CMS Issues Proposal to Amend Medicare Parts C and D – On November 26, 2018, CMS published a proposed rule (the Proposed Rule) to amend the Medicare Advantage (MA) program and Medicare Part D with the goal of allowing health and drug plans to negotiate for lower drug prices and reducing out-of-pocket costs for Part C and D enrollees. The deadline for submitting comments on the Proposed Rule is January 25, 2019. The Proposed Rule is the latest effort in the implementation of the Trump Administration’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (Drug Pricing Blueprint), which was released in May 2018.

The Drug Pricing Blueprint outlined the following four strategies to lower drug prices and reduce out-of-pocket costs: 1) improve competition, 2) allow for better negotiation, 3) create incentives for lower list prices, and 4) lower out-of-pocket costs. CMS touts the Proposed Rule as a means to “remove administrative hurdles to offer lower cost options to seniors and provide support for private sector partners by providing them the tools to lower the cost of prescription drugs.” CMS several weeks ago issued a proposed rule related to Part B, and this newest rulemaking is one of several expected rulemakings that follows.

Major Proposed Provisions

Providing Plan Flexibility to Manage Protected Classes

Under the current regulations, Part D sponsors have the power to create their own prescription drug formularies provided they cover at least two drugs per “therapeutic class,” but are required to include in their formularies the following six protected classes: 1) antidepressants; 2) antipsychotics, 3) anticonvulsants; 4) immunosuppressants for treatment of transplant rejection; 5) antiretovirals; and 6) antineoplastics. Part D plan formularies must include all drugs in these “protected classes” unless the Secretary has provided otherwise through “established exceptions.” See 42 U.S.C. § 1395w-104(b)(3). Prior to this Proposed Rule, CMS has not established any exceptions or otherwise changed the six classes.

The Proposed Rule purports to give Part D sponsors greater flexibility to negotiate discounts for drugs in the protected classes, and to reduce the leverage drug manufacturers have in negotiating rebates. The Proposed Rule seeks to add exceptions to allow Part D sponsors to do the following:

  • Broaden the use of prior authorization (PA) and step therapy for protected class drugs;
  • Exclude from the formulary protected class drugs that are a new formation of a protected class Part D drug, even if the older formulation is removed from the market; and
  • Exclude from the formulary any protected class drug when an increase to its list price outpaces inflation (proposed to be measured by the consumer price index).

E-Prescribing and the Part D Prescription Drug Program; Updating Part D E-Prescribing Standards

Under the Proposed Rule, sponsors will be required to implement an electronic real-time benefit tool (RTBT) that is capable of integrating with prescribers’ e-prescribing and electronic medical record (EMR) systems on or before January 1, 2020. The Proposed Rule states that RTBT tools have the capability to inform prescribers when lower-cost alternative therapies are available and allow prescribers access to “complete, accurate, timely, clinically appropriate and patient-specific real-time formulary and benefit information.” Additionally, CMS states that evidence suggests that reducing medication costs also yields benefits in patients’ medication adherence.

Medicare Advantage and Step Therapy for Part B Drugs

The Proposed Rule memorializes a previously issued policy issued by CMS allowing MA plans to apply step therapy as a recognized utilization management (UM) tool for Part B drugs. The Proposed Rule reaffirms MA plans’ authority to implement appropriate UM and PA programs to reduce costs to both beneficiaries and the Medicare program. CMS believes that allowing plans to use UM tools, such as step therapy, will enhance the ability of MA plans to negotiate Part B drug costs and thus reduce costs for MA beneficiaries overall or per unit for Part B drugs. The Proposed Rule will place the following limitations on the use of step therapy: step therapy requirements may only apply to new starts of medication; step therapy must be reviewed and approved by the plan’s pharmacy and therapeutics committee; and, coverage requests related to Part B drugs will be subject to short adjudication timeframes that mirror the current rules in Part D.

Pharmacy Price Concessions to Drug Prices at the Point of Sale

According to 42 U.S.C. § 1395w-102(d)(1)(B), “negotiated prices shall take into account negotiated price concessions, such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations, for covered Part D drugs, and include any dispensing fees for such drugs.” Additionally, under the current regulations, the “negotiated prices” of drugs must include all price concessions from network pharmacies except those that cannot reasonably be determined at the point of sale. Sponsors “are allowed, but generally not required, to apply rebates and other price concessions at the point of sale to lower the price upon which beneficiary cost-sharing is calculated.”

Sponsors have historically been able to successfully negotiate price concessions from network pharmacies, known as “DIR Fees,” which are often applied after the point-of-sale. Thus, sponsors generally may choose whether or not to include those concessions when calculating negotiated price. And as the share of pharmacy remuneration contingent on performance grows, “the negotiated price is rendered less transparent at the individual prescription level and less representative of the actual cost” to the insurer. According to CMS, these price concessions have made it “increasingly difficult for consumers to know at the point of sale what share, or approximate share, they are paying of the costs of their prescription drugs to the plan.” As a result, consumers cannot minimize their own costs, or the costs to the government.

Under the Proposed Rule, in a future plan year, which may be as early as 2020, CMS would redefine “negotiated price” to eliminate the “reasonably determined” exception and thus capture the price concession information just described at the point of sale. Additionally, the Proposed Rule contemplates adding a definition of “price concession,” which will include all forms of discounts and direct or indirect subsidies or rebates that serve to reduce the costs incurred by Part D sponsors. The Part D sponsor will also be allowed to account for dispensing fees paid to pharmacies in the calculation of price concessions.

Other Proposed Provisions

Prohibition Against Gag Clauses in Pharmacy Contracts – The Medicare statute prohibits Part D sponsors from prohibiting a pharmacy from, or penalizing a pharmacy for, informing a Part D enrollee of the availability at that pharmacy of a prescribed medication at a cash price lower than the amount the enrollee would be charged to obtain the same medication through the enrollee’s Part D plan. Under the Proposed Rule, CMS intends to implement this prohibition in the regulations.

Part D Explanation of Benefits – Part D sponsors must provide enrollees with a written explanation of benefits (EOB) no later than the end of the month following any month in which the enrollee utilized their prescription drug benefit. The EOB must include the following information:

  • The item or service for which payment was made and the amount of said payment;
  • Notice of an individual’s right to an itemized statement;
  • Cumulative, year-to-date total amount of benefits provided (including the deductible, initial coverage limit, and the annual out-of-pocket threshold for the current benefit year);
  • The cumulative, year-to-date total of incurred costs; and
  • Any applicable formulary changes.

The Proposed Rule will require sponsors to include information about negotiated price changes and lower-cost therapeutic alternatives. CMS’s goal with this proposal is to inform enrollees about possible ways to lower out-of-pocket costs by taking lower cost medications.

Anticipated Impact

Under the Proposed Rule, CMS estimates that MA enrollees will reduce their spending on cost sharing by $754 million over 10 years and the Medicare Trust Fund will reduce its spending by $3.8 billion over 10 years. CMS anticipates the various provisions will have the following individual impact:



Providing Plan Flexibility to Manage Protected Classes

The estimated savings to the Trust Fund are $141-$180.5 million in 2020-2024, increasing to $195-$240 million in 2025-2029. The governments saves $1.85 billion. Enrollees save $692 million in cost sharing.

E-Prescribing and the Part D Prescription Drug Program; Updating Part D E-Prescribing Standards

The scoring of this provision is complex. While there is potential for savings to the Trust Fund arising from substitution of lower cost-sharing tier drugs, we have no way of quantifying this. Also, we are uncertain at this point of the cost to industry to implement this provision. The implementation would most likely involve plans building their own software or use of 3rd party vendors. Both these options are very expensive and might outweigh the savings.

Part D Explanation of Benefits

There is an estimated cost of $0.2 million in the first year of implementation.

Medicare Advantage and Step Therapy for Part B Drugs

The estimated savings to enrollees due to reduced out-of-pocket costs are between $5 and $7 million for 2020-2024 and are between $7 and $10 million for 2025-2029. The savings to the Trust Fund are between $145 and $185 million for 2020-2024 and between $195 and $240 million for 2025-2029. There is a modest cost to the government and its contractors of $1 to $1.3 million in 2020-2029 due to a projected increased in appeals. These estimates reflect use of step therapy for which CMS announced authority for MA organizations beginning 2019; that is, estimates reflect impact on the Medicare Trust Fund if plans start using step therapy in


Pharmacy Price Concessions in the Negotiated Price

If this policy were adopted for 2020 or a future year, there would be an impact on beneficiaries, the government, and manufacturers. Beneficiaries would save $7.1 to $9.2 billion over 10 years (2020 to 2029), resulting from reduced cost-sharing, offset by slightly higher premiums. However, the provision would be estimated to cost the government $13.6 to $16.6 billion over that span. Manufacturers would also save, about $4.9 to $5.8 billion from 2020 to 2029. Part D sponsors would incur a first year cost of $0.1 million in additional administrative activities related to submission of PDE data.

