Proposed Changes to Lower Drug Prices in Medicare Advantage and Part D

From day one, President Trump has made it clear that lowering prescription drug costs is a top priority. In May, the President released his drug-pricing blueprint, which includes the most sweeping set of policies to lower drug prices ever put forth by an administration. HHS has been hard at work to make the President’s vision a reality – because the status quo is simply unacceptable.

Today the Centers for Medicare & Medicaid Services (CMS) announced proposed changes to Medicare Part D to lower prescription drug costs for beneficiaries. Part D uses private insurance plans to cover drugs that are picked up at a pharmacy. The program is driven by market competition: Plans compete for beneficiaries’ business, and enrollees choose the plan that best meets their needs. Consumer choice puts pressure on plans to improve quality and lower costs. Part D premiums declined last year and are projected to decline again next year. But certain CMS regulations also constrain plans’ full negotiating power and keep them from lowering costs for their enrollees.

As we designed these proposed changes to Medicare Advantage (MA) and Part D, foremost in our minds was the impact on beneficiaries and ensuring affordability and access to medications. The changes we are proposing bring tools to Medicare that are widely used in private plans. However, it’s important to remember that if seniors don’t like a plan that takes advantage of these new flexibilities, they are in the driver’s seat. They have the option to choose a different plan that better meets their needs. These new tools will only become as common as beneficiaries want them to be.

One area in which Part D plans are constrained in their negotiating power is in the “protected classes.” These are therapeutic classes for which Part D plans must cover all available products with very few exceptions. As a result, beneficiaries taking these drugs have not seen the types of discounts that beneficiaries taking other drugs experience.

The protected class policy was put into place 12 years ago, at the beginning of the Part D program, to address concerns about patient access when millions of beneficiaries were being transferred onto Part D from Medicaid, and Part D plans were still inexperienced at implementing the program’s beneficiary protections. But the policy was never intended to be permanent.

Part D plans have since gained experience processing expedited appeals and making sure beneficiaries get the medications they need across all drug classes. However, the lack of any ability for Part D plans to manage drugs in the protected classes has allowed the pharmaceutical industry to command high prices on protected class drugs in Part D, without patients getting a good deal. Insurance plans in the private market do not face the same constraint. To give you a sense of the impact: Typical private market discounts for these drugs are in the 20 to 30 percent range, but the average discount across all protected classes in Part D is just 6 percent. The protected class policy is in need of an update to ensure that beneficiaries who depend on these drugs are getting the same discounts that other beneficiaries get.

Several protected class drugs have had especially large price increases over the past few years. For example, Part D spending on Latuda®, an antipsychotic used by more than 100,000 Medicare beneficiaries, grew at a rate of nearly 19 percent annually from 2013 to 2017. Today, there are 63 percent more individual drugs in the protected classes than there were when the protected class policy was created – this means more competition that plans could leverage to provide high-quality options at a lower cost. But because under the protected class policy nearly every individual drug has to be covered, competition is thwarted.

To modernize the program and empower plans to drive down costs for beneficiaries who need these drugs, today’s CMS rule proposes to permit greater flexibility in the protected classes. Specifically, we propose allowing plans to exclude from their formularies protected class drugs with price increases that are greater than inflation, as well as certain new drug formulations that are not a significant innovation over the original product.

We also propose to allow plans to use prior authorization and step therapy for protected class drugs. Plans could therefore ensure that beneficiaries receive the most appropriate and lowest-cost option first. 

To achieve even more savings for beneficiaries, we are proposing to codify a policy that closely matches one that we implemented for 2019, to allow step therapy for Medicare Advantage plans. This policy would allow MA plans to offer beneficiaries the drug in Part B, which covers physician-administered drugs, that is most cost-effective before progressing to other options. For example, a beneficiary could start on a low-cost biosimilar before moving to a more costly biologic. The resulting savings would lead to a decrease in MA premiums. And to ensure access to Part B drugs, step therapy requirements may only apply to new starts of medication and must be reviewed and approved by the plan’s pharmacy and therapeutics committee.

Some say that allowing step therapy and prior authorization would restrict access to prescription drugs. However, these changes protect patient access, as the Part D program is embedded with strong patient protections. CMS reviews plan formularies to guard against discriminatory practices, and the agency has in place an expedited appeals process for cases in which a physician recommends an exception to prior authorization or other forms of management. There are also additional requirements for plans to cover at least two drugs per class, including in the protected classes. Ultimately, the changes we are proposing would reduce costs for protected class medicines and therefore expand access to these important medicines.

In addition to strengthening negotiating power and empowering patients, the proposed rule for Part D takes steps to increase transparency. In the commercial health insurance market, plans have begun to offer real-time prescription benefit tools that give patients and their doctors information on cost sharing for their drugs, at the same time as their doctors prescribe them. For example, patients seeking hepatitis C treatment could discuss with their physician all their options, fully understanding the cost of each one under their insurance plan. There would be no surprises, and patients would have the information they need to make the decisions that work best for them.

We seek to accelerate the use of these solutions in Part D by proposing that each plan adopt a real-time prescription benefit tool of its choosing by January 1, 2020. This policy would complement other administration efforts to increase transparency, including legislation signed by President Trump to end the practice of pharmacy gag clauses, a prohibition we are proposing to implement in this rule, and a CMS proposal to require pharmaceutical companies to disclose the list price of drugs in direct-to-consumer television ads. CMS has also advanced price transparency through a redesigned drug dashboard, and has taken action beyond the area of drug pricing by requiring hospitals to post their standard charges online in a machine-readable format.

In addition to these proposals, we are also considering a Part D proposal that would protect competition among pharmacies and lower costs for patients. Independent pharmacies have raised concerns that back-end deals with health insurance plans are eroding competition and making it harder for them to continue providing medications to beneficiaries. Plans can set performance requirements for pharmacies that may not be achievable, leading to large financial clawbacks from pharmacies and swings in revenues that pharmacies cannot manage. What’s worse, beneficiaries are not benefitting from these discounts in the amount that they pay at the pharmacy counter—they are paying cost-sharing based on a price that is higher than the amount that pharmacies are actually reimbursed for drugs.

Therefore, CMS is considering for a future plan year, which could be as early as 2020, to require that the price a beneficiary pays at the pharmacy counter reflects the lowest possible cost, so beneficiaries receive the maximum benefit. If adopted, this change would lower cost sharing for beneficiaries by about $12 to $15 billion over 10 years. 

We look forward to input on these proposals and other policies under consideration to modernize the Medicare Advantage and Part D programs, so we can ensure that we are achieving our goals of putting patients’ needs first by lowering their costs and protecting access to the medications they need. Seniors deserve to benefit from tools to lower prescription drug costs that have been developed in the commercial marketplace in the 12 years since Part D was implemented.