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Proposed Rule on MA and Part D Would Reinstate Historical Requirements, Make Changes to Prescription Drug Payment Structure
Tuesday, January 11, 2022

On January 6, 2022, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule regarding Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs, marking the Biden administration’s first proposed rule on these topics. The proposed rule includes proposed changes to the manner in which pharmacy price concessions are accounted for in the Part D benefit, the timing of network adequacy reviews for Medicare Advantage Organization (MAO) applicants, and new rules regarding oversight of third-party marketing organizations. The proposed rule also reverses course on some policy changes that were initiated under the prior administration, including changes related to medical loss ratio (MLR) reporting and past performance evaluations. The proposed rule includes proposed policy updates for Dual Eligible Special Needs Plans (D-SNPs) and a few provisions related to the ongoing COVID-19 public health emergency (PHE).

Comments on the proposed rule are due by March 7, 2022. Stakeholders should expect additional policy and technical changes in the forthcoming advance notice, which should be released in early February.


Changing How Contingent Pharmacy Price Concessions Are Treated for Purposes of the “Negotiated Price”

CMS proposes to change the way that pharmacy price concessions are factored into the Part D negotiated price.

Part D beneficiary cost-sharing is based on the negotiated price that a Part D plan (or its pharmacy benefit manager) has negotiated with a pharmacy for the particular drug being dispensed. The negotiated price is also used to calculate other aspects of the Part D benefit. Currently, the term negotiated price is defined as the total amount a pharmacy and a plan have negotiated as the payment amount for a drug. It excludes dispensing fees as well as contingent amounts that may be later paid by the plan or the pharmacy if those amounts cannot reasonably be determined at the point of sale. These contingent amounts might include, for example, quality incentive payments to a pharmacy based on achievement of certain quality metrics or additional price concessions that the pharmacy may pay to the plan. As with other value-based payment arrangements, many pharmacy payment arrangements now commonly involve retrospective reconciliation after the end of a calendar year or other period. If a part of the plan’s payment to a pharmacy is unknown and cannot reasonably be determined at the point of sale, CMS’s current rules provide that those contingent amounts need not be factored into the negotiated price on which beneficiary cost-sharing is based. Rather, these amounts are later reported to the government through direct and indirect remuneration reporting and taken into account in final reconciliations between the government and Part D plans.

In the proposed rule, CMS suggests a shift in this framework that would redefine the term “negotiated price” to mean the “lowest possible reimbursement” a pharmacy might receive, in total, for a particular drug. Under the proposed definition, the negotiated price would include:

  • All dispensing fees

  • All price concessions that might possibly be paid in the future by a pharmacy to a plan.

Under this definition, the negotiated price would exclude:

  • Any additional contingent amounts that would increase the drug price (e.g., potential incentive payments the pharmacy may earn from the plan)

  • Any non-pharmacy price concessions (e.g., manufacturer rebates) that are passed through to the beneficiary at the point of sale.

The proposed change would not impact how the “negotiated price” is determined for applicable drugs in the coverage gap, which is subject to a separate regulatory definition at 42 CFR § 423.2305.

CMS’s proposed change to the negotiated price definition would reduce cost-sharing for certain Medicare beneficiaries at the point of sale. As noted by CMS, it would also increase premiums across the Part D program. Specifically, CMS anticipates that, over the next 10 years, beneficiary cost-sharing liability would decline by $21.3 billion, while government spending would rise by $40 billion following enactment of this proposal. CMS estimates that the negotiated price change in the proposed rule would also result in $14.6 billion in cost savings for manufacturers by slowing the progression of beneficiaries through the Part D benefit.

Provider Networks in Place at the Time of Application, Subject to 10 Percentage Point Credit

MAOs must maintain provider networks that meet specific time and distance criteria established by CMS. Prior to the establishment of a new tool, the Network Management Module, several years ago, CMS typically only evaluated MAO networks upon initial application for an MA contract and upon a service area expansion. Following establishment of the Network Management Module, CMS began monitoring network adequacy more regularly. However, in the context of a new application or a service area expansion, CMS’s review of network adequacy has always occurred on a delayed timeframe following CMS’s review of other application criteria. CMS proposes to change this framework.

CMS proposes to require the submission of provider contract information to CMS at the time of application submission, in mid-February. CMS also proposes to adopt regulations explicitly permitting it to deny applications based on an applicant’s failure to meet network adequacy criteria. This proposed change would be effective for the Contract Year 2024 application cycle, for which applications will be due in February 2023.

