CMS to Study Part D Pharmacy Networks; Reaction to MA Rate Announcement Mixed

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By Mindy Yochelson  

April 8 --The Centers for Medicare & Medicaid Services said that it plans to study the controversial issue of beneficiary access to “preferred” pharmacy networks in Part D--a move that pleased community pharmacists.

“This study will analyze beneficiaries' geographic access (i.e., time and distance) to pharmacies offering preferred cost sharing in plans' networks,” the CMS said in its final 2015 Call Letter, released April 7.

The agency said that after the study is completed, “we will evaluate whether we should set standards for network adequacy for pharmacies offering preferred cost sharing.”

Mixed Findings

The CMS has said that preferred pharmacy networks can offer savings for beneficiaries, but has found that, instead of passing on lower costs available through economies of scale or steeper discounts, some plans actually charge higher negotiated prices.

The National Community Pharmacists Association, which has urged increased oversight and scrutiny of preferred networks in Medicare Part D, said April 7 that the study and other provisions in the Call Letter are “a step in the right direction.”

The CMS in the Call Letter said that, although it decided in March not finalize certain proposals related to preferred pharmacies--or preferred cost sharing as the CMS has used the term--in its proposed Part C and D rule published in the Federal Register on Jan. 10 , it continues “to be concerned about beneficiary access to and understanding of preferred cost sharing arrangements.”

Pharmacy Benefit Managers

At the time of the decision not to finalize the rule, the Pharmaceutical Care Management Association (PCMA) said the “CMS was wise to reconsider its proposed Part D rule that would have destabilized the program, increased costs, and disrupted coverage for millions of seniors.”

A study released by the PCMA at that time said eliminating preferred pharmacy networks in Part D would increase premiums for Part D enrollees and raise overall program costs.

In the April 7 Call Letter, the CMS said that for the 2014 and 2015 plan years, “we will continue to review the retail networks of plans offering preferred cost sharing and will continue to take appropriate action regarding any plan whose network of pharmacies offering preferred cost sharing appears to offer too little meaningful access to the preferred cost sharing.”

Provider Contract Termination

In another provision of the final Call Letter to plans, the CMS finalized new requirements for MA plans that remove providers and make other changes to their networks during the contract year.

These include a requirement that MA organizations notify their CMS regional offices within 90 days of “significant” terminations in their provider networks.

Anne W. Hance, a partner with McDermott Will & Emery LLP, told Bloomberg BNA that while the CMS had requested comments on whether to apply a “uniform standard” for what constitutes “significant” terminations, it decided not to do so.

However, the Call Letter stated that because there was no consensus among commenters regarding how to define “significant” network change, beginning in 2015, the agency will require MA organizations “to notify CMS when they are planning network changes that the MAO deems significant and CMS will determine, after consultation with the MAO, whether the planned change requires certain additional actions on the part of the MAO in order for the organization's network to continue to meet Medicare standards.”

Hance praised this move as an “an important recognition from the agency.”

Because “MA plans and their provider networks vary significantly based on factors such as rural versus urban geographic area, whether there is one or several health systems within the network,” Hance said, a “one size fits all” definition of significant “would not necessarily capture these nuances.”

The CMS's final policy “still imposes an agency-notification obligation on MAOs, but allows them to make the call regarding the significance of a termination based on various factors specific to the MA plan,” she added.

Rate Reaction

Reaction varied on the CMS's April 7 announcement of the 2015 rates that accompanied the Call Letter.

In its statement on the final rates, the CMS said the combined effect of the Medicare Advantage growth percentage and the fee-for-service (FFS) growth percentage was negative 3.4 percent, rather than the negative 1.9 percent in the advance notice, published in February .

However, in its statements, the agency indicated that it was compensating for the further drop by changing a few provisions that had been in the advance notice to allow for an “overall net change to plan payments” of an increase of 0.4 percent over 2014.

Joshua R. Raskin, a managing director and senior analyst in the equity research department at Barclays Capital, in particular, agreed with the CMS on one of these changes--a recalibration of the risk adjustment methodology to account for the “healthier” baby boomers who are entering Medicare.

“We agree that this trend is likely occurring,” he said, as the younger, healthier baby boomers age into Medicare and “become a larger portion of the Medicare population.”

Their entry is “skewing the overall risk/health status of the Medicare program down in the most recent years,” he said.

CMS Versus Industry Calculations

Oppenheimer & Co. said April 8 that the CMS's statements on MA rates differ from that of pronouncements by industry, leading to “confusion due to the different calculations out of CMS.”

For example, in a filing April 8 with the Securities and Exchange Commission, Humana Inc. said that based on the final rate notice, it expects a funding decline of approximately 3 percent.

“It isn't entirely clear how CMS calculates its overall increase of 0.4 percent but we believe it differs from the street/industry due to assumed coding improvements by the plans and the industry fee,” Oppenheimer said in an April 8 equity research industry update.

Like Humana, Oppenheimer said that “the rate cut now appears to be roughly 3 percent.”

America's Health Insurance Plans, which led the charge against any rate reduction, said April 7 that it is still reviewing the final rate announcement to assess the full impact on payments.

AHIP acknowledged that “the changes CMS included in the final rate notice will help mitigate the impact on seniors,” but added that the MA program “is still facing a reduction in payment rates next year on top of the 6 percent cut to payments in 2014.”

'A Lot of Interpretations.'

Carl McDonald, a director at Citi Investment Research, said that, “as always with Medicare Advantage rates, there are going to be a lot of interpretations as to what the actual rate change in 2015 will be.”

The difference between the CMS statement of an increase of 0.4 percent “and our projection (down 3 percent) is that CMS isn't including some factors, like the health insurance industry fee, that negatively impact the benefits plans can offer to seniors in 2015,” McDonald said.

However, “considering that Humana was once projecting a 6 to 7 percent decline in rates, a 3 percent drop isn't so bad,” McDonald added.


To contact the reporter on this story: Mindy Yochelson in Washington at

To contact the editor responsible for this story: Ward Pimley at

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