Tag Archives: Nicholas Johnson

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.

Considerations for Medicaid reform proposals

Republican Medicaid reform proposals have thus far focused on converting federal funding from the current approach of proportional federal and state financing to either block grants or per capita caps. While these funding approaches may sound relatively straightforward, understanding the implications of such changes requires consideration of several factors.

In this paper, Milliman consultants break down the detailed considerations into two primary categories: initial benchmark development and annual growth rates. Defining the assumptions and methodologies used to establish benchmarks and growth rates is key to aligning service cost with funding under alternative federal financing for Medicaid. Without consideration of these concepts, the actual cost of Medicaid relative to the federal budget for Medicaid will begin to diverge, and the gap may become wider over time. As this theoretical funding gap emerges, states will be at increased risk for funding additional program cost.

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.

Policy options to improve the care of chronic conditions under Medicare

On December 18, 2015, the Senate Finance Committee released alternative policy options meant to improve the care of chronic conditions for Medicare beneficiaries. In this article, Milliman’s Michael Polakowski and Nicholas Johnson outline 24 proposals that may have a wide-ranging impact on traditional Medicare, Medicare Advantage, and Medicare accountable care organizations. These policies are still under consideration; the Finance Committee’s bipartisan chronic care working group is requesting feedback and comments by today.

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.