New Medicare Part D Model Will Shift More Risk to Plans

Last week, CMS unveiled new, voluntary changes for Medicare Part D. The new 5-year model, which CMS calls Part D Payment Modernization, will test the feasibility of shifting more risk to Medicare Advantage and Part D plans.
Kelly Davio
January 22, 2019
Last week, CMS, via its Center for Medicare and Medicaid Innovation, unveiled new, voluntary changes for Medicare Part D. The new 5-year model, which CMS calls Part D Payment Modernization, will test the feasibility of shifting more risk to Medicare Advantage (MA) and Part D plans.

Currently, when a patient spends enough on their prescription drugs to enter the catastrophic phase of the Part D benefit, which covers self-administered drugs, Medicare must pay 80% of the patients’ drug costs. According to CMS, this structure leaves plans with little incentive to negotiate for lower costs for the highest-spending patients.

In fact, between 2008 and 2017, federal spending on the Part D catastrophic phase nearly quadrupled (from $9.4 billion to $37.4 billion). In 2016, 3.2 million beneficiaries reached the catastrophic phase, and beneficiaries who did not qualify for low-income subsidies reached an average out-of-pocket drug cost of more than $3000.

Under the new model, which is open to eligible standalone prescription drug plans and MA prescription drug plans, and which will take effect in 2020, plans will take on a greater share of risk for spending in the catastrophic phase. CMS believes that this assumption of more risk will serve as an incentive for plans to encourage the use of drugs with lower list prices.

Based on plan year performance, CMS will retrospectively create a spending target for what the government would have spent without the plans assuming added risk, and participating plans will share in the savings generated if they remain below the target. Similarly, they will be accountable for losses if they overspend; participating organizations will have to repay 10% of the difference of any additional spending. The plan also introduces a Part D rewards and incentives program to provide tools by which to help enrollees choose drugs with lower costs.

CMS says that it expects that the model will maintain or improve beneficiaries’ access to affordable, necessary Part D-covered drugs.

Announcement of the Part D Modernization model dovetails with changes to MA plans that will be tested under the Value-Based Insurance Design (VBID) model in 2020. The model is intended to reduce Medicare’s expenditures while enhancing the quality of care for beneficiaries and improving healthcare service delivery.

For the year 2020, all MA plans can apply to test 1 or more of 4 offered interventions: a VBID program that reduces cost-sharing or adds benefits for enrollees based on a beneficiary’s condition or socioeconomic status; an MA and Part D rewards and incentives program; a program that increases access to telehealth services; and a required component that focuses on timely, coordinated approaches to wellness and health planning.

Requests for applications for participating in the Part D model and the VBID model will be made available by CMS this week.


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