United States: CMS Launches New Medicare Part D Payment Modernization Model

Last Updated: February 6 2019
Article by Robert J. Hill and Debra A. McCurdy

The Centers for Medicare & Medicaid Services (CMS) has announced a new Medicare Part D Payment Modernization Model (Part D Model), which will be tested by the CMS Center for Medicare and Medicaid Innovation. CMS unveiled the Part D Model on January 18, 2019, at the same time the agency released details on extensive revisions to its current Medicare Advantage Value-Based Insurance Design (VBID) model. On January 31, 2019, CMS provided additional detail on the new Part D Model during a webinar (the webinar will be repeated on February 6, 2019).

The Part D Model is a voluntary, five-year (CY 2020-2024) model open to standalone prescription drug plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs), on a nationwide basis. As discussed below, the model is intended to decrease Part D program spending by: (i) introducing two-sided risk to participating plans for spending in the catastrophic portion of the Part D benefit, and (2) enhancing plan flexibilities to propose clinically-based drug utilization management techniques, including through rewards and incentives programs for plan beneficiaries.

Two-sided risk for the catastrophic portion of the Part D benefit.

For plans accepted into the program, CMS will retrospectively (after the plan year has been completed) establish a target benchmark representing the federal catastrophic reinsurance subsidy amount (80% of Part D catastrophic phase costs after manufacturer rebates and other Direct and Indirect Remuneration) that would have been paid to participating organizations if they were not participating in the model. The benchmark will be calculated after adjustment for certain factors, such as enrollee health and low-income subsidy status, and separate benchmarks will be calculated for participating PDPs and MA-PDs. If the reinsurance subsidy amount (after adjustment) for the organization's participating PDPs or MA-PDs (as applicable), calculated at the parent organization level, is lower than the applicable target benchmark, the organization will receive a portion of the difference (referred to by CMS as "savings"), and if it is higher than the benchmark, the organization must pay to CMS a portion of the difference (referred to by CMS as "losses"). Specifically:

  • If the organization's reinsurance subsidy (as adjusted) is above the benchmark, it must pay 10% of the "losses" to CMS.
  • If the organization's reinsurance subsidy (as adjusted) is below the benchmark, CMS will pay the organization (i) 30% of the "savings" up to 3% of the benchmark, and (ii) 50% of "savings" in excess of 3% of the benchmark.

Enhanced plan flexibilities.

Utilization management. CMS states that model participants may "propose clinically-based drug utilization management techniques that make prescription drugs with lower list price available while also ensuring appropriate beneficiary access." However, no detail has been provided to date on what, if any, utilization management tools model participants may employ that are not otherwise available to Part D plans.

Rewards and Incentives Program. CMS also states that "model participants will be granted the flexibility to create a Part D Rewards and Incentive program...." The program must focus on "promoting improved health, medication adherence, and the efficient use of health care resources." CMS has not provided further detail about exactly what types of incentives and rewards may be offered or their permitted dollar value, but notes that they may incentivize enrollees' participation in disease or medication therapy management programs, receipt of preventive services such as vaccines, or engagement to understand clinically-equivalent alternative medications that may be more cost-accessible.

Other flexibilities. CMS states that "[a]dditional programmatic flexibilities will be outlined to model participants," but it has not specified what those will be.

Other significant model features.

If a parent organization applies to have any of its PDPs in a PDP region participate in the model, it must apply with respect to all of its PDPs in that region. Similarly, if an organization applies to have any of its MA-PDs participate, it must apply for all MA-PDs offered in any of the Part D regions that such MA-PD serves. CMS indicates that selection of plans will be "competitive," and designed to ensure the resulting data demonstrates the effect of the model. Plans accepted for CY 2020 will not be required to participate for subsequent years; CMS will evaluate at a later point whether it will offer an application opportunity to plans in CY 2021 or subsequent years. Applications to participate in the model for CY 2020 will be due March 15, 2019.

CMS notes that spending in the catastrophic phase of the Part D benefit has grown six-fold since 2006, resulting in large increases to catastrophic reinsurance subsidy outlays, which now exceed CMS payments for the Part D "direct subsidy." This has led to proposals to reduce the catastrophic reinsurance subsidy from 80% of catastrophic benefit net drug costs to a lower percentage, so as to give Part D plan sponsors greater financial incentives to manage spending in that phase of the benefit. The Part D Model appears to be the Trump Administration's effort to address this issue. Significantly, participation in the model is voluntary for Part D plan sponsors, incentivized by sharing in any savings achieved, rather than compulsory for a portion of Part D plans.

CMS will release additional details about the model as part of the model application, which it expects to make available the week of February 3, 2019. Part D plan sponsors will want to carefully scrutinize all aspects of the model to determine whether, and for which of their Part D plans, participation would likely be beneficial. Most notably, the methodology for calculation of the benchmarks will be extremely important, since (i) performance against the benchmarks will determine if plans receive a share of "savings" or must pay a portion of "losses," and (ii) the actual benchmarks for 2020 will not be known until 2021. Other stakeholders, such as beneficiaries and manufacturers, are likely to focus upon the details of the increased utilization management flexibility made available to Part D plans participating in the model to control catastrophic phase spending.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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