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Two Changes Will Have a Major Impact on Medicare Advantage and Part D

Two Changes Will Have A Major Impact On Medicare Advantage And Part D

Reforms on the horizon mean big changes to financing and service delivery.

If adopted, Medicare Advantage and Part D plans will see two reforms happen on the near-term horizon that will mean major changes to financing and service delivery:

– Overhaul of aspects of Part D retail drug delivery

– Greater flexibility in benefits and services

Overhaul of Aspects of Part D Retail Drug Delivery

The Part D proposed changes were announced as part of the 2018 budget framework deal and in the President’s 2019 budget. Changes were coming to Part D as the coverage gap phase-out was inching closer. However, the President and Congress aim to close the gap sooner and make other reforms to protect seniors and the aged from catastrophic costs.

  • Timing of Coverage Gap Phase-Out: In the budget framework, the coverage gap is phased out a year earlier ­ in 2019 instead of 2020. As part of the change, brand PhRMA will be forced to increase its rebate contribution in the gap from 50% to 70% of the cost, with the beneficiary paying an average of 25% and plans being reduced to 5%. PhRMA is mounting a full-scale campaign to recoup the billions it will lose under this proposal. We don’t see this changing very much – it is a low-dollar method (at least for the government) to better fund senior drugs. In some areas, plans have begun offering enhanced coverage in the gap for generics and some brands. This differentiator will now lessen.
  • Drug Rebate Pass-Throughs: In his budget announcement, Trump also confirmed what we expected would happen on drug rebate pass-throughs. The President wants to ensure that rebates from drug makers and other price concessions (at the pharmacy, wholesale, and manufacturer level) get passed through to consumers. Under the proposal, at least one-third of these savings need to be passed through to consumers at the point of sale. As we noted in a recent blog, this is a rather brilliant policy proposal. The President and lawmakers win by showing seniors and the disabled lower costs on rising high-cost medications. At the same time, it has its downsides.

    First, it could be administratively complex as rebates and other concessions are drug-specific and there is a significant “payment tail” due to volume and other factors. Secondly, passing through savings at the point of sale could increase other costs for Medicare beneficiaries. In the MA-PD bid structure, MA plans take some of the rebate concessions paid on a post-claims basis to reduce premiums, add benefits, and reduce cost-sharing. While separate Part C and D bids technically are made, benefit changes cross the two Parts of the program. One Part can subsidize the other when it comes to benefit design. What happens to other aspects of the MA benefit if rebate pass-through happens will not be known for some time.

  • Catastrophic Phase Changes: Numerous changes to how the catastrophic phase operates are coming:
    – Costs in this phase will be reduced from 5% to 0% over four years beginning in 2019.
    – Currently, the federal government subsidizes coverage here at 80%. While plans will benefit from coverage gap changes, over time, plans will also take on 80% of the cost in the catastrophic phase as a result of the government’s dropping to 20%.
  • True Out-of-Pocket Costs: With the full coverage in the gap coming to Medicare beneficiaries, the calculation of True Out-of-Pocket Costs (TROOP, which determines when the catastrophic phase begins for each member each year) would change. The brand rebates paid by manufacturers on behalf of members in the gap currently count toward a member’s TROOP calculation. That will no longer be the case. The rationale is that members will not face a coverage gap of any consequence and when they do, their cost-sharing will be $0. Plans save some here as the triggering of their dramatically increased cost-share in catastrophic will take longer.
  • Low Income Subsidy: Those qualifying for the low income subsidy will see their costs for generics and some other drugs drop to $0 in 2019.
  • Coverage Parameters and Utilization Management: Surprisingly, the budget proposes to significantly loosen coverage parameters as well as utilization management. The President wants to move from two drugs per class to one for formularies, as well as allow plans to expand their ability to apply utilization management controls on specialty and protected class drugs (PDCs). While most of the other reforms above have a strong likelihood of getting adopted in some form, these last items will be controversial and could have beneficiary impact.
  • Part B vs. Part D Drugs: The President’s budget also wants to move certain Part B drugs to the Part D side if cost-effectiveness can be proven. This all revolves around whether the current Average Sales Price (ASP) structure in the Part B medical world is more expensive or not compared with the discounting and negotiations that would occur in the Part D world.

Benefit and Services Flexibility

As we have also mentioned, a sea change is occurring at the Centers for Medicare and Medicaid Services (CMS). CMS now wants to allow plans to appropriately target benefits and services to members based on their health conditions and risk. Gone will be the days that CMS was concerned that any deviation of a benefit in MA would discriminate. Several things have happened recently:

  • CMS will expand the Value Based Insurance Design to 25 states in 2019.
  • The budget framework act broadened the definition of benefits in Medicare to allow services that could positively impact health status.
  • CMS has used its regulatory authority and the recent 2019 Call Letter to allow the targeting of benefits, reduced cost-sharing and services based on health status or condition for all MA plans.
  • CMS is also proposing the ability of plans to offer non-skilled in-home care as a supplemental benefit in 2019.

Changes in benefit and service flexibility offer significant opportunities for plans and impact the future of healthcare. This is all meant to address the fact that we, as a nation, are an outlier with regard to hospital admissions, readmissions, and admissions for poor chronic disease or condition management. The changes to in-home care signals that CMS continues to be concerned about the burden aging and long-term care will have on America’s health system and federal resources.

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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