Section 423.104 - Requirements related to qualified prescription drug coverage(a)General. Subject to the conditions and limitations set forth in this subpart, a Part D sponsor must provide enrollees with coverage of the benefits described in paragraph (c) of this section. The benefits may be provided directly by the Part D sponsor or through arrangements with other entities. CMS reviews and approves these benefits consistent with § 423.272 , and using written policy guidelines and requirements in this part and other CMS instructions.(b)Availability of prescription drug plan. A PDP sponsor offering a prescription drug plan must offer the plan-(1) To all Part D eligible beneficiaries residing in the plan's service area; and(2) At a uniform premium, with uniform benefits and level of cost-sharing throughout the plan's service area.(c)Types of benefits. The coverage provided by a Part D plan must be qualified prescription drug coverage.(d)Standard prescription drug coverage. Standard prescription drug coverage includes access to negotiated prices as described under paragraph (g)(1) of this section, provides coverage of Part D drugs, and must meet the following requirements(1)Deductible. An annual deductible equal to- (ii)For years subsequent to 2006. The amount specified in this paragraph for the previous year, increased by the annual percentage increase specified in paragraph (d)(5)(iv) of this section, and rounded to the nearest multiple of $5.(2)Cost-sharing under the initial coverage limit.(i) Subject to paragraph (d)(4) of this section, coinsurance for actual costs for covered Part D drugs covered under the Part D plan above the annual deductible specified in paragraph (d)(1) of this section, and up to the initial coverage limit under paragraph (d)(3) of this section, that is-(A) Equal to 25 percent of actual cost; or(B) Actuarially equivalent to an average expected coinsurance of no more than 25 percent of actual cost, as determined through processes and methods established under § 423.265(c) and (d) .(ii)Tiered copayments. A Part D plan providing actuarially equivalent standard coverage may apply tiered copayments, provided that any tiered copayments are consistent with paragraphs (d)(2)(i)(B) and (d)(4) of this section and are approved as described in § 423.272(b)(2) .(iii) Tiered cost sharing under paragraph (d)(2)(ii) of this section may not exceed levels annually determined by CMS to be discriminatory.(iv) Specialty tier means a formulary cost sharing tier dedicated to high-cost Part D drugs with ingredient costs for a 30-day equivalent supply (as described in paragraph (d)(2)(iv)(A)(2) of this section) that are greater than the specialty tier cost threshold specified in paragraph (d)(2)(iv)(A) of this section.(A)Specialty-tier cost threshold. CMS sets the specialty-tier cost threshold for a plan year in accordance with this paragraph (d)(2)(iv)(A), using the following steps: (1)30-day equivalent ingredient cost. Using the PDE data as specified in paragraph (d)(2)(iv)(C) of this section, CMS uses the ingredient cost reflected on the prescription drug event (PDE) to determine the ingredient cost in dollars for a 30-day equivalent supply of the Part D drug.(2)30-day equivalent supply. CMS determines the 30-day equivalent supply as follows: If the days' supply reported on a PDE is less than or equal to 34, the number of 30-day equivalent supplies equals one. If the days' supply reported on a PDE is greater than 34, the number of 30-day equivalent supplies is equal to the number of days' supply reported on each PDE divided by 30.(3)Top 1 percent. CMS determines the amount that equals the lowest 30-day equivalent ingredient cost that is within the top 1 percent of all 30-day equivalent ingredient costs reflected in the PDE data.(4)Determination. Except as provided in paragraph (d)(2)(iv)(B) of this section, the amount determined in paragraph (d)(2)(iii) of this section is the specialty-tier cost threshold for the plan year.(5)Claims history. Except for newly FDA-approved Part D drugs only recently available on the market for which Part D sponsors would have little or no claims data, CMS approves placement of a Part D drug on a specialty tier when that Part D sponsor's claims data from the time period specified in paragraph (d)(2)(iv)(C) of this section demonstrates that greater than 50 percent of the Part D sponsor's PDEs for a given Part D drug, when adjusted for 30-day equivalent supplies, have ingredient costs for 30-day equivalent supplies, as described in paragraph (d)(2)(iv)(A)(2) of this section, that exceed the specialty-tier cost threshold.(6)No claims history. For newly FDA-approved Part D drugs only recently available on the market for which Part D sponsors would have little or no claims data, CMS approves placement of a Part D drug on a specialty tier when that Part D sponsor estimates that ingredient cost portion of their negotiated prices for a 30-day equivalent supply, as defined in subparagraph (d)(2)(iv)(A)(2), is anticipated to exceed the specialty-tier cost threshold more than 50 percent of the time, subject to the requirements at §§ 423.120(b), (e), and (f).