Medicare Seeks to Cut Drug Costs for People in Part D Plans

Jan. 7, 2022 — The Biden administration said this week it intends to challenge insurance companies to deliver better service to people enrolled in Medicare, including applying discounts on drugs covered by Part D more directly to their pharmacy costs.

The Centers for Medicare and Medicaid Services (CMS) on Thursday unveiled a 360-page proposed rule that seeks many changes in how insurers manage their federal contracts. This proposed rule, for example, also would require insurers to show that they have enough contracted medical professionals when they want to create new Medicare Advantage plans or to expand existing ones.

The rule also seeks more accountability about how insurance companies spend Medicare’s money, including greater transparency about spending on supplemental benefits such as dental, vision, hearing, transportation, and meals.

With this proposed rule, CMS intends to ramp up oversight and stewardship of Medicare Advantage and use its authority to address drug costs, says Tricia Neuman, ScD, executive director of the Program on Medicare Policy at the nonprofit Kaiser Family Foundation.

In an email exchange, Neuman said the rule shows the Biden administration using its authority to bring down drug costs, as it works with Congress to try to pass the Build Back Better bill “that includes a slew of policies to leverage lower drug prices.”

The proposed rule also addresses a key issue of the increased role of private insurers that handle Medicare benefits. Much of Medicare is run through public-private partnerships, requiring CMS to keep tabs on the health plans that manage federal health benefits for those ages 65 and older and people with disabilities.

Insurer-run Advantage plans enrolled more than 26 million people, or 42% of Medicare’s total population last year, according to an estimate from the Kaiser Family Foundation.

“Strengthening protections for seniors in Medicare Advantage plans is particularly important,” due to the large enrollment in these insurer-run programs, Neuman said.

Part D Debates

Insurers also manage the entire Medicare Part D pharmacy benefit, which covers about $100 billion in annual drug purchases. There’s been significant bipartisan interest in changing the flow of discounts negotiated within the Part D program to help people pay for medicines bought at pharmacies.

In late 2018, for example, the Trump administration sought comments on a policy that would require Part D plans to apply all price concessions they receive from network pharmacies at the point of sale, which would reduce costs for people enrolled in these plans.

There’s been rising concern in recent years about complex negotiations within the drug supply chain, particularly concerning the role of pharmacy benefit managers (PBMs).

People enrolled in Part D who need medicine, especially expensive drugs, and owners of small pharmacies miss out on direct savings from what are called direct and indirect remuneration (DIR) fees. These include rebates from drugmakers, administrative fees above fair market value, price concessions for administrative services, legal settlements affecting Part D drug costs, pharmacy price concessions, drug costs related to risk-sharing settlements, or other price concessions or similar benefits, CMS said in the draft rule.

Insurers and pharmacy benefit managers — who operate as a kind of middlemen between drugmakers and insurance companies — have argued that directing their savings on drug costs to health plans results in lower premiums for those enrolled in Part D plans. But this approach means that people in Part D plans “end up paying a larger share of the actual cost of a drug” when they need medicine, CMS said in the rule.

The proposed rule would require Part D plans to apply all price concessions they receive from network pharmacies to the point of sale. CMS wants to redefine the negotiated price as the baseline, or lowest possible, payment to a pharmacy, effective Jan. 1, 2023. This policy would reduce out-of-pocket costs for people in Part D plans and improve price transparency and market competition, CMS said.

This proposal won swift approval from a Republican lawmaker who has been fighting for years for changes to direct and indirect remuneration fees. In a statement, Rep. Buddy Carter of Georgia, a pharmacist by training, said he was encouraged CMS is taking action on this issue.

“The rule’s effectiveness remains to be seen and more must be done to protect consumers from harmful PBM practices. I hope this is the first of many steps to put patients before PBM’s profits,” he said.

In Carter’s view, PBMs “are taking advantage of sick Americans to rake in higher profits.”

“Nowhere in America should a patient have to choose between life-saving medication and putting food on the table, yet that is the choice PBMs are forcing on them,” he said.

In a statement, the trade group for pharmacy benefit managers, the Pharmaceutical Care Management Association, defended the current approach as being a part of “value-based contracting in Medicare Part D.”

“We are currently reviewing the proposed rule,” association CEO J.C. Scott said in a statement. “We look forward to working with CMS on ways to enhance the use of value-based contracting rather than limiting this important tool.”

Other key parts of the proposed rule include:

  • Greater oversight of third-party marketing organizations to prevent deceptive marketing tactics for Advantage and Part D plans.
  • A clarification of requirements for plans during disasters and emergencies to ensure that beneficiaries have uninterrupted access to needed services.