Contract Year 2023 Part D Proposed Rule Released: Changes To 'Negotiated Price' Would Require Potential DIR Fees at the Point of Sale

The Proposed Rule can be found here.

The biggest proposed change would result in pharmacy direct and indirect remuneration (DIR) fees or adjustments be to be recognized at the point of sale. CMS effects this change by amending the regulatory definition of ‘negotiated price’ and adding a new definition for ‘price concession.’ Of significance, the proposed change would only apply to pharmacy DIR fees or adjustments at this time and would not extend to formulary rebates paid by pharmaceutical manufacturers to Medicare Part D plans and their pharmacy benefit manager (PBM) agents. Rather rebate arrangements would continue to be accounted for and reported as DIR and not included in the negotiated price. Therefore, while the new negotiated price would be net of some after the fact concessions—typically flowing form pharmacies to plans and their PBMs—it would not reflect a true dead net price since it would not be net of back-end manufacturer rebates. CMS characterizes this as “an incremental approach” by “only proposing policies related to pharmacy price concessions at this time.”

Changes to ‘Negotiated Price’

The current definition of ‘negotiated price’ is net of pharmacy price concessions unless they cannot reasonably be determined at the point of sale. Because performance-based pharmacy measures that compare performance among various pharmacies in a Part D network cannot “reasonably be determined at the point-of-sale,” such pharmacy DIR fees are currently accounted for in year-end DIR reports.   

The Proposed Rule re-defines ‘negotiated price’ as “the price for a covered Part D drug that—

(1) The Part D sponsor (or other intermediary contracting organization) and the network dispensing pharmacy or other network dispensing provider have negotiated as the lowest possible reimbursement such network entity will receive, in total, for a particular drug;

(2) Meets all of the following: (i) Includes all price concessions (as defined in this section) from network pharmacies or other network providers; (ii) Includes any dispensing fees; and (iii) Excludes additional contingent amounts, such as incentive fees, if these amounts increase prices; and

(3) Is reduced by non-pharmacy price concessions and other direct or indirect remuneration that the Part D sponsor passes through to Part D enrollees at the point of sale.”

Notably, the revised term “would not change Part D sponsors’ ability to pass-through other, non-pharmacy price concessions and other direct or indirect remuneration amounts (for example, legal settlement amounts and risk-sharing adjustments) to enrollees at the point-of-sale.”

New Definition of ‘Price Concession’

While the Social Security Act (the Act) has long required that “negotiated prices” should take into account negotiated price concessions like rebates, the term ‘price concession’ has never been defined. The Proposed Rule seeks to change this lack of regulatory clarity by adding a defined term that “is consistent with how that term is used in paragraphs (d)(1)(B) and (d)(2) of section 1860D-2 of the Act.”

CMS has proposed to adopt a broad definition that would be consistent with the Act, “support consistent accounting by Part D sponsors of amounts that are price concessions, and ensure that certain forms of discounts are not inappropriately excluded.”

The new term would be defined to mean “any form of discount, direct or indirect subsidy, or rebate received by the Part D sponsor or its intermediary contracting organization from any source that serves to decrease the costs incurred under the Part D plan by the Part D sponsor. Examples of price concessions include but are not limited to: discounts, chargebacks, rebates, cash discounts, free goods contingent on a purchase agreement, coupons, free or reduced price services, and goods in kind.”

It should be of note that the proposed change would require that the “negotiated price” in the Prescription Drug Event (“PDE”) claim reflect the lowest potential reimbursement to a pharmacy from a Part D plan. It does not require that a Medicare Part D plan or their PBM agents pay that amount at a certain time following the dispensing event. Medicare Part D plans, and their PBMs remain free to negotiate DIR fees or adjustments with pharmacies in their networks as well as various payment times and structures. In fact, some may argue that the non-interference clause of the Medicare Modernization Act requires such.   

Additional Proposed Changes 

While the proposed revision to the definition of “negotiated price”[RD1] is by and far and away the most significant proposal in the 2023 Proposed Rule, additional proposals include the following:

• Additional Marketing Oversight. CMS proposes additional requirements to better regulate third-party marketing organizations (TPMOs) who sell multiple Medicare Advantage and Part D plans. Specifically, TPMOs would be required to include a specific disclaimer on all materials noting they may not offer all Medicare plans and to check medicare.gov for all plans in a given area and to record all beneficiary calls, including enrollment.
• Transparent Medical Loss Ratio Reporting. CMS proposes to reinstate detailed medical loss ratio (MLR) reporting requirements that were in effect for contract years 2014-2017. Specifically, CMS has proposed the Medicare Advantage plans report the underlying cost and revenue information needed to calculate and verify the MLR percentage and remittance amount, if any. In addition, CMS proposes to require that MA organizations report the amounts they spend on various types of supplemental benefits not available under original Medicare (e.g., dental, vision, hearing, transportation).
• Changing Calculation of Medicare Maximum Out-of-Pocket Limit. Under the current guidance, Medicaid-paid and unpaid amounts for dual-eligible beneficiaries are not included in the calculation for Maximum Out-of-Pocket limit, and as a result, CMS notes that states bear an increased burden in cost-sharing and that providers serving dual eligible individuals are disadvantaged. CMS is proposing that Medicare Advantage plans count all cost-sharing, including costs paid by the beneficiary, Medicaid, other secondary insurance, and amounts that are unpaid due to state limits, in determining whether the Maximum Out-of-Pocket limit is met.
• Ensuring Access to Care During Disaster or Emergency. CMS proposes to clarify when Medicare Advantage plans must comply with special requirements such as waiving referral requirements and permitting services by non-contracted providers during disasters and emergencies. CMS also proposes that, in order to trigger the special requirements, there must be a disruption in access to health care at the same time as the disaster or emergency.
• Network Adequacy. CMS proposes to require that, as part of the application process, Medicare Advantage plan applicants demonstrate that they meet network adequacy standards for the service area and to allow for denial of an application if the network is inadequate. While CMS currently reviews the adequacy of pharmacy networks on the Part D side under certain regulatory adequacy standards, the same is not done for Medicare Advantage plans on the provider side. Currently, applicants only attest to an adequate provider network, and CMS does not deny applications based on the plan’s network. The change would apply to applications submitted in 2023 for the 2024 contract year.

Stakeholders should take the opportunity to review and comment on the provisions in the Proposed Rule. Arent Fox routinely drafts comments to such agency actions.