on the appropriateness of this approach.
---------------------------------------------------------------------------

\20\ 74 FR 3319 (January 16, 2009).
---------------------------------------------------------------------------

We believe that Version F6 conversion costs for chain pharmacies
would be differentiated in three general categories: (1) the largest
firms operating in multiple pharmacy channels; (2) other midsize retail
pharmacy chain firms operating primarily in either the open-door retail
and/or another single pharmacy channel; and (3) smaller chain pharmacy
firms. Starting with the point estimates discussed in the Version D.0
rulemaking and making some upward adjustments to address potential
underestimation, we estimate that--
<bullet> The two largest chain pharmacy firms incurred a baseline
(D.0) cost of $2 million;
<bullet> The 23 midsize chain pharmacy firms, the VA and IHS
pharmacy operations incurred a baseline cost of $1 million; and
<bullet> The 237 smaller chain pharmacy firms incurred a baseline
cost of $25,000.
Based on the 2x-4x multiplier estimates described previously, we
assume a midpoint 3x multiplier for the estimated 25 larger chain
pharmacies and the VA that would finance and manage their system
conversion requirements internally; consequently, we estimate that over
the 2-year implementation period:
<bullet> Two chain pharmacy firms would incur all internal Version
F6 conversion costs of (3*2 million), or $6 million each.
<bullet> The 25 chain pharmacy-sized firms (23 midsized chains, the
VA and IHS) would incur all internal Version F6 conversion costs of
(3*1 mil), or $3 million each.
Based on a CAMH environmental scan conducted with industry
representatives, we understand that most pharmacy firms rely on their
pharmacy management system vendor for conversion planning, development,
implementation, testing, and initial (primary) training. CAMH suggested
that pharmacies would likely need to make some investments in staff
training, but would likely not have an increase in direct upfront
software costs because system software updates are usually factored
into the ongoing contractual fees for operating and maintenance costs
of their pharmacy systems. Thus, we understand that HIPAA modification
efforts are generally already priced into vendor maintenance agreements
and fee structures, and we assume there would be no increases
specifically due to the Version F6 conversion in these ongoing costs to
pharmacies. We assume that primary training is developed or purchased
at the firm level and may deploy at the establishment level in
secondary employee in-service training slots. We assume that this
training does not scale along with the conversion costs, but rather
with the size of the organization in terms of locations and employees.
As summarized in Table 2, using the generally uncontested estimates
from the Version D.0 rulemaking adjusted for inflation,\21\ we estimate
that: 237 smaller chain pharmacy firms and 51 urban and tribal entity
pharmacies (a total of 288 pharmacies) would incur Version F6
conversion training costs of ($25,000 x 1.20) or $30,000 each on
average, generally in the second year of the 2-year implementation
period.
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\21\ Based on inflation from January 2010 to September 2020:
<a href="https://www.bls.gov/data/inflation_calculator.htm">https://www.bls.gov/data/inflation_calculator.htm</a>.
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We invite public comments on our general assumptions and request
any additional data that would help us determine more accurately the
impact on the pricing structures of entities affected by this proposed
rule.

[[Page 67649]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.009

(2) Independent Pharmacies
As noted previously, the 2019 IQVIA data included 88,181
pharmacies, of which 45 percent (39,985) were independently owned. We
recognize that this classification is not identical to the use of the
term independent community pharmacy; however, we are not aware of
publicly available data to help us segment this market further. We know
from Census business data that in 2017 there were 19,044 pharmacy firms
with fewer than 500 employees, representing 20,901 establishments. Just
as we assume that the firms with more than 500 employees represent
chains, we assume that those with fewer than 500 employees represent
independently owned open- or closed-door pharmacies.
We understand that these smaller pharmacies predominantly rely on
their pharmacy system vendors for upgrades, including HIPAA standard
version conversion planning, development, implementation, testing, and
primary training. In return, they pay ongoing maintenance and
transaction fees. As discussed previously with respect to some chain
pharmacies, we understand that Version F6 conversion efforts would
already be priced into existing maintenance agreements and fee
structures. Therefore, we do not assume increases in these ongoing
costs to independent pharmacies as the result of the Version F6
conversion, and we estimate pharmacy direct costs would generally be
comprised of training and other miscellaneous expenses. As with chain
pharmacies, we assume that primary training is developed or purchased
at the firm level and deployed at the establishment level in secondary
employee in-service training slots. We further assume that this
training does not scale along with the conversion costs, but, rather,
with the size of the organization in terms of locations and employees.
For this reason, we assume that the few system users in very small
pharmacies would be trained directly by the pharmacy management system
vendor, and no secondary training costs would be required for such
small firms.
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\22\ 74 FR 3317 (January 16, 2009).
\23\ Based on inflation from January 2010 to September 2020:
<a href="https://www.bls.gov/data/inflation_calculator.htm">https://www.bls.gov/data/inflation_calculator.htm</a>.
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As noted previously, a commenter on the 2009 Modification proposed
rule \22\ that self-identified as neither a chain nor an independent
pharmacy estimated implementation costs of both Version 5010 and
Version D.0 standards of $250,000, with 90 percent of the costs
attributable to Version 5010. Thus, one non-chain pharmacy estimated
conversion costs for Version D.0 of about $25,000. Although we do not
know the size or complexity of this organization, this level would not
be inconsistent with our understanding that the costs of an NCPDP
Telecommunication Standard conversion would be borne by the pharmacy
management system vendors and that smaller pharmacy conversion costs
would consist primarily of user training expense. Referring to the 2017
Census business data, almost 90 percent (17,016 out of 19,044) of these
pharmacy firms had fewer than 20 employees, while the remainder (2,028)
had between 20 and 499. Therefore, we assume that 17,016 small pharmacy
firms would incur opportunity costs for employee time spent in training
and 2,028 pharmacy firms would incur secondary training expenses. As
summarized in Table 3, assuming baseline training costs per independent
pharmacy with 20 or more employees of $25,000, and a cumulative
inflation adjustment of 20 percent,\23\ we estimate that 2,028
independently owned pharmacies would incur Version F6 conversion
training costs of ($25,000 x 1.20) or $30,000 each on average, in the
second year of the 2-year implementation period
[GRAPHIC] [TIFF OMITTED] TP09NO22.010

(3) Health Plans and PBMs
We anticipate that health plans should see minimal changes in their
operations and workflows between Version D.0 and Version F6. Health
plans contract with processors/PBMs for conducting online eligibility
verification, claim and service billing, predetermination of benefits,
prior authorization, and information reporting transaction exchange
types and transaction record storage. While health plans (or their
other vendors) supply PBMs with eligibility records and receive data
from PBMs containing data derived from claims, they are not typically
parties to the exchange of the HIPAA pharmacy transactions. Based on
NCVHS testimony with stakeholders and in development of an
environmental scan on the impact of this update to the pharmacy
standards, we understand that HIPAA standard conversion costs are
already priced into