(B)Limit on specialty-tier cost threshold adjustment.(1) CMS increases the specialty-tier cost threshold for a plan year only if the amount determined in paragraph (d)(2)(iv)(A)(3) of this section for a plan year is at least 10 percent above the specialty tier cost threshold for the prior plan year.(2) If an increase is made in accordance with this paragraph (d)(2)(iv)(B), CMS rounds the amount determined in paragraph (d)(2)(iv)(A)(3) of this section to the nearest $10, and the resulting dollar amount is the specialty-tier cost threshold for the plan year.(C)Data used to determine the specialty-tier cost threshold. CMS uses PDEs from the plan year that ended 12 months prior to the applicable plan year.(D)Maximum number of specialty tiers and maximum allowable cost sharing. A Part D plan may maintain up to two specialty tiers. CMS sets the maximum allowable cost sharing for a single specialty tier, or, in the case of a plan with two specialty tiers, the higher cost sharing specialty tier as follows: (1) For Part D plans with the full deductible provided under the Defined Standard benefit, as specified in paragraph (d)(1) of this section, 25 percent coinsurance.(2) For Part D plans with no deductible, 33 percent coinsurance.(3) For Part D plans with a deductible that is greater than $0 and less than the deductible provided under the Defined Standard benefit, a coinsurance percentage that is determined by subtracting the plan's deductible from 33 percent of the initial coverage limit (ICL) under section 1860D-2(b)(3) of the Act, dividing this difference by the difference between the ICL and the plan's deductible, and rounding to the nearest 1 percent.(3)Initial coverage limit. Except as provided in paragraphs (d)(4) and (d)(5) of this section, the initial coverage limit is equal to-(ii)For years subsequent to 2006. The amount specified in this paragraph for the previous year, increased by the annual percentage increase specified in paragraph (d)(5)(iv) of this section, and rounded to the nearest multiple of $10.(4)Cost-sharing in the coverage gap for applicable beneficiaries.(i) Coinsurance in the coverage gap (as defined in § 423.100 ) for costs for covered Part D drugs that are not applicable drugs (as defined in § 423.100 ) under the Medicare coverage gap discount program that is-(A) Equal to the generic gap coinsurance percentage described in paragraph (d)(4)(iii) of this section; or(B) Actuarially equivalent to an average expected coinsurance for covered Part D drugs that are not applicable drugs under the Medicare coverage gap discount program, as determined through processes and methods established under § 423.265 (c) and (d) .(ii) Coinsurance in the coverage gap for the actual cost minus the dispensing fee and any vaccine administration fee for covered Part D drugs that are applicable drugs under the Medicare coverage gap discount program that is- (A) Equal to the difference between the applicable gap coinsurance percentage described in paragraph (d)(4)(iv) of this section and the discount percentage determined under the Medicare coverage gap discount program; or(B) Actuarially equivalent to an average expected coinsurance for covered Part D drugs that are applicable drugs under the Medicare coverage gap discount program, as determined through processes and methods established under § 423.265 (c) and (d) .(iii)Generic gap coinsurance percentage. The generic gap coinsurance percentage is equal to- (A) For 2011, 93 percent.(B) For years 2012 through 2019, the amount specified in this paragraph for the previous year, decreased by 7 percentage points.(C) For 2020 and each subsequent year, 25 percent.(iv)Applicable gap coinsurance percentage. The applicable gap coinsurance percentage is equal to- (A) For 2013 and 2014, 97.5 percent.(B) For 2015 and 2016, 95 percent.(C) For 2017, 90 percent.(D) For 2018, 85 percent.(E) For 2019, 80 percent.(F) For 2020 and subsequent years, 75 percent.(5)Protection against high out-of-pocket expenditures.(i) After an enrollee's incurred costs exceed the annual out-of-pocket threshold described in paragraph (d)(5)(iii) of this section, cost-sharing equal to the greater of-(A)Copayments.(1) In 2006, $2 for a generic drug or preferred drug that is a multiple source drug (as defined in section 1927(k)(7)(A)(i) of the Act) and $5 for any other drug; and(2) For subsequent years, the copayment amounts specified in this paragraph for the previous year increased by the annual percentage increase described in paragraph (d)(5)(iv) of this section and rounded to the nearest multiple of 5 cents; or(B)Coinsurance. Coinsurance of five percent of actual cost.