December 3, 2018

Understanding Medicare’s New Drug Proposals

by Layne Oliff, PharmD

THE GIST

Late last month, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule that makes changes to the regulations governing Medicare Part D and Medicare Advantage drug plans. The changes come as part of the Trump administration’s ongoing focus on addressing high pharmaceutical spending. We asked our friend and colleague Layne Oliff, who knows the Medicare pharmacy space well, to share some context on the proposed rule, and to provide his thoughts on the impact of the proposal.


What is the goal of the proposed rule announced by CMS?

The proposed rule follows up on the Drug Pricing Blueprint that was announced in May 2018 by the current administration. The overall goal is to lower medication costs for Medicare beneficiaries while continuing to provide medication choice. The Blueprint has four key components:

  • Improve competition
  • Negotiate better drug prices
  • Incentivize plans and payers to provide lower list prices
  • Lower Medicare beneficiary out-of-pocket costs

 

Overall, this proposal is a mixed bag—some aspects will be favorable to Medicare Part D plans, and others to providers and beneficiaries. The proposed rule may reduce some drug costs and increase competition in the healthcare marketplace

The proposed rule announced on November 26 focuses on the following:

  • Increased management of the six protected classes of medications that must be included on all Medicare Part D formularies—antidepressants, antipsychotics, anticonvulsants, immunosuppressants, antiretrovirals, and antineoplastics
  • Adoption of electronic real-time benefit tools by Medicare Part D plans to enhance electronic health records and allow beneficiaries and providers real-time information regarding drug costs and formulary options
  • Implementation of step therapy protocols by Medicare Advantage plans for Medicare Part B drugs
  • More transparency and explanation of the Medicare Part D benefit for beneficiaries
  • Prohibition of gag clauses so that pharmacies can communicate with consumers about a lower cash price for a drug
  • Renegotiation and redefining a drug’s list price for beneficiaries

What are your thoughts on the proposal to allow narrowing of formularies for protected drug classes? 

CMS proposes to keep all six protected classes of drugs, but it will allow plans to increase formulary management. This will be done through prior authorizations and step edits, exclusion of new types of formulations, or exclusion of a drug if the price increases beyond a certain threshold.

CMS has proposed reevaluating the six protected classes of medications in the past, but it has not moved forward beyond the proposed rule phase. Each time, numerous provider associations and consumer groups such as the Partnership for Part D Access have adamantly opposed any changes to these classes. There is broad support for protecting these classes of medication because most patients requiring them have acute and critical diseases. Many of the drugs used to manage these diseases have a narrow therapeutic window for effectiveness, and even slight changes in the medication (such as changing from a branded product to a generic or changing from one formulation to another) may result in ineffective disease management or drug toxicity. Providers and consumers alike stress that there must be wide medication choice to allow for the use of an agent that will be safe and effective.

Methods other than formulary exclusion should be evaluated to manage costs within these classes. Inhibiting use of these medications will put vulnerable patients at risk

Providers have indicated that enhanced formulary management will result in the perception that plans—not healthcare providers—are dictating care for these vulnerable patients. This puts providers and patients at risk. As a result, there is much resistance among providers and patients to changes within the six protected classes. There is agreement, however, that some type of price control needs to be implemented. Methods other than formulary exclusion should be evaluated to manage costs within these classes. Inhibiting use of these medications will put vulnerable patients at risk. Small savings may occur from the cost of medications within these categories, but CMS should evaluate other, less controversial formulary methods to reduce cost as well.

How will step therapy impact Medicare Part B drugs used within a Medicare Advantage plan?

Under the proposed rule originally announced in August 2018 for implementation in 2019, Medicare Advantage plans will have the ability to implement step therapy protocols for Medicare Part B drugs used in physician offices and clinics. Many Part B medications are high cost, and these protocols will allow Medicare Advantage plans to monitor and improve utilization of these medications. Part B drugs will continue to be covered, but utilization tools will be in place to help manage their use. It should be noted that step therapy will be implemented for new patients only and not required for beneficiaries already initiated on Part B medications.

Step therapy guidance will increase management of high-cost Part B medications in the physician’s office. A key aspect will be the actual step therapy protocol used, and how much it will restrict use of these medications. Providers involved with prescribing, administering, and dispensing these medications are concerned that step therapy will limit use of required medications.

