The Centers for Medicare and Medicaid Services (“CMS”) has proposed changes to the Medicare Advantage program and to the Medicare prescription drug benefit program (Part D), which were published in the Federal Register on October 11, 2011. In addition to changes to the Medicare Advantage program, the proposed changes would implement provisions of the Affordable Care Act (the “Act”), as well as existing program guidance, regarding the Medicare Coverage Discount Program (“Discount Program”), which provides for 50 percent discounts on covered drugs in the Part D coverage gap, also known as the “donut hole”. The deadline to submit comments to the proposed rule is 5:00 pm December 12, 2011.
The Title XVIII of the Social Security Act (the Medicare Act) authorized CMS to implement the Discount Program, which phases in discounts during the Part D coverage gap, through program instruction. CMS used this authority to issue program guidance for the Discount Program. Many of the proposed revisions to the Part D regulations codify this program guidance. Other proposed revisions are codifications of the Act itself.
The following highlights some of the major provisions of the proposed rulemaking regarding changes to the Part D prescription drug benefit affecting manufacturers and Part D sponsors, and is Part I of a two-part series on the October 11, 2011 proposed rulemaking. Part II will highlight beneficiary protections under Part D, as well as proposed changes to the Medicare Advantage program.
Implementation of the Coverage Gap Discount Program:
Prior to the enactment of the Affordable Care Act, the Medicare Part D prescription drug program covered certain prescription drugs, subject to an annual deductible and a 25 percent coinsurance, up to the initial coverage limit, and catastrophic coverage for beneficiaries who exceed the maximum out-of-pocket annual threshold with cost-sharing equal to a $2/$5 copayment or five percent coinsurance, whichever was greater. Absent additional cost-sharing subsidies, beneficiaries were responsible for the entire cost of covered Part D drugs above the initial coverage limit until their out-of-pocket costs exceeded the annual threshold. This is referred to as the coverage gap, or “donut hole”.
The Affordable Care Act established the Medicare Coverage Gap Discount Program (“Discount Program”), which, beginning January 1, 2011, began phasing out the coverage gap. Through the Discount Program, coverage will gradually increase for generic drugs (beginning in 2011) and for brand name drugs and biological products (beginning in 2013), to the point where beneficiary cost-sharing will equal 25 percent until catastrophic coverage is met. Under the Discount Program, manufacturer discounts are available to applicable beneficiaries at the point-of-sale for applicable drugs during the coverage gap. The discount is generally 50 percent of the negotiated price of the drug, less any dispensing fee. Manufacturers enter into agreements with CMS in order for the drugs to be covered by Part D, and these agreements require manufacturers to provide such discounts.
Under the Affordable Care Act, manufacturer discounts must be made at the point-of-sale; however the Act does not specify how this should be accomplished. In order to determine whether a drug is discountable at the point-of-sale, CMS determined that the entity providing the point-of-sale discount must know whether the beneficiary is eligible for the discount, whether the claim for the drug falls within the coverage gap, and the amount of the discount. CMS has concluded that the only entities that have all of this information are the Part D sponsors. CMS therefore issued program guidance instructing Part D sponsors to provide applicable discounts at the point-of-sale beginning January 1, 2011. The proposed rule seeks to codify this requirement.
Medicare Coverage Gap Discount Program Agreement:
- The Act requires that, in order for a drug to be covered under Part D, the manufacturer must agree to participate in the Discount Program, enter into a written Discount Program Agreement (“Agreement”) with CMS and enter into an agreement with the third-party administrator (“TPA”). CMS interprets this statutory requirement to mean that exclusion from Part D coverage applies only to the applicable drugs of a manufacturer which does not enter an Agreement and participate in the Discount Program. Other Part D drugs of such manufacturer, such as generic drugs, would continue to be covered under Part D, regardless of the manufacturer’s participation in the Discount Program. CMS specified this interpretation in previously implemented program guidance, and now proposes to codify this guidance in regulations.
- The Act requires CMS to enter into agreements with participating manufacturers, and to develop a model agreement in accordance with the statutory provisions. CMS developed such an agreement on August 1, 2010, and it proposes to codify the following provisions of the agreement which CMS believes meet the statutory provisions.
- Obligations of the Manufacturer
The Act specifies that the Discount Program Agreement requires manufacturers to provide applicable discounts to applicable beneficiaries for the manufacturers’ applicable drugs at the point-of-sale. CMS proposes to implement this requirement in regulation by requiring manufacturers to reimburse Part D sponsors for all applicable discounts under the Discount Program.
Under the Agreement, manufacturers are required to pay Part D sponsors within 38 calendar days of receipt of an invoice and Medicare Part D Discount Information. CMS proposes to codify this requirement, and to further require manufacturers to pay invoices to Part D sponsors via electronic funds transfer, unless otherwise directed by CMS, and to provide the TPA with electronic documentation of such payment within five business days of the funds transfer. In addition, CMS proposes to prohibit manufacturers from withholding discount payments beyond the 38 days even if the manufacturer intends to dispute the discount payments through the dispute resolution process.
2. Length of the Agreement
CMS proposes that the initial period for all Discount Program Agreements be 24 months, and that they be automatically renewed for a one-year period every January 1 thereafter, unless terminated in accordance with the proposed regulations.
Payment Processes for Part D Sponsors:
- Because the Act requires manufacturer discounts to be provided at the point-of-sale, and to ensure that Part D sponsors are financially able to advance such discounts at the point-of-sale, CMS is proposing that manufacturers provide monthly interim coverage gap payments to Part D sponsors. Such interim payments would be based on a percentage of the coverage gap drug costs. To ensure that Part D sponsors do not receive duplicate payments under the Discount Program, CMS proposes to offset the interim payments by the amounts invoiced to the manufacturers. CMS would also perform cost-based reconciliations to ensure that Part D sponsors are paid for all manufacturer discount amounts incurred.
