On August 7, 2018, the Centers for Medicare & Medicaid Services (“CMS”) issued a Memorandum (“Memorandum”) announcing a policy change to allow Medicare Advantage (“MA”) plans to implement step therapy programs for physician-administered and other Part B drugs. Step therapy is a type of prior authorization for drugs in which a health plan requires a beneficiary to first utilize a preferred, lower cost drug therapy and allowing it to fail prior to covering a more expensive alternative.

This change is significant as CMS previously prohibited MA plans from imposing step therapy requirements on Part B drugs. While Part D plans already have the right to implement step therapy, MA plans may now apply step therapy to control utilization of Part B drugs provided that it does not create “undue access” barriers for beneficiaries. CMS’s stated goal for this new policy is to lower drug costs while maintaining access to services for MA beneficiaries. CMS maintains that step therapy will reduce enrollees’ out-of-pocket costs because enrollees will be utilizing less expensive medication as the first step. However, critics of the policy doubt this will be the case, arguing enrollees will have to pay for multiple drugs until they find the one that works. As such, it remains to be seen whether the policy will actually result in lower costs to patients and MA plans and whether this potential benefit will outweigh what some view as an increased burden on both patients and prescribers.

While the Memorandum does not require MA plans to implement step therapy programs for Part B drugs, it is likely that many MA plans will take advantage of the new policy and begin introducing step therapy for certain Part B drugs in 2019.

Detailed Discussion

The Memorandum, which rescinds a 2012 CMS memorandum prohibiting step therapy in the Part B program, will allow MA plans to implement step therapy protocols beginning January 1, 2019. These step therapy protocols will only apply to “new prescriptions or administrations,” meaning a plan cannot disrupt an enrollee’s current prescription drug therapy.

By permitting step therapy for Part B drugs, CMS expects that MA plans and pharmacy benefit managers (“PBMs”) will be able to leverage competition between manufacturers of therapeutically equivalent drugs to negotiate better drug prices in the form of rebates and discounts from manufacturers. Under Part B, traditional Medicare generally pays physicians a percentage above the Average Sales Price for Part B drugs administered in a physician’s office. Part B drugs include injections and infusions to treat conditions such as rheumatoid arthritis and cancer. This payment method has historically resulted in little negotiation to reduce the price of these drugs. This lack of negotiation, combined with CMS’s previous prohibition on step therapy for Part B drugs, meant that MA plans had little bargaining power to bend the cost curve on Part B drugs. By rescinding the step therapy prohibition, CMS hopes that MA plans will be able to obtain savings by mandating utilization of lower cost therapeutic equivalents prior to moving onto higher priced drugs. Increasing the bargaining power of MA plans could also result in a reduction of the Average Sales Price for Part B drugs over time, thereby decreasing drug copayments for traditional Medicare beneficiaries.

The new policy also aims to lower costs by permitting MA plans to “cross-manage” drugs covered under Medicare Part B and Part D. Currently, MA plans that offer a Part D benefit (“MA-PD plans”) control costs by both limiting the drugs offered on the formulary and implementing step therapy protocols. Prospective MA members often choose plans based on whether their prescription drugs are covered on the plan’s formulary. Today, MA-PD plans can require that patients use low-cost generic drugs under Part D prior to stepping up to more expensive Part D drugs. Now, MA-PD plans may also use step therapy to require a Part D drug to be used prior to a competing Part B drug (and vice versa). The goal is that this competition between Part D and Part B drugs will further encourage plans to direct patients to lower cost, high value medications and lead to reduced drug costs. In the Memorandum, CMS encourages MA-PD plans to use their Part D Pharmacy and Therapeutics (“P&T”) committees to determine when it is medically appropriate to use step therapy for Part B drugs.

To protect patients and ensure that they receive the benefits of reduced costs, CMS is requiring several patient protection measures as part of the new policy. These measures include:

  • MA plans using Part B step therapy must disclose in their Annual Notice of Change and Evidence of Coverage documents that Part B drugs may be subject to step therapy requirements. These documents are provided to enrollees prior to the open enrollment period to assist enrollees in deciding and selecting an MA plan for the upcoming year.
  • MA plans implementing Part B step therapy must provide care coordination services that include discussing medication options with enrollees, providing educational materials to enrollees and implementing adherence strategies for enrollees’ medication regimens. Such plans must also offer enrollees an opportunity to participate in drug management care coordination activities and strongly encourage patient engagement.
  • MA plans must offer enrollees rewards in exchange for participation in a drug management care coordination program. Such rewards may be offered as gift cards or other items of value other than cash or monetary rebates. The value of the rewards must be reasonable and appropriate, which CMS interprets as the reward being equivalent to more than half the amount saved on average per participant by a more efficient use of health care resources.
  • MA plans using Part B step therapy must provide enrollees with the opportunity to request an exception from the MA plan’s step therapy requirement in order to access a Part B covered drug.
  • Step therapy may not be used as a means to deny coverage for medically necessary services or to eliminate access to Part B covered benefits.

Industry Response and Potential Impact

Proponents of this new policy tout the potential of lower drug spending for Part B drugs by 15-20 percent. These stakeholders envision that allowing cross negotiations to take place between competing Part B and Part D medications will result in lower drug prices.

In a recent interview, Health and Human Services Secretary Alex Azar noted: “For the first time ever, we’re going to unleash these plans, which are so good at negotiating, to try to get discounts on Part B drugs. This is a very important change in terms of drug pricing as well as just in managing and modernizing how Medicare functions.”[1] Supporters also claim that many providers will already be familiar with step therapy procedures, noting that step therapy is common in private sector plans. However, unless the MA plans are able to learn from, and institute the criteria utilized in the private sector or commercial plan market, the true impact of the policy on drug pricing may not be seen for many years until plans have had more time to implement step therapy protocols. Further, given that Average Sales Price is a regulatory defined term, CMS would need congressional approval in order to implement broader changes to Part B drug pricing.

On the other hand, the policy has received criticism from patient and provider advocacy groups, who have alleged that step therapy can negatively impact patients because cheaper, typically older, treatments must be used before accessing novel therapies that tend to be more expensive. Opponents such as the Community Oncology Alliance and the American College of Rheumatology allege that step therapy can create barriers for patients suffering from complex conditions and delays the delivery of effective treatment because of the step-up process and time required to obtain prior authorizations. The policy has also been criticized by PhRMA, which noted that in addition to delaying patients’ access to medication, step therapy in Part B has the potential to interfere with the patient-physician relationship and increase burdens on prescribers to comply with new, complex requirements.

Practical Takeaways

Hospitals and health care providers should be aware of this policy change and remain vigilant about potential changes to MA plans in 2019 that may impact prescribing, coverage decisions and reimbursement. It is important to reiterate that MA plans can only require step therapy for enrollees receiving new Part B prescriptions, so enrollees currently undergoing prescription drug therapy will not be disrupted by the policy unless and until their treatment regime changes.

Health care providers may also wish to communicate with patients and remind them that open enrollment for Medicare begins October 15, 2018 and ends December 7, 2018. MA plan enrollees will have until March 31, 2019 to switch to another plan or into fee-for-service Medicare if they are unhappy with their coverage options.

More broadly, health care providers, payors, pharmaceutical manufacturers, PBMs, pharmacies and others involved in the drug supply chain should expect additional changes related to prescription drug pricing as the administration, governmental agencies and legislators continue to tackle the issue of rising drug costs.

We will continue to monitor developments in all of these areas.