Tag Archives: Medicare Part D

Vetting PBM contract provisions may lower pharmacy plan costs

Prescription drug plan sponsors must consistently evaluate and update their pharmacy benefit manager (PBM) contracts to control costs. In their article “Medicare Part D PBM contracting strategy,” Milliman actuaries Michael Polakowski, Nicholas Johnson, and Todd Wanta highlight numerous contract provisions that plan sponsors should examine and renegotiate to reduce pharmacy expenses.

Here’s an excerpt:

As contracting has become more complex, the following contract provisions are becoming more common as plan sponsors look to reduce their pharmacy expenses.

Price protection. In the current environment of high-cost trends for brand-name drugs, price protection can offer more inflation protection than discount guarantees. Any price increases above a predefined threshold are paid back to the PBM by the manufacturer and considered rebates by the Centers for Medicare and Medicaid Services (CMS). Plan sponsors should carefully consider how price protection can affect Medicare bids and end-of-year settlements.
Membership. More favorable dispensing fees, discounts, and/or rebates may be achieved for plan sponsors with higher membership counts. Improved contracting levels are specified directly in the PBM contract.
Discount/rebate guarantees. Discount and rebate guarantees may be presented in many different forms, e.g., rebates per brand-name script or on a per member per month (PMPM) basis, or discounts off AWP or the maximum allowable cost (MAC) list. Rebate guarantees may exclude certain drugs. At a minimum, plan sponsors should ensure the targets are clearly understood and auditable. Plan sponsors should be wary of proprietary definitions when industry definitions are available for reference. Plan sponsors should also ensure that reimbursement mechanisms are in place if targets are not achieved.
Rebate maximization. Because of the structure of the Part D benefit, rebates can be a more effective way to reduce Medicare bids than discounts. Over the last few years (and with the increasing cost of specialty drugs), plan sponsors have increasingly negotiated with PBMs to maximize rebates rather than discounts. The financial incentives for this approach are discussed by Milliman consultants Adam Barnhart and Jason Gomberg in a recent article for the AIDS Institute, “Financial Incentives in Medicare Part D.”1
Multi-year agreements. Some PBMs have been willing to provide discount or rebate improvements over time if plan sponsors commit to multi-year contracts. Plan sponsors should be sure to verify that the improvements are contractually guaranteed and meet or beat market-wide improvements. Even multi-year discounts should have market check provisions to allow plan sponsors the ability to receive better terms when the market changes.

MedPAC’s proposed changes to Medicare Part D: Considerations for Part D plan sponsors

The Medicare Payment Advisory Commission’s proposed modifications to the Part D federal reinsurance program could change the financial dynamics for Plan D plan sponsors, particularly if appropriate updates are not made to the risk score model. This paper by  Milliman consultants David Liner and Nicholas Johnson outlines key considerations for plan sponsors as they prepare for proposed changes to the Part D program.

This article is part two of a two paper series. Read paper one about considerations for Part D stakeholders.

MedPAC’s proposed changes to Medicare Part D: Impacts on various Part D stakeholders

The Medicare Payment Advisory Commission (MedPAC) proposed several changes to the Medicare Part D program in a June 2016 report. MedPAC advises Congress on policies related to Medicare and its recommendations could potentially be enacted by Congress. This paper by Milliman’s Katie Holcomb and Julia Friedman discusses the impact that MedPAC’s proposed changes could have on plan sponsors, Part D members, and pharmaceutical manufacturers.

Medicare Part D member profitability by pharmacy channel

Preferred networks have become the norm in the Medicare Part D landscape. Members typically have a lower cost-sharing requirement when they use a pharmacy in the preferred network. Preferred pharmacies expect to receive a greater share of the carrier’s business and provide the carrier with greater discounts or direct/indirect remuneration (DIR). In this research paper, Milliman’s Jason Gomberg and Michael Hunter analyze 2014 Part D plan profitability to determine if specific pharmacy channels are associated with members that may be more or less profitable for a Medicare Part D carrier.