(ii) As determined through processes and methods established under § 423.265(c) and (d) , a Part D plan may substitute for cost-sharing under paragraph (d)(5)(i) of this section an amount that is actuarially equivalent to expected cost-sharing under paragraph (d)(5)(i) of this section.(iii)Annual out-of-pocket threshold. For purposes of this part, the annual out-of-pocket threshold equals-(B)For each year 2007 through 2013. The amount specified in this paragraph for the previous year, increased by the annual percentage increase specified in paragraph (d)(5)(iv) of this section, and rounded to the nearest multiple of $50.(C)For years 2014 and 2015. The amount specified in this paragraph for the previous year, increased by the annual percentage increase specified in paragraph (d)(5)(iv) of this section, minus 0.25 percentage point.(D)For each year 2016 through 2019. The amount specified in this paragraph for the previous year, increased by the lesser of- (1) The annual percentage increase specified in (d)(5)(v) of this section plus 2 percentage points; or(2) The annual percentage increase specified in (d)(5)(iv) of this section.(E)For 2020. The amount specified in this paragraph for 2013 increased by the annual percentage increases specified in paragraph (d)(5)(iv) of this section for 2014 through 2020, and rounded to the nearest $50.(F)For 2021 and subsequent years. The amount specified in this paragraph for the previous year, increased by the annual percentage increase specified in paragraph (d)(5)(iv) of this section, and rounded to the nearest $50.(iv)Annual percentage increase. The annual percentage increase for each year is equal to the annual percentage increase in average per capita aggregate expenditures for Part D drugs in the United States for Part D eligible individuals and is based on data for the 12-month period ending in July of the previous year.(v)Additional annual percentage increase. The annual percentage increase for each year is equal to the annual percentage increase in the consumer price index for all urban consumers (United States city average) for the 12-month period ending in July of the previous year.(e)Alternative prescription drug coverage. Alternative prescription drug coverage includes access to negotiated prices as described under paragraph (g)(1) of this section, provides coverage of Part D drugs, and must meet the following requirements- (1) Has an annual deductible that does not exceed the annual deductible specified in paragraph (d)(1) of this section;(2) Imposes cost-sharing no greater than that specified in paragraphs (d)(5)(i) or (ii) of this section once the annual out-of-pocket threshold described in paragraph (d)(5)(iii) of this section is met;(3) Has a total or gross value that is at least equal to the total or gross value of defined standard coverage.(4) Has an unsubsidized value that is at least equal to the unsubsidized value of standard prescription drug coverage. For purposes of this subparagraph, the unsubsidized value of coverage is the amount by which the actuarial value of the coverage exceeds the actuarial value of the subsidy payments under § 423.782 for the coverage; and(5) Provides coverage that is designed, based upon an actuarially representative pattern of utilization, to provide for the payment, for costs incurred for covered Part D drugs, that are equal to the initial coverage limit under paragraph (d)(3) of this section, of an amount equal to at least the product of - (i) The amount by which the initial coverage limit described in paragraph (d)(3) of this section for the year exceeds the deductible described in paragraph (d)(1) of this section; and(ii) 100 percent minus the coinsurance percentage specified in paragraph (d)(2)(i) of this section.(f)Enhanced alternative coverage.(1) Enhanced alternative coverage must meet the requirements under paragraph (e) of this section and includes- (i) Basic prescription drug coverage, as defined in § 423.100 ; and(ii) Supplemental benefits, which include- (A) Coverage of drugs that are specifically excluded as Part D drugs under paragraph (2)(ii) of the definition of Part D drug under § 423.100 ; or(B) Any of the following changes or combination of changes that increase the actuarial value of benefits under the Part D plan above the actuarial value of defined standard prescription drug coverage, as determined through processes and methods established under § 423.265 - (1) A reduction in the annual deductible described in paragraph (d)(1) of this section;(2) A reduction in the cost-sharing described in paragraphs (d)(2) or (d)(5) of this section, or(3) An increase in the initial coverage limit described in paragraph (d)(3) of this section.(C) Both the coverage described in paragraph (f)(1)(ii)(A) of this section and the changes or combination of changes described in paragraph (f)(1)(ii)(B) of this section.