Managed Care has enjoyed quite some time in the sun since passage of the Affordable Care Act. Specifically, enrollment in Medicare Advantage plans have grown dramatically as the program has become more popular by offering benefits unavailable in traditional Medicare. The other advantage, pardon the pun, of MA plans is their liberal use of drug rebates procured by in-house or contracted pharmacy benefit managers to reduced benefit expense and, in turn, drive down premiums. In 2021, most MA plans will be offered with very low or no premium. While employer sponsored plans have gotten a bit more savvy about demanding the benefit of rebates, the legal and regulatory demands of Medicare Advantage's design has allowed them to flourish.
Although PBMs have insisted they pass their rebates on to plan sponsors, the fact is the PBM is often also a plan sponsor. For better or worse, drug price inflation has gone a long way in supporting enrollment growth in Medicare Advantage through lower premiums.
In 2018, the Office of the Inspector General proposed changes to the regulatory safe harbor that permitted use of rebates. As a refresher the major provisions were:
- Eliminate the safe harbor for price reductions on prescription drugs from manufacturers to plan sponsors under Medicare Part D and Medicaid Managed Care, effective Jan. 1, 2020 (which would presumably move to Jan. 1, 2022)
- Add a new safe harbor to protect discounts between manufacturers and plan sponsors in Medicare Part D and Medicaid Managed Care offered at the point of sale to beneficiaries, effective 60 days after finalization of rule.
- Add another safe harbor designed to protect fees pharmaceutical manufacturers pay to PBMs for services rendered to the manufacturers on a flat fee basis, (i.e. not tied to price of any drug), effective 60 days after finalization of rule.
The rule was purportedly withdrawn in July 2019 over concerns it would raise premiums and create a backlash from seniors ahead of the elections. According to the Office of Management and Budget, the rule, although supposedly withdrawn in July 2019, is now being reviewed.
The Trump administration's decision to try and finalize the rule comes at a time when MA plans are facing a good deal of uncertainty over COVID-19 related benefit expense. According to earnings commentary, about 60% of hospitalized COVID-19 patients have been Medicare eligible. Further, with schools closed, nurses in short supply and hospital throughput constrained, acuity levels are high and rising due to voluntary and involuntary delays in care. California's health care systems, with their mandatory nurse staffing ratios, represent a particularly significant pain point.
The last brick on the load is CMS's recent revision to Medicare Advantage penetration that suggests the program is more fully adopted that earlier numbers have suggested. Apparently, according to the data release, CMS was double counting beneficiaries in the denominator. Instead of 35-36% penetration, MA plans now claim about 43% of all eligible beneficiaries. Benefit consultants with whom we have spoken have noted that penetration in rural areas and among special populations like dual eligibles is going to be more difficult, raising questions about how much more room there is to grow, barring significant regulatory changes.
Given the changing political environment, the pressure Joe Biden will feel from his left will generally make those regulatory changes less attractive on the margin. The program enjoys bipartisan support but getting too aggressive with initiatives that might favor MA enrollment over traditional Medicare will probably raise the hackles of Biden's more outspoken critics, at a time when unity will be at a premium ahead of 2022 elections.
Finally, there will no doubt be legal questions about reviving a "withdrawn" rule. As always, I am going to presume creative government lawyers have properly vetted those issues. (The MFN drug rule is rumored to be on deck this week which does have a more tenuous legal footing if released as an Interim Final Rule but we are going to wait and see how they justify it.)
Let me know if you have any questions.
Emily Evans
Managing Director – Health Policy
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