CMS Announces Final 2015 Medicare Advantage/Part D Drug Plan Rates and Policies

The Centers for Medicare & Medicaid Services (CMS) has released its 2015 rate announcement and final call letter for Medicare Advantage (MA) and Part D prescription drug plans. Notably, the final rate announcement increases 2015 MA rates by 0.4% compared to 2014 levels and compared to an estimated 1.9% reduction anticipated in the advance notice released in February 2014. Factors contributing to the rate boost include a modified phase-in schedule for a new risk-adjustment model, a refined risk adjustment methodology to account for the impact of baby boomers, and CMS’s decision not to finalize a proposal to exclude diagnoses from enrollee risk assessments. CMS also is not adopting at this time earlier proposals to implement a new Part D risk adjustment model; make changes to star ratings; or require additional coverage in the gap for generic and brand drugs in Enhanced Alternative plans. On the other hand, CMS is adopting a number of policies intended to strengthen beneficiary protections when MA plans make significant changes to their provider networks. Beginning in 2015, CMS will require MA organizations to provide CMS with 90 days notice of any significant changes to their provider networks. CMS also will allow enrollees to switch plans when they are affected by significant mid-year provider network terminations initiated by their MA plan without cause. In addition, the call letter establishes “best practices” for MA organizations to follow when they make significant changes to provider networks.

HHS OIG Identifies "Top 25" Priorities

The OIG has released its “Compendium of Priority Recommendations,” which lists 25 priority issues for which the OIG has open recommendation and that, if implemented, would best protect the integrity of HHS programs. The 25 top priorities are as follows:

  • Medicare Policies and Payments: address wasteful Medicare policies and payment rates for clinical laboratories, hospitals, and hospices; improve controls to address improper Medicare billings by community mental health centers, home health agencies, and skilled nursing facilities; detect and recover improper Medicare payments for services to incarcerated, unlawfully present, or deceased individuals; maximize recovery of Medicare overpayments; improve monitoring and reconciliation of Medicare hospital outlier payments; ensure that Medicare Advantage Organizations are implementing programs to prevent and detect waste, fraud, and abuse; and improve controls to address questionable billing and prescribing practices for Part D prescription drugs.
  • Medicare Quality of Care and Safety Issues: address adverse events in hospital settings; improve care planning and discharge planning for beneficiaries in nursing home settings; address harm to patients, questionable resident hospitalizations, and inappropriate drug use in nursing homes; improve nursing home emergency preparedness and response; and ensure hospice compliance with Medicare conditions of participation.
  • Medicaid Program Policies and Payments: ensure that state claims and practices do not inappropriately inflate federal reimbursements; ensure that states prevent, detect, and recover improper payments and return the federal share of recoveries to the federal government; assist states to better align Medicaid drug reimbursements with pharmacy acquisition costs; ensure that Medicaid Information Systems are fully functional; and address Medicaid managed care fraud and abuse concerns.
  • Medicaid Quality of Care and Safety Issues: ensure that Medicaid home- and community-based care service providers comply with quality and safety requirements; and ensure that States improve utilization of preventive screening services for eligible children.
  • Oversight of Food Safety: improve oversight of dietary supplements; and improve oversight of food inspections and traceability.
  • HHS Grants and Contracts: improve oversight of grantee compliance, quality assurance, and conflicts of interest; and improve oversight of Medicare contractor performance and conflicts of interest.
  • HHS Financial Stewardship: reduce improper payments and fraud; and correct deficiencies found in financial statement audits.

Note that some of these recommendations would require additional authority or other legislative change.  

RACs Correct $2.4 Billion in Medicare Claims in FY 2012

CMS has released data on Recovery Audit Contractor (RAC) operations fiscal year 2012. Key findings included the following:

  • In FY 2012, Medicare fee-for-service (FFS) RACs collectively identified and corrected 1,272,297 claims for improper payments, which resulted in $2.4 billion in improper payments being corrected ($2.3 billion in overpayments/$109.4 million in underpayments). Subtracting fees, costs, and first level appeals, the Medicare FFS Recovery Audit Program returned over $1.9 billion to the Medicare trust funds.
  • The Part D RAC’s initial review focused on identifying improper payments for prescriptions written by excluded prescribers or filled by excluded pharmacies beginning with contract year 2007. Recoupment of approximately $2 million in overpayments began in the first quarter of FY 2013 for those plans identified in the Part D RAC's initial audit review. The Part D RAC is continuing its review of excluded providers and pharmacies for contract years 2008 and 2009. In addition, CMS posted a notice on April 4, 2013, seeking potential contractors to perform Part C RAC activities.
  • As of September 30, 2012, 36 states had implemented Medicaid RAC programs, and other states are in various stages of preparation. For FY 2012, the states have recovered a total federal and state share combined amount of $95.64 million. CMS expects recoveries to increase as more states have fully operational State Medicaid RAC programs.

