Ref #2011-44
Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: Pharmacy Rebates under Medicare Part D Gap Discount
Check (applicable entity):
P/C Life Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue:
Staff has received inquiries regarding the Medicare Part D Gap discount program and whether additional statutory accounting guidance is needed. Specific questions have revolved around the pharmacy rebates under the program and if these are to be accounted for consistent with pharmacy rebates under SSAP 84—Certain Health Care Receivables and Receivables Under Government Insured Plans (SSAP No. 84). The rebates consist of:
1. An advance from the federal government which has to be repaid by the insurer
2. A payment from the drug manufacturer for a rebate amount to the insurer
3. The insurer receives notice of the pending rebates then subsequently receives payment.
Existing Authoritative Literature:
INT 05-05: Accounting for Revenues Under Medicare Part D Coverage provides the following:
INT 05-05 Issue
1. The Medicare Modernization Act of 2003 (MMA) created a new program, commonly known as Medicare Part D, whereby Medicare recipients may obtain prescription coverage offered by insurers who have been approved by the Centers for Medicare and Medicaid Services (CMS). Insurers who offer Medicare Part D coverage will, starting in January 2006, receive several different types of funds relating to the program. Some of these funds relate to portions of the coverage that require an annual reconciliation, resulting in the return of any excess funds received. Other funds may be received (or may be required to be returned) to offset experience that is especially unfavorable (or, respectively, favorable).
2. How should the various components of the funds received or receivable by an insurer from Medicare Part D coverage be accounted for?
INT 05-05 Discussion
3. The attached appendix provides a listing of terms to which CMS ascribes a specific meaning. This list has been enhanced to include other terms in order to facilitate consistent application for accounting and the NAIC’s Risk Based Capital formula. It should be noted that the terms included in the attached appendix are for the most part defined by CMS. Consequently, the term ‘reinsurance payment’ does not represent actual reinsurance as defined by SSAP No. 61—Life, Deposit-Type and Accident and Health Reinsurance (SSAP No. 61).
4. The working group reached a consensus to adopt the following guidance as it applies to the various funds to be received under the Medicare Part D program. The funds should be accounted for in accordance with one of the three SSAP’s outlined below:
a. Specific funds received as reimbursements (or advance payments) for uninsured claims under a partially uninsured plan should be accounted for under SSAP No. 47. These funds include ‘Reinsurance Payments’ and ‘Low Income Subsidy (cost-sharing portion)’. These funds are paid by the Government for a portion of claims above the out-of-pocket threshold or relate to PDP payments for all or a portion of the deductible, the coinsurance and the co-payment amounts for low-income beneficiaries.
b. Specific funds received by the PDP Sponsor from either the Medicare Part D enrollee or the government as payment for Standard Coverage that will be subject to retrospective premium adjustments should be accounted for under SSAP No. 66. These funds include ‘Direct Subsidy’, ‘Low Income Subsidy (premium portion)’, ‘Beneficiary Premium (standard coverage portion)’, ‘Part D Payment Demonstration’ and ‘Risk Corridor Payment Adjustment’. The funds noted above have a final policy amount that is calculated based on the loss experience of the insured during the term of the policy, therefore should be treated as such.
c. Specific funds received as premiums for coverage that is not retrospectively rated should be accounted for under SSAP No. 54. These funds include ‘Beneficiary Premium (supplemental benefit portion)’, as these payments are considered to be standard premium payments that do not meet the definitions under SSAP No. 47 or SSAP No. 66 as defined in 4.a. and 4.b.
5. The collectibility and any nonadmission of amounts receivable from the government insured or uninsured plans are addressed in SSAP No. 84, paragraph 23 and SSAP No. 47, paragraph 10c, respectively.
