CMS Issues Proposed Guidance on Part D Coverage Gap Discount

By Alan M. Kirschenbaum –

Five weeks after the enactment of health care reform, CMS has, with surprising alacrity, issued a draft guidance on one of the provisions of the legislation that will be most costly to brand drug manufacturers – the Medicare Part D Coverage Gap Discount.  As explained in our summary of the Patient Protection and Affordable Care Act ("PPACA"), effective January 1, 2011, PPACA requires drug manufacturers, as a condition of having their drugs covered under Part D, to have in effect an agreement with HHS agreeing to offer a discount on brand (i.e., NDA or BLA) drugs dispensed to Part D beneficiaries in the coverage gap who do not receive low-income subsidies.  The amount of the discount is 50 percent of the “negotiated price,” which is defined under current regulations as the price available to beneficiaries at the pharmacy, reduced by any discounts or other price concessions (including those offered by drug manufacturers to the Part D plan) that the Part D plan has elected to pass through to enrollees.  The statute requires that the coverage gap discount be provided to enrollees at the point of sale, but otherwise leaves it largely up to CMS to design the system under which these discounts will be collected from manufacturers and made available to enrollees.  The draft guidance describes the system that CMS is proposing.  Essentially, the discount will be provided to the patient at the point of sale by the pharmacy, which will be reimbursed by the Part D sponsor, which in turn will be reimbursed by manufacturers – all under the oversight of CMS with the help of its coverage gap contractor.

Under the guidance, the Part D sponsor will be the primary administrator of the discount program.  When a drug is dispensed to a Part D beneficiary at the pharmacy and the claim is adjudicated, the Part D sponsor will determine (because, as CMS explains, it is the only entity that is able to determine) whether the beneficiary is eligible for the discount, whether the drug was approved under an NDA or BLA and therefore subject to the discount, whether the claim is wholly or partially in the coverage gap, and the amount of the discount.  For an eligible beneficiary, the Part D sponsor will inform the pharmacy at adjudication of the amount of the discount, and the pharmacy will provide the discount to the beneficiary at the point of sale.  The Part D sponsor will subsequently reimburse the pharmacy for that amount.  The Part D sponsor will also report the discount on the electronic prescription drug event ("PDE") record reported to CMS.  Based on the PDE records, CMS’s contractor will determine the aggregate discount amount owed by each manufacturer to each Part D sponsor for each drug at either the NDC-9 or NDC-11 level (as determined by CMS), and will invoice manufacturers quarterly.  Manufacturers must pay the Part D sponsors directly, and do so within 15 days, including amounts in dispute. 

Presumably to ease the burden on Part D sponsors of having to reimburse pharmacies before receiving manufacturer payments, starting January 1, 2011, CMS will provide a monthly prospective payment to Part D sponsors for the manufacturer discounts that are expected to be provided to beneficiaries in the coverage gap during the month, based on projections in each Part D sponsor’s bid.  At the end of the contract year, CMS will reconcile its monthly prospective payments to each Part D plan to the actual amount of discounts to each of the plan’s enrollees, which CMS will calculate based on the discount amounts reported in the PDE records.  The draft guidance provides that the monthly prospective payments to Part D sponsors will be reduced by discount amounts invoiced to manufacturers, but it is unclear what prior month would be used to determine the amounts invoiced to manufacturers. 

The statute requires manufacturers, absent extenuating circumstances, to have an agreement with HHS in effect by January 1, 2011 in order for their drugs to be covered under Part D.  CMS has determined that extenuating circumstance exist because Part D sponsors have already submitted their formularies for 2011, and that CMS therefore must allow coverage of Part D drugs in 2011 regardless of manufacturer discount agreements.

CMS solicits comments on the draft guidance, and specifically on the proposed approach for collecting manufacturer payments.  Certain issues warrant comments.  For example, although the guidance requires manufacturers to pay disputed amounts when invoiced (unlike the Medicaid Rebate program), it contains no procedures for manufacturers to dispute invoiced claims.  Also, although CMS’s contractor would verify the accuracy of the discounts reported in PDE records, there is no provision for manufacturers or independent third parties to audit PDE records or CMS’s contractor’s calculations.  The sheer administrative burden to manufacturers is also a concern.  While manufacturers have adapted to paying Medicaid Rebates to 50 states, paying quarterly coverage gap discounts to hundreds of Part D plans in addition presents a new level of burden.  Comments on the draft guidance must be received by close of business on May 14, 2010.