Where Is the Barrage of Policy Updates Taking Part D?

Posted May 4, 2018 by Erin Costell and Rayvelle Stallings, MD

As a sponsor of a Medicare Part D plan, you may be feeling deluged with regulatory rules and policy changes coming in 2019 and 2020. The Bipartisan Budget Act of 2018 (BBA 2018) issued February 9, 2018 includes provisions related to Part D. Shortly after this, on February 12 the White House released the President’s Budget for FY2019, which also includes provisions related to Part D. While it is likely not everything in the President’s FY2019 Budget will gain traction, the proposals give insight into the Administration’s priorities for healthcare, and some of the specific policies may be adopted by Congress or passed through administrative action. In addition to these budget announcements, the CMS Final Rule and 2019 Call Letter were both issued April 2. Taken together, all of these actions are staggering. The BBA 2018 is 250 pages; the Final Rule is more than 1,000 pages; the Call Letter is 270 pages.

As you start to sift through these updates, DST is digging in to look for themes to indicate what direction the current Administration is heading. While our evaluation of all of these new rules is ongoing, in this post we start by focusing on Part D provisions embedded within the BBA 2018 and in the proposed President’s FY2019 Budget. We are looking closely at the policy changes we feel will impact our Part D clients the most. Our goal is to help you begin to understand new challenges ahead, find strategic opportunities, and identify operational changes necessary due to compliance complexities arising from these policies.

The Part D coverage gap is closing even faster than originally planned, and costs are shifting

About the coverage gap (the so-called “donut hole”): The coverage gap leaves Part D beneficiaries paying a higher out-of-pocket share once their annual drug expenses exceed a certain limit. Coverage resumes after this phase, once they incur enough expenses to reach the next limit, when they move them into the catastrophic phase. While in the coverage gap, beneficiaries’ medication expenses are shared with the beneficiary by Medicare Part D drug plans and pharmaceutical companies in a Coverage Gap Discount Program.

A provision in the BBA 2018 speeds up the closing of the Part D coverage gap, lowering beneficiaries’ co-pays while increasing discounts from pharmaceutical companies.

Noteworthy changes effective January 1, 2019:

  • The cost-sharing amount for Part D beneficiaries will be 25% of the negotiated drug price, down from the planned 30%.
  • Pharmaceutical companies will be required to give larger prescription drug discounts, an increase from 50% to 70%.
  • The contribution from Part D plan sponsors will decrease from 25% to 5%.
  • Biosimilars will no longer be excluded from the Coverage Gap Discount Program, thus manufacturers of biosimilars will also be required to provide a 70% discount.

Once Part D beneficiaries exceed the limit in the coverage gap, they move into the next phase of coverage – the catastrophic phase. The President’s FY2019 Budget includes a provision that could significantly increase the time beneficiaries stay in this coverage gap phase. Currently, discounts provided by pharmaceutical companies in the coverage gap period count toward a beneficiary’s out-of-pocket costs. These discounts would no longer be included in this calculation, potentially leaving beneficiaries in the coverage gap phase much longer.

The current US Administration is shifting some of the expenses of Part D benefits away from the federal government

Policies coming together from these multiple announcements are changing the way Part D benefits are paid for, putting more liability on Part D plan sponsors.

CMS is virtually exiting the reinsurance portion of the Part D program (which limited a Part D sponsor from catastrophic costs), shifting a large portion of the liability away from CMS to Part D plans This means sponsors of Part D plans will need to be more diligent than ever in managing costs. The President’s FY2019 Budget proposes to add an out-of-pocket limit for individuals who have entered the Part D catastrophic phase. Once approved, the budget proposal will also increase Part D plan sponsors’ liability in this phase from 15% to 80% over four years and would decrease Medicare’s reinsurance liability from 80% to 20%.

The BBA 2018 changes the percentage high-income Part D beneficiaries contribute to the cost of medications in 2019. The Individuals with incomes in excess of $500,000 or couples with incomes exceeding $750,000 will cover 85% of Part D costs, up from 80%.

The drive to lower drug pricing and increase price transparency is picking up

As the call for control of drug prices and greater price transparency grows stronger throughout the industry, the President’s FY2019 Budget rolls out several proposals responding to this need. Once approved, the President’s Budget would:

  • Require Part D plans to share rebates from pharmaceutical manufacturers with members enrolled in their Part D plan – This would be a first for a program such as this and would have far-reaching impacts, since Part D plans would be required to pass on at least one-third of rebates, bringing new cost management and administrative challenges.
  • Add price concessions to individuals in the plan at the point of sale (POS) – This is an industry first. We have never seen these type of "performance based" network arrangements shared with beneficiaries, and certainly not in real-time at POS. Because these arrangements would be based on expected drug utilization thresholds in member groups, plans would be required to "float" the cost of these price concessions at POS. If expected thresholds are not met, there would be a downstream financial impact on the health plan and/or PBM related to these price concessions and rebates. Currently, both rebates and price concessions are realized by plans far after claims are processed. Correctly calculating the POS amount will be critical. Administering this complex process will require expanding systems functionality to support new downstream reporting, analytic, and operational needs.
  • Consolidate coverage of some drugs under Part D that are currently covered under Part B – This would begin in 2019 after determination that savings can be gained from consolidation (shifting from average sales price plus 6% under Part B to negotiated Part D pricing). Since drugs on the medical side are not billed in the same way, seeing these products paid on the pharmacy side with the member paying all or a portion of the drug’s cost through coinsurance will be eye opening. Members will get to see how expensive many of the physician-administered injectables are and how quickly these prices change.

Ongoing Direction

DST will continue to monitor Part D budgetary reimbursement impacts and regulatory guidance as issued so we can help you strategically plan new ways to attain success in the evolving healthcare industry as well as help you prepare for operational updates necessary for compliance. We are available to provide our expertise in Part D and support you as you navigate these complexities to achieve improved health outcomes, financial performance, and operational efficiency.

For more information on how DST can be a resource for your health plan, contact us.

Erin Costell headshot
Rayvelle Stallings headshot
Erin Costell, MD
Government Program Office
Rayvelle Stallings
Chief Medical Officer

The views expressed in this publication are solely those of the author and do not necessarily reflect the position or policy of DST Systems, Inc. or its affiliates, subsidiaries, joint ventures, officers, directors, or management.

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