CMS requires Medicare Part D cost transparency, expands beneficiary protections and tightens SNP rules

The Centers for Medicare and Medicaid Services (CMS) amended, on January 12, 2009 in 74 Federal Register 1493, the Medicare Advantage (MA) and Medicare Prescription Drug (Part D) Rules to require cost transparency in the Part D prescription drug prices reported to CMS, to expand beneficiary protections, and to tighten the rules applicable to MA special needs plans (SNPs). CMS issued an additional amendment to the Part D Rule on January 16, 2009 in 74 Federal Register 2881 to reflect changes in Part D formulary requirements made by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA).

On January 20, 2009, the Obama Administration White House Chief of Staff issued a directive to the heads of all executive departments and agencies to, inter alia, “[c]onsider extending for 60 days the effective date of regulations that have been published in the Federal Register but not yet taken effect.” See 74 Fed. Reg. 4435 (Jan. 26, 2009). The Part D Rule amendment published January 16 is not impacted by the directive because this amendment took effect immediately upon its publication in the Federal Register. The MA and the Part D Rule amendments published January 12 may be impacted. Consequently, if and when those amendments become effective and their compliance dates must be met is uncertain. As a result, the effective and compliance dates for those amendments set out below may change.

Part D Drug Cost Transparency

Reporting Only “Pass-Through” Part D Drug Prices. The Part D Rule amendments mandate that, beginning in plan year 2010, Part D plan sponsors must report to CMS the amounts pharmacies actually receive for dispensed Part D drugs—the “pass-through” prices. This means Part D plan sponsors, which pay their pharmacy benefits managers (PBMs) a contracted amount for each dispensed Part D drug—a “lock-in” price—will need to ensure their PBMs furnish data on the “pass-through” prices for dispensed Part D drugs for reporting to CMS. Part D plan sponsors may continue to contract with their PBMs for “lock-in” or other pricing, as long as they can obtain “pass-through” price data from their PBMs to report to CMS.

Action Item: Part D plan sponsors should review their PBM contracts to determine the pricing and data reporting terms. Part D plan sponsors need to ensure those terms require their PBMs to disclose, starting January 1, 2010, the “pass-through” prices for dispensed Part D drugs. Part D plan sponsors should try to complete PBM contract review and any contract amendment in sufficient time to be able to take into account any pricing changes that may impact the Part D plan sponsors’ 2010 plan year bid submissions due June 1, 2009.

Rebates and Other Remuneration. The Part D Rule amendments codify, effective March 13, 2009, CMS’s guidance that all drug manufacturers’ rebates and other direct and indirect remuneration (DIR) be deducted from the dispensed Part D drug costs that Part D plan sponsors report to CMS. These deductions must include any DIR that a Part D plan sponsor’s PBM (or other intermediary) receives from drug manufacturers, pharmacies or others.

Action Item: Part D plan sponsors should review their contracts with their PBMs and any other intermediaries to ensure that those vendors are obligated to disclose all rebates and other DIR received from any party for dispensed Part D drugs.

MA and Part D Enrollee Protections

Provider Contract Terms to Protect Dual Eligibles. Beginning January 1, 2010, MA network providers must look to State Medicaid agencies for payment of cost-sharing amounts owed for treatment of dual eligible MA enrollees. MIPPA had mandated that SNPs include in provider contracts a prohibition against network providers billing or collecting from dual eligible enrollees cost-sharing amounts for which State Medicaid agencies are responsible. The amendments extend that mandate to all MA organizations enrolling dual eligibles. To facilitate compliance, MA organizations will be required to “inform [network] providers of Medicare and Medicaid benefits, and rules for enrollees eligible for Medicare and Medicaid.”

Action Item: MA organizations should review their provider contract forms and amend them as necessary to ensure that, by January 1, 2010, network providers are contractually prohibited from billing dual eligible enrollees for cost-sharing amounts for which State Medicaid agencies are responsible. The provider contracts may permit the network providers to seek payment of those cost-sharing amounts from the applicable State Medicaid agencies. MA organizations should also develop educational materials to inform their network providers about Medicare and Medicaid benefits and the billing rules applicable to dual eligible enrollees.

Untimely Payment of MA and Part D Premium. The MA and the Part D Rule amendments prohibit, effective March 13, 2009, MA organizations and Part D plan sponsors (Medicare plan sponsors) from disenrolling a beneficiary for failure to pay premium due if the beneficiary elected to have premiums deducted from Social Security (or other benefits) and the Social Security Administration (or other payer) fails to timely pay the beneficiary’s premium. In such circumstance, Medicare plan sponsors are prohibited from directly billing the enrollee for the past due premium.

Different rules apply for Medicare plan enrollees who do not elect to have their premiums deducted from Social Security (or other benefits). Those enrollees who, for reasons other than their own “willful refusal to remit . . . premium,” owe past due premium must be permitted to pay the outstanding amount in equal monthly installments, over the number of months for which past due premium is owed. For example, an enrollee, seven months behind on premium payments because the Medicare plan sponsor failed to provide monthly billing statements for seven months, may pay the past due amount in equal installments over seven months. A Medicare plan sponsor and an enrollee may arrange for “other mutually acceptable means” for repayment of past due premiums.

