CMS revises benefit formula for 2010 drug plans

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Beginning in 2010, the Centers for Medicare & Medicaid Services (CMS) will ban a pricing technique that lowered costs for health insurers and drug-benefits managers while pushing elderly beneficiaries over their coverage limits for prescriptions. For beneficiaries with high overall drug expenditures, the change will slow their movement toward the initial coverage limit.

The rule revises Medicare’s definition of “negotiated prices,” which takes effect Jan. 1, 2010, by requiring drug plan sponsors under Part D to use the amount paid to a pharmacy as the basis for determining cost sharing for beneficiaries and for reporting a plan’s drug costs to CMS.  

The “negotiated prices” are the costs for prescription drugs agreed upon through direct negotiation between the Part D sponsor or an intermediary contracting organization, such as a pharmacy benefit manager (PBM) and the pharmaceutical manufacturer. PBMs are third-party administrators that process and pay prescription drug claims for prescription drug plans. 

CMS said it currently allows Part D sponsors that contract with a PBM to report the amount paid to the PBM (the lock-in price) or the amount the PBM paid to the pharmacy (the pass-through price). Under the lock-in approach, Part D plan agrees to pay a PBM a set rate for a particular drug. The PBM then negotiates with pharmacies to obtain the lowest possible price for the drug, which often is lower than the amount the PBM receives from the plan.

Under the new rule, plans may continue to use the lock-in model with their PBMs, but they must report to CMS the price actually paid to the pharmacy as the negotiated price.  Any difference between the price paid by the plan to the PBM and the price paid by the PBM to the pharmacy must be reported as an administrative cost. The requirement helps ensure that sponsors’ administrative costs are not included in the drug costs used to determine how much the beneficiary will pay, as well as reinsurance and risk corridor payments made by CMS.

The regulation also:

  • Specifies that all new enrollees in special needs plans must be members of the special needs population that the plan is designed to serve;
  • Permits CMS to impose a civil money penalty on plans of up to $25,000 for each enrollee who has been adversely affected, or has a substantial likelihood of being adversely affected, when CMS determines that a contract has been violated;
  • Codifies earlier guidance to plan sponsors about using best available evidence to determine an enrollee’s eligibility for extra help through the Part D Low Income Subsidy program. The change will help protect low-income beneficiaries from unnecessary copayments at their pharmacy counters;
  • Clarifies that beneficiaries enrolled in Part C, or Medicare Advantage and Part D plans who elect to have their premiums withheld from their Social Security payments may not be double-billed for premiums and specifies the process for retroactive collection of premiums; and
  • Requires Medicare Medical Savings Account plans to report cost and quality information to beneficiaries as is currently done by similar private sector health savings accounts/high deductible health plans.