ARTICLE
Reprinted with AIS Health permission from the January 20, 2022, issue of RADAR on Medicare Advantage
CMS on Jan. 6 released a 360-page proposed rule largely aimed at increasing Medicare Advantage plan accountability and strengthening beneficiary protections, particularly for patients who are dually eligible for Medicare and Medicaid. As the first major MA and Part D rulemaking under the Biden administration, the proposed rule would reinstate several policies that were unwound by the Trump administration, such as the return of detailed reporting medical loss ratio (MLR) requirements and provider network reviews for new and expanding MA plans.
The proposed rule, Medicare Program; Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs (87 Fed. Reg. 1842, Jan. 12, 2022), also revisits a Trump-era plan to reform pharmacy direct and indirect remuneration (DIR) — a topic that has long been a thorn in the side of community pharmacies. Specifically, CMS proposed to include all pharmacy price concessions — removing an exception for those that cannot be reasonably determined — at the point of sale in the definition of “negotiated price,” which is the primary basis for determining a beneficiary’s cost of obtaining a Part D covered drug.
CMS in a 2018 proposed rule solicited feedback on whether to make a similar revision and “require that all price concessions from pharmacies be reflected in the negotiated price that is made available at the point of sale.” The agency received more than 1,400 responses but never formally proposed the change. Now, CMS is proposing to define negotiated price as “the lowest possible reimbursement a network pharmacy will receive, in total, for a particular drug, taking into account all pharmacy price concessions.” CMS estimated that pharmacy price concessions, net of all pharmacy incentive payments, grew more than 107,400% between 2010 and 2020, with much of that growth occurring after performance-based payment arrangements became more prevalent in Part D contracting. The agency estimated that its proposed change in policy, which would take effect on Jan. 1, 2023, would reduce beneficiary costs by $21.3 billion over 10 years while resulting in an increased cost of $40 billion to the federal government because it would lead to higher direct subsidy and low-income premium subsidy payments.
PBMs Have Doubts About Proposal
The National Community Pharmacists Association was optimistic about the proposal, while the Pharmaceutical Care Management Association — the national association representing pharmacy benefit managers — appeared skeptical, pointing out that “previous point-of-sale proposals in Medicare have not advanced because they would significantly increase Medicare spending.” Indeed, the Trump administration issued but never implemented a rule that would have required Part D plans to apply rebates they negotiate with drugmakers to consumer payments at the point of sale. That rule was largely derided by plans and PBMs for its potential to raise premiums because of lost rebates and is set to be repealed if the Build Back Better Act passes.
David Mike, a principal and consulting actuary with Milliman, suggests that the pharmacy DIR proposal will still lead plans to increase premiums but will have a “materially smaller impact” than the rebate rule. Pharmacy DIR has “been very challenging for the agency to regulate, in part because of various stakeholder interests and not having agreement on what is the best approach, and in part because it’s regulating how a plan or a PBM can pay a pharmacy. It impacts a negotiation between two private entities and there’s just a lot of tension around that,” Mike tells AIS Health, a division of MMIT. Because DIR fees are collected retrospectively and in this case are often tied to certain performance metrics, they have created financial challenges for community pharmacies, while resulting in some beneficiaries paying more out of pocket than if their cost sharing amount was determined after the DIR is reconciled.
Plans May Prepare Two Sets of Bids
Similar to when the rebate rule looked like it was going to take effect for the 2022 plan year, this proposal may lead plans to prepare two sets of bids, Mike predicts. “No one is really sure what will happen with this one. I think practically speaking some organizations are going to deal with this uncertainty by having two sets of bids, all the way up until the bid deadline until they figure out which one they have to submit, and then other organizations may take a chance, assuming on one side or the other, which approach to take and how impactful it will be to them.” While the former option involves more time and resources, the latter involves more risk, he adds.
The possibility of preparing two bids is a consideration that many plans will have to face, but unlike the manufacturer rebate rule, this won’t impact every plan since not all plans have these performance-based arrangements with pharmacies, explains Mike. However, since most major insurers do employ these arrangements in their contracting it would likely impact a large portion of Medicare enrollees with drug coverage.
The rule also included numerous provisions aimed at further aligning Medicare and Medicaid benefits for dually eligible individuals, and it proposed allowing MA plans to count all cost sharing, such as Medicaid-paid amounts, toward the beneficiary’s maximum out-of-pocket (MOOP) limit. CMS estimated that this would result in higher bid costs for the MOOP limit for some MA plans, leading to increased spending of $3.9 billion over 10 years that would be partially offset by lower federal Medicaid spending and the portion of Medicare spending paid by Part B premiums for a net 10-year cost of $614.8 million.
Although this provision would have the biggest impact on dual eligibles, most of whom are enrolled in Dual Eligible Special Needs Plans (D-SNPs), Mike points out that it applies to all MA plans and is significant because up until now, plans did not have to count cost sharing that was paid by a third party other than the beneficiary toward the MOOP limit. This will lead members to hit their limit sooner, meaning plans will be on the hook for more costs and will have to find ways to save money, either cutting benefits or reducing margins, he suggests.
For the most part, however, the newly proposed “regulation restores Obama administration policies in many cases,” observes Mike Adelberg, principal with Faegre Drinker Consulting. “It’s a pendulum swing toward greater oversight, but CMS pulls up short of a maximalist regulatory posture on most of the topics.”
