Medicare Seeks to Cut Drug Costs for People in Part D Plans

Jan. 7, 2022 — The Biden administration said this week it intends to challenge insurance companies to deliver better service to people enrolled in Medicare, including applying discounts on drugs covered by Part D more directly to their pharmacy costs.

The Centers for Medicare and Medicaid Services (CMS) on Thursday unveiled a 360-page proposed rule that seeks many changes in how insurers manage their federal contracts. This proposed rule, for example, also would require insurers to show that they have enough contracted medical professionals when they want to create new Medicare Advantage plans or to expand existing ones.

The rule also seeks more accountability about how insurance companies spend Medicare’s money, including greater transparency about spending on supplemental benefits such as dental, vision, hearing, transportation, and meals.

With this proposed rule, CMS intends to ramp up oversight and stewardship of Medicare Advantage and use its authority to address drug costs, says Tricia Neuman, ScD, executive director of the Program on Medicare Policy at the nonprofit Kaiser Family Foundation.

Part D Debates

Insurers also manage the entire Medicare Part D pharmacy benefit, which covers about $100 billion in annual drug purchases. There’s been significant bipartisan interest in changing the flow of discounts negotiated within the Part D program to help people pay for medicines bought at pharmacies.

In late 2018, for example, the Trump administration sought comments on a policy that would require Part D plans to apply all price concessions they receive from network pharmacies at the point of sale, which would reduce costs for people enrolled in these plans.

There’s been rising concern in recent years about complex negotiations within the drug supply chain, particularly concerning the role of pharmacy benefit managers (PBMs).

People enrolled in Part D who need medicine, especially expensive drugs, and owners of small pharmacies miss out on direct savings from what are called direct and indirect remuneration (DIR) fees. These include rebates from drugmakers, administrative fees above fair market value, price concessions for administrative services, legal settlements affecting Part D drug costs, pharmacy price concessions, drug costs related to risk-sharing settlements, or other price concessions or similar benefits, CMS said in the draft rule.

Insurers and pharmacy benefit managers — who operate as a kind of middlemen between drugmakers and insurance companies — have argued that directing their savings on drug costs to health plans results in lower premiums for those enrolled in Part D plans. But this approach means that people in Part D plans “end up paying a larger share of the actual cost of a drug” when they need medicine, CMS said in the rule.

In Carter’s view, PBMs “are taking advantage of sick Americans to rake in higher profits.”

“Nowhere in America should a patient have to choose between life-saving medication and putting food on the table, yet that is the choice PBMs are forcing on them,” he said.

In a statement, the trade group for pharmacy benefit managers, the Pharmaceutical Care Management Association, defended the current approach as being a part of “value-based contracting in Medicare Part D.”

“We are currently reviewing the proposed rule,” association CEO J.C. Scott said in a statement. “We look forward to working with CMS on ways to enhance the use of value-based contracting rather than limiting this important tool.”

Other key parts of the proposed rule include:

• Greater oversight of third-party marketing organizations to prevent deceptive marketing tactics for Advantage and Part D plans.
• A clarification of requirements for plans during disasters and emergencies to ensure that beneficiaries have uninterrupted access to needed services.