On November 26, 2018, CMS released a proposed rule for the Medicare Advantage Part C and D programs. The stated goals are to help MA-PD plans and PDPs in negotiating lower prescription drug costs and to reduce out-of-pocket expenses for beneficiaries. Click here to download the full document.
Five major regulatory provisions are proposed:
- Provide increased flexibility for plans to manage protected drug classes.
- Prohibit Part D sponsors from implementing “gag clauses” on network pharmacies.
- Require plans to implement a real time benefit tool by 1/1/2020.
- Establish requirements plans must follow related to step therapy for Part B drugs.
- For 2020, or a future year, change the definition of “negotiated price” to remove the current exception that excludes contingent payments that cannot “reasonably be determined” at the point of sale.
Please note that the discussion below is intended to be a quick reference should not be considered a full summary of the proposed rule.
Providing Plan Flexibility to Manage Protected Classes
In the proposed rule, CMS proposes three exceptions to the current protected class policy:
- Broader use of prior authorization (PA) and step therapy (ST) for protected class drugs.
- Exclusion of a protected class drug from a formulary if the drug is a new formulation.
- Exclusion of a protected class drug from a formulary if the price increases beyond the rate of inflation (CPI-U).
In addition to increased flexibility using ST on Part D drugs, MA-PD plans will be allowed, starting in 2020, to require step therapy of Part B drugs before Part D drugs for the protected classes as well. Prior authorization requirements would be allowed for any protected class drug with more than one medically-accepted indication.
All of these changes have pricing implications for both Part C and Part D bids in 2020.
In addition to these new areas of flexibility, CMS also proposes to allow indication-based formulary design and utilization management, consistent with the July 25, 2018 HPMS memorandum.
With respect to excluding new formulations, the excluded drug must be a protected class single-source drug or biological product for which the manufacturer introduces a new formulation with the same active ingredient or that does not provide a unique route of administration.
Based on CMS comments, these new areas of flexibility are intended to provide increased leverage for Part D sponsors in negotiating discounts and rebates with pharmacy benefit managers. Over the last two years, cost inflation on protected class drugs has exceeded non-protected class drugs, so CMS is hopeful this increased flexibility will curb the inflation. If plans successfully negotiate lower costs, then beneficiaries will in turn see reduced cost sharing.
Prohibition against Gag Clauses in Pharmacy Contracts
Effective 1/1/2020, Part D plan sponsors cannot restrict network pharmacies from informing enrollees when an alternative drug would be less expensive if the cash price is less than the enrollee’s cost sharing amount.
This provision constitutes the implementing regulation associated with the “Know the Lowest Price” law enacted by Congress.
E-Prescribing and the Part D Prescription Drug Program
In the interest of reducing beneficiary out-of-pocket expenses and drug costs in general, CMS is proposing, effective 1/1/2020, Part D plan sponsors implement a “real-time benefit tool” (RTBT) that integrates with at least one prescriber’s electronic prescription and EMR systems to provide real-time formulary and benefit information to the prescriber.
The key to this proposal is the real-time and beneficiary-specific nature of the information provided. This allows prescribers and patients to choose among clinically acceptable alternatives, while considering cost.
CMS also notes that lower beneficiary cost is linked to higher medication adherence.
This rule is not requiring sponsors to adopt a specific RTBT, as there is not an industry-established standard.
CMS recognizes that significant resources will be required for plan sponsor to develop
an RTBT solution, so they are seeking comment on the impact of the proposed effective date (as well as comment on RTBT standardization efforts in the industry).
This rule will have added complexity if the proposal to re-define “negotiated price” (discussed below) is adopted. For example, if pharmacy payments contingent on annual performance metrics are used, how will these be factored into the display of cumulative benefits and out-of-pocket spending of the beneficiary?
Part D Explanation of Benefits
Effective 1/1/2020, Part D monthly EOBs would be required to include the following information:
- The cumulative percent change in negotiated drug price since the first day of the current benefit year
- Information about therapeutic alternatives with lower cost-sharing or with the same cost-sharing, but at a lower negotiated price
The goal of requiring the additional information is again to educate beneficiaries on drug cost and potential lower-cost alternatives.
