Medicare Advantage proposed rule could have a profound impact on product development for 2019 and beyond

The Medicare Advantage (MA) and Prescription Drug (PD) Benefit Program proposed rule for 2019 discusses important policy updates that may have a significant impact on the product development process for 2019. The proposed changes provide new opportunities for plans to innovate benefit designs and tailor packages for selected enrollees. The Centers for Medicare and Medicaid Services (CMS) is also requesting feedback on Part D rebates and price concessions that could have a profound impact on the way formularies and pharmacy benefits are managed. Finally, we also highlight additional proposed changes in enrollment policies that may result in strategic implications.

The key advantage for product development is CMS’s proposal to discontinue the use of “meaningful differences” requirements. By removing the restriction that limits the number of plans a Medicare Advantage Organization (MAO) could offer, MAOs would be in a position to develop a more diverse portfolio of products. In addition, plans can focus on creating product designs that are meaningful to beneficiaries instead of making benefit decisions based on the results of the CMS out-of-pocket cost (OOPC) calculator prescribed methodology. CMS did not propose waiving the Total Beneficiary Cost (TBC) requirements, meaning that plans would still need to rely on the OOPC methodology to determine year-over-year plan changes.

CMS is proposing additional flexibility in the benefit design process. One proposal would allow plans to offer different cost sharing and/or additional supplemental benefits for specific subsets of enrollees based on defined health conditions (e.g., zero cost share for diabetic supplies for patients diagnosed with diabetes). In addition, CMS also proposes to allow additional flexibility with plan designs for segments within plans by being able to offer different supplemental benefit packages by segment. Finally, CMS also discusses the possibility of additional maximum out-of-pocket (MOOP) levels and associated cost-sharing limits to allow plans a greater range of options versus the currently prescribed mandatory levels and to encourage plan offerings with lower MOOP limits.

The request for information on the potential Part D policy presented by CMS related to manufacturer rebates and pharmacy price concession could represent the most significant changes to the Part D program since the Patient Protection and Affordable Care Act (ACA) regulations. The potential policy would require that a portion of manufacturer rebates be estimated and included in the point-of-sale cost of the medications. In addition, CMS is proposing that all price concessions by contracted pharmacies be reflected at the point of sale. In practice, including the maximum price concession from contracted pharmacies in the price at the point of sale would limit the ability of the plan to reflect the cost of performance incentives in the claim cost and would place the cost of such quality programs into member premium.

Depending on the actual regulations proposed by CMS, plans and pharmacy benefit managers (PBMs) would need to rethink all aspects of the Part D benefit structure, Part D quality incentives, formulary development, and contracting efforts with both manufacturers and preferred pharmacy networks. Further, plans may need to invest in additional systems and processes to comply with increased reporting and projection requirements relating to rebates and other incentives.

Other important proposals relate to changes to facilitate the enrollment process for MAOs with commercial and/or Medicaid programs. CMS proposes a simplified election process for the purposes of converting existing non-Medicare coverage, commercial, Medicaid, or otherwise, to MA coverage offered by the same organization. CMS also discusses the ability to passively enroll full-benefit dually eligible beneficiaries who are currently enrolled in an integrated dual special needs plan (D-SNP) into another integrated D-SNP under certain circumstances. This could be an important consideration for MAOs offering SNPs in markets where fully integrated dual eligible plans (FIDE SNPs) are alternatives. Finally, CMS is also recommending setting limitations for the Part D Special Election Period (SEP) for dually eligible beneficiaries, which would limit the ability to change plans at any time during the year.

Other areas that result in additional opportunities for MAOs are the recommended changes to the medical loss ratio regulations and stop-loss requirements. MAOs would be permitted to deduct, as quality improvement activities (QIA), the total investment in fraud activities rather than the current reduced amount in the calculation of medical loss ratio. In addition, Medication Therapy Management Program (MTMP) expenses would automatically be considered QIA. CMS is also proposing updates to the stop-loss requirements that require MAOs to provide adequate and appropriate stop-loss insurance to all physicians or physician groups that are at substantial financial risk under the MAO’s physician incentive plan (PIP). The proposed changes to the stop-loss requirements may create flexibility for risk sharing in provider contracts.

Through the 2019 Medicare Advantage and Prescription Drug Benefit Program proposed rule and request for information, CMS is signaling significant changes to the MA and PD programs. MAOs will need to incorporate these changes into their strategies, product design, contracting, pricing, network design, and other aspects of their business. A rigorous financial analysis of the impact of the various proposals should be a part of each MAO’s strategic and product review as we begin to prepare for the 2019 bid season.

Comments on the proposed rule are due by January 16, 2018, so please contact Milliman to start a discussion of these and other effects of the proposed rule and be prepared for what should be a challenging and innovative 2019 Medicare Advantage bid season.