As previously reported, CMS has “paused” its RAC audits in preparation for the procurement of new RAC contracts and to “allow CMS to continue to refine and improve the Medicare Recovery Audit Program.”

CMS Finalizes 2014 Policy on Medicare Payment for Hospice Enrollees' Drug Expenses

On March 10, 2014, CMS issued a final memorandum outlining the criteria it will use to determine payment responsibility for drugs for Medicare hospice beneficiaries, effective May 1, 2014. CMS cites the statutory requirement that the hospice cover all drugs or biologicals for the palliation and management of the terminal and related conditions; these drugs are excluded from coverage under Medicare Part D. For prescription drugs to be covered separately under Part D when the enrollee has elected hospice, the drug must be for treatment of a condition that is completely unrelated to the terminal condition or related conditions. Since CMS expects drugs will rarely be covered under Part D for hospice beneficiaries, CMS is requiring Part D sponsors to place beneficiary-level prior authorization requirements on all drugs for hospice beneficiaries to determine whether the drugs are coverable under Part D. This will require the hospice and/or the prescriber to make a case for why each drug is not related to the terminal illness or related conditions before sponsors will pay for the drug. The agency also recommends that hospice providers initiate the prior authorization process prior to submission of a Part D claim, as described in the memo.

CMS requires the Part D sponsor and hospice to negotiate the retrospective recovery of amounts paid if the sponsor has paid for drugs after the effective date of the hospice election, but prior to receipt of notification from CMS. If the drug is determined to be a hospice liability, the parties should negotiate repayment. In situations where the beneficiary is liable (e.g., drugs the patient was taking prior to the hospice election for the treatment -- as opposed to the palliation and management -- of the terminal illness, that are not covered by the hospice but that the beneficiary chooses to continue taking), the sponsor should send a recovery notice to the beneficiary. CMS notes that there are still outstanding issues, primarily for 2015 and beyond, that will be subject to future rulemaking.

Congressional Health Policy Hearings

 A number of Congressional committees have held hearings recently to address various health policy issues, including the following:

CMS Proposes 2015 Payment, Policy Updates for Medicare Advantage and Drug Plans

CMS has posted its advance rate announcement and draft call letter for Medicare Advantage (MA) and Part D prescription drug plans for 2015. These documents detail updates to payment methodologies, other policies, and program operations for MA organizations and Part D drug plan sponsors. While the factors that impact 2015 rates are complex, CMS generally intends to more closely align MA payments with fee-for-service (FFS) Medicare and improve payment accuracy through a series of rate adjustments. Among other things, CMS notes that its preliminary estimate of the combined effect of the MA growth percentage and the FFS growth percentage is -1.9%. CMS also proposes to apply a -5.16% adjustment to MA plan payments to account for diagnostic coding differences between MA and FFS providers. The call letter addresses numerous policy issues, including encouraging MA organizations to adopt best practices that improve enrollee notification of significant changes in the MA’s provider network (CMS indicates it will consider rulemaking that could limit the timing of such network changes). Comments on the documents will be accepted until March 7, 2014, and the final rate announcement and call letter will be published on April 7, 2014. Also looking ahead, CMS announced in the call letter that it intends to issue a request for information in the coming months about an initiative to partner with private payers to test innovations in health plan design for CMS beneficiaries, including to value-based arrangements, beneficiary engagement and incentives, and/or care coordination.

CMS Proposes Updates to Medicare Advantage/Part D Policies for 2015

On January 6, 2014, CMS released a proposed rule that would revise the Medicare Advantage (MA) and Part D prescription drug program regulations to implement various statutory requirements, strengthen beneficiary protections, improve program efficiencies and payment accuracy; and clarify program requirements. CMS estimates that the proposed rule would reduce Medicare spending by $1.3 billion between 2015 and 2019. The sweeping proposed rule is summarized after the jump. 

Among many other things, the proposed rule would:

  • Revise the definition of “negotiated prices” to require that all price concessions from pharmacies are reflected in these prices. Under the proposed rule, negotiated prices would mean prices for covered Part D drugs that: (1) the Part D sponsor (or other intermediary contracting organization) and the network dispensing pharmacy or other network dispensing provider have negotiated as the amount such network entity will receive, in total, for a particular drug; and (2) are inclusive of all price concessions and any other fees charged to network pharmacies; and (3) include any dispensing fees; but (4) exclude additional contingent amounts, such as incentive fees, only if these amounts increase prices and cannot be predicted in advance; and (5) may not be rebated back to the Part D sponsor (or other intermediary contracting organization) in whole or in part.
  • Modify CMS’s interpretation of the Affordable Care Act’s (ACA) “drug categories or classes of clinical concern” requirement. Instead of mandating coverage of all drug products in a particular class on all Part D formularies, CMS generally would limit protected classes to those meeting criteria established under the regulation. The proposed criteria generally would result in formulary inclusion of all drugs within the antineoplastic, anticonvulsant, and antiretroviral drug classes (subject to proposed exceptions), but the rule would not require all drugs from the antidepressant and immunosuppressant drug classes to be included on all Part D formularies. While antipsychotics would not meet the criteria, CMS proposes that they remain protected at least through 2015 to ensure that CMS has “not overlooked a need for any transitional consideration.”
  • Modify rules for “preferred pharmacies” within Part D plans’ pharmacy networks, so as to allow Part D sponsors to reduce copayments or coinsurance at such pharmacies only if they offer consistently lower negotiated prices than are available from other pharmacies in the pharmacy network.
  • Modify the “any willing pharmacy” requirement to require plan sponsors to contract with any willing pharmacy able to meet one set of the terms and conditions offered by that plan for that type of pharmacy. CMS also would require that, in establishing its contracted pharmacy network, a Part D sponsor must offer and publicly post standard terms and conditions for network participation for each type of pharmacy in the network, and (1) may not require a pharmacy to accept insurance risk as a condition of participation in the PDP sponsor's contracted pharmacy network, and (2) must offer payment terms for every level of cost sharing offered under its plans (consistent with CMS limitations on the number and type of cost sharing levels) and for every type of similarly-situated pharmacy.
  • Limit prescription drug plans sponsors to offering no more than two Part D plans in the same service area.
  • Implement an ACA requirement that MA plans and Part D sponsors report and return identified Medicare overpayments.
  • Address prescription drug abuse by, among other things, authorizing CMS to revoke a physician’s or eligible professional’s Medicare enrollment if he or she has a pattern of prescribing Part D drugs that is abusive and represents a threat to beneficiary health and safety or otherwise fails to meet Medicare requirements, or if the prescriber’s Drug Enforcement Administration (DEA) certificate of registration or state license is suspended or revoked. The rule also would require that prescribers of Part D drugs enroll in Medicare as a condition of coverage for their prescriptions.
  • Establish U.S. citizenship and lawful presence as an eligibility requirement for enrollment in MA and Part D plans.

The official version of the rule will be published on January 10, 2014. CMS will accept comments on the proposed rule until March 7, 2014.

CMS Invites Comments on Medicare Payment for Hospice Enrollees' Drug Expenses

CMS is inviting comments on a recent memo clarifying the criteria for determining Medicare payment responsibility for drugs for hospice beneficiaries. CMS notes that hospice providers are expected to cover virtually all drugs for hospice beneficiaries during the hospice election. For prescription drugs to be covered separately under Part D when the enrollee has elected hospice, the drug must be for treatment of a condition that is completely unrelated to the terminal condition or related conditions. CMS expects drugs will rarely be covered under Part D for hospice beneficiaries; the Part D sponsor therefore should place beneficiary-level prior authorization requirements on all drugs for hospice beneficiaries to determine whether the drugs are coverable under Part D. The hospice provider will be responsible for coordinating with Part D plan sponsors to determine payment responsibility for those drugs it believes should be covered separately under Part D. The memo addresses additional mechanics of the policy, including how hospices and plans should address disputes regarding payment responsibility for particular drugs while CMS develops an independent review process. CMS will accept comments on its guidance until January 10, 2014.

OIG Examines Inappropriate Medicare Payments on Behalf of Deceased or Unlawfully-Present Beneficiaries

According to the HHS Office of Inspector General (OIG), the Medicare program continues to make inappropriate payments on behalf deceased beneficiaries and beneficiaries who are unlawfully-present in the country. First, despite safeguards intended to prevent and recover Medicare payments made on behalf of deceased beneficiaries, Medicare inappropriately paid $23 million in 2011 for claims with service dates after beneficiaries' deaths. The majority of the improper payments were made under Medicare Part C. The OIG recommended a series of steps to improve payment safeguards in this area and to address providers and suppliers identified by the OIG with high numbers of claims with service dates after beneficiaries' deaths.

In a separate report, the OIG found that CMS did not adequately prevent Medicare Part D payment for unlawfully-present beneficiaries for calendar years 2009 through 2011. As a result, CMS inappropriately accepted 279,056 prescription drug event records submitted by Part D sponsors with unallowable gross drug costs totaling $29.0 million on behalf of 4,139 unlawfully-present beneficiaries. CMS used those records to make final payment determinations to sponsors. The OIG recommended that CMS resolve improper Part D payments made for drugs provided to unlawfully-present beneficiaries and take steps to develop and implement controls to prevent inappropriate payments in the future.