For contract year 2019, plan sponsors can include this information in the Part D EOB, but it is not required.
Step Therapy for Part B Drugs
CMS proposes to allow MA plans to apply step therapy as a utilization management tool for Part B drugs for 2020. Step therapy on Part B drugs will also be allowed during 2019, but with slightly different rules due to the late announcement of this policy (August 7, 2018 HPMS memo), after 2019 bids were already submitted.
As with other provisions in the proposed rule, CMS expects this flexibility to reduce costs and afford plans more negotiating power. Specifically, step therapy is expected to promote more cost effective therapies, potentially better clinical decisions, and lower costs for treatment (e.g. by using less expensive biological products and discontinuation of medications prior to use of more expensive drugs).
For contract year 2019 any savings attributable to Part B step therapy had to be passed along to beneficiaries via rewards and incentives. This will continue to be an option for 2020 and subsequent contract years, but plans can also pass anticipated savings to beneficiaries by reflecting savings in the plan’s bids.
There are a number of operational requirements described in the proposed rule that plans should be aware of, including disclosing step therapy requirements in the plan’s Annual Notice of Change (ANOC), procedures for educating providers, use of a committee to review and approve step therapy programs, and conditions as to when step therapy can be applied.
Pharmacy Price Concessions
Since the inception of the Part D program, the “negotiated price” of a drug has been defined to include all price concessions that can be “reasonably determined” at the point of sale (POS). Plan sponsors and PBMs have negotiated network pharmacy price concessions based on performance measures defined by the sponsor or PBM. Such price concessions have increased substantially in recent years (45000% from 2010 to 2017), increasing faster than any other category of direct and indirect remuneration (DIR). After manufacturer rebates, network pharmacy price concessions are the largest portion of total DIR.
Recently, less than 1% of plans have applied price concessions at the POS. Since such concessions typically occur after the POS, they rarely factor into the POS price reflected in the Prescription Drug Event (PDE) record, and are instead applied after the POS as DIR. Because price concessions are typically payments from the pharmacy to the plan sponsor/PBM (for “poor performance”), the POS price is generally higher than it would be if concessions were reflected. Higher POS prices, with concessions adjudicated as DIR, all else equal lead to higher member cost sharing (paid by government for low income members) but also may result in lower premiums, due to the mechanics in the bid pricing tool (i.e. plans only share DIR with CMS, and not with beneficiaries or drug manufacturers).
CMS is considering for a future plan year, potentially as early as 2020, to require that the negotiated price at POS account for all concessions, and reflect the lowest possible payment a network pharmacy could receive for a particular drug (i.e. assuming worst possible performance by pharmacy on performance measures). Any incentive payments made by the plan sponsor to the pharmacy would later be adjudicated as negative DIR. CMS has suggested that such an approach would lead to more accurate comparability of drug prices, bid pricing, and plan premiums. Considering current statutory definitions, CMS acknowledges that it may need to consider an alternative definition of negotiated price for drugs in the coverage gap (to reflect only those price concessions that the plan sponsor elects to pass through at the POS).
Importantly, as has been a topic of industry interest, CMS is considering whether non-pharmacy price concessions such as manufacturer rebates should also be adjudicated at the POS, but is not putting forth any specific recommendation or proposal at this point. .
Plan sponsors should review the proposed regulation and consider submitting comments to CMS (the comment deadline is January 25, 2019). As we noted, the proposed rule raises operational questions that will need to be addressed by plan sponsors and PBMs. There will be pricing implications in the bids, and other actuarial considerations such as trend and Part D risk corridor projections.
Finally, the provisions are likely to necessitate re-negotiation of contracts between plan sponsors and pharmacy benefit managers. Being able to project the impact of any PBM contract changes will be critical for accurate bid projections.
Wakely has the tools and expertise to help sort through these types of issues. We can analyze the impact of plan operational changes on bids, and have experience providing comparative analyses of alternative PBM contract proposals. If you are interested in these types of analyses or have questions on the proposed rule, please contact your Wakely consultant, or email us at info@Wakely.com.