The Centers for Medicare and Medicaid Services (CMS) has announced a new voluntary Part D Senior Savings Model (the Model) intended to reduce Medicare beneficiary cost sharing for insulin.  Under the Model, participating insulin manufacturers and participating sponsors of Medicare Part D prescription drug plans (PDPs) and Medicare Advantage Part D plans (MA-PDs) will make available 30-day supplies of insulin to beneficiaries of certain “enhanced benefit” PDPs and MA-PDs, with cost-sharing capped at no more than $35 during all phases of the Part D benefit, other than the catastrophic benefit.

The Model appears to reflect a balancing of plan and manufacturer concerns.  If there is significant participation by Part D sponsors, the Model could provide meaningful relief to beneficiaries facing high out-of-pocket costs for insulin under Part D.  As of the writing of this post, three of the largest insulin manufacturers – Eli Lilly, Novo Nordisk and Sanofi Aventis –have announced their intention to participate.

The Model, which was announced March 11, 2019, will be a five-year program, beginning in plan year 2021.  CMS is offering the Model through the Center for Medicare and Medicaid Innovation (CMMI) pursuant to authority under section 1115A of the Social Security Act (added by the Affordable Care Act).  The following is a summary of the new Model, along with our initial observations regarding some of its implications.

Key Points

  • Voluntary Participation by Manufacturers and Plans: The availability of insulin with $35 copayments will depend upon the extent of Model participation, particularly by plan sponsors. If none of the Part D sponsors in a given region elects to offer a participating plan under the Model, beneficiaries in that region will not have access to the $35 copays for insulin under the Model.
  • No Availability under Plans providing the Part D Basic Benefit: Participation in the Model is limited to “enhanced benefit” plans, which provide supplemental benefits and carry higher premiums than plans providing only “basic” Part D coverage.
  • Limited Changes to Part D: While CMMI has broad power to modify Medicare program requirements, the primary changes under this Model are limited.
    • The Model focuses upon higher cost-sharing payable for insulin during the Part D coverage gap, and removing a disincentive for enhanced benefit plans to reduce it through a supplemental benefit. The disincentive is due to a statutory provision of the Part D coverage gap discount program that reduces the discounts manufacturers provide when such a supplemental benefit is provided, resulting in increased plan premiums.
    • The Model provides that participating manufacturers must waive this provision with respect to participating plans that agree to cover their insulin for a $35 copay –i.e., they agree to pay the same, higher discounts as they would if the supplemental coverage were not provided. The premise of the Model is that plans should be willing to provide that lower copay once the disincentive is removed – but it remains up to each Part D sponsor to decide whether or not to do so by participating in the program, for any given enhanced benefit plan.
    • The Model does not require that manufacturers limit the list prices for their insulin products or that plans pass-through manufacturer rebates to the point of sale – more-significant changes that some have advocated.

Model Drugs, Participants and Key Dates

  • Model Drugs: The Model will be available for Part D-eligible drugs that are, or contain a drug classified as, insulin, in the AHFS or DRUGDEX compendia, and that are manufactured by a participating manufacturer (Model Drugs).[1]
  • Participating Manufacturers: A manufacturer of a Model Drug wishing to participate in the Model must agree to participate for the entire five-year period of the Model, with respect to all marketed Model Drugs labeled by it or a subsidiary. To participate in the Model, manufacturers must apply by March 18, 2020.
  • Participating Part D Plan Sponsors: Part D plan sponsors may elect to participate in the Model with respect to one or more of their eligible “enhanced alternative” PDPs or
    MA-PDs.[2] Plan sponsors must submit their applications by May 1, 2020, and are requested to submit a non-binding letter of intent to participate by April 10, 2020.

    • The Model is not available for plans providing only “basic” Part D coverage, for dual eligible special needs plans (D-SNPs), or for Part D coverage offered through several other types of plans (e.g., PACE plans, employer/union only direct plans, or Medicare-Medicaid demonstration plans).
    • Plan sponsors may choose annually which of their enhanced alternative plans to include in the Model. While they are allowed to include any or all plans offered in any region nationwide (or in U.S. territories), they are not required to participate in all regions where they offer Part D coverage.
    • Plan sponsors are not required to commit to participate for the five-year period of the Model, and instead can decide whether or not to participate, and the enhanced alternative plans for which they will participate, prior to each year of the Model.

Application of $35 Copay

  • Covered Model Drugs with $35 Copay: As a minimum requirement, a participating plan must make available, for a copayment of no more than $35, at least the following Model Drugs: at least one vial dosage form and one pen dosage form of each type of insulin (i.e., rapid-acting, short-acting, intermediate-acting, and long-acting), to the extent available.
  • No Requirement to Cover all Insulins: While these Model Drugs must be included on the plan’s formulary, a plan is not required to cover all Model Drugs of these types on its formulary – for example, a plan could cover one manufacturer’s long-acting pen, and not another’s, if otherwise permitted under Part D formulary requirements. Consequently, rebate contracting may continue to play a significant role.  However, to the extent that any of these types of insulin are included on a plan formulary, they must be made available for no more than the $35 copayment.
  • $35 Copay not Required for Other Insulin Products: A plan may, but is not required to, make the $35 copayment available with respect to other types of Model Drug insulin products on its formulary – for example, concentrated insulin (U-500) or fixed ratio mixtures.
  • $35 Copay Applies Until Catastrophic Coverage: CMS describes the maximum $35 copayment as applying during “the deductible, initial coverage, and coverage gap phases” of the Part D benefit; as a technical matter, presumably this means that in lieu of a plan deductible applying to these Model Drugs, beneficiaries would pay only the $35 copayment.
  • Lower Copay Permitted: While $35 is the maximum copayment for specified Model Drugs, plans have flexibility to provide a lower copayment under the Model.

