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CMS Announces New Part D Model, Updates Medicare Advantage

WASHINGTON — The Centers for Medicare & Medicaid Services (CMS) is banking on a new Medicare payment model to help tamp down Part D drug costs by compelling plans to work harder to manage spending in the catastrophic phase of the benefit.

In addition to announcing the launch of this new Part D model, the agency also shared changes to an existing Medicare Advantage model — the Value-Based Insurance Design Model — during a press call Friday morning.

Also, on Thursday the Department Of Health and Human Services (HHS) announced a draft rule governing the “benefit and payment parameters” for issuers on the Affordable Care Act’s exchanges for 2020.

New Part D Model

Under the current structure of Medicare Part D, once patients spend enough on prescription drugs to hit the catastrophic phase of the plan, Medicare is responsible for 80% of coverage, with the remaining 20% is split between patients, who pay 5%, and plans, that cover 15% of costs, explained CMS Administrator Seema Verma on the call. Before that point — at least until patients hit the so-called “donut hole” — plans are responsible for 75% of drug costs once patients satisfy their initial deductible.

This structure inherently rewards insurers for pushing patients toward this catastrophic phase of the benefit, where they have less responsibility, and gives them less of a reason to manage costs for the highest-spending patients, Verma added.

Due to these “perverse incentives,” federal spending in the Part D catastrophic phase grew from $9.4 billion to $37.4 billion — a roughly 17% annual increase — from 2008 to 2017, Verma said.

Moreover, in 2016, the 3.2 million beneficiaries who spent enough on prescription drugs to reach the catastrophic phase and who didn’t qualify for low-income subsidies, spent on average, $3,000 annually in out-of-pocket costs.

Under a new Medicare Part D model, “[f]or the first time, plans will have an incentive to lower costs and negotiate down list prices, and therefore, out-of-pocket expenses for patients who need relief the most,” Verma said.

Plans that enroll in the 5-year voluntary model, beginning in 2020, will take on risk for spending in the coverage gap. They will be given a target level of spending for the catastrophic phase and will share in the savings if they fall below that target, but if they exceed the target, they will “take losses,” she said.

The model will also provide Part D plans with a “rewards and incentives program” to help rein in drug costs and to encourage enrollees to choose drugs with lower list prices.

“CMS is maintaining all current Part D bid, payment, and reconciliation processes, including the application of risk corridors,” an agency fact sheet noted, and “[p]lans will continue to bid a prospective federal reinsurance amount, which will be fully reconciled as per current law.”

Value-Based Insurance Design Model

On Friday, Verma also announced updates to Medicare Advantage’s Value-Based Insurance Design (VBID) Model, which allows plans to reduce cost-sharing for drugs and procedures deemed to be of high value, as a way to lower costs and improve quality of care. The updates allow plans to suggest new higher-value incentives, noted a separate agency fact sheet.

The goal is to enhance health outcomes, prevent injuries, and encourage “the efficient use of health care resources,” noted the sheet.

Medicare Advantage’s VBID model will include three types of benefits/interventions for participating plans:

  • Reducing cost-sharing or including new non-healthcare benefits to help manage chronic diseases or other socioeconomic factors. This would apply to beneficiaries who qualify for low-income subsidies or who are “dual eligibles” (enrolled in both Medicare and Medicaid)
  • Giving enrolled patients the option to receive telehealth services instead of face-to-face visits, provided the face-to-face option remains available
  • Increasing coordination with the aim of improving wellness and increasing the use of advance care planning

Also, starting in 2021, the VBID model will allow Medicare Advantage plans to include Medicare’s hospice benefit — a change which Verma argued will help enhance care coordination between patients, their hospice clinician and other healthcare providers.

Verma stressed that all of the models are voluntary; however, if they demonstrate “a clear threshold for a benefit on quality, cost, and access to benefits,” the models can be scaled up.

Notice of Benefit and Payment Parameters

On Thursday afternoon, HHS released a proposed rule related to the benefit and payment formulas on the Affordable Care Act’s exchanges for 2020.

While HHS stated in a fact sheet that the changes had been kept light to encourage stability and competition, some health policy experts zeroed in on certain changes that may on first glance appear minor but could have significant impact on enrollees’ healthcare costs.

A few of the changes highlighted by the department include:

  • Allowing individual market, small-group market, and large-group market health insurers to implement mid-year formulary changes to encourage greater use of lower-cost generic drugs
  • Permitting certain insurers to omit the cost-sharing from a patient’s maximum out-of-pocket limit, if a patient chooses a brand drug when a “medically appropriate generic drug” is an option
  • Launching an enhanced direct enrollment [DE] pathway, which enables “approved DE partners” to host the marketplace eligibility application on non-exchange websites for plan year 2019
  • Basing the premium adjustment percentage (used to set an annual ceiling on cost-sharing, among other things) on estimates from the CMS Office of the Actuary (OACT) instead of using employer-sponsored insurance premiums — used in past years — resulting in a premium increase of about 29.7% over the period from 2013 to 2019
  • Using the same premium index, proposing a maximum cost-sharing limit of $8,200 for “self-only coverage” and $16,400 for all other coverage for the 2020 benefit year — an increase of about 3.8% over 2019

The proposal was criticized by the Center on Budget and Policy Priorities (CBPP), a left-leaning think tank here, for the way it changes the ACA’s “applicable percentages” and maximum out-of-pocket limits. “Under the administration’s proposal, both the share of income that people pay in premiums (after tax credits) and the maximum out-of-pocket limit would increase more rapidly than they otherwise would have,” CBPP’s Aviva Aron-Dine, PhD, and Matt Broaddus noted in a report released Friday.

The end result is that 7.9 million people would pay higher premiums due to receiving smaller tax credits. For instance, “a family of four with income of $80,000 would pay an extra $196 in 2020 premiums as a result of the rule,” the authors noted.

In addition, because the cap on out-of-pocket limits would also rise, a family forced to address an expensive illness or injury could be required to pay an additional $400 in medical bills, the authors noted.