The Centers for Medicare and Medicaid Services (“CMS”) released the much-anticipated proposed rule to lower Part D and Medicare Advantage (“MA”) drug prices and beneficiary out-of-pocket expenses on November 26, 2018 (the “Proposed Rule”). According to CMS, the primary purposes of the Proposed Rule are to revise the MA and Part D regulations to support health and drug plans’ negotiation for lower drug prices, and to reduce out-of-pocket costs for plan enrollees. The Proposed Rule is scheduled to be published in the Federal Register on November 30, 2018. Comments are due January 25, 2019.

Key provisions of the Proposed Rule are summarized below.

  • Providing Plan Flexibility to Manage Part D Protected Classes

Part D sponsors are currently required to include on their formularies all drugs in six categories or classes: (1) antidepressants; (2) antipsychotics; (3) anticonvulsants; (4) immunosuppressants for treatment of transplant rejection; (5) antiretrovirals; and (6) antineoplastics; except in limited circumstances. CMS proposes additional exceptions to the protected class requirement that will allow Part D sponsors to better manage protected class drugs to help ensure their safe and appropriate use, limit the protected class requirement to the intended protected class indications, and provide Part D sponsors with additional tools to negotiate as competitive a price as possible in order to provide drug pricing relief for Medicare Part D enrollees, while maintaining beneficiary access to protected class drugs when used for protected class indications.

CMS proposes to allow Part D sponsors to:

  1. implement broader use of prior authorization (“PA”) and step therapy (“ST”) for protected class drugs, including to determine use for protected class indications. Under CMS’ proposal, PA requirements would be allowed for any protected class drug with more than one medically-accepted indication to determine that the drug is being used for a protected class indication, regardless of its status as a new start or existing therapy. CMS would also allow indication-based formulary design and utilization management for protected class drugs.
  2. exclude a protected class drug from a formulary if the drug represents only a new formulation of an existing single-source drug or biological product,[1] regardless of whether the older formulation remains on the market. This proposal is intended to address the situation, for example, where a manufacturer introduces a more expensive extended-release version of a drug to the market while also withdrawing from the market the predecessor immediate release version when no generic was available. Such a scenario could arise with a protected class drug that might leave Part D sponsors with no option but to add the new, more expensive product to their formularies and could result in increased costs for Part D enrollees and the Part D program.
  3. exclude a protected class drug from a formulary if the price of the drug increased beyond a certain threshold over a specified look-back period. Specifically, effective for plan years starting on or after January 1, 2020, Part D sponsors would be allowed to exclude from their formularies any single-source drug or biological product that is a protected class drug whose price increases, relative to the price in a baseline month and year, beyond the rate of inflation as calculated using the Consumer Price Index for all Urban Consumers
  • Prohibition on Gag Clauses in Pharmacy Contracts

The Proposed Rule would amend the Part D regulations to reflect the statutory requirement at section 1860D-4(m) of the Social Security Act (42 U.S.C. § 1395w-104(m)), that prohibits Part D sponsors from restricting their network pharmacies from informing their Part D enrollees of the availability of prescription drugs at a cash price that is below what that the enrollee would be charged (either the cost sharing amount or the negotiated price when it is less than the enrollee’s cost sharing amount) for the same drug under the enrollee’s Part D plan. The statutory prohibition applies to plan years beginning on or after January 1, 2020.

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

CMS proposes to require Part D sponsors implement an electronic real-time benefit tool (“RTBT”) capable of integrating with prescribers’ e-Prescribing (“e-Rx”) and electronic medical record (“EMR”) systems. CMS believes that requiring Part D sponsors’ implementation of electronic access to real-time benefits information would be appropriate given the Part D interactive and real-time requirements at section 1860D-4(e)(2)(D) of the Act (42 U.S.C. § 1395w-104(e)), and would improve the cost-effectiveness of the Part D benefit. RTBTs have the ability to make beneficiary-specific drug coverage and cost information visible to prescribers who want to consider that information at the point-of-prescribing. CMS proposes that each Part D plan implement at least one RTBT of its choosing that is capable of integrating with prescribers’ e-Rx and EMR systems to provide prescribers who service its beneficiaries complete, accurate, timely and clinically appropriate patient-specific real-time formulary and benefit information (including cost, formulary alternatives and utilization management requirements) by January 1, 2020.

  • Part D Explanation of Benefits

CMS proposes to require Part D sponsors to include information about negotiated price changes and lower-cost therapeutic alternatives in the Part D explanation of benefits (“EOBs”). The Proposed Rule would require Part D sponsors to include the cumulative percentage change in the negotiated price since the 1st day of the current benefit year for each prescription drug claim in the EOB. This information would provide drug price trend information for the beneficiary for all their covered Part D drugs. In addition, the Proposed Rule would require Part D sponsors provide information about drugs that are therapeutic alternatives with lower cost-sharing, when available as determined by the plan, from the applicable approved plan formulary for each prescription drug claim.

  • Medicare Advantage and Step Therapy for Part B Drugs

The Proposed Rule would allow MA plans to apply ST as a utilization management tool for Part B drugs. CMS believes that allowing MA plans to use ST would “considerably assist” MA plans in negotiating on behalf of enrollees to get better value for Part B drug therapies, which CMS notes constituted around $12 billion in CY 2016 in spending by MAOs.