[[Page 67650]]

ongoing contractual payment arrangements between health plans and PBMs
and would not be increased specifically in response to the Version F6
conversion.
All PBMs would experience some impacts from the Version F6
conversion, involving IT systems planning and analysis, development,
and external testing with switches and trading partners. One PBM
commented to the NCVHS that the most significant impact would be the
expansion of the financial fields to accommodate very expensive drug
products with charges greater than $999,999.99. Another PBM processor
representative indicated in a conversation that the impact on payer/
processors would depend on the lines of business they support--that
entities supporting Medicare Part D processing would have the most work
to do, but would also get the most value from the transition. The
extent to which these activities would be handled by in-house resources
or contracted out may vary by organization. Based on other
conversations, we understand that from the PBM perspective, the Version
F6 conversion adds fields that increase precision and machine
readability; rearranges some things to make processing more efficient
and flexible in the long run; implements more efficient ways to
accomplish work-arounds that payers already have in place (so the
changes in the transactions would map to back-end system fields and
logic already in place); and involves relatively few structural
changes.
PBMs may manage prescription drug coverage for a variety of lines
of business, including commercial health plans, self-insured employer
plans, union plans, Medicare Part D plans, the Federal Employees Health
Benefits Program, state government employee plans, managed Medicaid
plans, and others,\24\ such as state Medicaid programs. While details
on internal operating systems are proprietary, we assume that the three
largest PBMs that controlled 75 percent of 2018 market share \25\ (not
including the VA) have contractual agreements supporting all or most
drug coverage lines of business and host the most variants in legacy
operating platforms, customer-specific processing requirements, and
scope of customer service requirements--involving all the information
exchange types supported by the NCPDP Telecommunications Standard. We
assume that the remaining three of the top six PBMs, responsible for
another 20 percent of market share, have lesser operating system
complexity but also provide services for multiple lines of business and
a full scope of information exchange types. We assume that the VA PBM
is comparable to these midsize PBMs. We assume that the remainder of
the PBM market is comprised of approximately 33 (40-7) smaller PBMs
supporting one or more lines of business and information exchange
types.
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\24\ Pharmacy Benefit Managers (PBMs): Generating Savings for
Plan Sponsors and Consumers. Prepared for the Pharmaceutical Care
Management Association (PCMA). February 2020. <a href="https://www.pcmanet.org/wp-content/uploads/2020/02/Pharmacy-Benefit-Managers-Generating-Savings-for-Plan-Sponsors-and-Consumers-2020-1.pdf">https://www.pcmanet.org/wp-content/uploads/2020/02/Pharmacy-Benefit-Managers-Generating-Savings-for-Plan-Sponsors-and-Consumers-2020-1.pdf</a>.
\25\ CVS, Express Scripts, and the Evolution of the PBM Business
Model. Drug Channels. May 29, 2019. <a href="https://www.drugchannels.net/2019/05/cvs-express-scripts-and-evolution-of.html">https://www.drugchannels.net/2019/05/cvs-express-scripts-and-evolution-of.html</a>.
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Public commenters to the 2009 Modifications proposed rule regarding
the D.0 conversion, self-identifying as large PBMs, estimated that
costs for their upgrades would be more than $10 million and $11
million, respectively. As a result of these comments, we revised our
estimates up to $10.5 million for each large PBM company and maintained
the original assumption of $100,000 in conversion costs for smaller
specialty PBMs,\26\ as we received no comments critical of that
estimate. Based on updated data on market share, we now assume more
segments in the PBM industry to account for the consolidation and
growth of midsize entities that comprise the second tier of market
share and assume their costs to be less than half those of the largest
PBMs due to lesser complexity of structure and operations. Therefore,
using the Version D.0 revised estimates as anchors, we estimate the
following:
---------------------------------------------------------------------------

\26\ 74 FR 3320 (January 16, 2009).
---------------------------------------------------------------------------

<bullet> The largest three PBMs incurred baseline (Version D.0)
conversion costs of $10.5 million.
<bullet> The 3 next-largest PBMs and the VA PBM incurred baseline
conversion costs of $4 million.
<bullet> The remaining 33 PBMs incurred baseline costs of $500,000.
As previously noted, industry estimates of the costs of a
conversion from Version D.0 to Version F6 have been expressed as
multiples of two to four times the costs for the Version 5.1 to Version
D.0 conversion. However, several PBM commenters to the NCVHS suggested
the lower end of this range. This would be consistent with our
understanding that many of the changes involve mapping current back-end
work-around systems to newly codified data, as opposed to building
substantial new functionality from scratch. However, expansion of all
existing financial fields to accommodate larger numbers would involve
changes to many interrelated systems. As summarized in Table 4, using a
2x multiplier, we estimate that over the 2-year implementation period:
<bullet> The largest 3 PBMs would incur Version F6 conversion costs
of (2*10.5 mil), or $21 million each.
<bullet> The next 3 midsize PBMs and the VA PBM or four firms,
would incur Version F6 conversion costs of (2*4 mil), or $8 million
each.
<bullet> The remaining 33 PBMs would incur Version F6 conversion
costs of (2*500,000), or $1 million each.
[GRAPHIC] [TIFF OMITTED] TP09NO22.011

[[Page 67651]]

(4) Vendors
As previously discussed, pharmacies that do not internally develop
and maintain their pharmacy management systems contract with technology
vendors for these services. We believe there are approximately 30
technology firms providing computer system design, hosting, and
maintenance services in this market, with different companies serving
one or more market segments, such as retail, mail, long-term care, or
specialty pharmacy. Software vendors often have commitments to their
clients to maintain compliance with the latest adopted pharmacy
transaction standards. They must incorporate these standards into their
software systems; otherwise, they would not be able to sell their
products competitively in the marketplace. These systems cannot
properly support their users using outdated standards or missing key
functionalities which the industry has identified as essential to
business operations. We understand that vendors anticipate upgrades to
these standards, and the cost of updating the software is incorporated
into the vendor's routine cost of doing business and product support
pricing. As discussed in the context of independent pharmacies, based
on conversations with a variety of industry representatives, we
understand that future HIPAA standard conversion efforts are often
already priced into existing maintenance agreements and fee structures
for their customers. However, the marginal costs of the conversion
would be borne by these vendor entities.
We understand from conversations with industry representatives that
system update costs are usually embedded into operating costs, where
they represent opportunity costs for vendors that offset the resources
to add new features (system enhancements) that their clients may
request. Updating systems would take some, but not all, resources
currently doing system enhancements and improvements and move them over
to ensuring compliance with the new standards. In the 2009
Modifications final rule,\27\ we explained that we received no comments
from pharmacy software vendors in response to the solicitation of
comments on expected Version D.0 conversion costs, actual costs for
vendor software upgrades, and any downstream impact on covered
entities. We believe it is likely that firms would continue to decline
to share this type of proprietary and market-sensitive data. Thus, we
do not have comparable anchors from prior impact analyses for cost
estimates. However, in the public comments submitted to the NCVHS, one
pharmacy software vendor with multiple product lines provided a
preliminary estimate of approximately 50,000 man-hours to make the
Version F6 changes. We are not aware of publicly available data
segmenting this industry, so we assume this one estimate is
representative of the industry on average. Using this estimate and a
mean hourly wage rate of $54 from BLS data \28\ and rounding to the
nearest million, we estimate that over the 2-year implementation
period: 30 pharmacy management system firms would incur Version F6
conversion costs of approximately $3 million each for software
planning, development, and testing.
---------------------------------------------------------------------------

