The Centers for Medicare & Medicaid Services (CMS) recently released three items relating to the Medicare Advantage and Part D programs: a proposed rule, Part II of the Advance Notice and Rate Announcement for Calendar Year (CY) 2021, and the CY 2021 Part C Benefits Review and Evaluation Memorandum (Bid Memorandum). This article discusses a few of the key proposed changes in the proposed rule and summarizes other substantive proposals. Upcoming deadlines for these items are:

• March 6, 2020: Comments on the Advance Notice due

• March 9, 2020: Comments on the Bid Memorandum due

• April 6, 2020: Comments on the proposed rule due

IN-DEPTH

The Centers for Medicare & Medicaid Services (CMS) released three items relating to the Medicare Advantage and Part D programs on February 5, 2020: a proposed rule, Part II of the Advance Notice and Rate Announcement for Calendar Year (CY) 2021, and the CY 2021 Part C Benefits Review and Evaluation Memorandum (Bid Memorandum). The proposed rule sets out new provisions and revisions on key Medicare Advantage (MA) and Part D topics, including end-stage renal disease (ESRD) coverage, reinsurance, pharmacy specialty tiers, and pharmacy quality metrics. The proposed rule would also continue CMS’s recent trend of codifying standards previously specified only in subregulatory guidance.

Part II of the Advance Notice defines changes in MA and Part D payment methodology and benefit parameters, and the Bid Memorandum provides guidance on the criteria CMS will use to review CY 2021 Part C bids. Unlike previous years, CMS will not publish a call letter for CY 2021, and intends to cover much of the guidance historically contained in call letters through the proposed rule and separately issued notices.

The bulk of the new and substantive provisions are in the proposed rule. If finalized, its provisions would impact a broad range of MA and Part D regulatory requirements and would affect not only MA Organizations (MAOs) and Part D sponsors, but also healthcare providers, pharmacies and others. Comments on the proposed rule are due April 6, 2020. Comments on the Advance Notice are due March 6, 2020. Bid Memorandum comments are due March 9, 2020. This article discusses a few of the key proposed changes in the proposed rule and summarizes other substantive proposals.

Impact of Codifying Existing Policies

In the proposed rule, CMS proposes to codify its existing policy in regulation on several topics, including cross walking guidelines, marketing and communication requirements, and certain network adequacy standards. CMS did something similar last year, codifying its Star Ratings guidelines.

In reviewing these codifications, interested parties should be aware that the process presents an opportunity to seek changes to current policies, and codification further embeds policies, requiring another notice-and-comment rulemaking to change them in the future. As such, interested parties should review the proposed codifications and consider providing appropriate comments.

Some of the proposed codifications may also reflect the Supreme Court’s 2019 ruling, which held that any policies that establish a “substantive legal standard” that governs the scope of benefits, payment for services, or eligibility to provide or receive benefits under Medicare must be issued through notice-and-comment rulemaking and may not be merely set forth in subregulatory guidance.

ESRD Coverage

The proposed rule includes provisions to implement the 21st Century Cures Act, which allows individuals with ESRD to enroll in an MA plan beginning in 2021. Currently, although individuals with ESRD can remain in an MA plan through the end of the year if diagnosed while enrolled in the plan, they could not newly enroll in an MA plan.

In light of the Cures Act’s expansion of MA eligibility to individuals with ESRD, CMS has proposed several payment and benefit-related changes to coverage. First, it provides that the costs of organ acquisitions for kidney transplants must be excluded from MA coverage, benchmarks, and capitation rates, and proposes regulatory text to codify these requirements.

CMS also proposes a methodology for setting the maximum out-of-pocket (MOOP) limits, now that individuals with ESRD will be able to enroll in MA plans. Currently, CMS sets two annual MOOP limits based on cost-sharing data for beneficiaries in traditional Medicare, and MA plans have the flexibility to set lower limits. CMS proposes to establish three MOOP limits beginning in CY 2022.

CMS also proposes to include expenditures for individuals with ESRD in its calculation of the MOOP limits beginning in CY 2021. CMS would calculate the difference between non-ESRD individuals’ costs in CY 2021 and all Medicare FFS beneficiaries’ costs (including both ESRD and non-ESRD), and incorporate that difference in its calculations of the annual MOOPs by including an increasing percentage of the difference each year. For example, if the difference in expected annual costs of non-ESRD individuals in CY 2021 versus all individuals (including ESRD) for CY 2022 was $1,000, CMS would add 60% of $1,000 to the MOOP limits for 2022. While the proposed rule does not directly address the MOOP limit for 2021, the Bid Memorandum proposes applying this methodology in 2021 using 40% of such difference. In later years, CMS would add increasing percentages and eventually 100% of the difference to the MOOP limits. CMS would adjust the pace at which the percentages increase depending on the degree to which costs increase. CMS proposes this phased approach to address the fact that not all ESRD individuals will enroll in the MA program immediately. CMS aims to “strike a balance between potential increases in plan costs and enrollee cost-sharing or premiums,” which it hopes will mitigate sudden increases in costs.

