The Centers for Medicare & Medicaid Services (CMS) has done it again. While everyone was still in a turkey-induced coma after Thanksgiving, they released a 185-page document of proposals/bombshells called Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses. The document provides proposals that will help contain costs for both the Part D benefit and the drug spend portion of the Part B benefit. To put some context to the magnitude of this document, CMS stated “Assuming an average reading speed, we estimate that it will take approximately 7.6 hours for each person to review this proposed rule. For each entity that reviews the rule, the estimated cost is $816”. Holy cow, that’s a lot of hours and money for one document!

After shaking off the tryptophan and diving into the document, I came away thinking the majority of these proposals could really work! Some of the proposals are in areas that historically CMS has considered to be “hands-off.” These recommendations will add flexibility to Part D health plan administration and will even give a bit of relief to beleaguered pharmacies that see their reimbursement rates ever diminishing. And, as always, there may be some negative unintended consequences. So let’s take a look at the areas with major ramifications: Protected Class Drugs, Part B Step Therapy, Real Time Benefit Tool, Negotiated Price Definition, and Referencing Lower Priced Drugs on EOBs.

The Protected Class (PC) drug proposals are mind blowing. This is truly an area that has been “untouchable” since the inception of the benefit. The first PC drug proposal is for unrestricted usage of utilization management (UM) to include step therapy (ST) and Prior Authorization (PA) for indication. CMS makes a big point of saying PC guidance should apply to PC “indications” and not just the drug entity. So now plans will be able to cover a drug, for example, for its seizure indication but not for its migraine headache indication. This aligns with their next step in developing indication-based formularies. The second proposal to not require “me too” or “follow on” drugs that pharma develops will also go a long way to contain costs. The document uses an example of a manufacturer that took its original formulation off the market and followed on with a more expensive formulation of the same drug entity that did not represent a unique administration route. Plan sponsors will no longer be required to have these types of drugs on formulary.

CMS intends to allow plan sponsors to remove a PC drug from their formulary if the drug price inflation exceeds the Consumer Price Index for all Urban Consumers (CPI-U) at any time during specified time frames. (The CPI-U is a measure of inflation over time of consumer goods and services prices.) If the drug exceeds this pricing threshold one week, and then the price bottoms out the next week, it will still be eligible for exclusion. CMS points out this is not meant to withhold drugs from beneficiaries but rather give plan sponsors a leveraging tool to work with pharma to receive better rebates on PC drugs. PC drugs have never received the rebate percentages non-PC drugs have enjoyed. So the combination of pricing thresholds and the allowance of UM techniques with PC drugs should help make pricing more competitive as manufacturers vie to get their products on formulary at a preferable tier with limited UM.

ST in Part B and Medicare Advantage Prescription Drug (MA-PD) plans is re-visited. CMS has helped to answer some of the questions of how Part B ST is to be operationalized. The biggest confusing hurdle was the time frames for decision-making. Organization determinations (Part B) have longer decision-making time frames than coverage determinations (Part D). CMS has proposed to change regulations so Part B drug decision time frames will be the same as Part D time frames. This will go a long way to help beneficiaries get their Part B drugs in a timely manner.

The Part B and Part D comingling will be easier for MA-PD plans that already have a Pharmacy & Therapeutics (P&T) Committee in place. MA-only plans will now need to develop and utilize a P&T Committee if they plan to use ST. CMS requires that any time UM techniques are employed, like ST, a P&T Committee review and approve the UM based on sound clinical judgement.

Some unintended consequences of these proposals? For Part B drugs, beneficiaries will now need to go through the exceptions process to get their Part B drug if it is subject to UM and the beneficiary has not satisfied that UM. Previously, beneficiaries just automatically received whatever Part B drug their provider requested. CMS claims all stakeholders are now familiar with coverage/organization determinations, appeals, and grievances, and these processes are a safeguard for beneficiaries to get what they need. My thoughts are the frailest of beneficiaries may actually be harmed. There will still be beneficiaries who don’t understand these processes or don’t have the patience for these processes and will simply decide to forgo therapy – and now this will occur on both fronts: Part B and Part D. There is the potential to increase medical services such as urgent care and hospitalizations as an unintended consequence. This scenario would also apply to the new PC UM allowances.

In thinking about the CPI-U price threshold proposal for PC drugs, it appears pharma may at times be unfairly disadvantaged. Price increases in raw materials pharma has no control over and that might greatly exceed CPI-U will affect drug pricing. There may be times when a drug price increase is warranted through no fault of the manufacturer. It seems as if they will be punished for something they have no control over. I would feel worse for pharma if they hadn’t recklessly and, in some cases, gleefully raised prices to extremes in the past.