\27\ 74 FR 3320 (January 16, 2009).
\28\ Bureau of Labor Statistics. May 2019 National Occupational
Employment and Wage Estimates United States. Mean hourly rates for
Computer Network Architects, Software Developers and Software
Quality Assurance Analysts and Testers, and Computer Support
Specialists. <a href="https://www.bls.gov/oes/current/oes_nat.htm#15-0000">https://www.bls.gov/oes/current/oes_nat.htm#15-0000</a>.
---------------------------------------------------------------------------

We further estimate that these pharmacy system vendor firms would
incur 80 hours of training costs for each pharmacy client firm at a
mean hourly wage rate of $28.51 (also from the BLS data), the product
rounded to $2,300. Thus, we estimate that in the third year of the 2-
year implementation period: 30 pharmacy management system firms would
incur Version F6 training costs of $2,300 for 2,265 clients (237 small
chain pharmacy and 2,028 independent pharmacy firms), or $5,210,000 in
total for this industry segment.
In addition, both pharmacies and PBMs contract with
telecommunication switches for transaction validation and routing.
Based on conversations with industry representatives, we believe there
are three switches in this segment of the market. We are not aware of
any data to help us estimate their costs of system upgrades, but
believe their costs are less than those of chain pharmacies and PBMs.
We estimate that over the 2-year implementation period three
telecommunication switching vendors would incur Version F6 conversion
costs of $1.5 million each. These other vendor costs are summarized in
Table 5.
[GRAPHIC] [TIFF OMITTED] TP09NO22.012

In summary, total estimated Version F6 conversion costs are
summarized in Table 6.

[[Page 67652]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.013

c. Benefits
Industry commentary on benefits related to the Version F6
conversion is available in two segments: first, the 2018 NCVHS
testimony and industry representative interviews related to the
proposed intermediate Version D.0 to Version F2 conversion, and second,
the 2020 NCVHS testimony and public comments related to the revised
Version F6 proposal. Both sets of evidence portray industry consensus
that updating the HIPAA pharmacy standards is necessary for current and
future business needs at a significant, but unavoidable, cost.
Commentaries describe numerous non-quantifiable benefits, such as to
enable compliance with regulatory requirements, to facilitate the
transmittal of additional codified and interoperable information
between stakeholders that would benefit patient care and care
coordination, and to power advanced data analytics and transparency.
Some changes would result in operational efficiencies over manual
processes, but would also entail greater manual effort to collect
information and input data at an offsetting cost. We are not aware of
any assertions or estimates of industry cost savings attributable to
the Version F6 conversion, and we solicit comment on whether there are
significant savings that should be accounted for in our analysis. For
pharmacy management system vendors and switches, we assume upgrading
existing systems for the Version F6 conversion is a cost of doing
business and retaining customers and does not involve cost savings.
(1) Pharmacies
Initial automation of pharmacy coordination of benefits
transactions was a large part of the previous Version 5.1 to D.0
conversion. Further refinement of this type of information is included
in the Version F6 conversion. Additional fields are expected to improve
the flow of information between pharmacies and payers and allow for
more accurate billing to the correct entity. However, better
information does not translate into savings as directly as the initial
transition from manual to fully electronic processes. Moreover,
commenters to the 2009 Modifications proposed rule suggested that even
those minor levels of savings (1.1 percent of pharmacist time) may have
been overestimated.\29\ Some of the less quantifiable benefits include
enabling more integration with back-office systems, more informative
data analytics, better forecasting, and stronger internal controls over
both proper payments and compliance with contractual requirements. For
instance, better information on adjudicated payer types allows
pharmacies to identify and apply insurance program-specific coverage
requirements more accurately.
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\29\ 74 FR 3320 (January 16, 2009).
---------------------------------------------------------------------------

Other changes, such as more structured communication between
pharmacies and payers to resolve prescriber-identifier validation
activities at the point of sale, or to better enable compliance with
federal and state limitations on filling and refilling controlled
substance prescriptions, would enable better compliance with Drug
Enforcement Administration and CMS rules without PBMs having to resort
to claim rejections. In general, many of these changes are expected to
support pharmacy efficiency improvements, reduce some manual workflow
processes related to Food and Drug Administration mandated Risk
Evaluation and Mitigation Strategy (REMS) data collection and use,
reduce the time required to resolve claim rejections and transaction
attempts, and reduce recoupment risk on audits.\30\ However, these
efficiencies may not necessarily translate directly to cost savings for
pharmacies, as other changes require more data collection, greater
pharmacy staff communication with prescribers, and inputting more
coding than required previously. We are not aware of any estimates of
quantifiable savings related to these efficiencies. Improvements like
the expanded financial fields would avoid future manual processes
needed to enter free text, split claims, or prepare and submit a paper
Universal Claim Form; however, million-dollar claims are quite rare
today, and, thus, it seems this change may not represent significant
cost savings over current processes. But, as noted earlier, their
numbers are expected to increase, and, without this functionality, the
risk of billing errors could potentially increase. Moreover, these
types of drugs would likely be dispensed by a small percentage of
pharmacies, so the benefits would likely not be generally applicable to
all pharmacies.
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\30\ S. Gruttadauria. (March 26, 2018). ``NCPDP
Telecommunications Standard vF2 Written Testimony.'' Available:
<a href="https://ncvhs.hhs.gov/wp-content/uploads/2018/05/Session-A-Gruttadauria-Written.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2018/05/Session-A-Gruttadauria-Written.pdf</a>.
---------------------------------------------------------------------------

Pharmacy and pharmacy vendor commenters to the NCVHS noted that
other types of changes would benefit patients by enhancing pharmacy and
payer patient care workflows through the replacement of many clinical
free text fields with discrete codified fields. This would enable
automation that can trigger real-time workflows that could aid in goals
such as combatting the opioid crisis or communicating relevant therapy-
related information for at-risk patients. Improvements would support
better patient care and safety through more accurate patient
identification and enhanced availability and routing of benefit and
drug utilization review information. For instance, new response fields
for drug utilization review messaging and Formulary Benefit Detail help
to convey clinical information such as disease, medical condition, and
formulary information on covered drugs. This would enable the
pharmacist to have more informative discussions with patients and
provide valuable information about alternative drug or therapy
solutions. We assume that some of this data exchange would eliminate
manual processes and

[[Page 67653]]

