Medicare Prescription Drug Improvement
and Modernization Act of 2003
The President has signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003. The Act is a far-reaching recasting of the Medicare law, most notably in the creation of a new drug benefit. It also makes major changes to the Medicare coordinated care plan program, now to be called Medicare Advantage, radically restructures the Medicare intermediary contracting program, changes provider reimbursement, creates a new form of health savings account with potentially significant tax advantages, and changes many other aspects of the almost 40-year old program. We summarize the Act below.
The summary is organized by topic, paralleling the Act.
Title I Medicare Prescription Drug Benefit
Title II Medicare Advantage Program
Title III Combating Waste, Fraud and Abuse
Title IV Rural Provisions
Title V Changes to Part A
Title VI Changes to Part B
Title VII Changes to Parts A and B
Title VIII Cost Containment
Title IX Regulatory and Contracting Reform
Title X Medicaid and Miscellaneous Provisions
Title XI Access to Affordable Pharmaceuticals
Title XII Tax Provisions
Title I
Medicare Prescription Drug Benefit
The new Medicare drug benefit begins in 2006. Beneficiaries can obtain the benefit either by joining a private drug plan to go along with their fee-for-service Medicare enrollment, or joining a Medicare Advantage managed care program offering a drug benefit. The law also makes notable changes in Medigap law requirements and incentivizes employee plan sponsors not to drop their retiree drug benefits.
Key portions of the Act affecting drug benefits are:
· Establishment of Voluntary Prescription Drug Plans
· Benefit Structure and Coverage
· Negotiated Manufacturer Prices
· Covered Drugs
· Beneficiary Choice of Plans
· Plan Approval Process
· Beneficiary Protections
· Any Willing Provider
· Formulary Standards
· Electronic Prescriptions
· Premiums and Subsidies
· Relationship to Other Coverage
· Transitional Medicare Discount Card
Establishment of Voluntary Prescription Drug Plans
The Act establishes Part D of the Medicare Program to provide a “voluntary” prescription drug benefit plan for individuals who are entitled to Part A or enrolled in Part B of the Medicare Program (via newly created sections 1860D-1 through 1860D42 of the Social Security Act). Eligible individuals will not receive Part D benefits unless they enroll in a qualified plan. All benefits under Part D are subject to Medicare Secondary Payer (“MSP”) requirements set forth in 42 U.S.C. § 1395y.
Part D coverage will be available through two different types of plans. First, drug coverage will be available as an “add-on” to fee-for-service Medicare coverage, through a stand-alone prescription drug plan (known as “PDP”). In addition, a beneficiary who enrolls in a Medicare Advantage (MA) plan (successors to Medicare+Choice Part C plans) that provides Part D qualified prescription drug coverage (which will be called “MA–PD plans") will obtain coverage through the MA-PD plan. All MA plans must provide at least one MA-PD plan in their service area. Private fee-for-service MA plans are not required to provide drug coverage. Enrollees in these plans may enroll in a PDP plan, as may enrollees in Medicare medical savings accounts (MSAs). An MA enrollee who continues enrollment in an MA plan that provides a package of benefits without prescription drug coverage is assumed to have waived coverage under Part D.
Coverage under Part D begins January 1, 2006. The enrollment process for PDP plans will be similar to and coordinated with enrollment in MA–PD plans. There will be a six-month initial enrollment period, beginning November 15, 2005, for all persons who are eligible beneficiaries on that date, and an initial six-month enrollment period for all individuals becoming eligible thereafter. Part D authorizes a separate enrollment process for so-called “special circumstances,” similar to special enrollment periods permitted under HIPAA, when an eligible individual loses creditable prescription drug coverage such as under a group health plan, or experiences a reduction in PDP coverage.
Benefit Structure and Coverage
Section 1860D–2 specifies the benefit design requirements for qualified prescription drug coverage. Qualified coverage is either “standard prescription drug coverage” or “alternative prescription drug coverage” with at least actuarially equivalent benefits.
Standard Coverage
For 2006, “standard prescription drug coverage” is defined as having a $250 deductible; 25% coinsurance up to the initial coverage limit ($2,250); and catastrophic coverage after an individual incurs $3,600 in out of pocket expenses. Beginning in 2007, the annual dollar amounts would be increased by the annual percentage increase in average per capita aggregate expenditures for covered outpatient drugs for Medicare beneficiaries for the 12-month period ending in July of the previous year.