INT 05-05 Status
6. No further discussion is planned.
In addition, the INT 05-05 provides an Appendix – Commonly Used Terms for Medicare Part D Coverage
SSAP 84—Certain Health Care Receivables and Receivables Under Government Insured Plans (SSAP No. 84) provides the following:
Pharmaceutical Rebate Receivables
10. Pharmaceutical rebates receivables consist of reasonably estimated amounts and billed amounts. Both the billed amount and the estimated amount shall be admitted assets subject to the conditions specified below:
a. Estimated amounts shall be related solely to actual prescriptions filled during the 3 months immediately preceding the reporting date;
b. Billed amounts represent pharmaceutical rebate receivables that have been invoiced or confirmed in writing but not collected as of the reporting date. Billed amounts for an estimated amount under paragraph 10 a. above shall be admitted only if the determination of the rebate, based on actual prescriptions filled, occurs and is invoiced or confirmed in writing within the 2 months following the reporting date of the estimated amount. Adjustments to previously billed amounts related to prior periods shall be nonadmitted until invoiced or confirmed in writing. Pharmaceutical rebates that have not been collected within 90 days of the invoice date or confirmation date shall be nonadmitted. Furthermore, if accrued pharmaceutical rebate receivables are not invoiced or confirmed in writing in accordance with the contract provisions, the accrual shall be nonadmitted; and
c. Evaluation of the collectibility of pharmaceutical rebate receivables shall be made periodically. If in accordance with SSAP No. 5R—Liabilities, Contingencies and Impairments of Assets (SSAP No. 5R), it is probable the balance is uncollectible, any uncollectible receivable shall be written off and charged to income in the period the determination is made.
11. The method used to reasonably estimate the receivable shall be consistent from period to period and shall be adjusted periodically for any changes in the underlying pharmaceutical rebate contract provisions. The financial statements shall disclose information regarding the reporting entity’s pharmaceutical rebates in accordance with paragraph 24 of this statement.
12. Income from pharmaceutical rebates of insured plans shall be reported as a reduction to claims expense on the summary of operations.
13. Receivable and payable balances related to uncollected pharmaceutical rebates of uninsured plans shall be recorded on the financial statements of the reporting entity. Any pharmaceutical rebates earned by the reporting entity that are in excess of the amounts to be remitted to the uninsured plan pursuant to an administrative services agreement shall be determined consistent with the requirements of paragraphs 10 and 11 and shall be reported on the balance sheet as an amount receivable relating to uninsured accident and health plans, and as a reduction to general expenses on the statement of operations.
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC, FASB, other State Departments of Insurance or other NAIC groups):
Information or issues (included in Description of Issue) not previously contemplated by the SAPWG:
Attachment A contains excerpts of a CMS memo on the pharmacy rebates cash flow.
Recommending Party:
Robin Marcotte
NAIC Staff
Staff Recommendation:
The new program has some additional features, which may warrant additional statutory accounting to ensure consistent reporting of items such as the liability to the federal government etc. Staff recommends that this item be moved to the nonsubstantive active listing and staff be directed to work with regulators and industry to develop a recommendation for March 2012 discussion.
Staff Review Completed by:
Robin Marcotte
NAIC Staff
© 2016 National Association of Insurance Commissioners 1
Ref #2011-44
Attachment A
Status:
On November 3, 2011, the Statutory Accounting Principles (E) Working Group moved this item to the nonsubstantive active listing and directed staff to work with regulators and industry for future discussion.
On August 26, 2016, the Statutory Accounting Principles (E) Working Group re-exposed this agenda item with a request for information on whether the issues originally documented still need to be addressed for statutory accounting, and/or if there are other issues involving Medicare pharmacy rebates that require consideration. This agenda item was exposed as part of the discussion on agenda item 2016-23: Receivables of Government Plans, but the two agenda items are anticipated to be considered separately.
G:\DATA\Stat Acctg\3. National Meetings\A. National Meeting Materials\2016\Summer\NM Exposures\11-44 Medicare part D rebates .doc
DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
7500 Security Boulevard
Baltimore, Maryland 21244-1850
Center for Medicare
Medicare Plan Payment Group
Date: December 22, 2010
To: All Part D Plan Sponsors (Excluding PACE Organizations)
From: Cheri Rice, Acting Director, Medicare Plan Payment Group
Subject: Coverage Gap Discount Program Payment Process
On April 30, 2010, CMS issued guidance on the Coverage Gap Discount Program (CGDP), which included a high-level description of the payment process for Part D sponsors. The purpose of this memorandum is to provide detailed information on that payment process.
Under the CGDP, Part D sponsors will receive monthly prospective payments from CMS. These prospective payments provide cash flow to Part D sponsors for advancing the gap discounts at the point of sale. On a quarterly basis, CMS will invoice manufacturers for discounts provided by Part D sponsors. Manufacturers will remit payments for invoiced amounts directly to Part D sponsors. The prospective payments made to Part D sponsors will be reduced by the discount amounts invoiced to manufacturers. These offsets will ensure that Part D sponsors do not receive duplicate payments for discounts made available to their enrollees.
