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 pharmacy-not 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 significant proposal would require employer or union groups that provide drug coverage to their retirees, and who apply for the Retiree Drug Subsidy, to similarly report drug costs based on the pass-through pricing actually paid to the pharmacies or other dispensing entities. Since these retirees are covered in the commercial insurance marketplace, rather than through Part D, the proposal could affect all contracting and payment relationships between health plans, PBMs and pharmacies-not only those relating to Part D.

CMS has also proposed regulations to implement CMS' current policy requiring that rebates and other remuneration received and retained by a PBM, or by the insurer or administrator, or subtracted from drug costs are reported to CMS.

New Regulations Would Curb Plan Marketing Activities as well as Agent/Broker Commissions

Given the current regulatory and political environment, CMS' proposed marketing requirements are not unexpected. Applicable to both MA Organizations and Part D Plan Sponsors as well as their agents, brokers, providers and other downstream contractors, many of the proposed regulations reflect standards CMS already has set forth, such as in the 2009 Call Letter. However, CMS also has proposed several new marketing standards intended, among other things, to address concerns about inappropriate marketing practices.

Agent/Broker Commissions and Other Requirements

CMS proposes to require that Plans standardize their agent and broker sales commissions such that the commission does not vary between benefit years (e.g., between the agent's first and second years selling a product) or among benefit plans and plan product types offered by the MA Organization or Part D Plan Sponsor.

In addition to codifying the existing requirement (outlined in the Medicare Marketing Guidelines) that Plans only use agents and brokers that are licensed by the state in which the agent or broker performs, CMS proposes to require each Plan to comply with state appointment laws and report to each state those licensed agents and brokers that are marketing on behalf of the Plan in the state. Other proposed regulatory changes relating to agents and brokers include standards set forth in the 2009 Call Letter, such as mandatory training and testing of agents and brokers on Medicare laws, compliance and details of products the agent will sell.

Prohibited Marketing Activities

The proposed rule would expand the list of prohibited activities to include any "unsolicited" direct contact with a Medicare beneficiary, including door-to-door solicitation (which already is prohibited), as well as "calling a beneficiary without the beneficiary initiating the contact." This expansion would prohibit certain activities, such as outbound marketing calls that currently are permissible under the Medicare Marketing Guidelines.

Plans as well as their agents and brokers also would be obligated to document in advance the scope of any meeting agreed to by a prospective enrollee and would be prohibited from marketing activities during the appointment that go beyond the agreed upon scope. This would include, for example, selling of health care products not part of the appointment agenda agreed to by the prospective enrollee in advance (and so documented by the plan). Cross-selling of any non-health care related products during an appointment with a prospective enrollee is also prohibited.

Other prohibited activities include sales presentations at health education events, such as health fairs, sales presentations and distribution of enrollment applications "in provider offices or other places where health care is delivered," and offering meals as well as other gifts to potential enrollees, regardless of the value of the meal. (Refreshments may be served at presentations, however, and gifts of "nominal" value remain permissible.)

Proposed Expansion of CMS Authority to Impose Civil Money Penalties on a Per Beneficiary Basis

CMS proposes to enhance the amount of any civil money penalty (CMP) that CMS may impose on a Plan for a violation of its contract that "has directly adversely affected (or has the substantial likelihood of adversely affecting) one or more" enrollees, to $25,000 for each affected enrollee. Presently, the regulations allow a penalty of $25,000 per determination of a violation under the contract. Under this proposal, a single incident that has a wide impact-e.g., a rogue agent who engages in unsolicited direct contact with 10 Medicare beneficiaries-would allow CMS to impose on the Plan CMPs in an amount of $250,000, even if the Plan could demonstrate compliance with all applicable regulations (i.e., training and testing of the prohibited conduct) and that the Plan exercised reasonable care in its operations. CMS has requested comment on its proposal, including potential alternatives that "would more effectively deter [Plans] from engaging in conduct" that violates CMS' requirements as well as the monetary range of CMPs imposed on Plans, such as whether an upper limit should exist on the total amount of a penalty levied against a Plan.

Special Needs Plans

The proposed regulations deal extensively with MA Special Needs Plans (SNPs) and reflect CMS' efforts to expand and enhance the accountability for these Plans' performance. CMS proposes, for example, to adopt the recommendation of the Medicare Payment Advisory Commission that special needs individuals targeted by the Plan comprise at least 90 percent of new enrollment (no more than 10 percent of new enrollees may be non-special needs individuals). CMS invites comments on this proposal. Additionally, CMS proposes to require that SNPs adopt a verification process, approved by CMS, for ensuring an enrollee's special needs status, whether it is verification of a dual eligible participant's status with the appropriate state Medicaid agency or confirmation of a beneficiary's institutionalized status.

As a further safeguard to assure that SNPs are targeting and meeting the needs of the special needs populations they are intended to serve, CMS is proposing that SNPs adopt a so-called model of care "specifying how the plan will coordinate and deliver care designed for the plan's enrollees." The proposal articulates a number of standards that must be met by any such "model of care," including, notably, a requirement that the SNP "deliver care based on [an] appropriate protocol for the target enrollees." At the same time, CMS has specifically said in the preamble that it is deliberately guiding SNPs toward a conceptual framework of a model of care without intending to be prescriptive about the specific staff structure, provider network, clinical protocols, performance improvement and communication systems.

Additional Regulatory Proposals

The proposed rule contains potential modifications for several other Program components, such as the following:

Payment of Cost-Payments by State Medicaid Agencies

To prevent dual eligibles and other enrollees from being held liable for payment of co-payments or other amounts that are the responsibility of a state Medicaid agency, CMS proposes to require that MA Organizations include in contracts with providers a requirement that providers either accept the MA Organization's plan payment as payment in full, or bill the "appropriate State source." The enrollee must be held harmless for the outstanding amount.

Best Available Evidence

CMS proposes to codify the existing guidance relating to "best available evidence" of an individual's low-income subsidy eligibility status, including requiring that the Plan accept the best available evidence and update the individual's eligibility status in accordance with CMS' established process.

Change of Ownership

For purposes of novating Medicare Part D contracts, CMS proposes to incorporate into the regulations CMS' standard that it will not recognize as a change of ownership the sale or transfer of a stand-alone prescription drug plan line of business that "consists solely of the sale or transfer of individual beneficiaries or groups of beneficiaries" enrolled in a plan benefit package.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Arnold Friede

McDermott Will & Emery 

600 Thirteenth Street NW

Washington, DC

20005-3096

UNITED STATES 

E-mail: [e-mail]

URL: www.mwe.com

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