interruptions, and would also enable additional required pharmacist
interventions to be added contractually which could not occur
previously. Thus, we conclude that the changes available through the
Version F6 conversion would allow pharmacies to improve the accuracy
and quality of services they provide but may not generate significant
cost savings from a budgeting perspective.
(2) Health Plans and PBMs
The benefits that could accrue to health plans and PBMs mirror the
improvements that could accrue to pharmacy efficiencies discussed
previously. Better information flows and interoperability could enable
more efficient benefit adjudication, enhanced communications with
trading partners and patients, and better data. Better data could
improve payment accuracy, regulatory compliance, and advanced analytics
for forecasting, coordination of care, and patient safety. For
instance, better information on adjudicated payer types could support
more accurately identifying other payers involved in the transaction.
Improved information on other payers could result in cost avoidance by
avoiding duplication of payment and/or by preventing Medicare from
paying primary when it is the secondary payer. However, improved
patient and alternative payer identification could also increase the
transparency of the identification of payers secondary to Medicare and
increase costs from other payers' subrogation in some circumstances.
The ability to automate the processing of very expensive drug claims
would avoid more cumbersome processes, but the absolute volume of such
claims may not be enough to generate significant savings. We are not
aware of any studies or estimates of cost savings for health plans or
PBMs attributable to the Version F6 conversion, nor are we aware of
public comments describing any such cost savings. Furthermore, in
testimony to the NCVHS, the NCPDP noted the importance of Version F6
for achieving broader (but difficult-to-quantify) healthcare
transformation goals: it improves the structure to support the clinical
evaluation of prescription products and planned benefit transparency,
which are key components for achieving expected healthcare outcomes
related to value-based care, digital therapeutics, social determinants
of health, and other areas of health innovation.\31\ Thus, we conclude
that while the benefits of adopting Version F6 are necessary for
meeting current and future business needs and policy goals, we are
unable to monetize these benefits in the form of cost savings. We
solicit comments on whether there are significant quantifiable benefits
or cost savings that should be included in our analysis.
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\31\ National Committee on Vital and Health Statistics
Transcript March 24, 2020, 10:00 a.m.--5:30 p.m. ET. <a href="https://ncvhs.hhs.gov/wp-content/uploads/2020/05/Transcript-Full-Committee-Meeting-March-24-2020.pdf">https://ncvhs.hhs.gov/wp-content/uploads/2020/05/Transcript-Full-Committee-Meeting-March-24-2020.pdf</a>.
---------------------------------------------------------------------------

2. Adoption of Version 10
a. Introduction
Subrogation occurs when one payer has paid a claim that is
subsequently determined to be the responsibility of another payer, and
the first payer seeks to recover the overpayment directly from the
proper payer. Such erroneous payments may occur as the result of
retroactive changes in patient coverage or because of the lack of
information on other payers or correct payer order at the point of
sale. Subrogation avoids putting the pharmacy in the middle of the
corrective action by avoiding the alternative burdensome process of the
first payer recovering the overpayment from the pharmacy and, thus,
forcing the pharmacy to attempt reversing the claim and rebilling the
proper payer.
The current HIPAA subrogation transaction standard addresses
federal and state requirements for state Medicaid agencies to recover
reimbursement from responsible health plans but does not address
similar requirements for other payers, such as Medicare Part D, State
Pharmaceutical Assistance Programs (SPAPs), state AIDS Drug Assistance
Programs (ADAPs), or other private insurers. Replacing this standard
with initial adoption of Version 10 would extend the standard to all
third-party payers. Insurers, employers, and managed care entities are
generally referred to as health and/or drug plan sponsors, or, more
generally, as third-party payers. Their health plans generally provide
some coverage for outpatient prescription drugs, but do not generally
directly manage coordination of pharmacy benefits and subrogation (also
known as third-party liability services). Instead, health plans and
other third-party payers generally contract with PBMs or with
specialized payment integrity/financial recovery vendors for these
services. The subrogation technical standard is based on the batch
telecommunications standard and may utilize any field in an approved
standard.
b. Affected Entities
Medicare Part D requires real-time coordination of benefits, and we
understand that these processes, as well as responsibility for managing
subrogation (primarily for Medicaid retroactivity), are generally
contracted through PBMs. Other payers, such as state Medicaid agencies
and commercial insurers, are more likely to contract with payment
integrity/financial recovery vendors. As of March 2018, there was
evidence that some states managed this activity directly,\32\ but we
are not aware of publicly available information on whether this is, or
would still be, the case for the Version 10 implementation timeframe.
Likewise, we understand the VA PBM does not coordinate benefits in real
time but contracts with a payment integrity/financial recovery firm for
retrospective subrogation in some circumstances. We believe there are
four firms in the specialized pharmacy benefit payment integrity/
financial recovery industry, with the majority of business volume
concentrated in one firm.
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\32\ NCVHS Hearing on NCPDP Standards and Updates--March 26,
2018 Virtual Meeting. <a href="https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/">https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/</a>.
---------------------------------------------------------------------------

Based on a CAMH environmental scan conducted with industry
representatives, we understand that the demand for subrogation today
differs by third-party line of business. Third-party payers for
governmental programs (Medicaid, Medicare Part D, and SPAPs/ADAPs)
drive most of the subrogation demand. This is in large part due to
their retroactive eligibility rules and potential overlaps in
enrollment. Third-party commercial payer contracts are less likely to
have a comparable retroactivity-of-coverage issue and, due to the
rising cost of health insurance, are increasingly less likely to have
enrollees covered under more than one insurance program or policy. For
these reasons, we understand that third-party commercial payers are
more likely to subrogate with workers' compensation, auto insurance, or
other non-healthcare insurance-related parties, rather than with other
healthcare payers.
While pharmacies are not users of the subrogation standard, they
are potentially affected by any further expansion of the standard from
Medicaid to all third-party payers. This is because one alternative to
subrogation involves the payer that paid in error recouping funds from
pharmacies and transferring the effort and risk of rebilling the
appropriate payer to the pharmacy.

[[Page 67654]]

c. Costs
(1) Third-Party Payers (Includes Plan Sponsors and PBMs)
The bulk of the work to implement Version 10 for many third-party
payers has been previously addressed in costs associated with
implementing Version F6, specifically its equivalent batch standard.
Based on conversations with industry representatives familiar with the
subrogation standards, we understand that the changes in Version 10
have been undertaken to preserve the integrity of the standard for
Medicaid purposes while allowing for the collection of a limited number
of new data elements to assist with other payer subrogation,
particularly for Part D payers. We understand that the changes between
Version 3.0 and Version 10 are not extensive, so we believe this change
would not have significant effects on state Medicaid agencies or their
vendors. However, we are not aware of data or public comments to help
us confirm this assumption.
We also assume that payers that desire to pursue prescription drug
claim subrogation have already contracted with PBMs or other
contractors that have implemented the Batch Standard Medicaid
Subrogation Implementation Guide, Version 3.0, or some variation on
this standard, on a voluntary basis. However, testimony provided in the
March 2018 NCVHS hearing indicated that some payers had not yet
implemented the batch processing software, and would have additional IT
system, administrative, and training costs to convert to Version 10. We
are not aware of the specific payers to which this remark referred,
and, thus, several years later, we have no basis on which to estimate
the number of additional payers or state Medicaid agencies that could
potentially adopt the standard for the first time with Version 10. Nor
do we know if any such payers might instead contract with a vendor to
manage this function on their behalf during the course of the Version
10 implementation. As with PBM and vendor contractual arrangements
discussed previously, we assume that HIPAA standard conversions have
been priced into ongoing contractual payment arrangements and would not
increase costs to third-party payers as the result of converting to
Version 10. We solicit comments to help us understand the impacts of
converting to Version 10 on any payers or state Medicaid agencies that
have not previously implemented NCPDP batch standards and/or
Subrogation Version 3.0. We also solicit comments on our assumptions on
the impacts on state Medicaid agency vendors in general, as well as
data with which to quantify any additional impacts beyond the Version
F6 conversion estimates provided previously.
Based on conversations with industry representatives, we further
understand that payers already engaged in subrogation, particularly
Part D PBMs, have already, albeit inconsistently, implemented Version
3.0 for other payers. Version 10 provides more requirements for use of
the standard and how to populate the fields to increase
standardization. Thus, we assume that the incremental effort required
to transition to Version 10 largely consists of a mapping exercise from
current PBM or vendor operating systems, rather than an initial build
and migration from manual to automated processes. We are not aware of
any studies or public comments to help us quantify these incremental
costs.
(2) Vendors
As noted previously, state Medicaid agencies, commercial third-
party payers, and the VA generally contract with four payment
integrity/financial recovery firms for subrogation. We believe, based
on conversations with industry representatives, that these firms
generally utilize Subrogation Version 3.0 today, and would have to
invest in Version F6 batch standard upgrades to implement Version 10
and prepare to potentially accept subrogation from other third-party
payers. These firms were not included in the previous vendor estimates.
We are not aware of studies or public comments that describe costs
related to their activities and requirements. We assume these vendors
would incur a minority of the costs associated with the Version F6
conversion and some internal data remapping expense. Therefore, as
summarized in Table 7, we estimate that that over the 2-year
implementation period:
Four payment integrity/financial recovery vendors would incur
Version F6, equivalent Batch Standard, Version 15 and other Version 10
conversion costs of $500,000 each.
[GRAPHIC] [TIFF OMITTED] TP09NO22.014

