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The Trump administration declined to require Medicare Part D plans to offer point of sale rebates to beneficiaries in the rule that was released last week. Instead, they offered a new policy that would limit retroactive clawbacks of Direct and Indirect Remuneration (DIR) by Part D plan sponsors and Pharmacy Benefit Managers. In doing so, CMS creates a new level of uncertainty just in time for the industry to have started its pivot away from manufacturer rebates. |
The new policy would amend the definition of negotiated price (the price paid at the pharmacy counter and used to determine beneficiary cost sharing and plan liability) to include the lowest amount a pharmacy could receive for a Part D drug and would take into consideration all pharmacy price concessions and dispensing fees but exclude additional contingent amounts such as incentive fees that would have the effect of increasing prices.
The policy is being considered “for a future year, as soon as 2020.”
The Policy. By changing the definition of negotiated price, CMS is requiring that payment reductions due to performance evaluations, administrative charges or other price concessions, be included in the negotiated price paid at the pharmacy counter. Currently and until CMS adopts this change, the law permits plan sponsors and PBMs to exclude from the definition of negotiated price those charges that cannot reasonably be determined at the point-of-sale, like retrospective performance-based arrangements.
The focus of CMS’s ire are pharmacy price concessions which are applied weeks or months after a purchase. According to CMS, pharmacy price concessions, net of all pharmacy incentive payments have grown faster than any other category of DIR. Much of the growth occurred after 2012 when use by Part D sponsors of performance-based payment arrangements became more prevalent.
Performance-based pharmacy price concessions, net of all pharmacy incentive payments, increased on average nearly 225 percent between 2012 and 2017 and now comprise the second largest category of DIR after manufacturer rebates.
The policy goals, as articulated in CMS’s proposed rule, are:
- Reduce beneficiary cost-sharing by lowering negotiated price
- Mitigate cost-shifting into the catastrophic phase where Medicare pays 80 percent of the cost
- Bring consistency to way in which plan sponsors treat DIR and gross drug prices in the Part D plan bids
- Encourage competition by reducing the risk associated with DIR claw backs for independent pharmacies
The Impact. There is not much data on DIR fees in general and pharmacy price concessions. The last information CMS released was in January 2017 which grouped all DIR fees, including manufacturer rebates together. In that report CMS noted the growth of DIR fees (including manufacturer rebates) and expressed concerns about the resulting higher out-of-pocket spending for beneficiaries and cost-shifting to the government.
The proposed rule does include an estimate of changes to beneficiary and government spending. Government spending is expected to increase $16.6 billion over 10 years while beneficiary expense should drop about $9 billion due to $15 billion in lower cost-sharing offset by about $6 billion in higher premiums.
The biggest problem with the proposal is that is does not name a date certain on which the change in policy will be effective, injecting a good bit of uncertainty into the Part D plan sponsor models.
And that might just be the point.
When the idea that Pharmacy Benefit Managers pass manufacturer rebates through to beneficiaries, the part of the industry that had not moved away from its dependency on rebates, began to do so. In making this latest policy change – which is clearly developed and considered to a greater degree than sharing manufacturer rebates with Part D beneficiaries – uncertain as to implementation date, if at all, the administration may have a similar response of voluntary cooperation.
Medicare Part D plans have the ability to pass pharmacy price concession through to beneficiaries but choose instead to avail themselves of the “reasonably be determined at the time of sale” exclusion. In this rule, CMS has laid out a pathway for plans to comply while keeping in its back pocket the option of forcing change through the Medicare Part D bid process.
Alternative theories as to why CMS is taking such a tentative approach to forcing the industry to do what the developers of the Medicare Part D program expected in the first place include:
- CMS is keeping its options open as it proceeds with changes to the safe harbor rule which is being processed independently at the OIG
- The administration wants to proceed cautiously with changes to the Part D program that may raise premiums
It is a strange way of pursuing policy changes but the convoluted and complicated nature of the Medicare Part D program and the pharmaceutical industry makes for some very difficult policy solutions.
Call with questions.
Emily Evans
Managing Director – Health Policy
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