OIG Call for Medicare Part B Drug Rebates Rejected by CMS

A new OIG report estimates that Medicare could realize significant savings if drug manufacturers were required to pay rebates on Medicare Part B drugs, similar to rebates under the Medicaid program. Specifically, Medicare could have collected $3.1 billion in 2011 if manufacturers had been required to pay rebates based on average manufacturer price (AMP) for 60 high-expenditure Part B drugs, while rebates based on average sales price (ASP) for the same drugs could have generated $2.7 billion in payments. In the report, the OIG recommends that CMS examine establishing such a Part B drug rebate program and, if appropriate, seek legislative change. CMS rejected this suggestion, noting that developing such a plan – which would require new legislative authority -- would necessitate analysis of the effects of making fundamental changes to the Part B claims payment system, the impact on providers, and the impact on access to care. CMS maintains that it is “unable to devote significant administrative resources at this time to a proposal that is neither a provision of current law or actively under consideration.” (The Administration has, on the other hand, advocated rebates for Medicare Part D drugs furnished to low-income subsidy beneficiaries as part of its FY 2014 budget proposal.) 

OIG Focuses on Inappropriate Prescribing of Medicare Part D Drugs

The HHS Office of Inspector General (OIG) has issued two recent reports focusing on inappropriate prescribers practices involving drugs paid under the Medicare Part D program. In one report, the OIG concluded that the Medicare Part D program inappropriately paid for drugs (including controlled substances) ordered by individuals who did not have the authority to prescribe, such as massage therapists, athletic trainers, home contractors, interpreters, transportation companies, counselors, social workers, and chiropractors in 2009. In a related report, " Prescribers with Questionable Patterns in Medicare Part D," the OIG identified more than 736 general-care physicians who demonstrated what the OIG considers to be questionable prescribing patterns, such as prescribing extremely high numbers of prescriptions per beneficiary, using numerous pharmacies, prescribing a high percentage of Schedule II and Schedule III drugs, and prescribing a high percentage of brand-name prescriptions. Medicare paid $352 million for the Part D drugs ordered by these "extreme outlier" physicians. The OIG notes that while "some of this prescribing may be appropriate, such questionable patterns warrant further scrutiny." To address issues identified in the reports, the OIG recommends that CMS increase oversight of the Part D program by: requiring Part D plan sponsors to verify that prescribers have the authority to prescribe drugs; providing sponsors with additional guidance on monitoring prescribing patterns; increasing the Medicare Drug Integrity Contractor’s monitoring of prescribers; providing education and training for prescribers; ensuring that Medicare does not pay for prescriptions from individuals without prescribing authority; and following up on the prescribers identified in the reports. CMS concurred with the recommendations. The first report, "Medicare Inappropriately Paid for Drugs Ordered by Individuals without Prescribing Authority," is available here. To highlight its concerns in this area, the OIG has created a new "Spotlight" web page focusing on OIG enforcement efforts and investigations related to prescription drug diversion.

CMS Finalizes Medicare Advantage/Part D Plan Medical Loss Ratio Rules

CMS published a final rule on May 23, 2013 that implements new medical loss ratio (MLR) requirements for the Medicare Advantage (MA) program and the Part D prescription drug program. Under the new requirements, which were mandated by the ACA, MA organizations and Part D plan sponsors are required to report their MLR (percentage of revenue used for patient care), and are subject to financial and other penalties for a failure to meet a new statutory requirement that they have an MLR of at least 85%. The rule is generally effective for contract years beginning on or after January 1, 2014.

OIG Finds Medicare Plans Generally Cover Drugs Commonly Used by Dual Eligibles

The OIG has issued an ACA-mandated report on Medicare Part D prescription drug plan and MA drug plan coverage of drugs commonly used by full-benefit dual-eligible individuals (that is, individuals eligible for Medicare and Medicaid and who receive full Medicaid benefits and Medicare premium and cost-sharing assistance). The OIG determined that for 2013, Part D/MA plan formularies include 96% of 195 commonly-used drugs, with 64% of the commonly-used drugs included in all such formularies. Plans applied utilization management tools to 28% of the unique drugs reviewed in 2013, compared to 24% in 2012 (mainly attributable to an increase in the use of quantity limits). 

Health Policy Hearings

Recent Congressional hearings focusing on health policy include the following:

  • The House Energy and Commerce Committee held hearings on health insurance premiums under the ACA and drug compounding. The House Energy and Commerce Health Subcommittee also held a hearing on "Reforming SGR (Sustainable Growth Rate): Prioritizing Quality in a Modernized Physician Payment System," which reviewed draft SGR reform legislative language. A June 12 hearing will focus on the state perspective on the need for Medicaid reform, and a June 14 hearing will examine the federal government's response to the prescription drug abuse crisis.
  • A House Ways and Means Committee Health Subcommittee hearing addressed the “President's and Other Bipartisan Proposals to Reform Medicare," and the panel has scheduled a June 14 hearing to concentrate on proposals to reform Medicare post-acute care payments. 
  • The Homeland Security Committee held a second hearing on “Oversight and Business Practices of Durable Medical Equipment Companies.”
  • The Senate Special Committee on Aging held a hearing entitled “10 Years Later: A Look at the Medicare Prescription Drug Program." 

CMS Sequestration Guidance for State Surveyors, Medicare Part C & D Plans

CMS has issued guidance to state survey agencies explaining adjustments CMS is making to survey and certification operations to "accommodate sequestration with as little impact on the public as possible." The guidance discusses revisions in the frequency and timelines for various surveys and other survey changes in light of a 5% reduction to the FY 2013 survey and certification Medicare budget. CMS also issued a May 1, 2013 memo to Part C and D plans on sequestration, covering rules regarding reducing payments to contracted and non-contract providers, beneficiary liability under sequestration, coverage gap discount program payments, Part D risk corridor reconciliation, and Electronic Health Records (EHR) Incentive Program payments, among other topics. In a related development, President Obama has signed the sequestration order for FY 2014, as required by law, although the Obama Administration's proposed FY 2014 budget, if adopted, would replace sequestration.

CMS Finalizes Medicare Advantage, Part D Drug Plan Rates for 2014

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.

Obama Administration's Proposed FY 2014 Budget Includes $401 Billion in Health Program Savings

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:

Medicare Provider Payments

  • Reform the Medicare physician fee schedule/sustainable growth rate (SGR) formula to provide stable payments followed by payment linked to participation in an “accountable payment model.”
  • Reduce Medicare coverage of bad debts from 65% generally to 25% over three years starting in 2014.
  • Reduce Medicare indirect medical education add-on payments by $11 billion over 10 years.
  • Reduce payment for post-acute care services in several ways.
    • Reduce payment updates for inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs), skilled nursing facilities (SNFs), and home health agencies (HHAs) by 1.1 percentage points, beginning in 2014 through 2023 (the update could not fall below 0%). This provision would save $79 billion over 10 years.
    • Adjust the standard for classifying a facility as an IRF (at least 75% of patient cases admitted to an IRF must meet one or more of 13 designated severity conditions), saving about $2.5 billion over 10 years.
    • Equalize IRF and SNF payments for three conditions involving hips and knees, pulmonary conditions, as well as other conditions selected by the Secretary, saving $2.0 billion over 10 years.
    • Reduce by up to 3% payments to SNFs with high rates of care-sensitive, preventable hospital readmissions, beginning in 2017, saving $2.2 billion over 10 years.
    • Implement bundled payments for post-acute care providers (LTCHs, IRFs, SNFs, and HHAs) beginning in 2018. Payments would be bundled for at least half of the total payments for post-acute care providers. Rates based on patient characteristics and other factors would be set to produce a permanent and total cumulative adjustment of -2.85% by 2020. Beneficiary coinsurance would equal levels under current law. This provision would save $8.2 billion over 10 years.
  • Align Medicare payments to rural providers with the cost of care, saving $2 billion over 10 years.
  • Align Medicare payment for clinical laboratory services with private sector rates and encourage electronic reporting of laboratory results.

Prescription Drug Provisions

  • Reduce payment for physician-administered Medicare Part B drugs from 106% of average sales price to 103% of average sales price. Manufacturers would be required to provide a specified rebate in certain instances as determined by the Secretary “to preserve access to care.”
  • Provide Medicaid-level drug rebates for brand name and generic drugs provided to beneficiaries who receive Part D low-income subsidies, saving $123 billion over 10 years.
  • Close the Medicare Part D donut hole by 2015, rather than 2020, by increasing manufacturer discounts to from 50% to 75% beginning in plan year 2015.
  • Lower Medicaid drug costs by clarifying the definition of brand drugs, excluding authorized generic drugs from average manufacturer price calculations for determining manufacturer rebate obligations for brand drugs, making a technical correction to the Affordable Care Act (ACA) alternative rebate for new drug formulations, and calculating Medicaid federal upper limits based only on generic drug prices. These proposals are projected to save $8.8 billion over 10 years. 
  • Encourage the use of generic drugs by Part D low-income subsidy beneficiaries by modifying copayments, saving approximately $7 billion over 10 years. 
  • Improve program integrity for Medicaid drug coverage by directing states to track high prescribers and utilizers of Medicaid prescription drugs; requiring manufacturers to make full restitution to states for any covered drug improperly reported by the manufacturer on the Medicaid drug coverage list; allowing more regular audits and surveys of manufacturers to ensure compliance with Medicaid drug rebate agreement requirements; requiring drugs to be electronically listed with the FDA to receive Medicaid coverage; and expanding penalties for reporting false information for the calculation of Medicaid rebates. 
  • Increase the availability of generic drugs and biologics by authorizing the Federal Trade Commission to stop companies from entering into “pay for delay” agreements and modifying the length of exclusivity on brand name biologics.

Program Integrity/Efficiency Provisions

  • Provide $640 million in combined mandatory and discretionary program integrity funding to implement activities that reduce payment error rates, prevent fraud and abuse, target high-risk services and supplies, and enhance civil and criminal enforcement for Medicare, Medicaid, and CHIP. 
  • Authorize civil monetary penalties or other intermediate sanctions for providers who do not update enrollment records and permit exclusion of individuals affiliated with entities sanctioned for fraudulent or other prohibited actions from federal health care programs. 
  • Expand authority to investigate and prosecute allegations of abuse or neglect of Medicaid beneficiaries in additional health care settings.
  • Exclude radiation therapy, therapy services, and advanced imaging from the in-office ancillary services exception to the prohibition against physician self-referrals (Stark law), except in cases where a practice meets certain accountability standards, as defined by the Secretary.
  • Require prior authorization of advance imaging services.
  • Require prepayment review or prior authorization for power mobility devices.
  • Allow the Secretary to create a system to validate practitioners’ orders for certain high-risk items and services.

Other Medicare Provisions

  • Revise beneficiary cost-sharing requirements, including increased income-related premiums under Parts B and D, a new home health copayment, and increased premiums for beneficiaries with Medigap policies with particularly low cost-sharing requirements.
  • Increase the minimum Medicare Advantage (MA) coding intensity adjustment (which decreases MA plan payments to reflect differences in coding practices between Medicare fee-for-service and MA) and align employer group waiver plan payments with MA bids, saving $19 billion over 10 years. 
  • Strengthen the Independent Payment Advisory Board (IPAB) by reducing the target rate of Medicare cost growth from gross domestic product plus one percentage point to plus 0.5 percentage point.
  • Expand the availability of Medicare data released to physicians and other providers for performance improvement, fraud prevention, value-added analysis, and other purposes.

Medicaid Provisions

  • Base Medicaid rates for durable medical equipment on Medicare rates to save $4.5 billion over 10 years.
  • Align Medicaid Disproportionate Share Hospital (DSH) payments with expected levels of uncompensated care to save $3.6 billion over 10 years. 
  • Affirm Medicaid’s position as a payer of last resort when another entity is legally liable to pay claims.

A 131-page Department of Health and Human Services (HHS) “Budget in Brief” summary discusses these provisions in greater detail, and also addresses other HHS agency budget proposals and discusses HHS’s implementation of private health insurance protections and programs under the ACA.

MedPAC's March 2013 Report to Congress

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):

  • Congress should increase payment rates for inpatient and outpatient hospital prospective payment systems by 1%, and require the difference between the statutory update and the recommended 1% update be used to offset payment increases due to documentation and coding changes and to recover past overpayments.
  • Congress should repeal the sustainable growth rate (SGR) system for physician services and replace it with a 10-year path of statutory fee-schedule updates. This proposal, first offered in October 2011, would combine a freeze in payment levels for primary care and, for all other services, annual payment reductions followed by a freeze. MedPAC also endorsed the collection of data to establish more accurate work and practice expense values; budget-neutral changes to improve data on which relative value unit weights are based and to redistribute payments to underpriced services, and changes to the structure of accountable care organization shared savings payments.
  • Congress should eliminate the ambulatory surgical center (ASC) payment update for 2014, require ASCs to submit cost data, and direct the Secretary to implement a value-based purchasing program for ASCs by 2016.
  • Congress should eliminate the skilled nursing facility market basket update, and direct the Secretary to revise the prospective payment system for SNFs and begin a process of rebasing payment as soon as practicable. 
  • MedPAC reiterates previous recommendations to rebase home health rates, eliminate the market basket update, revise the home health case-mix system to rely on patient characteristics to set payment for therapy and nontherapy services, establish a per episode copay for home health episodes that are not preceded by hospitalization or post-acute care use, and expand program integrity efforts.
  • Congress should eliminate the update to hospice rates for FY 2014 and adopt a series of previous MedPAC recommendations addressing payment and program integrity reforms.
  • Congress should eliminate the 2014 updates for outpatient dialysis services, inpatient rehabilitation facilities, and long-term care hospitals.
  • With regard to Medicare Advantage, Congress should allow the authority for most MA chronic care special needs plans (SNPs) to expire (with certain exceptions) and allow MA plans to enhance benefit designs for individuals with specific chronic or disabling conditions. MedPAC also recommends that Congress permanently reauthorize dual-eligible special needs plans (D–SNPs) that assume clinical and financial responsibility for Medicare and Medicaid benefits (with certain changes) and allow the authority for all other D–SNPs to expire.


OIG Calls for Stronger Conflict-of-Interest Oversight for Medicare Part D P&T Committees

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.

Medicare and Sequestration - What Happens Now?

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.

Older Entries

February 18, 2013 — CMS Proposes Medicare Advantage, Part D Drug Plan Medical Loss Ratio Rule and Advance 2014 Rate Information

January 30, 2013 — OIG Calls for Improvements to Medicare Parts C & D Benefit Integrity Activities

December 17, 2012 — OIG Releases 2012 Compendium of Unimplemented Recommendations

October 30, 2012 — GAO Finds Part D Coverage Gap Discount Program Did Not Spur Increased Drug Prices

October 16, 2012 — OIG Issues FY 2013 Work Plan

October 16, 2012 — CMS Releases Medicare Advantage/Part D Drug Plan Quality Data as Open Enrollment Period Begins

October 15, 2012 — OIG Assesses Inappropriate Medicare Part D Payments for Schedule II Drugs Billed as Refills

July 27, 2012 — MedPAC Issues 2012 Data Book

July 18, 2012 — OIG Examines Medicare Part D Drug Payments for Hospice Beneficiaries

June 18, 2012 — CMS Correction Notices (IPPS, LTCH-PPS, MA, PDP)

June 13, 2012 — OIG Concludes Part D Plans Include Drugs Used by Dual Eligibles

May 11, 2012 — OIG Examines Retail Pharmacy Billing for Part D Drugs

April 23, 2012 — CMS Finalizes Medicare Part D/Medicare Advantage (MA) Rules for 2013

April 23, 2012 — CMS Guidance on CY 2013 Part D Medication Therapy Management Programs

April 2, 2012 — MedPAC Issues March 2012 Medicare Recommendations

February 28, 2012 — OIG Examines MA Organizations' Identification of Potential Fraud & Abuse

February 25, 2012 — CMS Releases 2013 Medicare Advantage/Part D Combined Advance Notice and Draft Call Letter

February 14, 2012 — President Obama Proposes FY 2013 Budget

January 25, 2012 — CMS Seeks Comments on Part D Reporting Requirements, & Issues Other Part D Updates

January 4, 2012 — CMS Guidance to Part D Plans on Prescription Drug Abuse

January 4, 2012 — OIG Identifies Part D Oversight Gaps

December 13, 2011 — Congressional Budget Office Revised Part D Spending Patterns

December 13, 2011 — OIG Examines Part D Financial Record Audits

December 13, 2011 — MedPAC to Discuss Medicare Payment Policies (Dec. 15 & 16)

November 29, 2011 — OIG Examines How Part D Limits Drugs to Medically-Accepted Indications

November 14, 2011 — OIG Highlights Medicaid Rebate Program, Indian Health Services (IHS) Issues

November 11, 2011 — CMS Guidance on Medicare Part D Coverage Gap Discount Program, Cost-Sharing for Dual Eligibles

October 28, 2011 — Upcoming MedPAC Meeting (Nov. 3-4)

October 14, 2011 — CMS Proposes Changes To Medicare Part D/Medicare Advantage Rules

October 14, 2011 — CMS Seeks Ideas on Reducing Overutilization of Part D Drugs

October 14, 2011 — GAO Examines Part D "Doctor Shopping"

September 27, 2011 — Medicare Coverage Gap Discount Program: Low Dollar Invoice Amounts

September 19, 2011 — President Obama Outlines Proposal to Deficit Reduction Super-Committee; Medicare Provisions Loom Large

September 1, 2011 — CMS Finalizes MIPPA Medicare Advantage/Part D Drug Plan Rule

August 16, 2011 — OIG Compares Medicare Part D and Medicaid Drug Rebates

August 16, 2011 — Part D Plan Mid-Year Formulary Changes Reviewed by GAO

August 1, 2011 — OIG Report on Medicare Part D Plan Sponsors' Fraud Training

August 1, 2011 — GAO Report on Part D Drug Utilization for Low-Income Subsidy Beneficiaries

July 18, 2011 — CMS Solicits Comments on Medicare Coverage Gap Discount Program Issues

June 14, 2011 — CMS Updates Guidance on Medicare Coverage Gap Discount Program Appeals

May 31, 2011 — Part D Payments on Behalf of Deceased Enrollees.

April 29, 2011 — OIG Report on Part D Drugs for Dual-Eligible Beneficiaries

April 13, 2011 — CMS Finalizes Changes to Medicare Part D, Medicare Advantage Rules

April 13, 2011 — CMS Seeks Comments on Part D Coverage Gap Appeals; 2012 MA/Part D Call Letter Released

March 29, 2011 — Medicare Part D Guidance: Medication Therapy Management, Formulary Submissions

March 29, 2011 — Compendium of Unimplemented OIG Recommendations

March 29, 2011 — GAO and OIG Examine Medicare Part D Issues

March 29, 2011 — CBO Presents Budget Options, Including Potential Health Policy Savings

March 7, 2011 — OIG Identifies Top HHS Management Challenges, Including ACA Implementation

March 7, 2011 — OIG Faults Part D Rebate Reporting

February 18, 2011 — OIG Report on Invalid Prescriber IDs on Part D Schedule II Drug Claims

January 28, 2011 — New Medicare Part D Guidance Documents

January 13, 2011 — Medicare Advantage/Part D Plan Marketing Guidelines, Applications

December 29, 2010 — CMS Seeks Comments on Recovery Audit Contractors (RACs) for Medicare Parts C & D

November 29, 2010 — Medicare Part D Pharmacy Discounts

November 16, 2010 — CMS Proposes Changes to Medicare Part D, Medicare Advantage Rules

November 15, 2010 — Medicare Coverage Gap Discount Program - 2012 Benefit Year

November 15, 2010 — OIG Report on Part D Terminated Drugs

October 15, 2010 — Medicare Coverage Gap Discount Program - 2011 Labeler Code File

September 17, 2010 — Part D Drug Benefit Coverage Gap

August 31, 2010 — "Consistently Low Performer" Ratings for Part C/Part D Plans

August 31, 2010 — OIG Report on Less-Than-Effective Drugs in the Medicare Part D Program

August 13, 2010 — Final Medicare Part D Coverage Gap Discount Program Manufacturer Agreement

July 28, 2010 — Comment Opportunity on 2011 MA/Part D Bid Submissions

July 12, 2010 — CMS Rule on E-Prescribing and the Medicare Prescription Drug Program

July 10, 2010 — Invalid Part D Prescriber Identifiers

June 18, 2010 — CMS Updates on Part D Coverage Gap Rebates/Discount Program

June 17, 2010 — OIG Report on Medicare Part D Prescription Drug Event Reconciliation Process

June 8, 2010 — CMS Information on Generic Drugs in the Part D Coverage Gap

June 8, 2010 — CMS Corrects Part D/MA Rule

May 28, 2010 — Affordable Care Act Updates on Part D Coverage Gap Payments SNF Policy, Fraud Provisions, Beneficiary Improvements

May 24, 2010 — CMS Issues Revised Program Instructions and Draft Manufacturer Agreement for Medicare Part D Coverage Gap Discount Program; Releases Medicaid AMP Reporting Guidance

May 11, 2010 — Draft Program Instructions for Medicare Part D Coverage Gap Discount Program (Comments Due May 14)

April 16, 2010 — Medicare Part C/Part D Final Rule

April 16, 2010 — CMS Releases Final 2011 MA/Part D Call Letter, 2011 MA Capitation Rates

March 31, 2010 — Congressional Hearings

March 30, 2010 — MedPAC Part D Data

March 15, 2010 — Congressional Hearings

March 15, 2010 — Medicare Part D/High-Cost Drugs

March 15, 2010 — Unimplemented OIG Recommendations

February 26, 2010 — Congressional Health Policy Hearings

February 26, 2010 — Advance Notice of 2011 MA/Part D Payments

February 26, 2010 — HHS Announces Relief for State Part D Drug Cost Expenses

February 9, 2010 — CMS to Host Part D Data Symposium (March 18, 2010)

December 21, 2009 — Medicare Appeals/Prescription Drug Appeals Rules

December 21, 2009 — OIG Report on Part D Plan Formulary Changes

November 11, 2009 — Part D Fraud & Abuse

October 30, 2009 — OIG Report on Medicare Part D E-Prescribing

October 15, 2009 — CMS Proposes New Rules for Medicare Advantage and Part D Drug Plans

September 28, 2009 — Medicare Part D Reconciliation Payments

August 17, 2009 — Medicare Part D, Medicare Advantage Developments

July 28, 2009 — Part D Drug Information

June 13, 2009 — White House proposes $313 billion in additional Medicare/Medicaid cuts

June 8, 2009 — Draft Part D Reporting Requirements

June 8, 2009 — Part D Payments for SNF Beneficiaries

May 18, 2009 — Senate Finance Releases Health Reform Financing Options -- Comments Due May 26, 2009

May 4, 2009 — Practicing Physicians Advisory Council Meeting (June 1, 2009)

April 6, 2009 — Medicare Advantage/Part D Call Letter, Payment Policies

March 6, 2009 — Part D/MA Developments

March 6, 2009 — Part D Coverage Gap