Action Item: Medicare plan sponsors should review (or require their vendors to review) processes for handling of untimely premium payments for MA and Part D coverage. Both the documentation and implementation of those processes need to be consistent with CMS requirements. Medicare plan sponsor communications and coverage documents should also conform to CMS requirements and plan sponsor processes.

Limiting Out-of-Pocket Costs for Dispensed Part D Drugs. CMS will require Part D plan sponsors, effective March 13, 2009, to ensure enrollees are charged the lower of the price the Part D plan sponsors have negotiated for dispensed Part D drugs or the applicable copayment amount under the enrollees’ Part D benefit plans. A Part D plan sponsor may not permit, for example, a network pharmacy to charge an enrollee a $25 copayment for a dispensed Part D drug that has a negotiated price that is less than $25.

Action Item: Part D plan sponsors need to review their PBM contracts to ensure that network pharmacies are limited to charging enrollees no more than the negotiated price for a dispensed Part D drug when the negotiated price is less than the applicable copayment. Any necessary contract amendments, claims system adjustments and benefit plan changes should be effected and communicated by March 13, 2009.

Appeals: MA Reconsiderations and Part D Redeterminations. The MA Rule amendments make a “modest expansion” of physician involvement in benefit determination reconsiderations. The MA Rule amendments permit, effective March 13, 2009, a treating physician to request reconsideration on an enrollee’s behalf of an MA organization’s adverse determination denying prior approval of services. The physician will be required to notify the enrollee prior to filing the reconsideration request, but does not need the enrollee’s consent to make the request. The change affects only denials of requests for prior approval; “physicians have long been permitted to file coverage requests” for reconsideration of adverse determinations, such as claims denials for services already provided.

The Part D Rule amendments allow physicians and other prescribers, effective March 13, 2009, to request redetermination on an enrollee’s behalf of a Part D plan sponsor’s adverse coverage determination, such as a claim denial. The prescriber must notify the enrollee prior to filing the redetermination request, but does not need the enrollee’s consent to make the request. Under the current Part D Rule, prescribing physicians may request only expedited redeterminations and other prescribers may not request any redeterminations.

Action Item: Medicare plan sponsors should review and revise (or require their vendors to review and revise) their appeal programs to enable the processing of newly permitted provider reconsideration and redetermination requests by March 13, 2009. MA organizations should update their enrollee and provider communications (including provider handbooks) to reflect the new reconsideration right available to physicians and the requirements for exercising that right. Part D plan sponsors should update their enrollee and provider communications to reflect the new redetermination rights available to physician and other prescribers and the requirements for exercising those rights.

Checking Prior Creditable Drug Coverage. The Part D Rule amendments codify, effective March 13, 2009, CMS policy concerning prior creditable prescription drug coverage. Part D plan sponsors are required to obtain evidence of prior creditable prescription drug coverage for all beneficiaries enrolling in their Part D plans. Part D plan sponsors must first query CMS systems for evidence of prior creditable prescription drug coverage. If CMS has no record of such coverage for a beneficiary, a Part D plan sponsor must request evidence of prior creditable prescription drug coverage from the beneficiary and report any evidence obtained to CMS. CMS will then determine whether the Part D plan sponsor must collect a late enrollment penalty from the beneficiary.

Notice of Contract Non-Renewal. When a Medicare plan sponsor’s contract with CMS is not renewed by either CMS or the plan sponsor, the plan sponsor currently must provide its Medicare plan enrollees and the public notice of the nonrenewal at least 90 days prior to the contract’s termination date. The MA and the Part D Rule amendments allow, effective March 13, 2009, Medicare plan sponsors to provide 60 days’ advance notice. The shorter notice period will allow an involuntarily non-renewed Medicare plan sponsor to complete CMS’s contract appeal process before the notice requirement is triggered.

Passive Enrollment. CMS codifies its passive enrollment policy in the MA and the Part D Rule amendments. That policy governs the enrollment of beneficiaries affected by CMS’s termination of a Medicare plan sponsor’s contract because of financial solvency concerns or other “potential harm to plan members.” In that case, starting March 13, 2009, an affected beneficiary will be enrolled by CMS in an alternative Medicare plan selected by CMS, unless the beneficiary declines enrollment in the alternative plan or selects another plan.

Enhanced Civil Monetary Penalties. The MA and the Part D Rule amendments grant CMS the authority, effective March 13, 2009, to assess higher civil monetary penalties against a Medicare plan sponsor with a compliance deficiency. CMS may base the civil monetary penalties on the number of enrollees adversely affected (or the number for whom there is a substantial likelihood of being adversely affected), assessing up to $25,000 for each such enrollee.

Part D Coverage for Low-Income Enrollees

Each of the following amendments is effective March 13, 2009.

Best Available Evidence. The Part D Rule amendments implement CMS’s policy requiring Part D plan sponsors to establish a beneficiary’s eligibility for the low-income subsidy using the “best available evidence.” “Best available evidence” is documentation or other information that is directly tied to State Medicaid or Social Security Administration systems. The amendments do not specify what that information is. CMS does list “evidence sufficient to make a change to a beneficiary’s low-income status” in previous guidance and in the preamble to the Part D Rule amendments.

