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CY2023 Medication Advantage and Part D Proposed Rule (CMS-4192-P) Proposed provisions in this rule

Co-Authored by Debra Devereaux and Roxanne Newland


Proposed provisions in this rule will reduce out-of-pocket prescription drug costs, improve price transparency market competition under Medicare Part D programs. The proposed rule also strengthens consumer protections regarding accurate and accessible information on health plan choices and benefits, CMS oversight of Medicare MA and Part D plans, and improved integration for members in dual eligible special needs plans (D-SNPs). Additional actions are needed to maximize the potential of D-SNPs to deliver person-centered integrated care, and ultimately better health outcomes and independence in the community.

One of the major provisions in the proposed rule is reducing out-of-pocket prescription drug costs and improving price transparency. The negotiated price for a drug is the price reported to CMS and the price used to adjudicate the Part D benefit. A Part D sponsor or its pharmacy benefit management (PBM) may receive additional compensation after point-of-sale compensation for a medication that changes the final costs of the medication to the payer, or the price paid to the pharmacy for the medication. In Medicare Part D, this is referred to as Direct and Indirect Remuneration (DIR).


The DIR rule (§ 423.308) includes discounts, charge backs or rebates, cash discounts, free goods contingent on a purchase agreement, up-front payments, coupons, etc. from any source (manufacturers, pharmacies, enrollees, etc.) that would serve to decrease the costs incurred by the Part D plan. Examples of this include rebates provided by manufacturers and concessions paid by pharmacies. DIR fees were used to reconcile between a pharmacy claim and the negotiated price or when a pharmacy may “pay to play” to participate in a plan’s preferred network even though pharmacies may lose money when processing a claim through Medicare Part D.


Some Part D plans have been entering into payment arrangements with dispensing pharmacies where the negotiated price may be higher than the final payment to the pharmacy. Sometimes the fee is based on pharmacy performance, but those PBM performance standards can be arbitrary. Clawbacks are when a PBM charges a DIR fee after the point-of-sale transaction has occurred and often creates a negative reimbursement for the drug dispensed. Both retail and specialty pharmacies are affected by DIR fees. Now DIR is seen as going well beyond CMS’ original intended use.


CMS data shows that “pharmacy price concessions, net of all pharmacy incentive payments, grew more than 107,400 percent between 2010 and 2020. The data also show that much of this growth occurred after 2012, when the use by Part D sponsors of performance-based payment arrangements with pharmacies became increasingly prevalent. Part D sponsors and their contracted PBMs have been increasingly successful in recent years in negotiating price concessions from network pharmacies.”


CMS states that “Sponsors and PBMs have been recouping increasing sums from network pharmacies after the point-of-sale (pharmacy price concessions) for ‘‘poor performance,’’ sums that are far greater than those paid to network pharmacies after the point-of-sale (pharmacy incentive payments) for ‘‘high performance.’’ When pharmacy price concessions received by Part D sponsors are not reflected in lower drug prices at the point-of-sale and are instead used to reduce plan liability, beneficiaries generally see lower premiums, but they do not benefit through a reduction in the amount they must pay in cost sharing. Thus, beneficiaries who utilize drugs end up paying a larger share of the actual cost of a drug. Moreover, when the point-of-sale price of a drug that a Part D sponsor reports on a prescription drug event (PDE) record as the negotiated price does not include such discounts, the negotiated price of each individual prescription is rendered less transparent and less representative of the actual cost of the drug for the sponsor.”


This proposed change to policy requires Part D plans to apply all price concessions from network pharmacies at the point-of-sale, so that beneficiaries can share in the savings. The proposed rule also redefines ‘negotiated price’ as the lowest possible payment to a pharmacy, effective January 1, 2023.

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