United States: CMS Issues Proposed Rule On Modernizing Part D And Medicare Advantage To Lower Drug Prices And Reduce Out-Of-Pocket Expenses

The Centers for Medicare and Medicaid Services ("CMS") released the much-anticipated proposed rule to lower Part D and Medicare Advantage ("MA") drug prices and beneficiary out-of-pocket expenses on November 26, 2018 (the "Proposed Rule"). According to CMS, the primary purposes of the Proposed Rule are to revise the MA and Part D regulations to support health and drug plans' negotiation for lower drug prices, and to reduce out-of-pocket costs for plan enrollees. The Proposed Rule is scheduled to be published in the Federal Register on November 30, 2018. Comments are due January 25, 2019.

Key provisions of the Proposed Rule are summarized below.

  • Providing Plan Flexibility to Manage Part D Protected Classes

Part D sponsors are currently required to include on their formularies all drugs in six categories or classes: (1) antidepressants; (2) antipsychotics; (3) anticonvulsants; (4) immunosuppressants for treatment of transplant rejection; (5) antiretrovirals; and (6) antineoplastics; except in limited circumstances. CMS proposes additional exceptions to the protected class requirement that will allow Part D sponsors to better manage protected class drugs to help ensure their safe and appropriate use, limit the protected class requirement to the intended protected class indications, and provide Part D sponsors with additional tools to negotiate as competitive a price as possible in order to provide drug pricing relief for Medicare Part D enrollees, while maintaining beneficiary access to protected class drugs when used for protected class indications.

CMS proposes to allow Part D sponsors to:

  1. implement broader use of prior authorization ("PA") and step therapy ("ST") for protected class drugs, including to determine use for protected class indications. Under CMS' proposal, PA requirements would be allowed for any protected class drug with more than one medically-accepted indication to determine that the drug is being used for a protected class indication, regardless of its status as a new start or existing therapy. CMS would also allow indication-based formulary design and utilization management for protected class drugs.
  2. exclude a protected class drug from a formulary if the drug represents only a new formulation of an existing single-source drug or biological product,1 regardless of whether the older formulation remains on the market. This proposal is intended to address the situation, for example, where a manufacturer introduces a more expensive extended-release version of a drug to the market while also withdrawing from the market the predecessor immediate release version when no generic was available. Such a scenario could arise with a protected class drug that might leave Part D sponsors with no option but to add the new, more expensive product to their formularies and could result in increased costs for Part D enrollees and the Part D program.
  3. exclude a protected class drug from a formulary if the price of the drug increased beyond a certain threshold over a specified look-back period. Specifically, effective for plan years starting on or after January 1, 2020, Part D sponsors would be allowed to exclude from their formularies any single-source drug or biological product that is a protected class drug whose price increases, relative to the price in a baseline month and year, beyond the rate of inflation as calculated using the Consumer Price Index for all Urban Consumers
  • Prohibition on Gag Clauses in Pharmacy Contracts

The Proposed Rule would amend the Part D regulations to reflect the statutory requirement at section 1860D-4(m) of the Social Security Act (42 U.S.C. § 1395w-104(m)), that prohibits Part D sponsors from restricting their network pharmacies from informing their Part D enrollees of the availability of prescription drugs at a cash price that is below what that the enrollee would be charged (either the cost sharing amount or the negotiated price when it is less than the enrollee's cost sharing amount) for the same drug under the enrollee's Part D plan. The statutory prohibition applies to plan years beginning on or after January 1, 2020.

  • E-Prescribing and the Part D Prescription Drug Program: Updating Part D E-Prescribing Standards

CMS proposes to require Part D sponsors implement an electronic real-time benefit tool ("RTBT") capable of integrating with prescribers' e-Prescribing ("e-Rx") and electronic medical record ("EMR") systems. CMS believes that requiring Part D sponsors' implementation of electronic access to real-time benefits information would be appropriate given the Part D interactive and real-time requirements at section 1860D-4(e)(2)(D) of the Act (42 U.S.C. § 1395w-104(e)), and would improve the cost-effectiveness of the Part D benefit. RTBTs have the ability to make beneficiary-specific drug coverage and cost information visible to prescribers who want to consider that information at the point-of-prescribing. CMS proposes that each Part D plan implement at least one RTBT of its choosing that is capable of integrating with prescribers' e-Rx and EMR systems to provide prescribers who service its beneficiaries complete, accurate, timely and clinically appropriate patient-specific real-time formulary and benefit information (including cost, formulary alternatives and utilization management requirements) by January 1, 2020.

  • Part D Explanation of Benefits

CMS proposes to require Part D sponsors to include information about negotiated price changes and lower-cost therapeutic alternatives in the Part D explanation of benefits ("EOBs"). The Proposed Rule would require Part D sponsors to include the cumulative percentage change in the negotiated price since the 1st day of the current benefit year for each prescription drug claim in the EOB. This information would provide drug price trend information for the beneficiary for all their covered Part D drugs. In addition, the Proposed Rule would require Part D sponsors provide information about drugs that are therapeutic alternatives with lower cost-sharing, when available as determined by the plan, from the applicable approved plan formulary for each prescription drug claim.

  • Medicare Advantage and Step Therapy for Part B Drugs

The Proposed Rule would allow MA plans to apply ST as a utilization management tool for Part B drugs. CMS believes that allowing MA plans to use ST would "considerably assist" MA plans in negotiating on behalf of enrollees to get better value for Part B drug therapies, which CMS notes constituted around $12 billion in CY 2016 in spending by MAOs.