The Proposed Rule was published in the Federal Register on November 30, 2018, and is available here. The CMS fact sheet is available here.

CMS Announces Additional Guidance on State Empowerment and Relief Waiver Concepts -- Following up on a Federal Register notice published October 24, 2018, CMS announced additional information relating to State Relief and Empowerment Waivers, also known as “Section 1332 Waivers” on November 29, 2018 (the Discussion Paper). Section 1332 Waivers allow states to bypass certain Affordable Care Act (ACA) requirements around essential health benefits, subsidies, premium tax credits, and more. Under the new guidance, CMS encourages states to seek waivers under the following four categories: 1) state-specific premium assistance, 2) adjusted plan options, 3) account-based subsidies, and 4) risk stabilization strategies. CMS hopes to “spur innovation” and “reduce burdens for states” through the new guidance.

History of Section 1332 Waivers

Under ACA Section 1332, states may apply to the Department of Treasury and HHS for a waiver of certain aspects of the ACA. Waivable requirements include, e.g., those around essential health benefits, subsidies to beneficiaries to purchase insurance, requirements for state exchanges, premium tax credits, and the employer mandate. See ACA § 1332(a)(2) (allowing waiver of ACA Title I, Subtitle D, Part I and II, ACA Section 1402, Section 36B of the Internal Revenue Code, Section 4980H of the Internal Revenue Code, and Section 5000A of the Internal Revenue Code).

In determining whether to approve a Section 1332 Waiver, the Secretaries must determine that the proposed state plan will: 1) “provide coverage that is at least as comprehensive” as that offered through the exchanges, 2) “provide coverage and cost sharing protections against out-of-pocket spending that are at least as affordable” as would otherwise be provided, 3) “provide coverage to at least a comparable number of its residents” as would otherwise be provided, and 4) “not increase the Federal deficit.” See ACA § 1332(b)(1). These four limitations are known as the statutory “guardrails.”

Section 1332 Waivers were first available starting in 2017 for 5-year renewable terms and, under the terms of the statute, states continued to receive the same amount of federal funding for approved waivers they would have otherwise received (i.e., funding related to premium tax credits, small business tax credits, and cost-sharing reductions). See ACA §§ 1332(a)(3), (e). In 2012, the Secretaries of the Departments of Treasury and HHS finalized implementing regulations at 31 C.F.R. Part 33 and 45 C.F.R. Part 155, which required, e.g., states to provide actuarial analyses and certifications, economic analyses, data assumptions, implementation timeline, and other information to support compliance with ACA § 1332(b)(1) when applying for a waiver.

Recent Guidance

President Trump issued Executive Order 13765 shortly after taking office in January 20, 2017. That order required, in part, that “to the maximum extent permitted by law, the Secretary of HHS . . . shall exercise all authority and discretion available . . . to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [ACA] that would impose a fiscal burden on any state . . . .”

Citing that order, the Departments of Treasury and HHS provided additional guidance on Section 1332 Waivers on October 24, 2018. According to the Secretaries, they “are seeking to reduce burdens that may impede a state’s efforts to implement innovative changes and improvements to its health insurance market while remaining consistent with the statute.” 83 Fed. Reg. 53575, 53576-77 (Oct. 24, 2018). Specifically, the Secretaries will “look favorably upon” new waiver applications from states that promote the following principles:

  • “Provide increased access to affordable private market coverage;”
  • “Encourage sustainable spending growth;”
  • “Foster state innovation;”
  • “Support and empower those in need;” and
  • “Promote consumer-driven healthcare.”