MA plans have expressed concerns that the current mechanism for setting ESRD rates does not adequately cover costs for ESRD beneficiaries, an issue that takes on greater significance as ESRD enrollment increases.

Network Adequacy and Telehealth

CMS has traditionally set forth its network adequacy standards in subregulatory guidance. Here, CMS proposes to codify these standards, including time/distance standards, into regulation.

It also proposes to grant a 10% credit towards those time/distance standards for MA plans that contract with telehealth providers in the areas of dermatology, psychiatry, neurology, otolaryngology and cardiology. MA plans also would be permitted to cover telehealth services through a non-contracted provider as a basic benefit.

Star Ratings

Since CMS codified the Star Ratings and Quality Bonus Payment (QBP) processes in 2018, CMS can only propose, modify and remove measures through rulemaking. In addition to proposing such measure changes in this proposed rule, CMS outlines several changes to how it would assign ratings in certain exceptional circumstances, and proposes to codify certain existing subregulatory policies.

CMS proposes to codify its current policy for how it assigns QBP ratings to contracts. Since the establishment of the QBP program, QBP ratings policy has been announced outside of rulemaking, through the Advance Notice. Portions of the relevant standards were previously codified in 2018, with the codification of the Star Rating calculation process. For example, CMS previously codified how it makes QBP determinations where a contract lacks sufficient data to calculate and assign Star Ratings because the contract is for a new MA plan or has low-enrollment.

CMS now proposes to codify standards for a contract that lacks sufficient data to calculate and assign Star Ratings but does not meet the definition of a low-enrollment contract or a new MA plan. A new contract under a parent organization that has an existing MA contract with CMS would receive an enrollment-weighted average of the Star Ratings earned by the parent’s existing MA contract. If the parent organization does not have another MA contract with Star Ratings, CMS would look to see if the parent organization held another contract in the previous three years, and, if it did hold such a contract, CMS would use the enrollment-weighted average of such contracts’ highest Star Rating from the most recent year that had been rated.

CMS has previously addressed how it would assign Star Ratings in the context of a contract consolidation. In the proposed rule, CMS proposes that if either the consumed or the surviving contract is missing a measure score due to certain specified data integrity issues, CMS would assign a score of zero for the missing measure score in the calculation of the enrollment-weighted calculation.

Withdrawal and Dismissal of Coverage Requests and Appeals

CMS proposes rules to govern procedures for withdrawals or dismissals of beneficiary coverage requests and appeals. MAOs and Part D sponsors encounter situations where enrollees want to voluntarily withdraw a request for coverage, or where an improper appeal at the MAO, Part D sponsor or Independent Review Entity (IRE) level warrants dismissal on procedural grounds. Current CMS regulations do not set forth specific rights or processes for such withdrawals and dismissals.

CMS proposes to codify existing practices involving withdrawals and dismissals that are currently guided by related Medicare fee-for-service regulations into parallel regulations specific to Part C, Part D, and integrated plans. Enrollees or other proper parties would have the right to voluntarily withdraw coverage requests and appeals, including expedited requests and IRE reconsiderations, and the proposed regulations detail the relevant processes. The new rules would also provide for circumstances where an MAO, Part D sponsor or IRE could dismiss a coverage request or appeal and would provide notice and process requirements. Enrollees would be given a new right to appeal to the IRE an MAO or Part D sponsor’s dismissal of a request for reconsideration or redetermination, as current CMS regulations do not cover such a right or related processes.

While the new regulations would extend to certain integrated plans, CMS requests comment on whether the rules could create inconsistencies with any state-specific Medicaid procedures pertaining to dismissals and withdrawals. MAOs and Part D sponsors with integrated products may wish to evaluate and comment.

If these rules are finalized, MAOs and Part D sponsors should undertake an evaluation of their current processes relating to enrollee withdrawals and plan dismissals and should update policies, procedures, and processes to ensure compliance, as CMS likely would include these requirements in future CMS Program Audit protocols and coverage evaluations. MAOs and Part D sponsors should also assess their systems and software to determine capabilities for implementing new processes relating to the new requirements.

Past Performance

CMS proposes to both codify and modify its past performance methodology, which it uses when evaluating applications for new or expanded MAO or Part D sponsor contracts based on a prior failure to comply with relevant Medicare contract standards. CMS proposes to adopt three factors as a basis for denying an MA or Part D application:

• Imposition of civil money penalties or intermediate sanctions

• Low Star Ratings

• Failure to maintain a fiscally sound operation.

