CMS Proposed Rule Revisits PBM Pricing Arrangements, Proposes Other Medicare Advantage And Part D Program Changes

Proposed changes to the Medicare Advantage, Medicare

Marketing, Part D and Retiree Drug Subsidy Programs include

mandatory use of "pass-through" methodology for Part

D drugs and new marketing requirements.

The Center for Medicare & Medicaid Services (CMS)

recently published a notice of proposed rulemaking seeking

comment on numerous new regulatory provisions that, if

ultimately promulgated, would substantially modify key aspects

of both the Medicare Advantage (MA) and Part D Prescription

Drug Programs (Programs).

Although CMS' press release focuses on marketing and

other beneficiary protection aspects of the proposed rule,

there are also substantial proposed modifications relating to

pricing and contractual relationships in Part D and the Retiree

Drug Subsidy.

The proposals would modify MA Organizations' and Part D

Plan Sponsors' (collectively, the Plans') methodology

for reflecting Part D-related administrative and drug costs,

which would affect Plans' contractual relationships as well

as their accounting methods for these costs. Enhanced marketing

requirements, including standards for commission payments,

potential expansion of CMS' authority for imposing civil

money penalties on a per beneficiary basis, and new

requirements for special needs plans (SNPs) also are

included.

The following are highlights of a few of the many important

provisions in the proposed rule, which was published on Friday,

May 16, 2008 and is available at

http://www.access.gpo.gov/su_docs/fedreg/a080516c.html.

Comments are due to CMS by July 15, 2008.

Requirements to Use "Pass Through" Price

Reporting Methodology for Part D

CMS has revised an earlier proposal to require Plans who

contract with pharmacy benefit managers (PBMs) to report costs

on a pass-through basis. The negotiated price that must be made

available to a member (when, the member is in a coverage gap,

for example) must be the price the PBM pays the

pharmacynot the price the Part D sponsor pays the

PBM.

Similarly, CMS proposes to require Plans to report drug

costs based on the price paid to the pharmacy or other

dispensing entity, rather than the price the Plans pay to a

PBM. CMS has taken the position that any net profit to the PBM

as a result of a difference between the amount the PBM pays the

pharmacy and the amount it collects from Plans is effectively a

risk premium paid to shield the sponsor from price

variabilities, and is therefore an administrative expense

rather than a drug cost. The amount of drug costs affects

reinsurance and risk corridor payments to the Part D sponsor.

The proposal would be effective for coverage year 2010.

Requirement to Report Rebates and Other Remuneration

Received and Retained by Intermediary Contracting Organizations

in Part D

CMS has proposed regulatory revisions to various definitions

to implement its existing policy that requires Plans to

subtract from their allowable drug costs all rebates and other

remuneration the Plans' PBMs (or other intermediary

contracting organization) receive from manufacturers or other

third-party, even if the PBM retains those rebates and other

price concessions.

New Regulations Would Require Reporting of

Pass-Through Prices and Rebates Retained by PBMs for the

Retiree Drug Subsidy, in Addition to Part D

One new and potentially...