83 Fed. Reg. at 53577. The Department of Treasury and HHS’ “more flexible” interpretation of Section 1332 will focus on access to coverage, rather than coverage actually purchased by residents, within the statutory guardrails. Id. It will also allow states “to provide access to less comprehensive or less affordable coverage as an additional option.” 83 Fed. Reg. at 53578.

In the Discussion Paper published on November 29, 2018, CMS announced four “waiver concepts” for states to consider in applying for a Section 1332 exemption:

  • State-specific premium assistance, which would allow states to “design a subsidy structure that meets the unique needs of its population.” A state might provide premium credits based on age or conditions, rather than income, for example.
  • Adjusted plan options, where “states would be able to provide financial assistance for different types of health insurance plans,” including expanding the ability of consumers to use state subsidies to purchase catastrophic plans, individual market plans that are not “qualified health plans,” or other plans that do not meet ACA requirements.
  • Account-based subsidies, which would allow a state to “direct public subsidies into a defined-contribution, consumer-directed account” (a Health Expense Account), which individuals could use to pay premiums or other healthcare expenses. The subsidies may be funded through premium or small business tax credits, and could include individual and employer contributions.
  • Risk stabilization strategies, which “gives states more flexibility to implement reinsurance programs or high-risk pools.” States may use claims or conditions cost-based models.

However, states are not required to use these waiver concepts, and may use them in combination with other state proposals or policy changes.

President Trump’s January 20, 2017 Executive Order is available here. The Department of Treasury and HHS’ Federal Register guidance published October 24, 2018, is available here. CMS’s fact sheet is available here. CMS’s Discussion Paper is available here. CMS’s Section 1332 website, including a listing of the states that have applied for Section 1332 Waivers, is available here.

U.S. Deputy Attorney General Rod Rosenstein Announces Revisions to Department of Justice Polices Related to Individual Accountability for Corporate Wrongdoing – On November 29, 2018, at the American Conference Institute’s International Conference on the Foreign Corrupt Practices Act in National Harbor, Maryland, Mr. Rosenstein announced noteworthy policy changes related to the Individual Accountability for Corporate Wrongdoing Memo, also known as the Yates Memo. The Yates Memo was issued by former Deputy Attorney General Sally Yates in September 2015, and required that, to be eligible for cooperation credit in resolving matters with DOJ, corporations under investigation provide DOJ with all relevant facts about the individuals involved in corporate misconduct. The recent policy changes are the product of the DOJ’s yearlong review of the Yates Memo.

The revised policy changes how the government will handle criminal and civil investigations. Specifically, under the revised policy, companies under civil investigation are only required to identify individuals that were “substantially” involved in the corporate misconduct, rather than all potential individuals involved in the matter. Mr. Rosenstein noted that the DOJ is most interested in “individuals who play significant roles in setting a company on a course of criminal conduct,” meaning those who “authorized the misconduct.” Mr. Rosenstein further clarified that a corporate resolution to an investigation will not protect culpable individuals from criminal liability. By allowing prosecutors to move forward without requiring that companies identify all individuals involved in the misconduct, DOJ prosecutors will have greater discretion to provide cooperation credit.

Further, under the revised policy, the DOJ prosecutors will be permitted to consider an individual’s ability to pay when deciding whether it will pursue a civil judgment against the person. Overall, the DOJ hopes that these changes will result in the more efficient use of the department’s resources, and encourage cooperation in DOJ investigations. The revised Justice Manual implementing the revisions at Section 4-3.100 can be found here. The text of Mr. Rosenstein’s remarks can be found here.

CMS Launches New Procedure Price Lookup Tool – On November 30, 2018, CMS launched the Procedure Price Lookup tool that enables consumers to search the tool by type of procedure to compare the national average cost for procedures performed in both ambulatory surgery centers and hospital outpatient departments. The tool shows the national average amount a beneficiary with no Medicare supplemental insurance pays for the medical procedure if it is performed in an ambulatory surgery center as compared to a hospital outpatient department. The tool also shows the national averages for the amount Medicare would pay for the procedure in both sites of service.

In CMS’s press release about the new tool, CMS Administrator Seema Verma explained “the Procedure Price Lookup will help patients with Medicare consider potential cost differences when choosing where to have a medical procedure that best meets their needs . . . .”

The Procedure Price Lookup tool is being launched as required by the 21st Century Cures Act.