On October 11, 2011, the Centers for Medicare and Medicaid Services (CMS) published a Notice of Proposed Rulemaking titled “Proposed Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs for Contract Year 2013 and Other Proposed Changes: Considering Changes to the Conditions of Participation for Long Term Care Facilities” (the “Proposed Rule”) in the Federal Register. This client alert summarizes some of the key Medicare Part D program changes discussed in the Proposed Rule that may impact Medicare Advantage Prescription Drug Plan and Prescription Drug Plan (collectively “Medicare Part D Plans”) sponsors, pharmacy benefit managers, pharmacies and other entities providing services to Medicare Part D beneficiaries for or on behalf of Medicare Part D Plans.

Codification of Coverage Gap Discount Program Guidance

First, the Proposed Rule would memorialize sub-regulatory guidance governing the administration of the Coverage Gap Discount Program, which CMS was required to implement for plan year 2011 by Section 3300 of the Affordable Care Act. Under the Coverage Gap Discount Program, manufacturers of brand name Part D drugs, including authorized generics approved by the Food and Drug Administration under a New Drug Application, are required to provide Medicare Part D beneficiaries a 50 percent point-of-service discount off the negotiated price (not including the dispensing fee) of such brand name Part D drugs while in the beneficiary is in the coverage gap phase of the Part D benefit. The Proposed Rule would extend the existing coverage determination and appeals process available to Medicare Part D beneficiaries to disputes including the availability and amount of discounts under the Coverage Gap Discount Program.

Implementation of Pharmacy Benefit Manager Transparency Requirements in the Affordable Care Act

Section 6005 of the Affordable Care Act requires that Part D Plan sponsors and pharmacy benefit managers that provide pharmacy benefit management services to Part D Plans sponsors to provide certain information, on any annual basis, to CMS and/or the Part D Plan sponsor including:

  1. The percentage of prescriptions that were provided through retail pharmacies compared to mail order pharmacies;
  2. The percentage of prescriptions for which a generic drug was available and dispensed by pharmacy type, including chain, independent, supermarket and mass merchandiser pharmacy;
  3. The aggregate amounts and the type of rebates, discounts or price concessions (including bona fide service fees) that the pharmacy benefit manager negotiates and that are attributable to patient utilization under the Part D Plan and the aggregate amount of such rebates, discounts or price concessions that are passed through to the Part D Plan sponsor;
  4. The aggregate amount of the difference between the amount the Medicare Part D Plan sponsor pays the pharmacy benefit manager and the amount that the pharmacy benefit manager pays retail pharmacies and mail order pharmacies for dispensed drugs; and
  5. The total number of prescriptions that were dispensed.

While Section 6005 of the Affordable Care Act recognizes that the information disclosed to CMS or a Part D Plan sponsor under Section 6005 is confidential, the Proposed Rule proposes permitting CMS to disclose such data without identifying a specific Part D Plan, pharmacy benefit manager or price, as necessary to administer the Medicare Part D program and to permit the Comptroller General and Director of the Congressional Budget Office to review the information provided.

Rather than implementing new reporting obligations, CMS is attempting to leverage existing reporting mechanisms to capture the required information. For instance, CMS plans to capture the difference between the amount the Medicare Part D Plan sponsor pays the pharmacy benefit manager and the amount the pharmacy benefit manager pays retail pharmacies and mail order pharmacies in annual Direct and Indirect Remuneration reports. CMS is specifically seeking comments on this approach and whether the data elements required to be reported under Section 6005 of the Affordable Care Act are captured in existing Prescription Drug Event or other records or reports currently filed by Part D Plan sponsors with CMS.

Termination of a Part D Plan Sponsor’s Contract by CMS Related To Quality Measures

The Proposed Rule would provide CMS with the express and explicit authority to terminate its contracts with sponsors of Part D Plans that have failed to achieve at least a 3-star rating under the CMS 5-star plan rating system for a period of 3 consecutive contract years. This proposed termination right represents a significant change in CMS’ contracting approach in that it would permit CMS to terminate a Medicare Part D Plan sponsor’s contract solely based on the quality of services provided to enrollees, rather than the sponsor’s compliance with the law, Medicare Part D regulations, CMS guidance and compliance with requirements set forth in the contract between the Medicare Part D Plan sponsor and CMS.

Expansion of Part D Coverage

Section 175 of the Medicare Improvements for Patients and Providers Act of 2008, requires that Part D Plans cover benzodiazepines and barbiturates when these products used to treat epilepsy, cancer, or chronic mental health disorders on or after January 1, 2013. As such, the Proposed Rule seeks to amend the definition of Part D Drug to include benzodiazepines and barbiturates.

Preferred Durable Medical Equipment (DME) Items and Supplies

The Proposed Regulation would for the first time allow Medicare Advantage Prescription Drug Plans that now are required to cover DME items and supplies pursuant to Medicare Part B to limit coverage to certain preferred DME products or brands. In other words, the Proposed Rule would permit DME formularies. The Proposed Rule would also require sponsors of Medicare Advantage Prescription Drug Plans to establish a medical necessity process to entertain requests for coverage of nonpreferred DME items and supplies and to cover all medically necessary DME items and supplies, including those that are nonpreferred. Denials of nonpreferred DME items and supplies would be subject to the current beneficiary coverage determination and appeals process.

Establishment of Daily Cost-Sharing Rate For Initial Fills

The Proposed Rule would require Part D Plan sponsors to provide enrollees access to a daily pro-rated cost-sharing rate for initial fills of prescriptions dispensed by a network pharmacy, other than antibiotics and drugs customarily dispensed in their original packaging, for less than a 30 day supply of a prescription drug. This will enable prescribers and beneficiaries to synchronize refills of multiple prescription drugs.

Independence of Consulting Pharmacists in Long Term Care Facilities

Of note, in the Proposed Rule, CMS is exploring requiring that consultant pharmacists in long term care facilities be independent from long term care pharmacies and pharmaceutical manufacturers.

In the Proposed Rule, CMS has expressed concern that the intertwined financial relationships between consultant pharmacists in long term care facilities, long term care pharmacies and pharmaceutical manufacturers may negatively impact patient safety and quality of care. Particularly, CMS is concerned with the ability of consultant pharmacists to switch long term care patients’ medications without regard to the cost structure of patients’ Part D Plan formularies, the functioning of drug utilization management programs or, most importantly, the best of interest of patients.

The full text of the Proposed Rule is available here. Comments on the Proposed Rule will be accepted by CMS from all stakeholders through December 12, 2011 at 5 pm.