CMS notes that each factor on its own may be a sufficient basis for CMS to deny an application.

This proposal replaces the annually released past performance methodology through which CMS has historically defined its past performance contract review criteria. The three factors proposed represent a significant reduction in the complexity of CMS’s review compared to the past methodology, which relied on 11 categories and a complex points system to determine whether an applicant’s poor performance under a past contract met the threshold for denial.
CMS proposes to continue to make its past performance determinations at the parent organization level so that CMS’s evaluation of applications is influenced by the performance of affiliates.

Reinsurance

CMS proposes to define the level of per-member reinsurance that an MAO may obtain. The Medicare statute permits MAOs to obtain insurance or make other arrangements for the cost of providing to a member “such services the aggregate value of which exceeds such aggregate level as the Secretary specifies.” Historically, CMS has not specified a minimum attachment point for such reinsurance. Now, however, CMS proposes that such per-member reinsurance may be purchased when an individual enrollee’s covered costs for basic benefits exceed $10,000 during a contract year. The rule would also permit the reinsurance to be structured as first-dollar coverage as long as it is actuarially equivalent to a $10,000 attachment point and the cost of such reinsurance is priced at an actuarial value not to exceed the cost of purchasing reinsurance with a $10,000 attachment point.

CMS notes that compliance with the reinsurance standard would be evaluated at the parent organization level, such that risk-sharing among wholly-owned subsidiaries would not be evaluated under this rule. CMS states that the use of any such reinsurance would be regulated by state insurance departments, and would not be subject to preemption under the Medicare statute.

Reporting of Pharmacy Performance Measures

CMS proposes to require that Part D sponsors disclose the performance measures they use to evaluate pharmacy performance. CMS does not propose the specific data elements that could be collected but instead suggests six data elements that it is considering collecting. If the rule is finalized, CMS will separately undergo the 60-day and 30-day Paperwork Reduction Act notice and comment processes with respect to the actual data elements settled upon. CMS has taken this approach in part to encourage industry to develop consensus measures for evaluating pharmacy performance.

Second “Preferred” Specialty Drug Tier

CMS proposes rules to give Part D sponsors greater flexibility in managing high-cost drugs by allowing the establishment of a second “preferred” specialty drug tier, and proposes to codify maximum cost-sharing applicable to the specialty tier as well as the methodology for determining the specialty tier cost threshold annually.

The Part D program’s defined standard benefit allows for alternative benefit designs and the use of tiered formularies, which currently may include a single-specialty tier for the management of very high-cost Part D drugs and biological products. CMS proposes to allow Part D sponsors to establish up to two specialty tiers in their Part D formularies, subject to certain parameters and restrictions, consistent with a 2016 Medicare Payment Advisory Commission recommendation.

Part D sponsors that choose to establish two specialty tiers would be required to offer lower cost-sharing in a “preferred” specialty tier than in the higher cost-sharing specialty tier. The Part D sponsor would be permitted to design a tiering exception process that permits exempting drugs on the specialty tiers from tiering exception requests to non-specialty tiers. However, current CMS policy would continue to require tiering exceptions to be permitted for drugs on the higher cost-sharing specialty tier to the “preferred” specialty tier. CMS is considering allowing sponsors to exempt tiering exceptions between the specialty tiers, although it has reservations regarding that approach, and Part D sponsors may wish to comment on this alternative.

Part D sponsors’ placement of drugs on each specialty tier will be subject to CMS’s ingredient cost threshold methodology. CMS proposes to codify the methodology for determining annually the specialty cost threshold using ingredient cost reported on the prescription drug event and adjusting the threshold when certain conditions are met.

CMS also proposes to codify, with some modifications, current methodologies for cost-sharing and calculations relative to the specialty tier that would apply to a single specialty tier or, if the plan has two specialty tiers, to the higher cost-sharing specialty tier. CMS proposes to set the maximum allowable cost-sharing for the highest specialty tier between 25% and 33% depending on whether the plan includes a deductible, and the maximum allowable cost sharing the “preferred” tier could be set at any amount lower than that of the higher cost specialty tier.

CMS believes these proposals have the potential to improve enrollee access to necessary drugs, empower Part D sponsors and pharmacy benefit managers to negotiate better rebates with drug manufacturers, and lower overall drug costs for the Part D program and for beneficiaries while maintaining protections from discriminatory formulary structure.

Other Proposals

CMS requests input on a variety of issues not discussed above that MAOs and Part D sponsors may wish to respond to through written comments. These include several provisions aimed at helping victims of the opioid epidemic, such as mandatory drug management programs; provisions regarding the medical loss ratio calculation methodology; standards for the real-time benefit tool; various Special Needs Plan Model of Care standards; supplemental benefit standards; agent and broker referral fee standards; the methodology for increasing civil money penalties; and certain cost-sharing limits.