January 14, 2011

The Honorable Darrell Issa

Chairman, Committee on Oversight and Government Reform
United States House of Representatives
Washington, DC 20515

Dear Chairman Issa:

Thank you for the opportunity to provide you with examples of existing and proposed
regulations that negatively impact the economy and job growth in the chain drug store
industry. As a critical driver of the economy, these issues are of the utmost importance to the
NACDS membership.

NACDS represents traditional drug stores, supermarkets, and mass merchants with
pharmacies – from regional chains with four stores to national companies. Chains operate
39,000 pharmacies and employ more than 2.7 million employees, including 118,000 full-time
pharmacists. They fill nearly 2.6 billion prescriptions annually, which is more than 72
percent of annual prescriptions in the United States. The total economic impact of all retail
stores with pharmacies transcends their $830 billion in annual sales. Every $1 spent in these
stores creates a ripple effect of $1.96 in other industries, for a total economic impact of $1.57
trillion, equal to 11 percent of GDP.

Health Information Technology for Economic and Clinical Health (HITECH) Act
The Health Information Technology for Economic and Clinical Health (HITECH) Act, which
passed into law in 2009, included among its provisions a comprehensive revision of the
privacy and security regulations adopted by HHS under the Health Insurance Portability and
Accountability Act (HIPAA). These revisions include new requirements for healthcare
providers to report breaches of sensitive patient information, provisions for patients to
exercise more control over their information, and an expansion of a requirement for
healthcare providers to maintain a detailed accounting of all disclosures of patient
information, to include daily, routine disclosures. This last provision is known as the
“accounting of disclosures” requirement.

HHS regulations currently require healthcare providers to maintain a detailed accounting of

only non-routine disclosures, with the understanding that patients would expect their
sensitive health information to be routinely disclosed, or shared, for the purposes of
healthcare treatment, payment, and operations. Patients expect their information to be shared
for these purposes, and these interactions occur millions of times per day, by pharmacies
alone—not including other healthcare providers, to deliver timely, safe, and efficient care.
Maintaining detailed records would require an overwhelming amount of information to be
stored.

The HITECH Act expands the accounting of disclosures requirement to include all
disclosures, even daily, routine disclosures. HHS is currently drafting regulations to
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implement this requirement. If this expansion of the accounting requirement were to be

imposed on pharmacies, it would cause chain pharmacies to have to completely replace their
existing information technology systems nationwide. This would have a significant negative
impact on many pharmacies that are currently struggling. In comment letters to HHS and in
discussions with the agency, NACDS has urged that this expansion of the accounting of
disclosures provision not apply to information technology systems that are not eligible for
federal funding under the HITECH Act, as pharmacy systems are not.

DMEPOS Accreditation
The Medicare Modernization Act of 2003 (MMA) added requirements for suppliers
(including state-licensed retail pharmacies) of Medicare Part B durable medical equipment
and supplies (DMEPOS) to comply with accreditation quality standards to supply and bill for
these items and services. Pharmacies are the most accessible provider in the community for
patients to receive these items and services such as diabetic testing supplies, canes, crutches
and other items. The process for pharmacies and other suppliers to become accredited by the
CMS accreditation organizations requires considerable time, resources, and costs. NACDS
actively sought an exemption from accreditation for retail pharmacies in view of the state-
licensure requirements - both pharmacies and pharmacists must be licensed by the state to
provide pharmacy services including medical equipment and supplies.

Section 3109 of the recently enacted healthcare reform law, the “Affordable Care Act”
(“ACA”) did establish a conditional set of criteria that would allow pharmacies that have
been Medicare suppliers for 5 years or more and sell less that 5% DMEPOS to have the
conditional exemption. Although NACDS is supportive of the conditional exemption as it
provided some relief for pharmacies, we recognize that the negative impact on certain
pharmacies remains. A significant number must still be accredited, e.g. new pharmacies and
pharmacies with 5 years or less enrollment as a DMEPOS supplier and those that sell as little
as 6% DMEPOS. As such these pharmacies face the economic choice of the costs of
accreditation or foregoing providing DMEPOS to their patients.

Medicare Provider Enrollment, Chain and Ownership system (PECOS)

In 2009, the Centers for Medicare and Medicaid (CMS) announced the first phase of the
requirement for the provider that orders or refers Medicare Part B items for a patient to have
a current enrollment record in the Provider Enrollment, Chain and Ownership System
(PECOS). If the provider did not have an enrollment record, the pharmacy that supplied the
medical equipment or supplies to the patient would receive a message indicating the provider
was not enrolled.

The unfortunate consequence for pharmacies is that they have no control over whether a
provider is enrolled in PECOS and no ability to require them to be enrolled. As a result
pharmacies who want to assure that their patients receive their ordered medical equipment
and supplies face the difficult choice of denying patients their needed healthcare items or
providing them and being at risk for no payment.
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We are appreciative of recent actions by CMS to address the issue of a number of providers
not being enrolled in PECOS and to not implement the second phase of the PECOS
enrollment requirement. Phase two would have automatically rejected and denied payment to
pharmacies for Part B claims. CMS had planned to start automatically rejecting payment of
the supplier’s Part B claims beginning January 3, 2011 if the provider did not have a current
PECOS record. ACA contained a provision to implement this requirement on July 1, 2010
and CMS regulations set the requirement date of July 6, 2010. However, CMS has indicated
that they will not implement phase two until a later time yet to be determined.

DMEPOS Competitive Bidding

On January 1, 2011, CMS implemented a Competitive Bidding Program (CBP) for Durable
Medical Equipment and Supplies, including diabetes testing supplies (DTS) purchased
through mail order. This initial round of the CBP is limited to 9 competitive bidding areas
(CBAs) around the country and is planned to eventually become a nationwide program. As
the most readily accessible health care providers, community pharmacies and pharmacists are
uniquely positioned to assist Medicare beneficiaries with their DTS needs, their questions,
and to assist them with the proper use of these items and supplies. CMS has thus far
excluded retail pharmacies from Round 1 and future rounds of the CBP.

NACDS has urged that DTS obtained at retail community pharmacies should continue to be
excluded from future rounds of the CBP as diabetic patients rely heavily on their local
pharmacies for their prescription medications, including insulin. Limiting access to DTS at
community pharmacies would fragment care, thereby increasing patient confusion and
disrupting therapy, all of which can increase overall program costs. In addition to furnishing
supplies, one-on-one patient consultations provided by local pharmacists are often the first
opportunity to identify other chronic illnesses and changes in patients’ conditions, and these
consultations often result in early detection, referral, and treatment. Continued participation
of community retail pharmacies in serving Medicare patients with diabetic supplies and
medication should therefore be a priority of the Medicare program.

Thank you again for the opportunity to provide you with this information. We look forward
to partnering with you in the 112th Congress on issues impacting chain pharmacy.

Sincerely,

Steve Anderson, IOM, CAE

President and CEO
National Association of Chain Drug Stores