CMS Proposes Rule to Reduce Drug Costs Under Medicare Part D and Medicare Advantage

On November 30, CMS published in the Federal Register a proposed rule on Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses. This proposal is the latest in a series of CMS actions to implement the HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, which was issued in May of this year. The Proposed Rule addresses five subjects:

1. Providing Plan Flexibility to Manage Protected Classes
2. Medicare Advantage and Step Therapy for Part B Drugs
3. Pharmacy Price Concessions to Drug Prices at the Point of Sale
4. Prohibition Against Gag Clauses in Pharmacy Contracts
5. E-Prescribing and the Part D Prescription Drug Program

We discuss the first three of these subjects below, because these are the provisions that relate most closely to drug cost reduction. CMS is accepting public comments on the Proposed Rule until January 25, 2019.

Providing Plan Flexibility to Manage Protected Classes

Current Part D policy requires that Part D plan sponsors include on their formularies, with limited exceptions, all drugs in six categories or classes: antidepressants, antipsychotics, anticonvulsants, immunosuppressants for treatment of transplant rejection, antiretrovirals, and antineoplastics. Theses six categories are commonly referred to as “protected” therapeutic classes. While Part D plan sponsors may use utilization management tools like prior authorization and step therapy for other Part D drugs, they have limited authority to use these tools for drugs in the protected classes and may not exclude such drugs from their formularies. The Proposed Rule would not change the six protected classes, but would provide Part D plans with greater leverage to negotiate discounts for drugs in protected therapeutic classes.

The Proposed Rule would create three exceptions that would allow Part D sponsors to impose formulary actions on drugs in protected classes. First, sponsors would be able to impose prior authorization and step therapy requirements to ensure clinically appropriate use, promote utilization of preferred formulary alternatives, confirm that the intended use is for a protected class indication, or a combination of these three purposes. The prior authorization and step therapy procedures would have to be reviewed and approved by CMS.

Second, a Part D sponsor could exclude from a formulary a new formulation of a single source protected class drug or biological that has the same active ingredient or moiety as the original version and that does not provide a unique route of administration – even if the original drug is withdrawn from the market. The preamble explains that this is intended to discourage manufacturers from introducing a more expensive formulation of a protected class drug while discontinuing the original version. Unfortunately, the proposed rule does not define a new formulation, a term whose meaning is not self-evident. For example, does a new formulation include a new strength? What about new formulations that further an important public policy objective, such as abuse deterrent formulations of opioids – are they to be equally discouraged? Readers familiar with the Medicaid Drug Rebate Program (MDRP) will recall that CMS proposed then later withdrew a convoluted definition of this term under the MDRP, and has not attempted to define it since.

Third, CMS proposes, beginning on or after January 1, 2020, to permit Part D sponsors to exclude from a formulary a protected class single source drug or biological if its WAC has increased, compared to a defined baseline month and year, at a rate greater than the rate of inflation as measured by the Consumer Price Index for all Urban Consumers (CPI‑U). If one NDC for any strength, dosage form, or route of administration of a drug exceeded the price increase limit, all NDCs assigned to the drug could be excluded. Part D sponsors would be responsible for monitoring WAC increases and deciding whether to adopt such an exclusion policy, which would have to be approved by CMS. CMS notes that Part D sponsors would not be required to exclude such drugs from their formularies, but instead could use the threat of exclusion to negotiate rebates for formulary placement.

Step Therapy for Part B Drugs Covered Under Medicare Advantage Plans

The Proposed Rule also would permit Medicare Advantage plans to apply step therapy as a utilization management tool for Part B drugs. This proposal is consistent with an August 2018 memo that rescinded a 2012 prohibition on imposing mandatory step therapy for access to Part B drugs. See Prior Authorization and Step Therapy for Part B Drugs in Medicare Advantage (August 2018). Under the Proposed Rule, Medicare Advantage plans would be required to disclose that Part B drugs may be subject to step therapy requirements in the plan’s Annual Notice of Change and Evidence of Coverage documents. Step therapy would not apply to preferred providers organization plans (PPOs) because PPOs are required to reimburse or cover benefits provided out of network and are prohibited from using prior authorization or preferred items restrictions in connection with out of network coverage. 42 U.S.C. § 1395w–22(e)(3)(iv)(II).

Pharmacy Price Concessions in the “Negotiated Price”

Under Part D the negotiated price is the price that a Part D plan negotiates with a pharmacy as the amount the pharmacy will receive, in total, for a Part D drug, and it is also the pharmacy’s price to the enrollee, upon which the enrollee’s co-insurance is based. The negotiated price is net of price concessions from network pharmacies, except for contingent price concessions that cannot “reasonably be determined” at the point-of-sale. 42 C.F.R. 423.100. Because most pharmacy price concessions cannot be determined at the point of sale, negotiated prices typically do not reflect any performance-based pharmacy price concessions that would otherwise lower the amount a sponsor, and the enrollee, ultimately pays for a drug. CMS is considering eliminating this exception for contingent pharmacy price concessions as soon as 2020 and revising the definition of “negotiated price” to mean the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D plan. In other words, the greatest possible pharmacy price concession would be assumed in the negotiated price, so that the enrollee’s co-insurance would be reduced. Any difference between the negotiated price and the amount the pharmacy was ultimately paid would be captured in “direct and indirect remuneration” (DIR) reporting at the end of the plan year.

This proposal is reminiscent of CMS’ November 2017 request for comments on a proposal to require Part D sponsors, through a future rulemaking, to include in negotiated prices a specified percentage of manufacturer rebates as a point-of-sale rebate. See 82 Fed. Reg. 56336, 56421 (Nov. 28, 2017). Apparently, CMS does not consider that concept to be ripe for a rulemaking, because the new proposed rule makes no mention of it.

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This Proposed Rule is the latest in a series of CMS actions under the Trump Administration intended to reduce drug costs under Medicare. Though this Proposed Rule and the November 2017 request for comments on point-of-sale rebates involved Part D, most of the initiatives have addressed drug costs under Medicare Part B, including:

• A November 2017 final rule reducing the Part B payment to hospital outpatient departments for separately payable drugs purchased under the 340B Drug Discount Program from ASP plus 6% to ASP minus 22.5%.
• A July 2018 request for information on a proposal to establish a competitive acquisition program for Part B drugs, which would incorporate formulary tools, indication-based pricing, outcomes based agreements, and other cost-reduction features
• An October 2018 proposed rule requiring direct-to-consumer TV ads for drugs covered under Medicare or Medicaid to contain WAC pricing information (see our blog post here)
• An October 2018 advance notice of proposed rulemaking on using an international pricing index as a benchmark for Part B drug payment (see our post here)
• Two November 2018 final rules (hospital outpatient prospective payment system and physician fee schedule) reducing the Part B drug payment rate for drugs for which no ASP data are available from ASP + 6% to ASP + 3%.

Although these Medicare initiatives began before the HHS Blueprint was issued in May, they have clearly been accelerating since the Blueprint. We will be following these CMS initiatives in this blog.