Possible changes to Medicare Part D reinsurance programs

The Medicare Payment Advisory Committee (MedPAC) has previously suggested changes to the Medicare Part D reinsurance and risk corridor program. But several factors—the current state of the Part D market, recent attempts to curtail Medicare spending, and large increases in reinsurance payments—may increase the likelihood that MedPAC and the Centers for Medicare and Medicaid Services (CMS) will implement changes to Part D. Putting these changes in place will not necessarily result in decreased program spending and could cause an increase in the prevalence of private-sector reinsurance in the Part D market. Milliman’s Nicholas Johnson provides perspective in this paper.

The three Rs of healthcare reform

The elements of the Patient Protection and Affordable Care Act (ACA) known as the “three Rs”—risk adjustment, reinsurance, and risk corridors—are designed to level the playing field for insurers in the commercial individual market. They are also intended to help insurers transition through healthcare reform, address adverse selection, and protect consumers by keeping premiums as stable as possible. To one degree or another, all three were earlier implemented as part of Medicare Advantage and Medicare Part D (MAPD), albeit in somewhat different forms.

In Hans Leida’s new paper “Learning from Medicare Advantage and Part D: Lessons for the individual insurance market under ACA,” he discusses how the three Rs will function within ACA’s commercial market in comparison with their applications in the MAPD market.

Here is an excerpt from the paper:

The first R is risk adjustment. Part of the mission of ACA is to make health coverage more equitable by eliminating rating on the basis of health status, and by eliminating or restricting other rating variations (such as by age and gender). However, in order not to bankrupt insurers that take on sicker individuals, the ACA imposes transfers of money between insurers that are intended to even out costs across issuers. These transfers are called risk adjustment, and are based on a complicated formula involving a risk score given to each individual based on their demographics and medical conditions. Issuers with a member base that is relatively riskier than others will be subsidized, and those with a less risky member base will be assessed. The risk adjustment program is a permanent feature of ACA.

In MAPD, the government directly varies its payments to insurers based on the risk scores of the individuals each insurer covers, and managing risk scores is a crucial key to success in that market.

Second in the government’s lineup of risk mitigation strategies is reinsurance. Under this program, the federal government will reimburse individual market issuers for a portion of the claims incurred by high cost individuals. A form of reinsurance for high claimants is also part of the Medicare Part D drug program, and was probably included for the same reason: to make insurers less nervous about jumping into an untested market.

While reinsurance is currently set to be phased out of commercial markets over the course of three years, it is a permanent feature (barring statutory changes) of Part D. Reinsurance does not fully protect individual market issuers from high claimants or do away with the uncertainty surrounding new market entrants, but it does materially mitigate issuer’s risk during the transitional years of ACA implementation.

Third, the ACA implements another tool borrowed from Medicare Part D: the risk corridor. A risk corridor protects plans against mispricing by sharing profits and losses with the federal government. As usual, the details are complex. At a high level, the government reimburses a portion of losses to plans that lose money, and requires profitable plans to remit a portion of their profits to the government. The risk corridors are the different tiers defining the government’s share of gains or losses, which starts at zero percent for small gains or losses, and ramps up to 80% for large ones.

This concept is set to apply to QHPs in the individual market for three years starting in 2014. By contrast, in Part D this is again a permanent feature, although CMS has the authority to increase the amount of risk borne by Part D insurers over time, which would amount to a phase-out of the risk corridors.

As with MAPD, the operation of these three programs will require significant amounts of data and reporting back and forth between issuers and the federal government. In addition to supplying the data and reporting, issuers must also maintain records and prepare for federal audits of this information.

One lesson learned from Medicare Part D is that all of these risk abatement features intended to increase insurers’ willingness to take part in the new market can actually be too successful. In Part D, some insurers may have seen these government subsidies as an opportunity to price aggressively in order to capture market share, since the government would bear a significant portion of losses should rates turn out to be insufficient. If this were to happen in the individual market under ACA, it is possible that the risk corridor program—which was scored as revenue neutral to the government by the Congressional Budget Office—might in fact require a significant net expenditure of federal funds.

A previous post examined the parallels between ACA’s regulation of the commercial market and existing MAPD market regulations.