To ease the difficulty of contracting with provider organizations so far in advance of the plan year, CMS proposes to provide applicants with a temporary 10 percentage point credit towards the percentage of beneficiaries residing within the published time and distance standards for all of the combinations of county designations and provider/facility types. This temporary credit would only be available until the beginning of the applicable plan year, at which time plans would be required to meet the full network adequacy criteria.

Many new and expanding MAOs have had difficulty obtaining provider contracts before they are approved by CMS to offer a plan in the designated region. Historically, the delayed timeframe for network review mitigated this issue to some degree. Some MAOs may find it challenging to establish networks by February, even with the 10 percentage point credit. Because of different market competition dynamics throughout the country, the impact of the proposed change may vary by geography.

Reviving Past Performance Methodology for Application Denials

Prior to 2021, CMS utilized a subregulatory methodology for assessing the past performance of entities seeking new MA or Part D contracts or service area expansions. The methodology assigned negative “points” to applicants based on a variety of factors, such as quality star ratings, notices of noncompliance, intermediate sanctions and negative net worth, associated with either the applicant’s or its affiliated organizations’ performance in the MA and Part D programs. In 2021, CMS rescinded the prior past performance methodology and enacted a regulation stating that an application may be denied based on past performance related to intermediate sanctions and failure to maintain fiscal soundness.

CMS now proposes to codify in regulation additional bases that would support an application denial, including a new points-based system for compliance actions. Specifically, the proposed regulations would permit CMS to deny an application based on:

  • A quality star rating of 2.5 or fewer stars during the applicable review period

  • Failure to maintain a fiscally sound operation or filing for bankruptcy

  • Assignment of more than 13 “points” in connection with “compliance actions,” including notices of noncompliance (1 point), warning letters (3 points) and corrective action plans (6 points).

CMS requests comment on alternative methodologies for counting compliance actions and on how to incorporate civil money penalties into the methodology in the future.

Additional Oversight Obligations in Connection with Third-Party Marketing Organizations

Following up on new subregulatory guidance issued in October 2021, CMS proposes to codify additional regulatory requirements related to third-party marketing organizations (TPMOs). While CMS’s proposed definition of TPMO is broad, CMS appears to be most focused on entities that engage in lead generation activities under contracts with MA and Part D plan sponsors as well as their first-tier, downstream and related entities (FDRs). The proposed new requirements include:

  • Use of a standardized disclaimer on certain TPMO materials

  • Mandated contract terms between plans (or their FDRs) and TPMOs, including beneficiary disclosure and call recording obligations

  • Plan responsibility for “ensuring” the compliance of the TPMOs with which they (or their FDRs) do business, even if the TPMO is not considered an FDR.

Given the breadth of the proposed definition of TPMO, the proposed changes may implicate a broad range of marketing organizations. If finalized, these changes would result in contract updates and new oversight obligations for plan sponsors and their FDRs.

Other Proposals Impacting MA and Part D Plans

  • Reinstatement of Detailed MLR Reporting: Under the prior administration, MLR reporting was significantly reduced, such that only a handful of data elements were required to be submitted to the government. CMS now proposes to reverse course on that change and reinstate the prior, more detailed, reporting requirements, beginning with MLR reporting for Contract Year 2023. CMS proposes to expand the MLR report to include expenditures related to certain supplemental benefits, such as dental, vision, hearing, transportation, remote access technologies, out-of-network services, meals and acupuncture.

  • Codification of Marketing and Communication Rules: CMS proposes to reinstate the requirement that MA and Part D plans include a multi-language insert in CMS-required materials. CMS also proposes to codify several existing subregulatory requirements, including those relating to ID cards, disclaimers for Part D sponsors with limited access to preferred cost-sharing, and website-posted content related to the appointment of a representative and enrollment.

  • Calculation of Contract Year 2023 Star Rating Measures: CMS proposes to allow MAOs with at least 25% of their enrollees in individual assistance areas affected by the COVID-19 pandemic to receive the higher of their Contract Year 2022 or 2023 Star Ratings for three measures: Monitoring Physical Activity, Reducing the Risk of Falling and Improving Bladder Control.

  • Duration of Disaster and Emergency Policies: CMS clarified the timeframes during which special disaster and emergency requirements for MA plans apply. This provision relates to regulatory requirements for plans to cover services provided by non-contracted providers and to waive gatekeeper referral requirements, and does not explicitly apply to subregulatory flexibilities afforded to MA and Part D plans during the current PHE.