Provision of Applicable Discounts on Applicable Drugs for Applicable Beneficiaries:
- As mentioned above, CMS proposes to have Part D sponsors provide applicable discounts to applicable beneficiaries for applicable drugs at the point-of-sale. To accomplish this, Part D sponsors would be required to determine: (1) that the enrollee is an applicable beneficiary; (2) that the Part D drug is an applicable drug; and (3) the amount of the applicable discount, determined by the date of dispensing. To aid in the collection of date authorized under the Act, CMS proposes to require Part D sponsors to report the applicable discounts that are provided as part of the prescription drug event (“PDE”), as well as to report manufacturer payments during the quarterly invoice process.
- CMS proposes to codify the provision of the Act that requires applicable discounts for applicable drugs to be applied before any coverage or financial assistance under another health benefit plan or program is applied, when Part D is the primary payor. This requirement would not apply to Medicare secondary payor claims.
- The Act requires that any supplemental benefits an applicable beneficiary may have under his or her Part D plan be applied before any applicable discounts are provided. CMS proposes to codify this requirement, and specify that no applicable discount is available if any supplemental benefits eliminate the coverage gap.
- In order to implement the Act’s pharmacy prompt payment requirement, CMS proposes to require Part D sponsors to reimburse pharmacies or mail order services for the applicable discount amount no later than 14 calendar days for electronically submitted claims, and otherwise no later than 30 calendar days, after the date of dispensing the applicable drug.
- Finally, CMS proposes to require that all of the above requirements are included in all Part D sponsor contracts with CMS.
Manufacturer Discount Payment Audit and Dispute Resolution:
- In order to implement the statutory requirement that the Secretary establish “a reasonable dispute resolution mechanism to resolve disagreements between manufacturers, applicable beneficiaries, and the third-party with a contract . . .,” CMS proposes a multi-stage dispute resolution process consisting of the following: (1) initial dispute stage; (2) appeals stage for manufacturers dissatisfied with the initial determination; and (3) final administrator review when either the manufacturer or CMS is dissatisfied with the initial appeals process.
- CMS proposes a timetable for dispute resolution which would allow manufacturers to dispute quarterly gap discount amounts within 60 days of receipt of data received from the TPA or data resulting from a manufacturer’s audit. Because the manufacturer carries the burden of proving that the PDE data is incorrect, the manufacturer may provide supporting evidence along with its notice of dispute. CMS also proposes to allow manufacturers the opportunity for additional adjudication by the Independent Review Entity (“IRE”) within 30 days of receipt of an unfavorable decision from the TPA, or within 90 days of receipt of the dispute submission if the TPA does not render a decision. The IRE would be required to render a decision within 90 calendar days of receipt from the manufacturer for a request for an appeal. Both the manufacturer and CMS would be allowed to have the dispute reviewed by the Administrator, provided the request for such review is made within 30 days of the manufacturer’s receipt of the IRE’s decision. The decision of the Administrator would be final and binding.
Compliance Monitoring and Civil Monetary Penalties:
- CMS proposes, in accordance with the Act, to impose a civil monetary penalty (“CMP”) on manufacturers which fail to provide applicable discounts to applicable beneficiaries for applicable drugs in accordance with the Agreement. Because manufacturers are required to pay each Part D sponsor for the applicable discounts for applicable drugs in accordance with the Agreement, failure to do so, absent technical or other reasons beyond the manufacturer’s control, would constitute a failure to provide applicable discounts to applicable beneficiaries for applicable drugs in accordance with the Agreement. In such cases, CMS proposes to impose CMPs equal to the amount of the applicable discounts plus 25 percent of such amount. The CMP could be reduced by any amount paid by the manufacturer between the 38th calendar day and the date the CMP is collected.
- CMS would provide the manufacturer a right to a hearing.
Termination of Agreement:
- CMS proposes to codify the provision of the Act that allows CMS to terminate a Discount Program Agreement based on a knowing and willful violation of the Agreement or for good cause shown. CMS proposes that “good cause shown” must relate to the manufacturer’s participation in the Discount Program.
- CMS would provide the manufacturer an opportunity to cure any bases for terminating the Agreement within 30 calendar days of receipt of a written termination notice.
- The manufacturer would be entitled to a hearing with a hearing officer if requested in writing within 15 calendar days of receipt of the notice of termination.
- CMS proposes that termination would not be effective earlier than 30 days after the date of the termination notice, or prior to the resolution of a timely appeal request.
- If CMS or the manufacturer receives an unfavorable determination from the hearing officer, either part may request review by the CMS Administrator within 30 calendar days of receipt of the hearing determination. Currently, the Agreement provides for review of the Administrator’s decision only by the manufacturer; however, CMS is now proposing that the decision of the Administrator would be final and binding on either party, and seeks comments on these requirements.
Inclusion of Benzodiazepines and Barbiturates as Part D Covered Drugs
- CMS proposes to amend the definition of Part D drug by including barbiturates, when used for epilepsy, cancer or chronic mental health disorder, and benzodiazepines dispensed on or after January 1, 2013.
Part II of this series will summarize CMS’ proposed rulemaking regarding: (1) strengthening beneficiary protections, including good cause reinstatements to Part D plans; (2) excluding poor performing health care prepayment plans; (3) improving Medicare program efficiencies, including Medicare Advantage; (4) and clarifying program requirements, including requirements regarding the use of National Provider Identifiers on PDEs.
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