Health Industry Washington Watch : Washington DC Healthcare Industry Law Firm : Reed Smith : Health Industry Washington Watch : Regulations, Medicare/Medicaid, Governmental Organizations

On April 1, 2013, CMS released the 2014 rate announcement and final call letter for Medicare Advantage (MA) and Part D prescription drug plans. Notably, under final rate announcement, CMS is forecasting that the final estimate of the combined effect of the Medicare Advantage (MA) growth percentage and the fee-for-service (FFS) growth percentage is 3.3%, compared to -2.2% in the advance call letter, which has the effect of increasing MA plan payment rates. This reversal is a result of CMS building into its spending forecast the assumption that Congress will once again override scheduled cuts in Medicare payments to physicians under the sustainable growth rate formula (thereby allowing MA plan payments to be compared to higher expected FFS spending levels). CMS also is phasing in the alignment of MA benchmarks with Medicare FFS costs and adjusting for diagnostic coding differences between MA plans and FFS providers, along with revising the risk adjustment model.

With regard to Part D, CMS notes that for the first time in the Part D program’s history, the costs of beneficiary coverage are falling, with the 2014 defined standard Part D prescription drug benefit having lower co-payments and deductible than in 2013. CMS also is adopting a number of policy changes for 2014, including requiring Part D plan retail and mail pharmacies to obtain patient consent to deliver a prescription, new or refill, prior to each delivery (CMS also encourages Part D plans to implement this consent requirement for the remainder of this year). While CMS had proposed requiring Part D sponsors to place beneficiary-level prior authorization requirements on certain categories of drugs which may be covered under the hospice or end stage renal disease (ESRD) benefits, so as to ensure that these drugs are appropriately payable under Part D before the prescriptions are filled, the final policy permits sponsors to use other approaches, such as pay-and-chase, to resolve payment responsibility in these situations.

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Today, the Obama Administration released its proposed federal budget for fiscal year 2014. As widely reported, the budget incorporates an offer the President made to Congress in December 2012 to achieve nearly $1.8 trillion in additional deficit reduction over the next 10 years, including $401 billion in health savings (the Administration observes that this level of cuts would “provide more than enough deficit reduction to replace the damaging cuts required by the Joint Committee sequestration”).

Virtually all provider types – and drug manufacturers – would be impacted by the budget provisions, if adopted as proposed. The budget proposal is certainly subject to change during the legislative process, particularly as the House and Senate leadership pursue alternative budget frameworks, and indeed, gridlock could prevent significant action on entitlement reform this year. Nevertheless, the proposals bear careful monitoring because they could eventually be included in any long-elusive “grand bargain” to reform the Medicare program and reduce the federal debt.

Highlights of the Administration’s Medicare and Medicaid proposals include the following:

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MedPAC has released its annual report to Congress on Medicare Payment Policy, including payment update recommendations for all the major Medicare FFS payment systems and limited Medicare Advantage (MA) recommendations. The report also includes data on the status of the MA and Medicare Part D programs, including information about enrollment, plan options, and beneficiary cost-sharing. Note that while MedPAC’s recommendations are not binding, Congress and CMS often take into account MedPAC’s assessments when updating Medicare payment policies. Major recommendations include the following (many of which were included in previous reports):

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A recent OIG report, “Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions,” examines how Medicare Part D drug plan pharmacy and therapeutics (P&T) committees ensure that formulary decisions are not biased by conflicts of interest. Based on a survey of P&T committees and a review of their written policies, along with interviews with CMS, the OIG concluded that “both sponsors and CMS conduct limited oversight of P&T committee conflicts of interest, compromising their ability to ensure that financial interests do not influence formulary decisions.” For instance, most sponsors’ P&T committees have limited definitions of conflicts of interest (more than half did not define any financial interests with sponsors or pharmaceutical manufacturers as conflicts of interest), which the OIG believes could prevent them from identifying conflicts. Moreover, many sponsors’ P&T committees rely on their members to determine and manage their own conflicts. CMS also does not adequately oversee compliance with the regulatory requirement that at least two members on each P&T committee be independent and free of conflict relative to the plan sponsor and pharmaceutical manufacturers, according to the OIG. The OIG makes a series of recommendations intended to strengthen conflict-of-interest policies, including recommending that CMS: require P&T committee members to be free of conflict with any pharmacy benefit manager that manages a sponsor’s prescription drug benefit; direct sponsors to ensure that objective processes are used to determine and manage conflicts; and oversee sponsors’ compliance with the requirement that at least two committee members be independent and free of conflict.

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Due to continuing budget gridlock in Washington, sequestration has been triggered – meaning automatic cuts to a wide range of federal programs, including Medicare payments to providers and health plans. While the Centers for Medicare & Medicaid Services has not yet announced detailed plans for implementing the sequester requirements for its programs, this Alert answers some basic questions about sequestration and how it will impact the Medicare program. Among other things, the Alert addresses what Medicare spending is impacted by sequestration, when the Medicare cuts start, and how long sequestration will last.

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On February 15, 2013, CMS released a proposed rule implementing the ACA’s medical loss ratio (MLR) requirements for Medicare Advantage (MA) and prescription drug (Part C and Part D) plans. Under these provisions, which are intended to limit plan spending on marketing, overhead, and profit, MA organizations and Part D plan sponsors will be required to report their MLR, reflecting the percentage of contract revenue spent on clinical services, prescription drugs, quality improving activities, and direct benefits to beneficiaries in the form of reduced Part B premiums. CMS has generally aligned the Medicare MLR rules with commercial MLR regulations that went into effect January 1, 2011.  Plan sponsors that do not have an MLR of at least 85% will be subject to payment remittance; if a plan sponsor fails to meet MLR requirements for more than 3 consecutive years, it also will be subject to enrollment sanctions and, after 5 consecutive years, to contract termination. CMS expects the first year of MLR reporting to occur in 2015 for the 2014 contract year. Comments on the proposed rule will be accepted for 60 days. The official version of the proposed rule will be published in the Federal Register on February 22, 2013.

CMS also has released the 2014 Advance Notice and draft Call Letter, which detail updates to payment methodologies, other policies, and program operations for MA organizations and Part D drug plan sponsors. CMS notes that for the first time in the Part D program’s history, the costs of beneficiary coverage are falling, with 2014 defined standard Part D prescription drug benefit having lower co-payments and deductible than in 2013. CMS also is proposing a number of policy changes for 2014, including requiring Part D plan retail and mail pharmacies to obtain patient consent to deliver a prescription, new or refill, prior to each delivery. In addition, CMS proposes to require that Part D sponsors place beneficiary-level prior authorization requirements on certain categories of drugs which may be covered under the hospice or end stage renal disease (ESRD) benefits, so as to ensure that these drugs are appropriately payable under Part D before the prescriptions are filled.  Comments will be accepted until March 1, 2013.  The final 2014 Rate Announcement and Call Letter will be published on April 1, 2013.

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The OIG recently identified barriers to the effectiveness of the Medicare Drug Integrity Contractor (MEDIC) in performing Medicare Parts C and D benefit integrity activities between April 2010 and March 2011. For instance, the MEDIC reported that it does not have access to centralized Part C data, it lacks access to certain prescription drug event data, and there is no mechanism to recover payments from Part C or Part D plan sponsors when law enforcement agencies do not accept these cases for further action. Moreover, while the MEDIC has benefit integrity responsibility for both Medicare Parts C and D, the OIG determined that Part C investigations and case referrals represented a small percentage of its activities (only 8% of investigations and referrals involved Part C only; the majority were Part D only). The OIG makes a series of recommendations to, among other things: improve the data available to the MEDIC (including information from pharmacies, physicians, and pharmacy benefit managers); expand the ability of the MEDIC to recover payments from Part C and Part D plan sponsors; and require Part C and Part D plan sponsors to refer potential fraud and abuse incidents to the MEDIC. For details, see the full report, MEDIC Benefit Integrity Activities in Medicare Parts C and D.

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The OIG’s December 2012 Compendium of Unimplemented Recommendations highlights unimplemented OIG recommendations that the OIG believes represent significant opportunities for action in FY 2013. The report includes recommendations made through FY 2011 that were not fully implemented as of December 2012. The OIG’s priority open recommendations, which in the OIG’s view represent the most significant opportunities to positively impact HHS’s programs, include the following:

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The GAO has issued a report that responds to concerns raised by certain Democratic lawmakers that manufacturers participating in the Medicare Part D drug “Coverage Gap Discount Program” would raise prices for brand-name drugs used by beneficiaries in the coverage gap to offset the 50% discount that manufacturers must provide under the Affordable Care Act. Contrary to these concerns, the GAO found that prices for brand-name drugs used by beneficiaries in the coverage gap increased similarly to those used by beneficiaries who did not reach the gap, both before and after the Discount Program was implemented in January 2011. The GAO also reports that while pharmacy benefit managers (PBMs) interviewed believe that some manufacturers decreased brand name rebate amounts as a result of the Discount Program, most plan sponsors did not observe this, and manufacturers reported no effects on their rebate negotiations as a result of the Discount Program. Most sponsors and PBMs also reported that the Discount Program did not affect Part D plan formularies, plan benefit designs, or utilization management practices. The GAO cautioned that its findings are limited to those sponsors, PBMs, and manufacturers interviewed and may not be representative of the effects observed across all of these types of entities, and multiple factors besides the Discount Program can affect drug prices over time.

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The HHS Office of Inspector General (OIG) has released its FY 2013 Work Plan, which outlines audit, inspection, and investigative initiatives that the OIG intends to conduct in the coming year. The OIG plans activities in a wide range of areas, including reviews of Medicare fee-for-service reimbursement and program integrity policies involving virtually all types of providers and suppliers (with a heavy concentration of reviews involving hospitals and medical equipment suppliers). The OIG also will focus attention on Medicare Advantage and Medicare Part D prescription drug plan policies, including payment policy and plan oversight reviews. Numerous Medicaid reports also are on the books, including investigations involving Medicaid prescription drug pricing and rebate policies, various provider and supplier payment issues, and state management of their Medicaid programs. The Work Plan also includes numerous reviews involving other HHS agencies, such as reviews targeting Food and Drug Administration (FDA) and National Institutes of Health programs. The Work Plan also includes a description of the OIG’s legal and investigative activities related to Medicare and Medicaid.

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The 2013 Medicare Open Enrollment Period runs from October 15 to December 7, 2012. To help beneficiaries make informed choices, CMS has posted updated quality rating information for Medicare Advantage plans and Part D prescription drug plans for the coming year. An HHS press release summarizing the data and providing links to additional information is available here. 

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According to a recent OIG report, Medicare Part D inappropriately paid $25 million for Schedule II drugs billed as refills in 2009, since federal law prohibits the refilling of Schedule II controlled substances. The OIG found a high incidence of invalid prescribers for Schedule II refills. The OIG speculates that some of these refills may reflect inaccurate billing, however, such as long-term-care pharmacies incorrectly billing these drugs as refills when they actually were partial fills. Because 194 out of 270 Part D sponsors paid for at least one Schedule II drug billed as a refill, the OIG concludes that “many sponsors do not have adequate controls to prevent these refills.” Based on these finding, the OIG recommends that CMS: (1) issue guidance to plan sponsors to prevent billing of Schedule II refills and to ensure accurate billing of partial fills; (2) exclude Schedule II refills when calculating payments to sponsors; (3) monitor sponsors to ensure that they validate prescriber numbers for Schedule II drugs; and (4) follow up on sponsors, pharmacies, and prescribers with high numbers of refills.

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MedPAC has released its 2012 Data Book on “Health Care Spending and the Medicare Program.” The publication provides information on national health care and Medicare spending, Medicare and dual-eligible beneficiary demographics, Medicare quality, and Medicare beneficiary and other payer liability. It also includes data regarding various provider types, such as data on Medicare spending, beneficiary utilization of the service, number of providers, volume, length of stay, and Medicare profit margins. The Data Book also covers the Medicare Advantage and Part D drug programs.

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The OIG has issued a report entitled "Medicare Could Be Paying Twice for Prescription Drugs for Beneficiaries in Hospice.”  Under the Medicare Part A hospice benefit, prescription drugs related to beneficiaries’ terminal illnesses are covered under the per diem payments made to hospice organizations, based on the level of care received by the individual beneficiary. The HHS Office of Inspector General (OIG) recently reported, however, that 198,543 hospice beneficiaries received 677,022 prescription drugs through the Medicare Part D program in 2009 that potentially should have been covered by hospice per diem payments because the particular drugs (analgesics, antinauseants, laxatives, and antianxiety drugs) primarily are used for palliative care. Part D plans paid pharmacies more than $33.6 million for these drugs, and beneficiaries paid $3.8 million in copayments. OIG also stated that there could be duplicate billing for prescription drugs that are commonly used to treat two terminal diagnoses: chronic obstructive pulmonary disease (COPD) and amyotrophic lateral sclerosis (ALS). To prevent Medicare from paying for the same prescription drugs under both Part A and Part D, the OIG recommends that CMS expand education efforts about drug coverage for hospice beneficiaries, perform oversight activities to ensure that Part D is not paying for drugs that Medicare has already covered under hospice per diem payments, and require Part D plan sponsors to develop controls preventing Medicare Part D from paying for drugs covered under the hospice benefit. Note that the OIG's report is not entirely clear on whether Part D was billed for the drugs because the hospices concluded that these medications were not related to beneficiaries' terminal illnesses, or through an error. Further, CMS disputed one of the OIG's recommendations, arguing that OIG had not proven that duplicate payments in fact were made. 

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On June 11, 2012, CMS published corrections to the May 11, 2012 proposed rule to update Medicare inpatient prospective payment system (IPPS) hospital and long-term care hospital prospective payment system (LTCH-PPS) payment and other policies for fiscal year (FY) 2013. Among other things, CMS is decreasing the national capital standard federal payment rate, which in turn decreases the standardized amount used to calculate IPPS payment rates from $5,750.04 to $5,748.09. As a result, proposed payment amounts for 2013 would be slightly lower than previously calculated. CMS also clarifies its preamble discussions of qualifications for LTCHs and calculation of outlier payments and corrects technical and typographical issues. CMS also has published corrections to technical and typographical errors in its April 12, 2012 final rule with comment period updating Medicare Advantage (MA) and Medicare Part D prescription drug program rules for contract year 2013. 

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As mandated by the ACA, the OIG has issued its annual report ("Part D Plans Generally Include Drugs Commonly Used by Dual Eligibles: 2012") assessing the extent to which Medicare Part D formularies include drugs commonly used by full-benefit, Medicare/Medicaid dual-eligible individuals. Based on a review of the 3,107 Part D plans operating in 2012, the OIG determined that 96% of the plans cover 191 drugs commonly used by dual eligibles, and 61% of these drugs are included by all Part D plan formularies. On average, 24% of the unique drugs were subjected to utilization management restrictions (i.e., prior authorization, step edits, or quantity limits) on Part D plan formularies, up from 19% in 2011; most of this increase is attributable to an increase in the use of quantity limits.

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On May 10, 2012, the HHS Office of Inspector General (OIG) issued a report entitled “Retail Pharmacies with Questionable Part D Billing.”  The OIG identified more than 2,600 retail pharmacies in 2009 that had what the OIG characterizes as “questionable billing” for Part D drugs (e.g., extremely high dollar amounts or numbers of prescriptions per beneficiary or per prescriber, or high percentage of prescriptions for Schedule II or III drugs, brand-name drugs, or refills). While the OIG acknowledges that “some of this billing may be legitimate,” the OIG believes that these pharmacies warrant further scrutiny. The OIG also observes that the Miami, Los Angeles, and Detroit areas were the most likely to have pharmacies with questionable billing. The OIG makes a number of recommendations to CMS, including strengthening the Medicare Drug Integrity Contractor’s monitoring of pharmacies, requiring Part D plan sponsors to refer potential fraud and abuse incidents that may warrant further investigation, developing risk scores for pharmacies, strengthening CMS compliance plan audits, and following up on pharmacies identified by the OIG as having questionable billing.

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CMS has published a final rule to update MA and Part D prescription drug benefit program regulations for contract year 2013.  The final rule is summarized after the jump.

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CMS has released a memo providing guidance to Part D sponsors and organizations interested in offering capitated financial alignment demonstration plans regarding contract year (CY) 2013 Medication Therapy Management (MTM) programs. CMS also released samples of the MTM Program Standardized Format Instructions Samples and related frequently-asked questions.

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On March 15, 2012, MedPAC released its annual report to Congress on Medicare payment policy.  Major recommendations for 2013 are highlighted after the jump.

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