(2)Restrictions on the offering of enhanced alternative coverage by PDP sponsors. A PDP sponsor may not offer enhanced alternative coverage in a service area unless the PDP sponsor also offers a prescription drug plan in that service area that provides basic prescription drug coverage.(3)Restrictions on the offering of enhanced alternative coverage by MA organization s. Effective January 1, 2006, an MA organization-(i) May not offer an MA coordinated care plan, as defined in § 422.4 of this chapter, in an area unless either that plan (or another MA plan offered by the MA organization in that same service area) includes required prescription drug coverage; and(ii) May not offer prescription drug coverage (other than that required under Parts A and B of title XVIII of the Act) to an enrollee-(A) Under an MSA plan, as defined in § 422.2 of this chapter; or(B) Under another MA plan (including a private fee-for-service plan, as defined in § 422.4 of this chapter) unless the drug coverage under the other plan provides qualified prescription drug coverage and unless the requirements of paragraph (f)(3)(i) of this section are met.(4)Restrictions on the offering of enhanced alternative coverage by cost plans.(i) A cost plan that elects to offer qualified prescription drug coverage may offer enhanced alternative coverage as an optional supplemental benefit under § 417.440(b)(2)(ii) of this chapter only if the cost plan also offers basic prescription drug coverage. An enrollee in the cost plan may, at the individual's option, elect whether to receive qualified prescription drug coverage under the cost plan and, if so, whether to receive basic prescription drug coverage or, if offered by the cost plan, enhanced alternative coverage.(ii) A cost plan that offers qualified prescription drug coverage as an optional supplemental benefit under § 417.440(b)(2)(ii) of this chapter may not offer prescription drug coverage that is not qualified prescription drug coverage. A cost plan that does not offer qualified prescription drug coverage under § 417.440(b)(2)(ii) of this chapter may offer prescription drug coverage that is not qualified prescription drug coverage under § 417.440(b)(2)(i) of this chapter.(g)Negotiated prices - (1)Access to negotiated prices. A Part D sponsor is required to provide its Part D enrollees with access to negotiated prices for covered Part D drugs included in its Part D plan's formulary. Negotiated prices must be provided even if no benefits are payable to the beneficiary for covered Part D drugs because of the application of any deductible or 100 percent coinsurance requirement following satisfaction of any initial coverage limit. Negotiated prices must be provided when the negotiated price for a covered Part D drug under a Part D sponsor's benefit package is less than the applicable cost-sharing before the application of any deductible, before any initial coverage limit, before the annual out-of-pocket threshold, and after the annual out-of-pocket threshold.(2)Interaction with Medicaid best price. Prices negotiated with a pharmaceutical manufacturer, including discounts, subsidies, rebates, and other price concessions, for covered Part D drugs by the following entities are not taken into account in establishing Medicaid's best price under section 1927(c)(1)(C) of the Act- (i) A Part D plan, as defined in § 423.4 ; or(iii) A qualified retiree prescription drug plan (as defined in § 423.882 ) for Part D eligible individuals.(3)Disclosure.(i) A Part D sponsor is required to disclose to CMS data on aggregate negotiated price concessions obtained from pharmaceutical manufacturers, as well as data on aggregate negotiated price concessions obtained from pharmaceutical manufacturers that are passed through to beneficiaries, via pharmacies and other dispensers, in the form of lower subsidies paid by CMS on behalf of low-income individuals described in § 423.782 , or in the form of lower monthly beneficiary premiums or lower covered Part D drug prices at the point of sale.(ii) Information on negotiated prices disclosed to CMS under paragraph (g)(3) of this section is protected under the confidentiality provisions applicable under section 1927(b)(3)(D) of the Act.(4)Audits. CMS and the Office of the Inspector General may conduct periodic audits of the financial statements and all records of Part D sponsors pertaining to any qualified prescription drug coverage they may offer under a Part D plan.(h)Valid prescription. A Part D sponsor may only provide benefits for Part D drugs that require a prescription if those drugs are dispensed upon a valid prescription.(i)Daily cost-sharing rate. Beginning January 1, 2014, a Part D sponsor is required to provide its enrollees access to a daily cost-sharing rate in accordance with § 423.153(b)(4) .70 FR 4525, Jan. 28, 2005, as amended at 74 FR 1544, Jan. 12, 2009; 75 FR 19816, Apr. 15, 2010; 76 FR 21571, Apr. 15, 2011; 77 FR 22169, Apr. 12, 2012; 80 FR 7963, Feb. 12, 2015; 86 FR 6115, Jan. 19, 2021 86 FR 6115, 3/22/2021; 89 FR 30833, 6/3/2024