United States: In Proposed Regulations CMS Requests Information On Changes To Part D Negotiated Prices

Last Updated: January 16 2018
Article by Tara E. Dwyer

Today is the deadline for interested parties to submit comments to CMS regarding the proposed contract year 2019 Medicare Advantage and Part D regulations.  The proposed rule focuses on many issues.   In addition to the changes that CMS formally proposes, CMS has also included a request for information. CMS often uses a "request for information" in order to gain insight on an issue so that it can decide whether to formally make proposed changes relating to the issue in the future.  CMS's request for information relates to the application of manufacturer rebates and pharmacy price concessions to drug prices at the point of sale.  CMS has been gathering information regarding these topics for many years.  You can read more here, here, here, and here.

CMS asks stakeholders to comment on CMS's proposal: (a) to require that a percentage of manufacturer rebates be passed through at the point of sale, and (b) to require pharmacy price concessions (such as performance-based pharmacy adjustments) be reflected at the point of sale.  CMS specifically requests that all commenters provide quantitative analytical support for their responses wherever possible.

Potential Changes to Negotiated Prices

CMS's discussion suggests that CMS is considering changing negotiated prices (a defined term) to reflect both a portion of manufacturer rebates and all pharmacy price concessions.  The defined term negotiated prices has 5 subsections.  One of the requirements for negotiated prices, directly applicable to CMS's discussion of rebates and price concessions, is that negotiated prices means the price the "Part D sponsor (or other intermediary contracting organization) and the network dispensing pharmacy or other network dispensing provider have negotiated as the amount such network entity will receive, in total, for a particular drug." (Emphasis added.)  Negotiated prices are then used by plan sponsors to report to CMS the price paid for a drug on a PDE.  Rebates and pharmacy price concessions that were not reflected in the negotiated price are then reported by plan sponsors through their annual direct and indirect remuneration ("DIR") report, as instructed by CMS

For the sake of discussion, it is easiest if we break the request for information into two sections (a) pharmacy price concessions, and (b) manufacturer rebates.

Pharmacy Price Concessions

As CMS explains, "[i]n recent years, a growing proportion of Part D sponsors and their contracted PBMs have entered into payment arrangements with Part D network pharmacies in which a pharmacy's reimbursement for a covered Part D drug is adjusted after the point of sale based on the pharmacy's performance on various measures defined by the sponsor or its PBM."  Because these amounts are tied to performance and "cannot be reasonably determined" at the point of sale, many plan sponsors have been reporting them in the annual DIR report, as instructed by CMS.  Now, in its request for information, CMS is considering whether to change how and when performance-based price concessions that "cannot reasonably be determined" at the point of sale are reported.  CMS is suggesting removing the "cannot be reasonably be determined" exception and requiring that the negotiated price reflect the lowest possible reimbursement that a network pharmacy could receive from a particular Part D Sponsor for a covered Part D drug.  This change would require that all pharmacy price concessions, even when such concessions are contingent upon performance by the pharmacy, be reflected in the negotiated price.

Pharmacy price concessions are agreed to between the network pharmacy and plan sponsor or PBM (which is an "other intermediary contracting organization" referenced in the definition of negotiated prices).  Therefore, regardless of whether one agrees with the suggested change, changing how they are reflected in negotiated prices seems logical since negotiated prices are those negotiated between a plan sponsor/PBM and pharmacy, the same parties involved with pharmacy price concessions.  If CMS ultimately required all pharmacy price concessions be reflected in the negotiated price, this would be an operational change for many Part D plans and could likely result in many pharmacies being paid less at the point of sale.

Manufacturer Rebates

CMS's proposal regarding reflecting a portion of manufacturer rebates in the negotiated price is more complicated.