d. Benefits
(1) Third-Party Payers
The primary benefits for third-party payers are the opportunity to
reduce claims costs when another party is also responsible for the
claims and the avoidance of cumbersome manual processes. However, we
are not aware of studies or public comments that help us estimate the
frequency and size of this benefit. Prescription drug claims tend, on
average, to be for much smaller amounts than medical claims, such as
those for hospital admissions, and we believe many payers may pursue
subrogation only on the more expensive claims. Discussion at the March
2018 NCVHS hearing indicated that about 5 percent of patients had
multiple insurances. It is estimated that national drug expenditures,
the volume of claim reconciliation, and that the savings opportunity
could easily exceed a billion dollars (as the subrogation transaction
standard proposal was not revised in 2020, we do not have more recent
testimony updating this estimate). However, additional testimony at
that same hearing \33\ suggested there is not a huge cost savings
opportunity left for commercial subrogation, but, instead, an
occasional need that would be facilitated by a standardized approach.
It seems that we do not have enough information to quantify the
incremental benefits of extending Version 10 to non-Medicaid

[[Page 67655]]

third-party payers. We seek comment on our assumptions.
---------------------------------------------------------------------------

\33\ Transcript-Standards Subcommittee Hearing--NCPDP Standards
Updates--March 26, 2018. Accessed 05/14/2021 at: <a href="https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/">https://ncvhs.hhs.gov/transcripts-minutes/transcript-of-the-march-26-2018-hearing-on-ncpdp-standards-and-updates/</a>.
---------------------------------------------------------------------------

(2) Pharmacies
As noted previously, while pharmacies are not users of the
subrogation transactions standard, they could potentially benefit from
further expansion of the standard from state Medicaid agencies to all
third-party payers if additional payers that are currently recouping
overpayments from pharmacies instead were to transition to a
subrogation approach. However, we are not aware of any studies or
public comments that would help us estimate the likelihood or size of a
potential change of this nature. We solicit comments to help us
understand the extent to which the adoption of Version 10 may have an
effect on pharmacies.

E. Alternatives Considered

We considered a number of alternatives to adopting Version F6 and
Version 10, but chose to proceed with the proposals in this in this
rule after identifying significant shortcomings with each of the
alternatives.
One alternative we considered was to not propose to adopt Version
F6 and continue to require the use of Version D.0. We also considered
waiting to adopt Version F6 at a later date since we recently published
a final rule in 2020 modifying the requirements for the use of Version
D.0 by requiring covered entities to use the 460-ET field for retail
pharmacy transactions denoting partial fill of Schedule II drugs. We
did not proceed with either alternative because we believe that, were
we to do so, the industry would continue to use a number of work
arounds that increase burden and are contrary to standardization. We
also believe that the number of these work arounds, as well as use of
the work arounds, would continue to increase if we were not to propose
adoption of Version F6 at this time. For example, NCPDP has advised
that several new drugs priced at, or in excess of, $1 million are
already on the market, and researchers and analysts anticipate that
over the next several years, dozens of new drugs and therapies priced
similarly or higher may enter the market. As the number of drugs and
therapies in the market priced at, or in excess of, $1 million
increases, the total burden associated with manual work arounds would
also increase.
We invite public comments on these assumptions and request any
additional data that would help us to more accurately quantify the time
and resource burdens associated with the existing, and, potentially,
future work arounds should Version F6 not be adopted. We also chose not
to proceed with these alternatives because, as discussed in section
III.A. of this proposed rule, we believe adoption of Version F6 would
support interoperability and improve patient outcomes.
We considered proposing a compliance date longer than 24 months for
covered entities to comply with Version F6. However, as discussed in
section III.C. of this proposed rule, we chose to propose a 24-month
compliance date because we believe the benefits to be derived from
implementing Version F6 as soon as possible are significant. We also
considered proposing staggered implementation dates for Version F6,
whereby covered entities using the retail pharmacy transactions would
have different compliance dates. We believe this alternative would not
support standardization since pharmacies, PBMs, and health plans all
rely on the information transmitted in the retail pharmacy
transactions, and if any one of these three entities would not be using
the same standard version at the same time, the information needed to
process claims and check eligibility would be deficient. Pharmacies
need the most current eligibility data from the plans to determine
correct coverage and payment information, and health plans and PBMs
need the most current information to be reflected in the claims data to
maintain the beneficiaries' most current benefits.
Concerning the proposed adoption of Version 10, we considered not
adopting that updated version and continuing to require the use of
Version 3.0. Such alternative would continue to permit non-Medicaid
health plans that engage in pharmacy subrogation transactions to
continue using the proprietary electronic and paper formats currently
in use. We chose not to proceed with this alternative because we
believe it is important to adopt standards that move the industry
toward uniformity among all payers.

F. Regulatory Review Cost Estimate

One of the costs of compliance with a final rule is the necessity
for affected entities to review the rule in order to understand what it
requires and what changes the entity will have to make to come into
compliance. We assume that 104 affected entities will incur these
costs, as they are the entities that will have to implement the
proposed changes, that is, those entities that are pharmacy
organizations that manage their own systems (27), pharmacy management
system vendors (30), PBMs (40), telecommunication switch vendors (3),
and payment integrity/financial recovery vendors (4). The particular
staff involved in such a review will vary from entity to entity, but
will generally consist of lawyers responsible for compliance activities
and individuals familiar with the NCPDP standards at the level of a
computer and information systems manager. Using the Occupational
Employment and Wages for May 2020 from the BLS for lawyers (Code 23-
1011) and computer and information system managers (Code 11-3021),\34\
we estimate that the national average labor costs of reviewing this
rule are $95.56 and $113.12 per hour, respectively, including other
indirect costs and fringe benefits. We estimate that it will take
approximately 4 hours for each staff person involved to review this
final rule and its relevant sections and that on average two lawyers
and two computer and information manager-level staff persons will
engage in this review. For each entity that reviews the rule, the
estimated costs are therefore $1,669.44 (4 hours each x 2 staff x
$95.56 plus 4 hours x 2 staff x $113.12). Therefore, we estimate that
the total cost of reviewing this rule is $171,953 ($1,669.44 x 103
affected entities).
---------------------------------------------------------------------------

\34\ Bureau of Labor Statistics. May 2020 National Occupational
Employment and Wage Estimates United States. Mean hourly rates for
Computer Network Architects, Software Developers and Software
Quality Assurance Analysts and Testers, and Computer Support
Specialists. Accessed 5/14/2021 at: <a href="https://www.bls.gov/oes/current/oes113021.htm#top">https://www.bls.gov/oes/current/oes113021.htm#top</a>.
---------------------------------------------------------------------------

G. Accounting Statement and Tables

As required by OMB Circular A-4 (available at <a href="https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf">https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf</a>), in Table 8 we present an accounting statement
showing the classification of the annualized costs associated with the
provisions of this final rule. Whenever a rule is considered a
significant rule under Executive Order 12866, we are required to
develop an Accounting Statement. This statement must state that we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this proposed rule.
Monetary annualized benefits and non-budgetary costs are presented as
discounted flows using 3 percent and 7 percent factors.

