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Analysis

CMS Unveils New Part D Payment Model, 'Transformative Updates' to Existing MA Model

By John Commins  
   January 18, 2019

The two voluntary initiatives will launch in 2020, and CMS Administrator Seema Verma called them 'prime examples' of modernized Medicare programs that ensure greater benefits at lower costs.

The Centers for Medicare & Medicaid Services on Friday unveiled a new payment model for Medicare Part D, and "transformative updates" to the Medicare Advantage Value-based Insurance Design.

"The American healthcare system is very different today than it was 13 years ago when the Medicare Advantage and Part D programs were launched in their current forms," CMS Administrator Seema Verma said during a media availability Friday. "But due to the slow pace of change in government, these programs have not been fully updated to reflect today's realities."

Verma called the two voluntary initiatives "prime examples" of how the Centers for Medicare and Medicaid Innovation can modernize programs to ensure greater benefits at lower costs.

"These two models ignite greater competition among plans, creating pressure to improve quality and lower costs in order to attract beneficiaries," she said.

Part D Tries a New Payment Model

The Part D Payment Modernization initiative is part of the Trump Administration's Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs, which calls for increased competition, better negotiations, and creating incentives to lower prices and reduce out-of-pocket costs for seniors.

Under existing Part D, once a patient's prescription drug spending is high enough for the patient to enter the final phase of the benefit, known as the "catastrophic phase," Medicare is responsible for 80% of drug costs.

"This introduces perverse incentives and leaves plans with little reason to negotiate lower costs for the highest-spending patients," Verma said.

From 2008-2017, Verma said that federal spending during the Part D catastrophic phase has nearly quadrupled from $9.4 billion to $37.4 billion, an average increase of 17% per year.

In 2016, 3.2 million beneficiaries reached the Part D catastrophic phase, and those who didn't qualify for low-income subsidies paid average out-of-pocket drug costs of more than $3,000, Verma said.

"This structure introduces perverse incentives to push patients to the catastrophic phase and leave plans with little reason to negotiate lower costs for the highest spending patients," she said. "This means that plans are more likely to manage drug spending for low-cost patients, since plans are responsible for a greater share of drug costs at their level for the benefit structure."

Under the new model, which takes effect in 2020, plans will assume greater risk in the catastrophic phase, which creates new incentives for plans, patients, and providers to choose drugs with lower list prices, Verma said.

Based on plan year performance, Verma said CMS will calculate a spending target for what governmental spending would have been without plans taking on this additional risk. Part D plans will share the savings if they stay below the target but will be accountable for losses if they exceed the target.

"For the first time, the model also introduces a Part D rewards and incentives program to align this model with the changes to VBID, and to provide Part D plans with additional tools to control drug costs and help enrollees in choosing drugs with lower list prices," Verma said.  

VBID Gets an Update

The updates to Medicare Advantage Value-based Insurance Design will also take effect in 2020 and Medicare Advantage plans across the United States will be able to apply.

The updates include:

  • Allowing plans to provide reduced cost sharing and other benefits to enrollees in a more targeted fashion, including customization for chronic conditions, socioeconomic status, and for benefits such as transportation.
     
  • Bolstering rewards and incentives that plans can offer beneficiaries to improve their health by permitting plans to offer higher-value rewards.
     
  • Increasing access to telehealth services, along with in-person options, to meet network requirements.

Verma said that beginning in the 2021 plan year, the VBID model will also test allowing Medicare Advantage plans to offer Medicare's hospice benefit. 

"Today, hospice is covered separately under fee-for-service Medicare, so patients do not have a single provider network that is managing all of their conditions and taking responsibility for their overall health," Verma said.

"This change is designed to increase access to hospice services and encourage better coordination between patients' hospice services and their other clinicians," she said.

“These two models ignite greater competition among plans, creating pressure to improve quality and lower costs in order to attract beneficiaries.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

Under the new Part D model, plans will assume greater risk in the catastrophic phase, which creates new incentives for plans, patients, and providers to choose cheaper drugs.

The changes to the Medicare Value-based Insurance Design allow plans to better target cost-sharing for chronic diseases, socio-economic factors, or both.


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