A Real Time Benefit Tool (RTBT) would be a dream come true for providers. Plan sponsors would develop the RTBT to integrate with provider e-script and electronic medical records software. This tool would provide real-time, patient-specific beneficiary information such as copayments, formulary status, benefit phase, and therapeutic alternatives. Providers would be able to make better informed therapy choices in conjunction with the beneficiary, and the beneficiary would not have to wait until the pharmacist spun the copay “wheel of fortune” to know what the cost of therapy would be. The dream turns into a nightmare when you start considering the momentous money and effort that would be needed to operationalize the tool by January 20, 2020. CMS estimates putting together one of these tools would cost between $2.1 and $4.2 million. This dollar amount does not include the cost of maintaining the tool further down the line. If CMS intends to put this proposal into effect by January 2020, then plan sponsors need to tell their IT departments to immediately drop what they are doing and get moving on this new tool proposal.

CMS also proposes changing the definition of “Negotiated Price” within regulations and guidance. Currently a negotiated price is to include all rebates and price concessions that can be accounted for but NOT those concessions that are determined after the point of sale of the drug. Pharmacies may receive additional reimbursements to lower the cost of a drug based on performance. These reimbursements are determined after the end of the coverage year, and research shows most pharmacies do not qualify for them. This means the reimbursement amount at the point of sale is artificially inflated. CMS is proposing to change the definition so the negotiated price reflects the absolute minimum price – or worst price scenario –a pharmacy could be reimbursed for any drug.

Plan sponsors and pharmacy benefit managers (PBMs) would use pricing tables based on the lowest possible reimbursement into their claims processing systems that interface with contracted pharmacies. This is beneficial on a number of levels. Pharmacies can now project revenues and develop budgets based on the minimum reimbursements that could be received. This allows for more accurate projections and fewer budget shortfalls.

Beneficiaries will now pay co-shares based on a lower drug price. Beneficiaries will progress through the benefit phases more slowly, which may prevent beneficiaries from entering the Catastrophic Coverage phase. This saves CMS money as they are responsible for 80% of drug costs in this phase. So what’s the down side? The plan sponsor and PBMs will not be able to report Direct and Indirect Remuneration (DIR) at the end of the year to increase profit margins.

Many performance, volume, and market share rebates plan sponsors and PBMs enjoy are only determined at the end of the coverage year. These rebates are then reported as DIR. The DIR dollars add to profit margins which then allow for lower premiums and lower cost of benefit administration for the upcoming coverage year. In essence, bids are lowered each year due to the amounts of DIR reported. The DIR percentages for pharmacy price concessions reported have increased exponentially year over year since 2010. Using pharmacy concessions in this manner puts smaller plan sponsors (who do not have as large DIR reports) at a disadvantage for bid pricing and does not accurately reflect the cost of the drug benefit portion of the health plan. Plans will still report when they give drug pricing rebates based on these end of year concessions but now will be reporting negative DIR.

And lastly, CMS is proposing to have plan sponsors include lower cost formulary drug alternatives on beneficiaries’ Explanations of Benefits (EOBs). A specific field has been proposed to show this lower cost alternative and what the beneficiary might save. CMS is suggesting not only the popular brand to generic switch but also therapeutic substitutions that may have the same copay but a lower negotiated price. Therapeutic substitution includes a different drug that is not within the same category or class but has a medically accepted indication for the condition being treated. This is a first for CMS who in the past has not typically embraced therapeutic substitutions in its guidance.

How does the plan determine therapeutic alternatives? CMS will not require patient specifics be taken into account such as co-morbidities, allergies, etc. Example: A beneficiary currently taking valsartan will see a notation that Lisinopril is cheaper. The patient had already tried Benazepril and developed a cough. The patient may call or visit the doctor with this new information not knowing that Lisinopril will no doubt cause the same cough. Does this waste medical practitioners’ time or cause the beneficiary to make an unneeded doctor visit and copayment? This may be an unintended consequence of this proposal.

Perhaps we have all been lulled into a false sense of complacency with the Part D drug benefit. The times they are a-changin’, and plan sponsors and PBMs should hop on board with these proposals to help contain ever-increasing costs of administering drug benefits. Feeling confused and overwhelmed? Call Gorman Health Group – we’ve already spent the 7.6 hours and $816 per person reviewing the document and can help you operationalize the coming decisions.

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