A number of safeguards are proposed to ensure enrollees have timely access to all medically necessary Medicare Part B medications: MAOs would be required to administer the existing organization determination and appeals processes under new proposed time frames that are similar to the timeframes applicable in Part D for coverage determinations; enrollees could request an organization determination if they believe that they need direct access to a Part B drug that would otherwise only be available after trying an alternative drug. MAOs would adjudicate these organization determinations based on medical necessity criteria. If an enrollee is dissatisfied with the plan's organization determination, the enrollee could appeal. MAOs would be required to use a Pharmacy and Therapeutics committee to review and approve step therapy programs.

ST could only be applied to new prescriptions or administrations of Part B drugs for enrollees who are not actively receiving the affected medication. There would be a look-back period of 108 days, consistent with Part D policy, to determine if the enrollee is actively taking a Part B medication. In addition, consistent with existing Part D guidelines, the Proposed Rule would allow MA plans to require an enrollee to try and fail an off-label medically-accepted indication, but using off-label drugs in step therapy would only be permitted in cases where the off-label indication is supported by widely used treatment guidelines or clinical literature that CMS considers best practices. MAOs would be prohibited from using a non-covered drug as a step in the step therapy program.

  • Pharmacy Price Concessions in Negotiated Price

CMS points out that Part D sponsors and their contracted PBMs have been increasingly successful at negotiating price concessions from network pharmacies. According to CMS, pharmacy price concessions, net of all pharmacy incentive payments, grew more than 45,000 percent between 2010 and 2017, which much of the growth occurring after 2012 when performance-based payment arrangements with pharmacies became increasingly prevalent. However, because these performance adjustments typically occur after the point of sale, they are not included in the price of a drug at the point of sale. In addition, it is CMS' understanding that the share of pharmacies' reimbursements that are contingent upon their performance under such arrangements has grown steadily each year, and, as a result, sponsors and PBMs have been recouping increasing sums from network pharmacies after the point of sale (pharmacy price concessions) for "poor performance." These amounts "are far greater" than those paid to network pharmacies after the point of sale (pharmacy incentive payments) for "high performance." When pharmacy price concessions are not reflected in the price of a drug at the point of sale, beneficiaries might see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost-sharing, and thus, end up paying a larger share of the actual cost of a drug. Finally, variation in the treatment of these price concessions by Part D sponsors may have a negative effect on the competitive balance under the Part D program.

To address these and other concerns, CMS is considering whether to delete the existing definition of "negotiated prices" and add a definition of "negotiated price", which would mean the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D sponsor or the sponsor's intermediary (that is, the amount the pharmacy would receive net of the maximum possible negative adjustment that could result from any contingent pharmacy payment arrangement). Under this approach, the negotiated price for a covered Part D drug would have to include all pharmacy price concessions and any dispensing fees, and exclude additional contingent amounts, such as incentive fees, if these amounts increase prices. To effectively capture all pharmacy price concessions at the point of sale consistently across sponsors, CMS is considering requiring the negotiated price to reflect the lowest possible reimbursement that a network pharmacy could receive from a particular Part D sponsor for a covered Part D drug. Thus, the price reported at the point of sale would need to include all price concessions that could potentially flow from network pharmacies, as well as any dispensing fees, but exclude any additional contingent amounts that could flow to network pharmacies and thus increase prices over the lowest reimbursement level, such as incentive fees.

Under this approach, if a performance-based payment arrangement exists between a sponsor and a network pharmacy, the point-of-sale price of a drug reported to CMS would need to equal the final reimbursement that the network pharmacy would receive for that prescription under the arrangement if the pharmacy's performance score were the lowest possible. If the pharmacy is ultimately paid an amount above the lowest possible contingent incentive reimbursement (such as in situations where a pharmacy's performance under a performance-based arrangement triggers a bonus payment or a smaller penalty than that assessed for the lowest level of performance), the difference between the negotiated price reported to CMS on the prescription drug event record and the final payment to the pharmacy would need to be reported as negative direct or indirect remuneration ("DIR") in the annual filing on DIR following the end of the year. According to CMS, DIR data and other information received by CMS indicate that pharmacies rarely receive an incentive payment above the original reimbursement rate for a covered claim.

Noting that neither the Part D statute nor CMS in the Part D regulations or guidance defines "price concessions", CMS is considering the following definition:

Price concession means any form of discount, direct or indirect subsidy, or rebatereceived by the Part D sponsor or its intermediary contracting organization from any source, that serves to decrease the costs incurred under the Part D plan by the Part D sponsor. Examples of price concessions include but are not limited to: discounts, chargebacks, rebates, cash discounts, free goods contingent on a purchase agreement, coupons, free or reduced-price services, and goods in kind.

CMS notes that the definition of price concession would not affect the way in which price concessions must be accounted for by Part D sponsors in calculating costs under a Part D plan, nor would the definition require the renegotiation of any contractual arrangements between a sponsor and its contracted entities.


1 CMS defines a "single-source drug or biological product," as a covered Part D drug that is either produced or distributed under a new drug application under section 505(b) of the Federal Food, Drug, and Cosmetic Act ("FDCA") or is an authorized generic as defined in section 505(t)(3) of the FDCA, or a biological product licensed under section 351 of the Public Health Service Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
6 Aug 2019, Seminar, Los Angeles, United States

The semi-annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

10 Sep 2019, Other, New York, United States

This unique one-day program addresses the New York and federal wage and hour laws, including changes and developments in the field.

17 Sep 2019, Other, San Francisco, United States


Learn everything you need to know about Digital Identity! #digitalidentity

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions