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CMS’s latest step to reduce MA drug costs goes into effect on January 1

Beginning on January 1, CMS will allow Medicare Advantage (MA) plans to use step therapy for physician-administered drugs prescribed under Medicare Part B. Step therapy may help reduce drug spending for MA plans and beneficiaries by requiring patients to try less-costly Part D therapies before moving on to more expensive injected or infused drugs.

Reducing drug prices has been a top priority for the administration, which issued its Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs in May (see the October 16, 2018 Health Care Current). The US Centers for Medicare and Medicaid Services (CMS) issued guidance in August that will give MA plans the option of applying step therapy for physician-administered and other Part B drugs. CMS sees step therapy as a utilization-management tool that could help reduce drug spending without disrupting access to drugs that Medicare beneficiaries need or negatively impacting a member’s condition.

MA plans cover more than 20 million seniors and spend nearly $12 billion a year on Medicare Part B drugs, according to the US Department of Health and Human Services (HHS). CMS estimates that step therapy could reduce annual spending on Part B drugs by up to 20 percent. That translates to an annual savings of about $600 per MA member. Under the new guidance, MA plans must pass those savings onto patients through lower coinsurance amounts or other financial rewards.

 How step therapy works

Some commercial and Medicare Part D plans already use step therapy to help contain prescription drug costs. Before a plan pays for newer or experimental therapies, patients must try the most cost-effective drug for treating a condition. Some physicians and patient groups worry that this model could deny or delay access to drugs that patients need.

Medicare Part B covers drugs that are administered by infusion or injection in physician offices and hospital outpatient departments. Under a step-therapy model, plans would be allowed to require a patient to go through an initial “step” to see whether a lower-cost oral therapy covered by Medicare Part D might be an effective alternative to a more expensive injectable or infused Part B drug. If not, the plan would cover the Part B drug for the patient. The guidance rescinds a 2012 policy that bars MA plans from using step therapy for Part B drugs.

For Part B drugs, Medicare pays physicians and suppliers the average sales price (ASP) of the drug plus a 6 percent administration fee. For therapies that are injected or infused, Medicare pays an additional fee to the physician or hospital under the physician fee schedule. Medicare also pays a dispensing or supplying fee to suppliers—typically pharmacies—that dispense the drugs. Allowing MA plans to steer patients to lower-cost Part D drugs could encourage manufacturers to reduce ASPs for Part B drugs.

According to the CMS guidance, MA plans will be able to cross-manage drugs covered under Part B and Part D. This means MA plans will be able to pay for the most appropriate and affordable drugs regardless of whether patients receive them in a doctor’s office (Part B) or from a pharmacy (Part D). While step therapy isn’t new to MA (it has been used within the Part D program) this will be the first time MA plans have been allowed to offer Part D options to Part B drugs.

 Three considerations for MA plans

MA plans that decide to develop step-therapy policies and procedures should assess all drugs to determine which Part B drugs to include in the step-therapy program based on the cost and effectiveness of Part D alternatives. MA plans should also consider the following:

  1. New step-therapy requirements cannot disrupt ongoing therapies. CMS says that plans can only apply step therapy for new prescriptions or administrations of Part B drugs for beneficiaries who are not already receiving a Part B medication. However, even if this is applicable only to new treatments, health plans should make sure they don’t create unnecessary barriers that make it difficult for members to cross between therapies. In addition, MA plans should consider potential communication challenges with the clinicians who will need to explain to patients why they have to try one drug before they can move on to another.
  2. Transition refill requirements remain in effect. Transition refill policy exists to provide new (and some current) enrollees with immediate access to prescription drugs within 90 days of enrollment for non-formulary drugs and for drugs that have utilization-management requirements. The rationale is that beneficiaries should use this one-time transition fill period to collaborate with their physician and decide whether an alternative drug (that the plan covers or Part B covers with no limitations on access) would be clinically beneficial, or to request a formulary exception. Part D transition requirements will continue to apply to Part D drugs that are subject to step therapy where the first “step” is a Part B drug.
  3. Operational gaps should be identified before implementing a combined Part B/D step therapy. Cross-management between Medicare Part B/Part D step therapy adds further administrative complexity and operational challenges. MA plans should review existing utilization-management strategies and assess capability gaps before operationalizing this renewed regulation. For example, if a health plan decides to use Medication Therapy Management (MTM) programs to implement a Part B step therapy, then MA plans should perform an end-to-end operational assessment of its care management and operational capabilities. This can help ensure that the MTM program is meeting its goals of reducing pharmacy spend, improving care quality, and supporting Part B step therapy.

CMS has concluded that step therapy will give MA plans more negotiating leverage with manufacturers over prices for Part B drugs, as well as directing beneficiaries toward higher-value products. Pharmaceutical manufacturers typically argue that step therapy can make it more difficult for patients to access needed therapies. However, if therapies become more affordable, MA plans might have more money to reduce member costs, and/or cover sophisticated, high-value products and services. That could ultimately benefit beneficiaries, MA plans, and pharmaceutical manufacturers.

Author bio

Michael Cohen has over 15 years of experience working with health plans on addressing critical strategic needs, with a focus on Medicare Advantage and Medicare Prescription Drug Plan. He has extensive experience collaborating with clients to address critical business needs. He has assisted his health plan clients with strategy development and implementation, product development and launch, performance improvement, member engagement strategy, and market and operational assessments.

Akhil Rao is a manager at Deloitte Consulting in the Health Plans–Government Programs practice.  He brings a unique combination of consulting and industry experience which has given him a deep understanding of the dynamic forces that shape the current health care industry that he uses to help clients develop strategies to navigate the healthcare environment. At Deloitte, Akhil has led projects predominately in the Medicare Advantage space. His project experience includes product development (strategy, benefit design and pricing), provider payment models and various revenue optimization (stars, risk adjustment and affordability) projects where he has helped clients grow their business, improve margins and develop sustainable competitive advantages.