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MedHOK Strategic Insights Blog

Effort to Rein In Drug Costs Means Major New Initiatives in Medicare Advantage and Part D

Marc Ryan | September 4, 2018

While drug costs have been relatively moderate of late, the Centers for Medicare and Medicaid Services (CMS) is ever mindful of the drug world’s increasing share of overall drug costs, especially as Americans age. As such, CMS and its parent, the Department of Health and Human Services (HHS), have announced two key initiatives to reduce overall drug costs and trends in Medicare Advantage and Part D.drug costs

Indication-Based Formulary Design Beginning in Contract Year (CY) 2020 for Part D

In July 25, 2018 and August 29, 2018 Health Plan Management System (HPMS) memos (links here and here), HHS and CMS announced they want to provide Part D plans with additional flexibility to incorporate indication-based utilization management in their formulary design.

Part D plans will now be able to vary approval criteria for specific indications if their CMS-approved formularies clearly define such requirements. Current CMS policy is that each on-formulary drug is covered for all indications that are approved by the Food and Drug Administration (FDA) (unless excluded from Part D coverage). The indication-based formulary strategy will allow plans to use step therapy-like requirements within their utilization management to require use of one formulary drug for a certain indication prior to authorizing coverage of a second drug for that indication.

In essence, CMS is now allowing plans to determine on-formulary status not drug by drug, but by drug and specific indications. CMS thinks this will be very advantageous in negotiations related to high-cost drugs. Plans must ensure that there is another therapeutically similar drug on formulary for the non-formulary indication. Protected class rules will override this new flexibility. If a plan excludes specific indications for a Part D drug from its formulary, requests for coverage for those excluded indications will need to be treated as an exception request for an off-formulary drug.

CMS will be updating its Medicare Plan Finder files to capture such changes as well. Plans would need to outline such changes in its Annual Notice of Change (ANOC) and Evidence of Coverage (EOC) documents.

The concept over time could mean huge savings for plans. At the same time, the world of formulary management, coverage determination and redetermination becomes more complex.

Interestingly, while the change is slated for 2020, CMS indicated in the July 25 memo that plans could have updated CY 2019 formulary submissions to reflect such strategies during the August 6-8, 2018 limited formulary update. Few plans were likely ready with such short notice. Plan now, though, for 2020.

Part B Step Therapy Now Allowed

If Part D costs have been relatively light, plans have continued to struggle with high Part B drug costs. As such, CMS announced in August 7, 2018 and August 29, 2018 memos (links here and here) it was rescinding its earlier prohibition on step therapy for Part B drugs beginning January 1, 2019.

Up until now, while plans can establish a formulary and prior authorization, the use of step therapy was forbidden. Here, CMS is acknowledging that prior authorization alone for drugs is not enough to control high Part B drug costs and that trying and failing on less costly drugs is needed. For sure the move will be controversial among patient advocates, although CMS set a standard such that the step therapy does not “create an undue access barrier for beneficiaries.” CMS notes that, “Specifically, CMS believes that appropriate patient engagement and care coordination services support appropriate pathways to access to Part B drugs such as step therapy.”

In addition to requiring one Part B drug be used before a different Part B drug, MA plans that also offer prescription drug coverage may use step therapy to require a Part D drug therapy prior to allowing a Part B drug therapy. Plans may also apply step therapy to require a Part B drug therapy prior to allowing a Part D drug therapy. Part D transition requirements would apply to Part D drugs that are subject to step therapy where the first “step” is a Part B drug. As well, plans should ensure that new step therapy requirements do not disrupt ongoing Part B drug therapies for enrollees. Step therapy may only be applied to new prescriptions or administrations of Part B drug.

As additional safeguards:

  • Plans must properly disclose policies and procedures to members for both Part B and Part D.
  • Plans must meet the requirement that members must have access to all benefits under Parts A and B. CMS will treat step therapy for Part B drugs in a manner similar to our other requirements around prior authorization of Part C benefits and services, including reviewing national and local coverage determination (NCD/LCD) polices under the Medicare fee-for-service (FFS) program.
  • Plans should use their qualified Part D pharmacy and therapeutics (P&T) committees to determine when it is medically appropriate to use step therapy for selected drugs in Part B.
  • Plans must offer members the opportunity to enroll in drug management and care coordination services, which shall include:
    • Interactive medication review and associated consultations for enrollees to discuss all current medications and perform medication reconciliation and follow-up when necessary
    • Providing educational materials and information to enrollees about drugs within the drug management care coordination program
    • Implementing medication adherence strategies to help enrollees with their medication regimen
    • Rewards in exchange for enrollee participation (detailed rules outlined in the memos)
  • Plans must disclose such in their Annual Notice of Change (ANOC) and Evidence of Coverage (EOC) documents and may issue an Addendum for CY 2019. No changes to the 2019 Plan Benefit Packages are needed in conjunction with adding a step therapy program for Part B drugs in 2019. However, the submission window for taking advantage of making changes in Part D for 2019 due to this change has already closed.
  • Plans should pair step therapy with member engagement strategies.
  • Members must be able to request an exception from the plan’s step therapy requirement in order to access a Part B covered drug. The ability to request such an exception should be consistent with current Part D rules involving exceptions.
  • Requests to waive step therapy would be treated as a pre-service organization determination and thus all case time frame and other rules would apply. (We have inquired of CMS if tolling would apply in connection with treatment as an exception in the above bullet and will post an update here if we get an answer.)
  • Step therapy for Part B drugs, and other utilization management practices, cannot result in increased costs to enrollees.

As we note for Part D drug indications strategies above, plan now for 2020.

In summary, these two changes are indeed complex, but could derive huge cost-savings if carefully implemented.

CMS, Medicare Advantage, Medicare Part D, Drug Costs

About The Author

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs, and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel. Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management and administration.

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