Once the beneficiary reaches the catastrophic limit, the program would pay all costs except for nominal cost-sharing (equal to the greater of a copayment of $2 for a generic drug and $5 for any other drug, or five percent coinsurance.) PDP sponsors and MA plans are permitted to reduce cost-sharing for formulary or generic drugs.
Plans may substitute cost-sharing requirements, for costs up to the initial coverage limit that were actuarially consistent with an average expected 25% coinsurance for costs up to the initial coverage limit. They could also apply tiered copayments, provided such copayments were actuarially consistent with the average 25% cost-sharing requirements.
Incurred costs count toward meeting the catastrophic limit only if they are incurred for the deductible, cost-sharing, and benefits not paid because of application of the initial coverage limit. Incurred costs do not include out of pocket payments made because of the application of a formulary, but do include subsidies made on behalf of a low income individual, or payments under a state pharmaceutical assistance program (SPAP). Incurred costs do not include expenses that are reimbursed by any other insurance.
The Secretary is authorized to establish procedures for alerting a PDP or MA-PD of an individual’s enrollment in another insurance plan. If an individual materially misrepresents other coverage or reimbursement by insurance of covered expenses, the individual could be terminated from Part D enrollment.
Alternative Coverage
PDP and MA-PD plans are permitted to offer alternative coverage that is at least actuarially equivalent to the standard Part D benefit, provided that the alternative coverage includes an initial deductible that is no more than the deductible in the standard plan and provides the same threshold for catastrophic coverage. Within these requirements plans may change the cost sharing for the drug benefit, implement different formularies, and the benefit limit can be modified while still maintaining actuarial equivalence.
Supplemental Coverage
An MA–PD or PDP plan may also provide supplemental prescription drug coverage to its own enrollees, that provides for a reduction in the annual deductible, reductions in coinsurance or cost-sharing required, or increases in drug coverage above the benefit limit. A PDP sponsor may not offer a plan of supplemental benefits unless it also offers a basic plan in the same service area.
Demonstration Project Authority
To address a concern that reinsurance subsidies may create significant disincentives for private sector plans to provide supplemental prescription drug coverage, the Secretary’s current Medicare demonstration authority has been expanded to include Part C and Part D. The Conference Report singles out several areas in particular that Congress would like to be the subject of a demonstration project. These include filling in the gap in coverage by reimbursing participating plans a capitated payment that is actuarially equivalent to the amount that plans would otherwise receive from the government in the form of specific reinsurance when an individual plan enrollee reaches the catastrophic attachment point, and determining whether payments for non-Medicare services would result in more economical provision and more effective utilization of Medicare services provided by PDP and MA-PD plans
Negotiated Manufacturer Prices and Treatment for Medicaid “Best Price” Purposes
Both standard and alternative qualified drug plans must provide beneficiaries with access to negotiated prices, whether or not benefits are payable by the plan. The beneficiary will thus get the benefit of negotiated price concessions that the plan has negotiated with a manufacturer, specifically including discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations. It is unclear to what extent “indirect” subsidies or remuneration will be interpreted to include all amounts that are paid by a manufacturer to a plan, such as payments for services under a separate agreement. In addition, a PDP or MA-PD plan sponsor is free to negotiate prices without regard to the impact of negotiated discounts on “best price” determinations under Medicaid.
The PDP sponsor or MA–PD entity is required to disclose to the Secretary of Health and Human Services (the “Secretary”) the aggregate negotiated price concessions made available to the sponsor or organization and passed through in the form of lower subsidies, lower monthly beneficiary premiums, and lower prices through pharmacies and other dispensers. Manufacturers are also required to disclose pricing information to the Secretary on a confidential basis.
In order to promote competition, the Secretary is prohibited from interfering with the negotiations between drug manufacturers and pharmacies and PDP sponsors. Further, the Secretary may not require a particular formulary or require a particular price structure for the reimbursement of covered drugs.