Proposed Changes Specific to D-SNPs

Consistent with the Biden administration’s focus on enhancing health equity and beneficiary protections, the proposed rule contains several proposals aimed at streamlining and simplifying D-SNP offerings, improving beneficiary engagement and addressing health equity:

  • Enrollee Participation in Plan Governance: Building on experience with other programs, such as the Medicare-Medicaid Financial Alignment Initiative and Programs of All-Inclusive Care for the Elderly, CMS proposes that MAOs offering one or more D-SNPs in a state would be required to establish and maintain one or more enrollee advisory committees to solicit direct input on ways to improve access to covered services, coordination of services and health equity. CMS has been exploring enrollee advisory committees in other contexts, including CMS Innovation Center models. Stakeholders should review this proposal and consider submitting their comments with that broader context in mind.

  • Standardizing Certain Questions Related to Social Determinants of Health on Health Risk Assessments (HRAs). Under current statute and regulation, SNPs are required to conduct an initial assessment and an annual reassessment of each enrollee’s physical, psychosocial and functional needs. This rule proposes that all SNPs, including D-SNPs, incorporate standardized questions on the topics of housing stability, food security and access to transportation as part of their HRAs. The questions would be further detailed through subregulatory guidance. CMS clarifies that SNPs would not be accountable for resolving all of the risks identified, but notes that current regulations require that the results of the HRAs be addressed in the individual’s care plan, which could include, for example, making an appropriate referral to a community resource. CMS proposes to begin enforcing this requirement in 2024 but also is considering a later date.

  • Refining Definitions for FIDE and HIDE SNPs: The proposed rule contains several definitional changes related to fully integrated dual eligible special needs plan (FIDE SNPs) and highly integrated dual eligible special needs plan (HIDE SNPs) to help differentiate various types of D-SNPs, clarify options for beneficiaries and improve care coordination. These changes would take place in 2025 and subsequent years to afford plans and states time to ensure compliance.

  • Additional Opportunities for Integration Through State Medicaid Agency Contracts: CMS proposes a new pathway for D-SNPs in states that require exclusively aligned enrollment (i.e., D-SNPs can only enroll full-benefit dual eligible individuals who receive Medicaid benefits from the SNP or an affiliated Medicaid managed care plan). When certain conditions are met, CMS proposes to permit an MAO to apply for a D-SNP-only contract using the existing MA application process. CMS indicates that if a state elects this option, CMS would provide greater transparency regarding quality performance, financial performance and provider networks.

  • Attainment of max out-of-pocket (MOOP) limit: MAOs are required to establish a limit on beneficiary out-of-pocket costs for Medicare Part A and B services. After that limit, the MAO must pay 100% of the service costs. Under current guidance, MAOs do not have to count Medicaid-paid amounts or unpaid amounts toward this limit. CMS believes that this approach disadvantages providers serving dual eligible individuals in MA plans, and proposes that the MOOP limit in an MA plan be calculated based on the accrual of all cost-sharing in the plan benefit, regardless of whether that cost-sharing is paid by the beneficiary, Medicaid or other secondary insurance or remains unpaid because of state limits on the amounts paid. CMS expects that this proposal would result in increased bid costs for the MOOP for some MA plans and that a portion of those higher bid costs would result in an increase in Medicaid spending of $3.9 billion over 10 years. This cost would be partially offset by a reduction in federal Medicaid spending of $2.7 billion and the portion of Medicare spending paid by beneficiary premiums, totaling $600 million over 10 years. CMS estimates a net 10-year cost of $614.8 million.

Requests for Information

The proposed rule also includes two requests for information and a request for feedback on D-SNP data collection efforts:

  • Prior Authorization for Hospital Transfers to Post-Acute Care Settings During a PHE: CMS seeks general feedback on how MAOs’ prior authorization requirements for patient transfers impact a hospital’s ability to furnish the appropriate care to patients in a timely manner during the PHE. CMS notes that while many plans relaxed prior authorization requirements in 2020, many MAOs reinstated these requirements in 2021. CMS now seeks information about the effects of relaxation and reinstatement of prior authorizations on patient transfers during the PHE.

  • Building Behavioral Health Specialties Within MA Networks: MAOs are currently required to meet network adequacy requirements in connection with behavioral health providers, but CMS now seeks to increase its understanding about issues related to access to behavioral health specialties for enrollees in MA plans. Specifically, CMS seeks stakeholder feedback on challenges MAOs face when building an adequate network of behavioral health providers.

  • Request for Comment on Data Notification Requirements for Coordination-Only D-SNPs: CMS seeks feedback on an existing regulation that requires certain D-SNPs to notify the state Medicaid agency or its designees regarding hospital and SNF admissions for at least one group of high-risk full-benefit dual eligibles, as determined by the state Medicaid agency. CMS is interested in any stakeholder experience with implementing the data notification requirements and suggested improvements.


Madeline Hodge also contributed to this article.

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