Tuesday, April 16, 2019

The Road to 2020: Understanding the Regulatory Timeline for Part D Rebate Reform

The Department of Health & Human Services (HHS) keeps signaling that it wants to move us toward a world without rebates. Right now, it is evaluating comments on its proposal to remove rebates from federal programs. HHS wants to implement this rule in time for the January 1 start of the 2020 Medicare Part D plan year.

I would like, if I may, to take you on a journey through the 2019 regulatory timeline for both Part D and the proposed rule. As you will see, there is still a viable—but narrow—window for regulatory reform of rebates.

Despite our assessment, you should know that in the Medicare program, there are many implementation and logistical challenges in shifting rapidly toward a world without rebates. I outlined some of these issues in last Friday’s webinar: Preparing for a World Without Rebates. Don’t worry if you missed the live event. You can watch a replay and download the complete slide deck. CLICK HERE TO WATCH THE REPLAY.

In the meantime, read on for our look at the rest of 2019. I can see you shiver with antici...pation.


The Office of the Inspector General (OIG) of the Department of Health & Human Services (HHS) has proposed a rule that would dramatically alter the rebate system in federal programs. If the rule is finalized, rebates on prescription drugs paid by manufacturers to PBMs, Part D plans, and Medicaid managed care organizations will no longer receive safe harbor protection under the Anti-Kickback Statute (AKS).

The chart below summarizes the regulatory timeline leading up to the 2020 plan year for the Medicare Part D program. I presented this slide during our webinar.

[Click to Enlarge]


The items above the timeline highlight selected dates from the official annual calendar for the Medicare Part D 2020 plan year. Many of these dates are established in statute and can’t be modified.
  • Late July 2019: CMS will release the 2020 Part D national average monthly bid amount, the Medicare Part D base beneficiary premium, the Part D regional low-income premium subsidy amounts, and other information. In recent years, this information was released on July 31.
  • Late July to early August 2019: During a “Formulary Update Window,” CMS will permit plans to modify the formularies that were submitted on June 3. Note that the call letter includes incorrect dates for this window. CMS confirmed the late July-to-early August timing in response to my question during an April 8 conference call. CMS also stated that it did not intend to alter the timing.
  • Mid-September to early October 2019: in September, CMS will publicly release two files: Drug and Health Plan Data and Landscape Source Files. These data files include detailed information about all Part D plans for the following year.

    The specific release dates for these files are not fixed. For the 2019 plan year, for example, the initial landscape file was released on September 16, 2018, and the final landscape files were released on October 12, 2018. We used these files for our analysis of preferred cost sharing pharmacy networks.
  • October 7 to December 15 2019: During this nearly 10 week period, seniors will be able to review and select a plan for 2020. These dates are established in statute.

The items below the chart’s timeline show selected dates that relate to the prospects for reform of rebates in the Medicare Part D program.
  • April 5, 2019: Seema Verma, the current CMS administrator, issued crucial Guidance Regarding Part D Bids.

    In this letter, CMS instructed plans to submit their 2020 Part D bids consistent with current law. In other words, plans should not modify their bids in anticipation of changes to the safe harbor treatment of rebates. This clarification ensures that all plans submit in a standardized fashion. It also discourages plans from submitting two bids: one under current law and one that contemplates changes included in the proposed rule.

    CMS also announced a demonstration project for 2020 and 2021 under which it will narrow the Part D risk corridors. (Plans face symmetric risk corridors that limit a plan’s overall profits and losses from offering a Medicare Part D plan.) This demonstration will occur only if the proposed rule is finalized.

    As I see it, this demonstration will encourage plans to continue participating in the Part D program—by protecting them from excessive financial variability. It will also encourage plans to keep their bids relatively stable if the rebate rule is finalized. For instance, a plan that is protected on the downside could submit a low bid as a strategy to gain market share. If the rule is not finalized, then the plan would face the prospect of larger-than-expected losses. Conversely, a plan that submits an excessively high bid may find that its plans would not meet certain tests for actuarial equivalence if the rule is not finalized.
  • April 8, 2019: The 60-day comment period for the proposed rule ended on April 8. (It was actually 61 days, because the 60th day fell on a weekend.) You can brush up on your knowledge with this useful overview from the Office of the Federal Register. Alas, there’s no Schoolhouse Rock video called “I’m Just a Proposed Rule”.

    For this proposed rule, the OIG received an astounding 25,905 comments. (Click here to start reading.) The majority of these comments are form letters organized by various groups that support or oppose the rule. I have highlighted some noteworthy comment letters in this post-webinar tweet
  • May to August, 2019: A federal agency can finalize a proposed rule at any point after a comment period ends. In practice, an agency must consider and respond to public comments. Any significant rule is required to have a 60-day delayed effective date.

    Given this timeline, it is therefore likely that the rule could be finalized but not effective prior to the June 3 deadline for bid submissions.

We don’t know when the rule will be finalized. Even so, the timeline above shows little room for delay or error. The calendar will also dictate how the rule gets implemented—especially which organizations plays the crucial role of administering chargeback discounts to pharmacies.

However, HHS agency officials continue to indicate a strong intent to proceed. Consider these unambiguous statements from HHS Secretary Alex Azar in a speech last week:
“For too long, our prescription drug pricing system has operated in the shadows, serving entrenched interests: drug companies who set these prices so high, and the pharmacy benefit managers who receive tens of billions of dollars in rebates without patients, or the employers who pay a big chunk of the bill, ever knowing where the money goes…So anyone who stands for rebates stands for ever-higher list prices, and stands against transparency and lower patient out-of-pocket costs at the pharmacy. It’s that simple.”
I encourage you to read the entire text of Secretary Azar’s speech.

The next few months will determine the future the U.S. drug channel. With just a jump to the left, and then a step to the right, we’ll be entering a world without rebates.

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