[[Page 67656]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.015

H. Regulatory Flexibility Analysis (RFA)

The RFA requires agencies to prepare an initial regulatory
flexibility analysis that describes the impact of a proposed change on
small entities, unless the head of the agency can certify that the rule
will not have a significant economic impact on a substantial number of
small entities. The RFA generally defines a small entity as (1) a
proprietary firm meeting the size standards of the Small Business
Administration (SBA); (2) a not-for-profit organization that is not
dominant in its field; or (3) a small government jurisdiction with a
population of less than 50,000. States and individuals are not included
in the definition of a small entity. For the purpose of the proposed
rule, we estimate that a change in revenues of more than 3 to 5 percent
would constitute the measure of significant economic impact on a
substantial number of small entities.
SBA size standards have been established for types of economic
activity or industry, generally under the North American Industry
Classification System (NAICS). Using the 2019 SBA small business size
regulations and Small Business Size Standards by NAICS Industry tables
at 13 CFR 121.201, we have determined that the covered entities and
their vendors affected by this proposed rule fall primarily in the
following industry standards:

[[Page 67657]]

[GRAPHIC] [TIFF OMITTED] TP09NO22.016

This change in retail pharmacy transaction standards would apply to
many small covered entities in the Pharmacy and Drug Store segment
(NAICS code 446110). However, based on information obtained by CAMH
during its conversations with industry experts, we understand that
small pharmacies generally rely on ongoing arrangements with certain
specialized computer system design services vendors (a subset of NAICS
code 541512) to integrate the standards into their pharmacy management
software and systems as a routine cost of doing business. Therefore,
these covered entities may not bear the bulk of the costs attributable
to the proposed changes. Instead, as detailed later in this RIA,
generally, the costs applicable to small pharmacies are expected to be
a portion of the costs for user training for some firms. The pharmacy
management system vendors are not covered entities, and we are not
aware of publicly available data to comprehensively identify these
entities and, where applicable, parent firm size. Other types of
covered entities providing pharmacy services, such as the subset of
grocery stores with pharmacies, cannot be clearly identified within
NAICS data, as such data are not collected in this detail, but are
included in our estimates for larger entities. Conversely, institutions
with outpatient pharmacies (for example, hospitals) also cannot be
clearly identified by NAICS data but are not included in our analysis,
since we believe such institutions are generally part of larger
organizations that do not meet the SBA definition. One exception to
this assumption are the IHS urban and tribal facilities with pharmacies
that bill prescription drug plans, which we address later in this
analysis.
For purposes of this RIA, the definition of an entity most closely
resembles the federal statistical agencies' concept of a firm.\35\ A
firm consists of one or more establishments under common ownership. An
establishment consists of a single physical location or permanent
structure.\36\ Thus, a chain drug store or chain grocery store
constitutes a single firm operating multiple establishments. Using the
2017 Census Bureau Annual Business Survey estimates of firms, sales,
and receipts by NAICS sector (available at <a href="https://www.census.gov/programs-surveys/abs.html">https://www.census.gov/programs-surveys/abs.html</a>, and hereafter referred to as Census business
data), we have attempted to estimate the number of small pharmacy
entity firms and provide a general discussion of the effects of the
proposed regulation. We solicit industry comment on these assumptions.
---------------------------------------------------------------------------

\35\ <a href="http://www.bls.gov/opub/mlr/2016/article/establishment-firm-or-enterprise.htm">www.bls.gov/opub/mlr/2016/article/establishment-firm-or-enterprise.htm</a>.
\36\ <a href="http://www.census.gov/programs-surveys/susb/technical-documentation/methodology.html">www.census.gov/programs-surveys/susb/technical-documentation/methodology.html</a>.
---------------------------------------------------------------------------

1. Initial Regulatory Flexibility Analysis (IRFA)
a. Number of Small Entities
Based on Census business data records indicating that in 2017 there
were a total of 19,234 total pharmacy firms, we estimate that just over
19,000 pharmacy firms qualify as small entities, though communications
with industry representatives suggest that figure may overestimate the
current industry small entity landscape. Available data does not permit
us to clearly distinguish small pharmacy firms from firms that are part
of larger parent organizations, but we use employee size as a proxy for
the firm size subject to the SBA size standard. For purposes of this
analysis, we assume the firms with more than 500 employees (190)
represent chain pharmacies and those with fewer than 500 (19,044)
employees represent independently owned open- or closed-door
pharmacies. The 19,044 firms with fewer than 500 employees represented
20,901 establishments and accounted for total annual receipts of $70.9
billion and average annual receipts of $3.7 million--well below the SBA
standard of $30 million. By contrast, the 190 firms with 500 or more
employees represented 27,123 establishments and accounted for over $211
billion in annual receipts, and thus, average annual receipts of $1.1
billion. Therefore, we assume 19,044 pharmacy firms qualify as small
entities for this analysis.
For 2017, the Census Bureau counts 745 entities designated as
Direct Health and Medical Insurance Carriers and 27 as Health
Maintenance Organization (HMO) Medical Centers. We assume that these
772 firms represent health plans that sponsor prescription drug
benefits. Of the 745 Carriers, those with fewer than 500 employees
(564) accounted for $35 billion in total and over $62 million in
average annual receipts, exceeding the SBA size standard of $41.5
million. Comparable data on the eight smaller HMO Medical Centers is
not available due to small cell size suppression. Although health plan
firms may not qualify as small entities under the SBA receipts size
standard, they may under non-profit status. However, we are not aware
of data that would help us understand the relationship between health
plan firm and ownership tax status to quantify the number of such
firms. In any case, as explained in more detail later in this RIA, we
do not estimate that health plans would generally bear costs associated
with the changes in this proposed rule, as their contracted transaction
processing vendors (generally PBMs) would be responsible for
implementing the changes, and, generally, based on conversations with
the industry we do not believe their contractual terms would change as
the result. Therefore, although we cannot estimate the number of health
plan firms that may meet the small entity definition using non-profit
status, generally we do not believe such entities would bear costs
attributable to the proposed changes.
In addition to the covered entities, we estimate 30 pharmacy
management system vendors, 40 PBM vendors, three telecommunications
switching vendors, and four payment integrity/financial recovery firms
would be affected by the proposed changes to their clients. We