Modifications to Coverage Gap Discounts

  • Disincentive to Lower Cost-Sharing in Coverage Gap: CMS states that, under the Part D program currently, there is a financial disincentive for enhanced alternative plans to provide a supplemental benefit to reduce cost-sharing during the coverage gap below the statutorily-defined benefit of 25 percent coinsurance, and that as a result beneficiaries often pay significantly more during the coverage gap than during the initial coverage phase.
    • The disincentive is due to the statutory requirement that, where a plan includes a supplemental benefit, the 70 percent manufacturer coverage gap discount must be calculated after application of the supplemental benefit. As a result, the portion of the drug’s negotiated price (payable to the pharmacy) that is paid by the manufacturer will be less, and the plan will bear that additional cost, in addition to the dollar amount by which the patient’s cost-sharing is reduced.
    • Because the full actuarial cost of supplemental benefits must be included in plan premiums (i.e., they are not subsidized by the federal government), the increased supplemental benefits under such benefit designs result in plans having less competitive premiums.
  • Increased Coverage Gap Discounts for Participating Manufacturers: To remedy this issue, the Model provides that participating manufacturers will be required to agree to pay coverage gap discounts on Model Drugs for which there is a supplemental benefit, calculated without regard to the fact that such supplemental benefit is payable.

Optional Changes to Risk Corridors

  • Existing Part D Risk Corridors: Under the Part D risk corridors, if a plan’s “adjusted allowable risk corridor costs” (essentially, its drug spend) exceed its “target amount” (essentially, the expected drug spend reflected in its bid) for a plan year by more than the “first threshold” limit (currently 5 percent of the target amount), the federal government pays the plan 50 percent of the excess up to the “second threshold” limit (currently 10 percent of the target amount).[3]
  • Optional Changes Under Model: The Model provides that, during the first two years of the Model (2021 and 2022), a participating plan sponsor has the option to opt-in to a modification of the risk corridors under which the first threshold would be reduced from 5 percent to 2.5 percent if the plan has a statistically significantly greater number of insulin-dependent diabetic enrollees on at least one Model Drug than similar plan types.
    • As a result, CMS would share 50 percent of excess costs beginning at a 2.5 percent threshold, rather than a 5 percent threshold, for plans to which these changes apply. Conversely, plans whose costs fall short of the target amount would be required to share 50 percent of savings with CMS beginning at 2.5 percent below the target amount, rather than 5 percent.
    • Note that adjusted allowable risk corridor costs include costs for essentially all drugs covered under a plan, and as such the calculation is not limited to costs for insulin products.

Rewards and Incentives Programs

  • General: Participating plans are permitted to propose a beneficiary rewards and incentives (RI) program designed to encourage enrollees to use covered medications in ways that lead to improvement in health outcomes, medication adherence, and/or efficient use of health care resources. For example, plans could provide RI to encourage enrollees with diabetes or pre-diabetes to participate in a disease state management program.  CMS may approve or reject proposed RI programs in its discretion.
  • RI Provided: Proposed programs may include up to $600 in RI annually. RI may not be in the form of cash or cash equivalents, but may include, among other options, gift cards or discount coupons which are not transferable for cash and may not be used, directly or indirectly, to pay cost-sharing or plan premiums.
  • Other Limitations. Various other limitations apply, including a prohibition on use of educational materials or other resources provided by manufacturers or pharmacies.

Observations

  • Model Reduces Cost-Sharing Outside of Coverage Gap: One important feature of the Model that CMS does not discuss is the mandatory reduction of cost-sharing for Model Drugs during the deductible (effectively, elimination of the deductible) and during the initial coverage phase prior to the coverage gap.
    • Notably, in explaining the Model, CMS presented a slide showing a typical beneficiary cost for a 30-day supply of insulin dispensed during the deductible as $435. The Model would require that cost-sharing for such a prescription be reduced by a whopping $400.
    • Similarly, CMS identified typical copays during the initial coverage phase as $40-$50 per 30-day supply – the required reduction to $35 is an additional mandatory supplemental benefit for Model plans.
  • Potential Impact on Rebates: While the Model does not require any changes to negotiation of rebates between manufacturers and participating plans or their pharmacy benefit managers, it could have implications for those negotiations.  For example, plans may demand higher rebates from manufacturers in exchange for agreeing to offer a Model plan and place the manufacturer’s insulin on that plan’s formulary.

[1] As a technical matter, Model Drugs must be “applicable drugs” on which manufacturer coverage gap discounts are payable, but in practice, we believe all insulin products eligible for Part D coverage should satisfy this requirement.  We note that where coverage for an insulin product is available under Medicare Part B (including Part B coverage provided by MA plans), Part D coverage is not available. Most commonly, this exclusion applies to insulin used in a Part B-covered wearable external infusion pump. Since the Model only relates to Part D coverage, such Part B-covered  insulin will not be eligible for $35 copays under the Model.

[2] CMS notes that 54 percent of Part D beneficiaries are currently enrolled in enhanced alternative plans.

[3] For any such costs in excess of the second threshold (10 percent over the target amount), the federal government pays 80 percent of such excess.  Conversely, the plan must pay the federal government 50 percent/80 percent of any amount by which its adjusted allowable risk corridor costs fall short of its target amount by more than 5 percent/10 percent, respectively.