CMS introduces new models to lower drug prices in Part D, Medicare Advantage

CMS’ Center for Medicare and Medicaid Innovation (CMMI) has announced a new model that aims to lower prescription drug prices in Medicare Part D and introduced several updates to Medicare Advantage (MA) plans.

The new Part D model could save roughly $2 billion, while the MA plan update could save “hundreds of millions,” CMS Administrator Seema Verma said on a call with reporters Jan. 18. Both figures are preliminary estimates, with more solid estimates to come, she noted.

MA and Part D plans are both private plans that provide Medicare beneficiaries with medical and prescription drug coverage, and both new models for the plans are voluntary, allowing both patients and plans to choose whether they want to enroll.

The Trump administration and CMS have already taken some steps to lower drug costs in Medicare Part B, including basing reimbursements on an international pricing model, but the new Part D model takes a whack at incentivizing plans to negotiate lower drug prices for the highest-cost patients. CMS also proposed other Part D changes in late November, including allowing plans more flexibility to negotiate prices, banning pharmacy gag clauses and requiring transparency for out-of-pocket costs.

The new models come on the heels of a new round of Twitter attacks on drugmakers by HHS Secretary Alex Azar and President Trump after several dozen companies hiked up drug prices at the start of 2019.

Part D changes

The new model announced for Part D plans, the Part D Payment Modernization, incentivizes plans to negotiate lower drug costs within the catastrophic phase––when a patient’s prescription drug spending is high enough for them to enter the final phase of the benefit in which Medicare pays 80 percent of the drug costs. From 2008 to 2017, federal spending in the Part D catastrophic phase rose from $9.4 billion to $37.4 billion, about 17 percent per year, according to CMS. Patients who didn’t qualify for the low-income subsidy typically faced out-of-pocket costs of more than $3,000 annually.

The new model requires health plans to cover 15 percent of the cost sharing and patients to cover the remaining 5 percent. According to CMS, this is a greater risk for Part D plans that will incentivize them to achieve lower list prices for drugs. CMS plans to calculate a spending target for what the government would be paying within plans taking on the additional risk.

Plans would be responsible for spending above the target, while being able to share in potential savings. 

“[It introduces] reverse incentives to push patients to catastrophic and allow plans to negotiate costs for the highest-cost patients,” Verma told reporters on the call.

The model also introduces a cost-sharing incentive program for patients. For example, a patient who adheres to their medication regimen could see their cost-sharing responsibilities lowered or even eliminated, Verma said Friday.

Hospice carve-in

One of the most notable changes is an MA carve-in for hospice care, which is currently a separate benefit in Medicare for seniors, in the MA Value-Based Insurance Design (VBID). The hospice benefit, as it now stands, covers patients with a terminal illness who are estimated to have six months or less to live and provides comprehensive care across a variety of settings, with a focus on coordinated palliative care. It also requires patients to give up curative care.

Hospice care is not currently covered by MA plans, creating a “disconnect,” according to Verma. The separation of benefits has also potentially contributed to late admissions into hospice. About half of hospice patients are admitted within the last two weeks of life––well below the six-month period of benefits they are entitled to, according to a Yale study. This trend also increases overall costs for end-of-life care.

With an MA carve-in, patients may be able to get hospice care sooner and find a smoother transition across their health plan. The carve-in has long been pushed for within the MA and hospice industries to improve transition times for patients and reduce the overall cost associated with end-of-life care at a time when hospice services are growing. The carve-in model has also been supported by the Medicare Payment Advisory Commission (MedPAC).

“We’re bringing that in, so it allows MA plans to coordinate their care with all the services [patients] are getting,” Verma stated.

The hospice benefit model will be tested in the 2021 plan year.

MA updates

The newly announced MA model is an update to the VBID model that was launched by CMS in 2017. It offered reduced cost sharing and expanded supplemental benefits to enrollees with specific chronic conditions, such as diabetes and congestive heart failure. At the time, only seven states––Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania and Tennessee––were eligible to apply for the VBID model. The Bipartisan Budget Act of 2018 allowed all 50 states to be eligible for the VBID model, Verma said Friday. Plans participating in the VBID program will be offered along with traditional MA plans.

The VBID model updates will provide reduced cost sharing and additional benefits to enrollees that are more tailored, including customization based on chronic conditions, socioeconomic status, or both. This will extend to supplemental benefits such as transportation. Like the Part D model, VBID participants will also be allowed to bolster rewards and incentives programs for enrollees. CMS also expanded telehealth services in this model.

The new models announced by CMS will be closely monitored and could potentially change as they are implemented.

“These are models,” Verma said. “The idea is to test it out. We’ll be monitoring [them]. If the models are not going the direction we want, they can be terminated, but the projections show significant savings.”