Jan 18, 2019
Overview
In January 2020, the
Centers for Medicare & Medicaid Services (CMS) Center for Medicare and
Medicaid Innovation (Innovation Center) will begin the Part D Payment
Modernization model to test the impact of a revised Part D program design and
incentive alignment on overall Part D prescription drug spending and
beneficiary out-of-pocket costs. The model aims to reduce Medicare expenditures
while preserving or enhancing quality of care for beneficiaries. The model is
open to eligible standalone Prescription Drug Plans (PDPs) and Medicare
Advantage-Prescription Drug Plans (MA-PDs) that are approved to participate.
The President’s
Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs called on HHS to
increase competition, improve negotiation, create incentives for lower list
prices and reduce out-of-pocket costs. Through the Part D Payment
Modernization model announced today, CMS is executing on the Blueprint. This
model advances President Trump’s commitment to lower prescription drug prices, with
Medicare beneficiaries, Part D plans, and CMS all benefiting from a more
aligned system.
This voluntary,
five-year model tests the impact of a modernized Part D payment structure that
creates new incentives for plans, patients, and providers to choose drugs with
lower list prices in order to address rising federal reinsurance subsidy costs
in Part D. Eligible standalone Prescription Drug Plans and Medicare
Advantage-Prescription Drug Plans that are approved to participate in the model
will take two-sided risk for CMS’s federal reinsurance subsidy (80 percent of
catastrophic phase liability), allowing for performance-based payments to plan
sponsors or payments to CMS based on spending. As part of the model, CMS will
also provide participants with additional programmatic tools, including a Part
D Rewards and Incentives program, to increase engagement between plans and
their enrollees and to promote better enrollee understanding of their Part D
benefit, out-of-pocket costs, and clinically equivalent therapeutic options.
Ultimately, CMS expects that testing a modernized Part D payment structure will
maintain or improve beneficiaries’ access to affordable and necessary covered
Part D prescription drugs.
Background
The Medicare Part D
program began providing prescription drug coverage to Medicare beneficiaries in
2006. A number of risk-abating mechanisms were included in the original benefit
design included to ensure Medicare beneficiaries had access to a robust choice
of Part D plans. These mechanisms include the direct subsidy risk
corridors, risk adjustment, and federal reinsurance in the catastrophic phase
of the benefit. This structure has allowed CMS to successfully implement and
administer a market-based Part D program, providing critical access to
prescription drugs, decreasing premiums over time, and promoting high enrollee
satisfaction with their Part D benefit.
Over time, however,
pharmaceutical innovation and patent expirations have led to a bifurcation in
Part D prescription drug utilization and spending. While the percentage of Part
D prescriptions filled with safe and effective generic medications is higher
than ever, overall Part D spending has almost doubled from 2010 to 2016,
increasing from $77.5 billion in total spending to $146.1 billion, with costs
projected to increase further.[1] In evaluating the reasons for
this trend, the high list price of new specialty and branded medications for
cancer, Hepatitis C, rheumatoid arthritis, and other conditions has led to a
six-fold increase in Part D catastrophic phase spending relative to 2006. This
is due, in part, to the fact that the list price determines both beneficiary
out-of-pocket costs and where an enrollees are in their Part D benefit.
Given the potential
difference between the list and net price of specialty and branded medications,
the amount that both beneficiaries, through premiums and out-of-pocket costs,
and CMS, through the federal reinsurance subsidy and low-income subsidies, pay
has continued to increase. However, while payments to Part D plan sponsors to
administer the benefit have more than doubled from 2006 to 2017, the portion of
the Part D benefit that plan sponsors are liable for managing, termed the
direct subsidy, has decreased. In 2017, the direct subsidy was 14 percent
lower than it was in the first year of the Part D program. This has prompted
recommendations from the Medicare Payment Advisory Commission (MedPAC), the
U.S. Health and Human Services Office of the Inspector General, and other
stakeholders that the original Part D risk-sharing mechanisms be updated to better
reflect the current and future prescription drug landscape.
Model Description
Through this model,
CMS is testing the impact of a modernized Part D payment structure that
increases and better aligns Part D plan sponsor liability with the costs paid
for by CMS and Medicare beneficiaries. Ultimately, this model will allow CMS to
address the high list price of drugs covered by Medicare Part D and evaluate
the impact on cost and quality for Medicare beneficiaries. The
voluntary, five-year (CY 2020-2024) Part D Payment Modernization model aims to
promote a decrease in total Part D program spending in the following two ways:
1.
Creating new incentives for plans,
patients, and providers to choose drugs with lower list prices to better manage catastrophic phase federal
reinsurance subsidy spending by introducing two-sided risk to align payment
incentives for plan sponsors with their enrollees and CMS; and
2.
Providing programmatic
flexibilities, including Part D Rewards and Incentives programs, to ensure
Medicare beneficiaries are able to maintain affordable access to the
prescription drugs that they need.
CMS will be releasing
a Request for Applications (RFA) for eligible standalone PDPs and MA-PDs to
participate in plan year 2020, the first year of the model. As part of a
competitive application process, the model will accept applications from
eligible Part D plan sponsors nationally.
If a Part D sponsor
chooses to apply with a standalone PDP in a Part D region, the Part D sponsor
must include all standalone PDPs in that Part D region. If a Medicare Advantage
Organization (MAO) chooses to apply with an MA-PD, the MAO must include all of
the eligible MA-PD plan benefit packages (PBPs) offered in or across the Part D
region(s) that the MA-PD serves.
CMS will review plan
sponsors’ applications for participation and only accept applications to the
extent the model still ensures a competitive Part D market and CMS preserves
the ability to evaluate the impact of the model.
CMS is only announcing
an application period for participants beginning in the model for CY 2020 at
this time. Based on participation, initial model impact, and additional
considerations, CMS may consider offering additional application periods in the
future.
CMS is maintaining all
current Part D bid, payment, and reconciliation processes, including the
application of risk corridors. Plans will continue to bid a prospective federal
reinsurance amount, which will be fully reconciled as per current law. In
addition, the direct subsidy amount will be reconciled per the existing direct
subsidy Part D risk corridors, including the current 15 percent plan liability
in the catastrophic phase. Payment, risk adjustment, and reconciliation
processes will still apply to each subsidy consistent with current law.
After a plan year, CMS
will retrospectively create a spending target benchmark that represents the
federal reinsurance subsidy (80 percent of Part D catastrophic phase costs
after rebate) CMS projects would have been paid to participating organizations
if they were not participating in the model. At the parent organization level,
based on standalone PDP or MA-PD PBPs, if plan federal reinsurance subsidy
spending is lower than its spending target benchmark (i.e. savings), then the
parent organization will receive performance based-payments, based on the total
percent saved. If the federal reinsurance subsidy spending is higher than their
spending target benchmark (i.e. losses), participating parent organizations
will have to repay ten percent of the difference from any additional spending.
Additional details on the spending target benchmark methodology will be
provided in the model RFA.
CMS will also allow
model participants to propose clinically-based drug utilization management
techniques that make prescription drugs with lower list price available while
also ensuring appropriate beneficiary access. To that end, model participants
will be granted the flexibility to create a Part D Rewards and Incentive
program to strengthen the clinical relationship between their enrollee and the
enrollee’s provider, and his or her chosen Part D plan. Additional programmatic
flexibilities available will be outlined to model participants.
Overall, through the
Part D Payment Modernization model, CMS aims to test better alignment of CMS
and plan risk-sharing in Part D to increase Part D market competition, decrease
beneficiary out-of-pocket and premium costs, preserve or enhance quality of
care for beneficiaries, maintain and ensure affordable access to prescription
drugs, and decrease Part D programmatic spending.
Additional information
on the Part D Payment Modernization model can be found on the model website
at https://innovation.cms.gov/initiatives/part-d-payment-modernization-model/. The
RFA to join the model for CY 2020 will be available on the model website and
applications will be accepted through March 1, 2019.
For any questions
about this model, please email PartDPaymentModel@cms.hhs.gov
[1] For an overview of Medicare Part D programmatic spending,
please refer to the 2018 Annual Medicare Trustees Report: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2018.pdf
https://www.cms.gov/newsroom/fact-sheets/part-d-payment-modernization-model-fact-sheet
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