The rising cost of drugs in the U.S. is frequently in the news. So it is not surprising that in its (Proposed Rule), the Centers for Medicare & Medicaid Services (CMS) seeks to address Part D drug prices. CMS proposes making certain changes that might lower drug costs (for Plan Sponsors and beneficiaries) and requests information regarding avenues to potentially lower Medicare beneficiaries’ point-of-sale drug costs. The three provisions in the Proposed Rule that most directly relate to drug pricing address: (1) generic drug formulary placement, (2) cost-sharing for follow-on biological products, and (3) whether and how to reduce point-of-sale drug prices based on manufacturer rebates and pharmacy price concessions that a Plan Sponsor might receive months after the beneficiary receives the drugs. We will concentrate on the first two provision in this post. The third provision, which is a request for information, will be discussed in a later post.

Generic Drug Formulary Placement

Under the Proposed Rule, Part D Plan Sponsors can immediately change the formulary status of a brand drug (or remove it) and replace it with its therapeutically equivalent newly-approved generic drug. Currently, when a new generic drug enters the market, Part D Plan Sponsors can add it to their formularies, but cannot remove the brand drug or change the brand drug’s formulary status without first obtaining CMS approval and giving beneficiaries 60 days written notice of the pending change and access to a transition fill of the brand drug.

The Proposed Rule allows immediate changes to the formulary status of a brand drug under the following conditions:

  1. The Plan Sponsor must give all beneficiaries a prospective general notice that the Plan Sponsor is able to make certain generic substitutions without additional advance notice;
  2. The Plan Sponsor could not have included the generic drug on its most recent formulary submission (or later update window) to CMS because it had not been released to market at the time;
  3. The generic drug must be made available to beneficiaries at the same or lower cost-sharing than the brand drug that is being moved or removed; and
  4. Once the formulary change has occurred, the Plan Sponsor must provide a more specific notice to affected beneficiaries, CMS, and other entities (e.g., State Patient Assistance Programs, entities providing other prescription drug coverage, authorized prescribers, network pharmacies, and pharmacists).

The Proposed Rule makes additional changes concerning transition notice and refill requirements, shortening both to 30 days and expressly carving out generic substitutions from the transition fill requirements, provided the substitution satisfies the four conditions above.

CMS suggests that it is seeking to give Plan Sponsors more freedom but is also trying to ensure that it has retained adequate beneficiary protections. The Proposed Rule would potentially help Plan Sponsors lower drug costs by allowing for generic substitution earlier than currently allowed. It is unclear whether CMS has considered how this proposal would affect CMS’s request for information concerning whether and how to reduce point-of-sale drug prices based on manufacturer rebates that a Plan Sponsor will receive months are the beneficiary receives the drugs. Many drug rebate agreements with manufacturers closely align rebates on a brand drug with the drug’s formulary placement. To the extent that a Plan Sponsor is able to immediately change the formulary placement of a brand drug, the Plan Sponsor will receive less (or possibly no) rebates on the brand drug and be less able to estimate potential rebates that it could pass through at the point-of-sale.

Cost-Sharing for Follow-On Biological Products

Currently, follow-on biological products are subject to high cost-sharing because they do not meet the definition of multiple source drugs or the CMS definition of generic drug under the Part D rules. As a result, these products are subject to higher maximum cost-sharing limits for low income subsidy eligible (LIS) beneficiaries generally and for all Part D beneficiaries who are in the catastrophic phase of coverage. CMS now proposes to amend the definition of generic drug in the Part D rules to include follow-on biological products approved under section 351(k) of the Public Health Services Act for the limited purpose of LIS cost-sharing and the catastrophic phase of coverage for other Part D beneficiaries. This change would make follow-on biological products available at lower cost-sharing to Part D beneficiaries in catastrophic phase of coverage and to LIS beneficiaries. This change would not result in a follow-on biological product being considered a generic drug for all purposes. The proposed immediate substitution of a generic drug for a brand drug on a Plan Sponsor’s formulary discussed earlier would not apply to follow-on biological products.

As mentioned last week, the Proposed Rule touches on many issues and we will continue to discuss these issues in our upcoming posts.