This evening, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule entitled “Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses.” CMS believes that the changes proposed in this rule will give plans more tools to negotiate lower drug prices. The proposed rule discusses the definition of ‘negotiated price’ while proposing provisions related to coverage in the six protected classes, the use of step therapy in Medicare Advantage, and codifies a statutory provision preventing the use of pharmacy gag clauses.

Comments on the rule must be submitted by January 25, 2019.

Broader Definition of ‘Negotiated Price’ Under Consideration, Possibly as Soon as 2020

• In a somewhat confusing move, CMS states that the agency is “considering, for a future year, which could be as soon as 2020” a new definition of “negotiated price” for drugs covered under Part D.
• The “negotiated price” is the benchmark price used to determine beneficiary cost-sharing, as well as the beneficiary’s progression through the different benefit stages, and is supposed to represent the price the plan sponsor ultimately pays for a drug. CMS has historically excluded concessions negotiated with network pharmacies and based on pharmacy performance.
• CMS is considering updating the definition of “negotiated price” to be the lowest price that the plan sponsor could pay for the prescription, including the maximum amount of price concessions and rebates negotiated. If the actual price paid to the pharmacy ended up being higher than the reported negotiated price, the plan sponsor would report the difference at the end of the year as negative direct and indirect remuneration (DIR).
• Additionally, CMS is considering adding a definition of “price concession” into Part D regulations. Currently, there is no regulatory definition of price concession; the definition under consideration by CMS would be broad and intended to include all rebates, discounts, and price concessions indirect and direct, negotiated between a plan sponsor and pharmacy.
• CMS estimates that beneficiaries would save between $7.1 and $9.2 billion over 10 years from a combination of reduced cost-sharing and higher premiums. However, the agency also estimates that government expenditures would increase $13.6 to $16.6 billion over 10 years (mainly through increased premium subsidies linked to higher premiums) and that manufacturers would save between $4.9 to $5.8 billion over 10 years (though lower coverage gap discount program rebate liability).

 CMS Proposes Exceptions to Mandatory Coverage of All Drugs in the Six Protected Classes

• Currently, all Part D plans must cover all drugs in the six protected classes: antidepressants, antipsychotics, anticonvulsants, immunosuppressants for the treatment of transplant rejection, antiretrovirals, and antineoplastics.
• CMS is proposing the following three exceptions to this mandatory coverage:
  1. Wider use of prior authorization and step therapy for drugs in these classes
  2. Excluding a drug in one of these classes from a formulary if the drug is a new formulation of an existing single-source product
  3. Excluding a drug in one of these classes from a formulary if the wholesale acquisition cost (WAC) increases beyond the rate of inflation, relative to the price in a baseline month and year
• CMS is proposing, under the first exception to allow indication-based formulary design within the protected classes. Indication-based formulary design allows to determine formulary coverage based on the indication of a drug, instead of covering the drug for all FDA indications.
• These proposals would be applicable beginning with the 2020 contract year and formularies that use these new provisions would still be subject to CMS’ annual review process

Following up on Previous Announcement, CMS Proposes Requirements for Medicare Advantage Plans to Use Step Therapy for Part B Drugs

• This proposed rule confirms’ CMS prior notification that Medicare Advantage (MA) plans may implement step therapy for Part B drugs
• Step therapy would only be applied to new prescriptions for enrollees not currently taking the impacted medication
• CMS is proposing that plans be required to use a Pharmacy and Therapeutics (P&T) Committee to approve step therapy programs, consistent with Part D requirements
• MA plans will have to disclose that a Part B drug is subject to step therapy in the plan’s Annual Notice of Change and Evidence of Coverage documents

Plan Sponsors May Have to Implement Electronic Real-Time Benefit Tools, Other Provisions

• Additionally, CMS is proposing to require that Part D plan sponsors use an electronic real-time benefit tool that can be integrated with the e-prescribing systems and electronic medical record (EMR) systems used by providers
• These real-time benefit tools can provide coverage and cost information to prescribers at the point-of-prescribing.
• CMS is also proposing to require that negotiated drug pricing information and lower cost alternative are included in the Part D Explanation of benefits.
• The rule codifies a provision recently passed in statute the prohibits the use of gag clauses in the Medicare Part D, beginning with plan year 2020.