Low-Income Subsidy Enrollees’ Out-of-Pocket Costs. The Part D Rule amendments codify CMS guidance that Part D plan sponsors may only require a low-income subsidy enrollee to pay out-of-pocket costs equal to the lower of (a) the low-income subsidy cost-sharing amount for which the enrollee is eligible or (b) the cost-sharing amount prescribed by the enrollee’s benefit plan. For example, a Part D plan sponsor cannot impose the low-income subsidy copayment on a low-income subsidy enrollee’s purchase of a generic Part D drug when the enrollee’s benefit plan covers generic Part D drugs with no out-of-pocket cost.

Recoupment of Excess Low-Income Subsidy Payments. The Part D Rule amendments allow CMS “additional flexibility to make mid-year . . . payment adjustments” to recoup from Part D plan sponsors any overpayments of the low-income cost-sharing subsidy (LICS). In an October 2007 report, the Department of Health and Human Services Office of Inspector General recommended that CMS develop a mechanism for more timely recoupment from Part D plan sponsors of excess LICS payments. Currently, CMS makes LICS payments to Part D plan sponsors based on the plan sponsors’ estimates of low-income subsidy enrollee costs, and CMS recoups overpayments only during the annual reconciliation.

Auto-Enrollment Exemption for Dual Eligibles with Employer Coverage. The Part D Rule amendments exempt from automatic enrollment in Part D plans those dual eligibles who are enrolled in an employer’s retiree prescription drug plan eligible for federal subsidy. CMS deems those dual eligibles as having passively “elected” enrollment in the employer plan, unless they take affirmative action to enroll in a Part D plan. By this exemption, CMS aims to avoid having automatic Part D enrollment cause dual eligibles with prescription drug coverage through an employer plan to become ineligible for employer-plan sponsored coverage, including major medical coverage.

Special Needs Plans

Each of the following amendments is effective March 13, 2009.

SNP Eligibility Requirements. CMS incorporates new definitions into the MA Rule pursuant to MIPPA that establish eligibility requirements for institutional and chronic condition SNPs. Institutional SNPs must use a third party to determine that a prospective enrollee requires an institutional level of care, and the determination must be made using a State assessment tool. Chronic condition SNPs must verify that a prospective enrollee has a condition that qualifies as a “severe or disabling chronic condition.”

Action Item: CMS is soliciting public comment on these new MA Rule definitions. Comments are due by March 13, 2009.

SNPs to Serve Only Special Needs Beneficiaries. The MA Rule amendments prohibit SNPs from enrolling beneficiaries after March 12, 2009 who do not meet the special needs requirements of the SNP plan in which they seek to enroll. SNP enrollees who do not have special needs will not be disenrolled from their current SNP plan, but they will not be allowed to enroll in another SNP plan. The amendments accelerate the MIPPA mandate that, effective January 1, 2010, “disproportionate share SNPs” be eliminated.

Action Item: Disproportionate share SNPs should review and revise (or require their vendors to review and revise) their eligibility criteria and related policies, procedures and communications to limit future enrollment in each of their SNP plans to beneficiaries who satisfy the special needs requirements for the particular SNP plan. Any necessary changes should be effected no later than March 13, 2009.

SNP Eligibility Verification. The MA Rule amendments require SNPs to establish CMS-approved processes to verify the eligibility of each SNP applicant prior to enrollment. Dual eligible SNPs, for example, will be required to establish a CMS-approved process for verifying a prospective enrollee’s Medicaid eligibility with the appropriate State agency.

SNP Model of Care. “[T]o assure an effective management structure,” SNPs must, by March 13, 2009, develop certain model of care components that complement the evidence-based model of care requirements for SNPs added by MIPPA. The amendments require SNPs to ensure appropriate staffing by March 13, 2009. Also by that date, SNPs will need to address coordination of care across health care settings, coordination of specialized care delivery and coordination of communication among SNP personnel, providers and enrollees.

Prohibition on Selling Portion of Part D Benefit Plan

The Part D Rule amendments prohibit, effective March 13, 2009, a Part D plan sponsor from selling to another insurer (or other third party) business consisting of some but not all individual enrollees or groups of enrollees of a particular benefit plan offered by the plan sponsor. Rather, a Part D plan sponsor must sell Part D business in blocks equal to one or more benefit plans, including all enrollees in each benefit plan to be sold. Any sale or transfer of Part D business must be effected in accordance with CMS’s change-of-ownership process.

Part D Formulary

Beginning with plan year 2010, each Part D plan sponsor’s formulary must include all Part D drugs in the categories or classes identified by CMS as meeting MIPPA criteria. CMS states in the preamble to this Part D Rule amendment that, “in practice, CMS will not have identified any such categories or classes for” 2010. Until CMS does, Part D plan sponsor formularies must continue to include all or substantially all Part D drugs for the six classes listed in Chapter 6 of the Medicare Prescription Drug Benefit Manual, available on the CMS web site at http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/R2PDB.pdf.