[[Page 67658]]

are not aware of comprehensive publicly available data detailed enough
to quantify the size of these remaining entities, but we believe that
the affected firms are, generally, part of larger organizations. We
solicit comments with respect to our assumptions.
b. Cost to Small Entities
To determine the impact on small pharmacies, we used Census
business data on the number of firms with fewer than 500 employees and
user training cost estimates developed using public comments on prior
rulemaking and updated for inflation. As discussed earlier in this RIA,
we assume that the clear majority of pharmacy firms are small entities
that rely on their contracted pharmacy management system vendors to
absorb HIPAA standard version conversion costs in return for ongoing
maintenance and transaction fees. We assume that pharmacy firms would
have direct costs related to Version F6 user training that would vary
in relation to employee size; that the vast majority (90 percent) of
small pharmacy firms with fewer than 20 employees would receive all
necessary user training from vendors; and that the remaining 10 percent
of small pharmacy firms (2,028) with 20 or more employees would have
additional staff user training expense totaling $30,000 on average in
the second year of the implementation period. As displayed in Table 10,
the resulting total impact of approximately $61 million represents
approximately 0.1 percent of small pharmacy annual revenues. Therefore,
we conclude that the financial burden would be less than the 3 percent
to 5 percent of revenue threshold for significant economic impact on
small entities.
[GRAPHIC] [TIFF OMITTED] TP09NO22.017

As stated in section V.F. of this proposed rule, we considered
various policy alternatives to adopting Version F6. Specific to
reducing costs to small entities, we considered staggering the
implementation dates for Version F6 among the affected entities that
utilize the NCPDP transaction standard. But we chose not to propose
this alternative because pharmacies, PBMs, and health plans all rely on
the information transmitted though the retail pharmacy transactions,
and if any one of these three entities would not be using the same
standard version at the same time, the information needed to process
claims and check eligibility would be deficient. Pharmacies need the
most current eligibility data from the plans to determine correct
coverage and payment information. Plans and PBMs would suffer because
they would not have the most current information reflected though the
claims data to maintain the beneficiaries' most current benefits.
2. Conclusion
As referenced earlier in this section, we use a baseline threshold
of 3 percent to 5 percent of revenues to determine if a rule would have
a significant economic impact on affected small entities. The small
pharmacy entities do not come close to this threshold. Therefore, the
Secretary has certified that this proposed will not have a significant
economic impact on a substantial number of small entities. Based on the
foregoing analysis, we invite public comments on the analysis and
request any additional data that would help us determine more
accurately the impact on the various categories of entities affected by
the proposed rule.
In addition, section 1102(b) of the Act requires us to prepare a
RIA if a rule would have a significant impact on the operations of a
substantial number of small rural hospitals. This analysis must conform
to the provisions of section 603 of the RFA. For purposes of section
1102(b) of the Act, we define a small rural hospital as a hospital that
is located outside of a metropolitan statistical area and has fewer
than 100 beds. This proposed rule would not affect the operations of a
substantial number of small rural hospitals because these entities are
not involved in the exchange of retail pharmacy transactions.
Therefore, the Secretary has certified that this proposed rule would
not have a significant impact on the operations of a substantial number
of small rural hospitals.

I. Unfunded Mandates Reform Act of 1995 (UMRA)

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates would require spending more in any 1
year than threshold amounts in 1995 dollars, updated annually for
inflation. In 2022, that threshold is approximately $165 million. This
proposed rule does not contain mandates that would impose spending
costs on state, local, or tribal governments in the aggregate, or by
the private sector, in excess of more than $165 million in any 1 year.
In general, each state Medicaid agency and other government entity that
is considered a covered entity would be required to ensure that its
contracted claim processors and payment integrity/financial recovery
contractors update software and conduct testing and training to
implement the adoption of the modified versions of the previously
adopted standards. However, information obtained by CAMH during its
conversations with industry experts supports that the costs for these
services would not increase as a result of the proposed changes. Our
understanding is that HIPAA standard conversion costs are already
priced into ongoing contractual payment arrangements between health
plans, contracted claim processors, and payment integrity/financial
recovery contractors.

J. Federalism

Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on state
and local governments, preempts state law, or

[[Page 67659]]

otherwise has federalism implications. This proposed rule would not
have a substantial direct effect on state or local governments, preempt
state law, or otherwise have a federalism implication because, even
though state Medicaid agency contractors would be converting to a
modified version of an existing standard with which they are already
familiar, we believe that any conversion costs, would, generally, be
priced into the current level of ongoing contractual payments. State
Medicaid agencies, in accordance with this proposed rule, would have to
ensure that their contracted claim processors or PBMs successfully
convert to Version F6 and that their payment integrity/financial
recovery contractors make relatively minor updates to subrogation
systems to collect and convey some new fields to conduct subrogation
initiated by other payers using Version 10. With respect to subrogation
for pharmacy claims, this proposed rule would not add a new business
requirement for states, but rather would replace a standard to use for
this purpose that would be used consistently by all health plans.
In accordance with the provisions of Executive Order 12866, this
proposed rule was reviewed by the Office of Management and Budget.

VI. Response to Comments

Because of the large number of public comments, we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

List of Subjects in 45 CFR Part 162

Administrative practice and procedures, Electronic transactions,
Health facilities, Health insurance, Hospitals, Incorporation by
reference, Medicaid, Medicare, Reporting and recordkeeping
requirements.

For the reasons set forth in the preamble, the Department of Health
and Human Services proposes to amend 45 CFR part 162 as set forth
below:

PART 162--ADMINISTRATIVE REQUIREMENTS

0
1. The authority citation for part 162 continues to read as follows:

Authority: 42 U.S.C. 1320d-1320d-9 and secs. 1104 and 10109 of
Public Law 111-148, 124 Stat. 146-154 and 915-917.

0
2. Section 162.920 is amended by--
0
a. Revising the introductory text of the section and the introductory
text of paragraph (b).
0
b. Adding paragraphs (b)(7) through (9).
The revisions and additions read as follows:

Sec. 162.920 Availability of implementation specifications and
operating rules.

Certain material is incorporated by reference into this subpart
with the approval of the Director of the Federal Register under 5
U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other than that
specified in this section, the Centers for Medicare & Medicaid Services
(CMS) must publish a document in the Federal Register and the material
must be available to the public. All approved incorporation by
reference (IBR) material is available for inspection at CMS and the
National Archives and Records Administration (NARA). Contact CMS at:
Centers for Medicare & Medicaid Services (CMS), 7500 Security
Boulevard, Baltimore, Maryland 21244; email:
<a href="/cdn-cgi/l/email-protection#a5e4c1c8cccbccd6d1d7c4d1ccd3c0f6ccc8d5c9ccc3ccc6c4d1cccacbe5c6c8d68bcdcdd68bc2cad3"><span class="__cf_email__" data-cfemail="de9fbab3b7b0b7adaaacbfaab7a8bb8db7b3aeb2b7b8b7bdbfaab7b1b09ebdb3adf0b6b6adf0b9b1a8">[email&#160;protected]</span></a>. For information on the
availability of this material at NARA, visit <a href="http://www.archives.gov/federal-register/cfr/ibr-locations.html">www.archives.gov/federal-register/cfr/ibr-locations.html</a> or email <a href="/cdn-cgi/l/email-protection#ddbbaff3b4b3aeadb8bea9b4b2b39db3bcafbcf3bab2ab"><span class="__cf_email__" data-cfemail="7a1c08541314090a1f190e1315143a141b081b541d150c">[email&#160;protected]</span></a>. The
material may be obtained from the sources in the following paragraphs
of this section.
* * * * *
(b) National Council for Prescription Drug Programs (NCPDP), 9240
East Raintree Drive, Scottsdale, AZ 85260; phone: (480) 477-1000; fax:
(480) 767-1042; website: <a href="http://www.ncpdp.org">www.ncpdp.org</a>.
* * * * *
(7) The Telecommunication Standard Implementation Guide Version F6
(Version F6), January 2020; as referenced in Sec. 162.1102; Sec.
162.1202; Sec. 162.1302; Sec. 162.1802.
(8) The Batch Standard Implementation Guide, Version 15 (Version
15), October 2017; as referenced in Sec. 162.1102; Sec. 162.1202;
Sec. 162.1302; Sec. 162.1802.
(9) The Batch Standard Subrogation Implementation Guide, Version 10
(Version 10), September 2019, as referenced in Sec. 162.1902.
* * * * *
0
3. Section 162.1102 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after
the January 1, 2012,'' and adding in its place the phrase ``For the
period from January 1, 2012, through [date TBD],''.
0
b. In paragraph (d) introductory text, removing the phrase ``For the
period on and after September 21, 2020,'' and adding in its place the
phrase ``For the period on and after September 21, 2020, through [date
TBD],''.
0
c. Adding paragraph (e).
The addition reads as follows:

Sec. 162.1102 Standards for health care claims or equivalent
encounter information transaction.

* * * * *
(e) For the period on and after [date TBD], the following
standards:
(1) Retail pharmacy drug claims. The Telecommunication Standard
Implementation Guide Version F6 (Version F6), January 2020 and
equivalent Batch Standard Implementation Guide, Version 15 (Version 15)
October 2017 (incorporated by reference, see Sec. 162.920).
(2) Dental health care claims. The ASC X12 Standards for Electronic
Data Interchange Technical Report Type 3--Health Care Claim: Dental
(837), May 2006, ASC X12N/005010X224, and Type 1 Errata to Health Care
Claim: Dental (837) ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3, October 2007, ASC X12N/005010X224A1
(incorporated by reference, see Sec. 162.920).
(3) Professional health care claims. The ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3--Health Care Claim:
Professional (837), May 2006, ASC X12N/005010X222 (incorporated by
reference, see Sec. 162.920).
(4) Institutional health care claims. The ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3--Health Care Claim:
Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata
to Health Care Claim: Institutional (837) ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3, October 2007, ASC
X12N/005010X223A1 (incorporated by reference, see Sec. 162.920).
(5) Retail pharmacy supplies and professional services claims. (i)
The Telecommunication Standard Implementation Guide Version F6 (Version
F6), January 2020 and equivalent Batch Standard Implementation Guide,
Version 15 (Version 15) October 2017 (incorporated by reference, see
Sec. 162.920).
(ii) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3-Health Care Claim: Professional (837), May
2006, ASC X12N/005010X222 (incorporated by reference, see Sec.
162.920).
0
4. Section 162.1202 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after
January 1, 2012,'' and adding in its place the phrase ``For the period
from January 1, 2012, through [date TBD],''.

[[Page 67660]]

0
b. Adding paragraph (d).
The addition reads as follows:

Sec. 162.1202 Standards for eligibility for a health plan
transaction.

* * * * *
(d) For the period on and after [date TBD], the following
standards:
(1) Retail pharmacy drugs. The Telecommunication Standard
Implementation Guide Version F6 (Version F6), January 2020, and
equivalent Batch Standard Implementation Guide, Version 15 (Version
15), October 2017 (incorporated by reference, see Sec. 162.920).
(2) Dental, professional, and institutional health care eligibility
benefit inquiry and response. The ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3--Health Care Eligibility Benefit
Inquiry and Response (270/271), April 2008, ASC X12N/005010X279
(incorporated by reference, see Sec. 162.920).
0
5. Section 162.1302 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after
January 1, 2012,'' and adding in its place the phrase ``For the period
from January 1, 2012, through [date TBD],''.
0
b. In paragraph (d) introductory text, removing the phrase ``For the
period on and after September 21, 2020,'' and adding in its place the
phrase, ``For the period on and after September 21, 2020, through [date
TBD],''.
0
c. Adding paragraph (e).
The addition reads as follows:

Sec. 162.1302 Standards for referral certification and authorization
transaction.

* * * * *
(e) For the period on and after [date TBD], the following
standards:
(1) Retail pharmacy drugs. The Telecommunication Standard
Implementation Guide Version F6 (Version F6), January 2020, and
equivalent Batch Standard Implementation Guide, Version 15 (Version
15), October 2017 (incorporated by reference, see Sec. 162.920).
(2) Dental, professional, and institutional request for review and
response. The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Services Review--Request for
Review and Response (278), May 2006, ASC X12N/005010X217, and Errata to
Health Care Services Review--Request for Review and Response (278), ASC
X12 Standards for Electronic Data Interchange Technical Report Type 3,
April 2008, ASC X12N/005010X217E1 (incorporated by reference, see Sec.
162.920).
0
6. Section 162.1802 is amended by--
0
a. In paragraph (c), removing the phrase ``For the period on and after
January 1, 2012,'' and adding in its place the phrase ``For the period
from January 1, 2012, through [date TBD],''.
0
b. In paragraph (d) introductory text, removing the phrase ``For the
period on and after September 21, 2020,'' and adding in its place the
phrase ``For the period on and after September 21, 2020, through [date
TBD],''.
0
c. Adding paragraph (e).
The addition reads as follows:

Sec. 162.1802 Standards for coordination of benefits information
transaction.

Subpart S--Pharmacy Subrogation

0
8. Section 162.1901 is amended by--
0
a. Revising the section heading.
0
b. Designating the text of the section as paragraph (a) and adding
paragraph (b).
The revision and addition read as follows:

Sec. 162.1901 Pharmacy subrogation transaction.

* * * * *
(b) The pharmacy subrogation transaction is the transmission of a
request for reimbursement of a pharmacy claim from a health plan that
paid the claim, for which it did not have payment responsibility, to
the health plan responsible for the claim.
0
9. Section 162.1902 is revised to read as follows:

Sec. 162.1902 Standards for pharmacy subrogation transaction.

(a) The Secretary adopts the following standards for the Medicaid
pharmacy subrogation transaction, described in Sec. 162.1901(a), for
the period from January 1, 2012, through [date TBD], The Batch Standard
Medicaid Subrogation Implementation Guide, Version 3, Release 0
(Version 3.0), July 2007, as referenced in Sec. 162.1902 (incorporated
by reference, see Sec. 162.920).
(b) The Secretary adopts the following standard for the pharmacy
subrogation transaction, described in Sec. 162.1901(b), The Batch
Standard Subrogation Implementation Guide, Version 10 (Version 10),
September 2019, as referenced in Sec. 162.1902 (incorporated by
reference, see Sec. 162.920).
(1) For the period on and after [date TBD], for covered entities
that are not small health plans.
(2) For the period on and after [date TBD], for small health plans.

Dated: November 1, 2022.
Xavier Becerra
Secretary, Department of Health and Human Services.
[FR Doc. 2022-24114 Filed 11-7-22; 4:15 pm]
BILLING CODE 4150-28-P

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