OVERVIEW:The White House has made clear its goal to modernize the Part D benefit. That effort includes shifting more liability to plan sponsors while at the same time allowing greater utilization and cost management. The administration may also use the rule to further blur the lines between Part B and Part D drugs and introduce alternative pricing mechanisms like value-based and indication-based pricing. Most of the likely changes represent bad news for PhaRMA, though it is likely CMS will also propose point of sale rebates, a change long sought by drug manufacturers |
When CMS released the Medicare Advantage and Part D rule last week to implement portions of the Bi-partisan Budget Act of 2018, they included a warning of sorts, “We note CMS plans to release a proposed Medicare rule soon to further the President’s agenda of reducing drug costs.” You would be forgiven for thinking that line was a reference to the Advanced Notice of Proposed Rulemaking on Part B reform released with much fanfare on Thursday. Unfortunately for anyone looking for the pace of drug price reform to change, it looks like there is yet another rule in the offing.
Sure enough, on Friday, CMS sent to the White House a rule titled “Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out of Pocket Costs.”
It isn’t too hard to figure out what the administration is talking about. President Trump’s “Blueprint to Lower Drug Costs and Reduce Out of Pocket Expenses” included a number of goals that fit into the notion of “modernizing” Part D and Medicare Advantage. In the RFI that accompanied the Blueprint, and in the White House’s FY 2019 budget request, the administration describes its five point plan to “modernize” Part D:
- Require Part D plan sponsors to apply at least 1/3 of total rebates and price concessions at the point of sale
- Exclude manufacturer discounts from the calculation of beneficiary out-of-pocket costs in the coverage gap
- Establish a beneficiary out-of-pocket maximum in the Medicare Part D catastrophic phase to reduce out-of-pocket spending
- Increase Part D formulary flexibility by requiring a minimum of one drug per class or category instead of two
- Eliminate cost-sharing on generic drugs for low-income beneficiaries
The White House budget and the RFI also include a reference to expanding Part D plan sponsor’s ability to use utilization management to control costs. That provision was addressed, at least initially, by a recent sub-regulatory guidance that permitted Part D plan sponsors to use step therapy and to manage it across Part B and D drugs.
The point of this “modernization” is to shift more liability to the Part D plans. In recent years, the risk borne by plan sponsors has been reduced as the price of Part D drugs have hurried beneficiaries through the initial coverage and coverage gap phases of the benefit to the catastrophic phase where the federal government picks up most of the tab.
While it is undeniable that manufacturer rebates are keeping Part D premiums low, the effect of that approach is what PhaRMA refers to as “reverse insurance.” Beneficiaries with high drug costs (and therefore generators of large rebate amounts) are, in effective subsidizing people with low drug cost by keeping annual premiums on a slow growth trajectory.
Complicating matters somewhat is a decision by Congress in February to shift beneficiary and Part D plan liability to manufacturers, in contradiction of good policy. A Trump White House official recently accused Congress of "doing violence" to the Part D program as a result of the move and suggested the administration would support industry efforts to reverse it.
Not surprisingly, PhaRMA is supportive of bullets one and two above which are negatives to Part D plan sponsors like UNH, HUM, AET, ANTM who will be faced with greater risk management responsibilities. In fairness to the plans, CMS is offering increased flexibility in managing their formularies to reduce the risk somewhat.
Another Part D related provisions referenced in the budget and/or the Blueprint is moving Part B drugs to Part D. The administration has made frequent reference to the need to merge the benefits into one. Because doing so would require an Act of Congress, the CMS has endeavored to find regulatory backdoors to accomplish the same thing.
The recent step therapy sub-regulatory guidance includes a provision that allows Plan D sponsors to manage utilization “holistically” by requiring use of a Part D drug before one offered in Part B. The International Pricing Model for Part B released to much fanfare last week, creates a role for vendors similar to Part D plan sponsors. In fact, the proposed rule identifies Part D plan sponsors as likely vendors for the new program.
It is possible that in the pending rule CMS offers another regulatory device to hasten the merger of the two benefits, which may create an offsetting tailwind to the headwind created by increased liability.
Finally, the administration has pledged, also under the heading of modernization, to allow Part D plan sponsors great flexibility in using modern utilization and price negotiation strategies. They have, in the past, suggested value-based purchasing and indication-based pricing as mechanism to control costs. These initiatives may be included in this rule as well.
Lastly, the proposed Part D rule may look to coordinate with the reinterpretation of the OIG’s safe harbor regulations, also pending at the White House. The administration has made reference to a fiduciary rule for Part D plan sponsors – something Secretary Azar refered to as “directional." It could also be included, if not as the actual imposition of fiduciary standards, then something similar. For example, CMS could require that pharmacy benefit managers and other third party participants in the drug supply chain supporting Part D be paid on a flat fee basis instead of as a percentage of list price to demonstrate their allegiance to plan sponsors instead of drug manufacturers.
The timing of release of the rule is uncertain. Given the pace of announcements and the flurry of activity at CMS, we would expect it to be released before the end of the year to accommodate inclusion in the 2020 plan year.
Call with questions or we will call you.
Emily Evans
Managing Director – Health Policy
Twitter
LinkedIn