It is still to be determined how step therapy will affect Medicare beneficiaries—it may be as minor as a “hassle factor,” or as major as a patient be denied a recommended medication

It appears that this guidance will be favorable for Medicare Advantage plans as a tool to manage these high-cost medications. Step therapy may limit or restrict use of a Part B medication. Of note, traditional Medicare plans, which cover 66 percent of the total Medicare population, already have the ability to impose step therapy protocols for Part B medications.

The initial perception is that step therapy may be an issue for new patients requiring a Medicare Part B medication. However, it is still to be determined how step therapy will affect Medicare beneficiaries—it may be as minor as a “hassle factor,” or as major as a patient be denied a recommended medication.

How will new calculations to determine drug cost impact Medicare beneficiaries?

 Currently, Medicare Part D beneficiaries pay an out-of-pocket cost for a medication based on a “list price” rather than the actual amount paid by the pharmacy or plan. Negotiated discounts and/or rebates are not included in the list price. CMS has proposed including all discounts and/or rebates in the list price, which would result in lower beneficiary out-of-pocket costs. It would also aim to improve pricing transparency and competition.

The proposed pricing calculation guidance is good for beneficiaries. The challenge will be getting contracted discount and rebate information from pharmaceutical manufacturers, plans, pharmacies, and other companies in the drug supply channel. With continuous changes in pricing, it will be difficult to provide full transparency and lower prices for beneficiaries.

As noted by the National Community Pharmacists Association, the new calculation may end retroactive direct and indirect remuneration (DIR) fees imposed by plans on pharmacies. The new list price would incorporate the lowest reimbursement the pharmacy would receive for dispensing a medication. There would be no additional fees charged by the plan at a later date, which would eliminate hidden costs to pharmacies. [More regarding DIR fees will be discussed in an upcoming blog post.]

What other big issues in pharmacy should the administration look to address?

  • Contracting transparency with pharmacy benefit managers (PBMs) and prescription drug plans (PDPs)—The November 2018 CMS recommendation increases transparency, but providers and consumers want even more information on how medication prices are determined, how price is determined at the point of sale, and how costs can be further reduced. The focus is on DIR fees and their effect on pharmacy.
  • Exclusive networks for specialty pharmacy and infusion medications—To manage costs, plans are mandating that selected pharmacies and providers be used for dispensing and administration of high-cost specialty pharmaceuticals. This requirement has resulted in many pharmacies being locked out of the specialty pharmacy market.
  • Generic drug shortages—There has been a shortage of generic medications, especially older injectables, for several years. The result is a lack of availability, and just as important, a significant increase in price for those manufacturers that do have product in the market.
  • Lack of biosimilars—Biosimilars are “generic” versions of biotechnology medications currently used to treat everything from cancer to arthritis. Biotech medications are generally very expensive. A biosimilar is a version of a biotech drug that would be used to treat similar diseases and may be less costly. Unfortunately, few biosimilars have been approved in the United States.
  • Maximum allowable cost (MAC) transparency—This continues to be a pharmacy reimbursement issue for dispensing of generic drugs. States have addressed this issue by enacting pricing policies, but nothing has been done at the federal level.

Overall, this proposal is a mixed bag—some aspects will be favorable to Medicare Part D plans, and others to providers and beneficiaries. The proposed rule may reduce some drug costs and increase competition in the healthcare marketplace. There will likely be much debate regarding the six protected classes of medications and use of step therapy for Part B medication use within Medicare Advantage plans. Pharmacies will be very happy with the establishment of a list price. Consumers and providers will continue to encourage increased transparency on drug pricing and availability—including prohibition of the gag clause currently in some contracts—and welcome changes to the calculated list price of a drug.

CMS has requested comments by January 25, 2019, so look for much discussion over the coming months.

Layne Oliff, PharmD

Layne Oliff is president and co-founder of MatureHealth Communications, based in Cranford, New Jersey. MatureHealth, founded in 1998, is a health care communications company focused on health care providers caring for Medicare beneficiaries and those residing in long-term and postacute care settings. He has extensive experience in teaching and training pharmaceutical executives on the long-term care marketplace and has been involved in training at many of the largest pharmaceutical manufacturers.

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