Covered Drugs
Covered outpatient drugs are defined to include most covered outpatient drugs for a medically accepted indication, as well as insulin, and medical supplies associated with the administration of insulin. Drugs excluded from Medicaid coverage are excluded from the definition, with the exception of smoking cessation drugs. In addition, drugs (or medical supplies) that can be paid for under Medicare Part B are not covered under Part D. A drug otherwise eligible for coverage could be excluded by a PDP or MA-PD plan if its use would not meet Medicare’s definition of medically necessary or if it was not prescribed in accordance with the plan (e.g., not covered under the formulary) or Part D.
Beneficiary Choice of Prescription Drug Plans
Section 1860D–3 requires the Secretary to assure that each beneficiary has a choice between at least 2 qualifying plans. At least one plan has to be a PDP plan, with a different sponsor than that of an MA-PD plan available in the PDP region. Section 1860D–11 provides that if feasible, PDP regions will be the same as MA regions, but different regions may be established to improve access to drug benefits. The service area for a plan must include an entire PDP region, but a plan can be offered in more than one PDP region, including all PDP regions.
If plan sponsors are unwilling to assume full risk in a given PDP region, the Secretary must enter into limited risk contracts, and, if these alternatives prove inadequate, the Secretary may approve offering of a fallback plan that assumes no risk of insurance loss.
Approval Process for PDP Plans
Bids. The “bid” submission process for PDP sponsors will be conducted at the same time and in a similar manner as is now done for MA organizations. In addition to any other information required by the Secretary, the PDP plan must designate the service area and the level of risk assumed including whether the sponsor is seeking a modified risk level (i.e., less than full assumption of insurance risk). Modification of risk levels must apply to all PDP plans offered by a PDP sponsor in a region. The PDP plan sponsor may also include in its bid an increase in the federal percentage assumed in the risk corridor or decrease in the size of risk corridors.
Plan Approval. The Secretary has the authority to negotiate the contract terms with each approved plan (which is stated in the Conference Report to be similar to the authority the Director of the Office of Personnel Management with respect to Federal Employee Health Benefits plans). The Secretary has the authority to approve any number of full-risk plans, but may approve only the minimum number of limited risk plans necessary for a region to meet access requirements. Moreover, the Secretary must give priority to bidders willing to assume the highest level of risk, which may never be de minimus.
Fallback Plans. If there are no acceptable submissions for full-risk of limited risk PDP plans, the Secretary must establish a separate process for the solicitation of bids from eligible fallback entities to offer coverage in fallback service areas. The Secretary may not enter into a single contract to offer a national fallback plan. Instead, the Secretary must choose a single fallback plan for each fallback service area, pursuant to a competitive bidding process with a contract period of three years.
The fallback entity may not submit a bid for a PDP plan for any region for the first year of a contract period. Fallback prescription drug plans are permitted to offer only standard prescription drug coverage, must pass on negotiated discounts and need to meet any other requirements specified by the Secretary. The fallback plan is not permitted to engage in any marketing or branding of the contract.
Under a fallback contract, the Secretary pays actual costs of Part D covered drugs net of negotiated price concessions, plus prescription management fees tied to performance management requirements. Beneficiary premiums under fallback plans would be uniform and equal to 26 percent of the Secretary’s estimate of the average monthly per capita actuarial cost to the entity offering the fallback plan.
Beneficiary Protections
Section 1860D-4 provides for a variety of beneficiary protections for enrollees in PDP plans. For the most part, these protections are modeled on those that exist for MA plans, such as the disclosure of information related to the plan’s benefit structure, a drug utilization management program, quality assurance measures, a medication therapy management program; and a program to control fraud, waste, and abuse. and grievance and appeals procedures.
The PDP plan sponsor must provide an exceptions process so that beneficiaries are not penalized if their physician determines that the beneficiary requires a non-preferred drug for valid clinical reasons. In addition, each PDP sponsor must require plan pharmacies to inform enrolled beneficiaries at the time of purchase or delivery of any price differential between the price to the enrollee and the price of the lowest cost generic drug covered under the plan that is therapeutically equivalent and bioequivalent and available at the pharmacy. The Secretary may waive this requirement.
Any Willing Provider; Conflict of Interest Study of PBM-owned Mail Service Pharmacies