A prime example of that is a return to former provider network adequacy requirements for MA insurers submitting applications for new plans or service area expansions (SAEs). CMS in 2018 stopped reviewing network adequacy with the application process for contract year 2019, when it began requiring that applicants “attest” that they have a sufficient network and assessing all plans’ networks on a staggered, three-year cycle. If any deficiencies existed at the time of application, plans were expected to bring their networks up to standard by the time coverage begins on Jan. 1 of the following year.
CMS Proposes Network ‘Credit’
Although the current triennial review process “has thus far been adequate and efficient operationally,” CMS said it has since 2019 observed a pattern of organizations requesting to make changes to their service area after plan bids were due and continuing to have failures in their networks even after the contract became operational. So in addition to requiring that plans demonstrate adequacy by uploading their Health Service Delivery tables by the application deadline, CMS proposed to extend a “10-percentage point credit” that would allow plans to continue filling out their networks until coverage starts on Jan. 1.
“This change would also provide MA organizations with information regarding their network adequacy ahead of bid submissions, mitigating current issues with late changes to the bid that may affect the bid pricing tool,” CMS added.
Also related to networks, CMS solicited feedback on the challenges associated with establishing behavioral health provider networks in MA and “the overall impact of potential CMS policy changes on network adequacy and behavioral health access in MA plans.”
CMS also proposed to restore more detailed reporting around MLRs and collect additional data on certain categories of expenditures. Intending to reduce plan sponsors’ burden, the agency in 2018 scaled back the amount of MLR data that MAOs and Part D sponsors must submit on an annual basis but in the proposed rule explained that it has since observed a rise in the amount of MLR calculation errors and remittances. As a result, the agency proposed reverting to the MLR reporting tool used from 2014 to 2017, with a few modifications, including multiple lines for supplemental benefits. “Requiring MA organizations to account for their supplemental benefit expenditures by benefit type or benefit category will provide more transparency into how the MLR is being calculated, and it will assist CMS in verifying the accuracy of the MLR calculation, particularly with respect to expenditures related to categories of supplemental benefits that MA organizations must already separately report to CMS for purposes of bid development,” CMS explained.
Rule Lacks Star Ratings Changes
Meanwhile, in what one industry expert calls a “stunning” move, CMS did not introduce any new changes to the star ratings. After CMS in two interim final rules made several modifications to the calculation of the 2022 star ratings to adjust for care disruptions during COVID-19, CMS in the latest rule proposed to remove the “60 percent rule” for HEDIS measures derived from the 2021 Health Outcomes Survey (HOS) so that impacted plans may continue to receive the “higher of” score for the three measures in the 2023 star ratings. That was an “administrative action necessitated by the rulemaking structure surrounding stars,” since the earlier rulemaking had “very prescriptively codified in detail the regulatory treatment to be used for all measures receiving relief in the 2022 star ratings,” explains Melissa Smith, executive vice president of consulting and professional services with Healthmine. “However, the previously issued precise codification didn’t quite as precisely address the time-lagged HEDIS-HOS measures, for which the time impacted by the public health emergency will be reflected in the 2023 Star Ratings.”
CMS Takes Harder Stance on Performance
At the same time, CMS proposed to expand the basis on which it can deny MA applications based on poor past performance. “Allowing poor performers into the Part C and Part D programs puts beneficiaries at risk for inadequate health care services and prescription drugs,” CMS maintained. The agency in the past few years has made several regulatory changes allowing it to deny applications associated with poor performance but noted that it has only issued a “handful” of denials for past performance.
For one, CMS proposed to issue an application denial based on one year of low star ratings (i.e., 2.5 or lower). Currently, CMS may terminate an organization’s contract if it has a history of three consecutive years of low star ratings. CMS explained that it does not want to give an organization “at risk of being terminated in 2 years, based on its Star Ratings history,” an opportunity to expand and noted that terminated contracts based on star ratings rarely occurs, with the last termination happening before 2016.
Smith says it’s encouraging to see CMS increase its use of star ratings in this way. “The proposed inclusion of low Star Ratings as an element of Past Performance determinations and the increased transparency regarding the quality performance of D-SNPs, which is the result of adjustments to contracting strategy, are far more impactful to plans than the removal of the 60% rule,” she tells AIS Health via email. “However, because of the way they were presented, many plans haven’t yet realized the impact of these proposals on their corporate and Stars strategies.”
Additionally, CMS would not allow plans that are undergoing bankruptcy proceedings to expand and it proposed to revive the past performance methodology, a point system that assigns values to compliance actions and could result in the denial of applications for new contracts or service areas if a plan has 13 or more compliance action points. For example, the corrective action plan — the most serious compliance action — would receive six points, while a warning letter would get three points and a notice of non-compliance would be assigned just one point. CMS would not codify warning letters with business plans, as it views the three other compliance actions as “sufficient to record non-compliance that does not yet warrant stronger enforcement action.”
CMS added that it is “not proposing to add a recent history of Civil Monetary Penalties (CMPs) as a basis for past performance application denial at this time” but “will consider it in future rulemaking.”
In addition to reinstating a requirement to use a multilanguage insert informing beneficiaries of available interpreter services, CMS also proposed several marketing-related changes aimed at strengthening oversight of third-party marketing organizations.
Comments must be submitted by March 7.
Contact Melissa Smith at melissa.smith@healthmine.com.
by Lauren Flynn Kelly