A number of safeguards are proposed to ensure enrollees have timely access to all medically necessary Medicare Part B medications: MAOs would be required to administer the existing organization determination and appeals processes under new proposed time frames that are similar to the timeframes applicable in Part D for coverage determinations; enrollees could request an organization determination if they believe that they need direct access to a Part B drug that would otherwise only be available after trying an alternative drug. MAOs would adjudicate these organization determinations based on medical necessity criteria. If an enrollee is dissatisfied with the plan’s organization determination, the enrollee could appeal. MAOs would be required to use a Pharmacy and Therapeutics committee to review and approve step therapy programs.

ST could only be applied to new prescriptions or administrations of Part B drugs for enrollees who are not actively receiving the affected medication. There would be a look-back period of 108 days, consistent with Part D policy, to determine if the enrollee is actively taking a Part B medication. In addition, consistent with existing Part D guidelines, the Proposed Rule would allow MA plans to require an enrollee to try and fail an off-label medically-accepted indication, but using off-label drugs in step therapy would only be permitted in cases where the off-label indication is supported by widely used treatment guidelines or clinical literature that CMS considers best practices. MAOs would be prohibited from using a non-covered drug as a step in the step therapy program.

  • Pharmacy Price Concessions in Negotiated Price

CMS points out that Part D sponsors and their contracted PBMs have been increasingly successful at negotiating price concessions from network pharmacies. According to CMS, pharmacy price concessions, net of all pharmacy incentive payments, grew more than 45,000 percent between 2010 and 2017, which much of the growth occurring after 2012 when performance-based payment arrangements with pharmacies became increasingly prevalent. However, because these performance adjustments typically occur after the point of sale, they are not included in the price of a drug at the point of sale. In addition, it is CMS’ understanding that the share of pharmacies’ reimbursements that are contingent upon their performance under such arrangements has grown steadily each year, and, as a result, sponsors and PBMs have been recouping increasing sums from network pharmacies after the point of sale (pharmacy price concessions) for “poor performance.” These amounts “are far greater” than those paid to network pharmacies after the point of sale (pharmacy incentive payments) for “high performance.” When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug. Finally, variation in the treatment of these price concessions by Part D sponsors may have a negative effect on the competitive balance under the Part D program.

To address these and other concerns, CMS is considering whether to delete the existing definition of “negotiated prices” and add a definition of “negotiated price”, which would mean the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D sponsor or the sponsor’s intermediary (that is, the amount the pharmacy would receive net of the maximum possible negative adjustment that could result from any contingent pharmacy payment arrangement). Under this approach, the negotiated price for a covered Part D drug would have to include all pharmacy price concessions and any dispensing fees, and exclude additional contingent amounts, such as incentive fees, if these amounts increase prices. To effectively capture all pharmacy price concessions at the point of sale consistently across sponsors, CMS is considering requiring the negotiated price to reflect the lowest possible reimbursement that a network pharmacy could receive from a particular Part D sponsor for a covered Part D drug. Thus, the price reported at the point of sale would need to include all price concessions that could potentially flow from network pharmacies, as well as any dispensing fees, but exclude any additional contingent amounts that could flow to network pharmacies and thus increase prices over the lowest reimbursement level, such as incentive fees.

Under this approach, if a performance-based payment arrangement exists between a sponsor and a network pharmacy, the point-of-sale price of a drug reported to CMS would need to equal the final reimbursement that the network pharmacy would receive for that prescription under the arrangement if the pharmacy’s performance score were the lowest possible. If the pharmacy is ultimately paid an amount above the lowest possible contingent incentive reimbursement (such as in situations where a pharmacy’s performance under a performance-based arrangement triggers a bonus payment or a smaller penalty than that assessed for the lowest level of performance), the difference between the negotiated price reported to CMS on the prescription drug event record and the final payment to the pharmacy would need to be reported as negative direct or indirect remuneration (“DIR”) in the annual filing on DIR following the end of the year. According to CMS, DIR data and other information received by CMS indicate that pharmacies rarely receive an incentive payment above the original reimbursement rate for a covered claim.

Noting that neither the Part D statute nor CMS in the Part D regulations or guidance defines “price concessions”, CMS is considering the following definition:

Price concession means any form of discount, direct or indirect subsidy, or rebatereceived by the Part D sponsor or its intermediary contracting organization from any source, that serves to decrease the costs incurred under the Part D plan by the Part D sponsor. Examples of price concessions include but are not limited to: discounts, chargebacks, rebates, cash discounts, free goods contingent on a purchase agreement, coupons, free or reduced-price services, and goods in kind.

CMS notes that the definition of price concession would not affect the way in which price concessions must be accounted for by Part D sponsors in calculating costs under a Part D plan, nor would the definition require the renegotiation of any contractual arrangements between a sponsor and its contracted entities.

[1] CMS defines a “single-source drug or biological product,” as a covered Part D drug that is either produced or distributed under a new drug application under section 505(b) of the Federal Food, Drug, and Cosmetic Act (“FDCA”) or is an authorized generic as defined in section 505(t)(3) of the FDCA, or a biological product licensed under section 351 of the Public Health Service Act.