After the end of the contract year, during Part D Payment reconciliation for the CGDP, CMS will perform a cost-based reconciliation to ensure the Part D sponsor is paid dollar for dollar for gap discounts advanced at the point of sale, based on accepted Prescription Drug Event (PDE) data. After Part D payment reconciliation for CGDP, Part D sponsors may continue to report discounts to CMS for thirty-seven (37) months following the end of the benefit year. (Please see the December 17, 2010 HPMS memorandum entitled, “Part D Payment Reconciliation Reopening for 2006 and 2007 and Closing the Drug Data Processing System (DDPS) Database Three Years following the end of Each Contract Year.”) CMS will invoice manufacturers for these discounts and Part D sponsors will be paid through the quarterly manufacturer payments.
In each of the sections below, we provide detail on these payment activities as they occur chronologically.
Prospective Payments
CMS provides a monthly prospective Coverage Gap Discount payment based on the Contract of Record to Part D sponsors for non-low income subsidy eligible (non-LIS) beneficiaries who are not enrolled in an Employer Group Waiver Plan (EGWP) or a Program of the All Inclusive Care for the Elderly (PACE) organization. Please refer to the August 18, 2010 HPMS memorandum entitled, “Annual Release of the Part D National Average Bid Amount and other Part C & D Bid Related Information” for the calculation methodology of the 2011 prospective CGDP payments. For any benefit year, the prospective payments begin with the January monthly payment for the benefit year and end with the December monthly payment. Adjustments to a benefit year’s prospective payments continue to January of the following year. For benefit year 2011, the first prospective payment will be in the January 2011 monthly payment and the last payment containing adjustments to previously paid 2011 prospective payments will be in the January 2012 monthly payment. The prospective CGDP payment amounts will be found on the Monthly Membership Report (MMR). The August 30, 2010 HPMS memorandum entitled, “Announcement of November 2010 Software Release”, explains the changes to the MMR and other affected reports.
Point of Sale Processing and PDE Submission
Part D sponsors pay the Gap Discount at point-of-sale on behalf of the manufacturers so the beneficiary can immediately receive the out-of-pocket cost reduction. Part D sponsors receive electronic billing transactions from pharmacies when a beneficiary presents a prescription at the point of sale. When a non-LIS beneficiary is in the Coverage Gap and the prescription is for an applicable drug, Part D sponsors calculate the Gap Discount amounts as well as patient and plan cost-sharing amounts. The Part D sponsor returns the patient and plan cost-sharing amounts to the pharmacy. The plan cost-sharing amount paid to the pharmacy includes gap discount amounts and amounts for supplemental benefits in Enhanced Alternative plans. If the claim straddles benefit phases, plan cost sharing may include plan payments from adjoining benefit phases as well. Beginning in 2013, all Part D sponsors will begin to pay an increasing part of the drug cost for a CGDP claim consistent with Section 1860D-2(b)(2)(D) of the Social Security Act. As a result of this change, plan cost sharing returned to the pharmacy for a CGDP claim will also contain covered plan paid amounts that gradually reduce beneficiary cost sharing to approximately 25% by 2020. Following the final adjudication of the CGDP claim, Part D sponsors submit the Reported Gap Discount amount to CMS on the PDE record.
Manufacturer / Part D Sponsor Quarterly Invoice Process
CMS aggregates Gap Discount amounts reported on PDE data submitted during the quarter and validated by CMS and sends this information to Palmetto GBA, the Third Party Administrator (TPA) for the CGDP. (Additional information about CMS’ validation process is forthcoming.) The TPA is responsible for sending quarterly invoice reports to manufacturers and Part D sponsors simultaneously. Each benefit year will have six quarterly invoices that will be included in the annual CGDP reconciliation. The first quarterly invoice will include PDEs submitted and validated through March 31, 2011 and the last quarterly invoice included in the 2011 benefit year CGDP reconciliation will include PDEs submitted through the reconciliation cutoff date. CMS will continue to accept PDEs with gap discount amounts for 37 months following the end of the benefit year. After reconciliation Part D sponsors will receive invoiced amounts directly from manufacturers during quarterly invoice processing. The schedule of quarterly invoices and reconciliation is included as Attachment A.