CMS lists many reasons and concerns it has as motivation for why it is now considering whether it should require plan sponsors to reflect a portion of rebates in negotiated prices.  CMS's strongest concern relates to Part D beneficiary coinsurance.  If plan sponsors were required to reflect a portion of rebates that they might receive in negotiated prices, many Part D beneficiaries would pay lower coinsurance.  CMS simultaneously recognizes that if it were to require this, all Part D beneficiaries would see larger premium increases.

CMS broadly asks for comments on its proposal, and highlights certain issues on which it would like to receive feedback.  Some of these issues include:

  • What percentage of rebates should CMS require be reflected at the point of sale?
  • How to define drug category or class?  CMS is sensitive to not establishing a system that results in proprietary rebate information for a specific drug being disclosed.
  • How to calculate the applicable average rebate amount for a given drug category or class?
    • CMS suggests that:
      • Rebates be calculate by drug class or category and determined by 11-digit NDC.
      • Rebates be calculated based on the rebates that are expected to be received in the given plan year, not past years.
      • Rebates should be calculated and applied at the plan level, not at the contract level because of how rebates can be affected by plan design.
      • A weighted average for each drug category rather than simple average should be used.
  • How often should plan sponsors have to recalculate the applicable average rebate amount?
  • CMS suggests that the requirement to pass through a portion of rebates would only apply to drugs for which the plan sponsor receives rebates to ensure that beneficiaries see a price differential in drugs that are rebatable.

As noted above, CMS recognizes that requiring a portion of rebates to be reflected in the negotiated price will reduce coinsurance for some beneficiaries and result in larger premium increases for all Part D beneficiaries.  As a result, CMS is also considering whether it should limit the possible pass through requirement to only certain classes of drugs so as to reduce the impact on beneficiary premiums.

Towards the end of CMS's discussion of its rebate pass through proposal, CMS states that "we believe that such an approach could...potentially increase the incentive for sponsors and PBMs to negotiate lower prices at the point of sale instead of higher DIR [since rebates are reported in DIR now]."  This statement seems misplaced.  Plan sponsors and their contracted PBMs negotiate "lower prices at the point of sale" with pharmacies, not manufacturers.  Whether a manufacturer agrees to provide a plan sponsor a $0 rebate or a $100 rebate has no bearing on the negotiated price that the plan sponsor or its contracted PBM must pay a network pharmacy.  This statement appears to ignore the role pharmacies play in point of sale, negotiated prices.  A bill sponsored by Senator Wyden in early 2017 similarly appeared to ignore pharmacies' roll.

If CMS ultimately adopted a requirement that plan sponsors pass through a portion of rebates at the point of sale by reflecting such rebates in the negotiated price, it seems that plan sponsors could be required to pay pharmacies more than they report to CMS as the "plan pay amount" for a drug.  For example, assume: (a) the negotiated price with a pharmacy for drug A is $100, (b) the plan sponsor expects to receive an average rebate for drugs in drug A's therapeutic category of $40, (c) the plan sponsor is required to reduce the negotiated price used to calculate the beneficiary coinsurance by using 50% of the expected rebate, and (d) the beneficiary coinsurance is 25%.  In this example, the beneficiary would pay the pharmacy $20 (($100-$20 (half of the expected rebate)) times 25%) and the plan sponsor would pay the pharmacy $80, because the pharmacy would still need to be paid $100.  While it is still unclear, it seems like the plan sponsor under CMS's proposal would then report the plan pay amount of the drug as being $60, even though the plan actually paid $80.  This would be the result of the plan giving the beneficiary the benefit of 50% of the rebate while having to pay the pharmacy the remainder of the negotiated price that, from the pharmacy's perspective, has nothing to do with manufacturer rebates.

If this were the result, how many claims processing systems are ready to pay the pharmacy one amount, calculate a coinsurance based on an entirely separate amount (calculated by drug category), and report that separate amount minus the coinsurance to CMS on a PDE?

Comments are due today, Tuesday, January 16.  Given the complexities of CMS's request for information, we anticipate that CMS will receive plenty of feedback.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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