Issues Spotlights

Regulations for Medicare Prescription Drug Benefit Issued

August 4, 2004

The first set of proposed regulations implementing the new Medicare prescription drug benefit were published on August 3. This first "Notice of Proposed Rulemaking" (NPRM) runs more than 1,300 pages and sets forth initial guidelines for the new drug benefit that will go into effect in January 2006. The Center for Medicare and Medicaid Services (CMS), the agency that administers Medicare, has set a deadline for comments of October 4, 2004. It is expected that final regulations will be issued in the spring of 2005.

To view the entire text of the NPRM, click here

To read additional information about the new Medicare drug benefit, click here.

NAMI Comments on the Regulations

NAMI is planning to submit a comprehensive set of comments on the broad range of issues regarding the regulations. These comments will be prepared in advance of the comment deadline and will be made available to NAMI affiliates that may also wish to submit comments. Of highest concern to NAMI in the regulations is a range of priorities:

  • ensuring that private prescription drug plans that will be offering drug coverage to Medicare beneficiaries (PDPs) are required to offer broad access to medications to treat mental illness,
  • limiting the ability of Medicare PDPs to impose restrictive policies such as prior authorization, "fail first" requirements, tiered co-payments and preferred drug lists,
  • promoting a strong set of appeal and grievance rights for beneficiaries and their families, and
  • ensuring that individuals dually eligible for Medicare and Medicaid are able to make a smooth transition into the new Medicare drug benefit in January 2006.

Preliminary Analysis of the Regulations

A large potion of the NPRM includes a restatement of the many requirements for the drug benefit that are set forth in the statute. This includes standards for eligibility, enrollment, marketing of drug plans, beneficiary protections, etc. It is important to note that the development of this new program is a major undertaking for CMS. Unlike traditional Medicare, this new drug benefit will be administered by private sector drug plans through a competitive model. In addition, the new drug benefit is strictly voluntary and it is expected that many Medicare beneficiaries that already have drug coverage will not elect to participate. An important exception to this will be beneficiaries dually eligible for Medicaid who will be required to enroll in the new program.

Dual Eligibles: The NPRM does not contain a specific requirement for PDPs to maintain "continuity of care" dual eligible beneficiaries, i.e. a requirement barring plans from switching a vulnerable dual eligible off a medication which is effective for that individual when they transition from Medicaid to the new Medicare drug program in January 2006. NAMI is pushing for such a requirement in the regulations. At the same time, the NPRM does recognize the need to balance plan flexibility and cost control versus certain special needs populations (with a specific mention of dual eligibles with mental illness). The NPRM even suggests that certain classes of beneficiaries (e.g., those residing in long-term care facilities) should have access to an open formulary.

Benefits: The regulations restate the basic contours of the benefit as set forth in the law, i.e. $250 deductible, 25% cost sharing, initial coverage limit of $2,250, annual out of pocket threshold of $3,600, coverage above the catastrophic limit, etc. The regulations also restate a requirement in the law for pharmacies to inform enrollees of the difference between a prescribed drug and the lowest price generic. Under the regulations, drug plans would be required to make a network of convenient pharmacies available (including mail order).

P&T Committees: Both the regulations and the law allow (and assume) that individual PDPs will use Pharmacy and Therapeutics (P&T) Committees to develop formularies and coverage policies. The NPRM does set forth specific standards for P&T Committees in terms of diversity requirements (who serves on the Committee) and their authority to establish prior authorization, step therapy, tiered cost sharing, etc. The regulations also state that each P&T Committee must be independent and free of conflict of interest.

Formulary Development: The NPRM specifically states there is an "expectation" that P&T Committees will balance cost considerations with clinical considerations in developing a plan’s formulary. Unfortunately, the regulations do not set forth a requirement for P&T Committees to develop a plan’s formulary in an open, transparent process with public meetings. As required in the law, the regulation states that there must be two drugs within each therapeutic class. The regulations recognize the "off-label" use of FDA approved medications – very common in the case of bipolar disorder. However, the regulations allow PDPs to require physicians to document and justify such "off label" use based on an enrollee’s clinical record.

Most importantly, the regulations seek comment on the need for standards and criteria for evaluating whether a PDP’s formulary is designed to discourage enrollment of high cost beneficiaries – a violation of the law’s strong anti-discriminatory standards. Finally, the regulations specifically request comment on how to best balance cost and access for special needs populations such as beneficiaries with mental illnesses.

Changes in the Formulary: The NPRM restates a troubling provision in the law that allows a PDP to change its formulary in the middle of a plan year, so long as beneficiaries are given 30 days notice. NAMI is pushing CMS to include a provision in the final rules that would require PDPs to continue covering a drug being removed from a formulary, for enrollees who are stable on that medication for the remainder of the plan year.

Dissemination of Plan Information: The regulations set forth a series of disclosure requirements for PDPs in all marketing materials that beneficiaries could obtain prior to enrollment. Among these are: cost sharing requirements, which pharmacies are in the plan’s network, how to view the plan formulary, the plan’s financial condition, and how to obtain an exception to a restriction in the plan’s coverage. Plans must also maintain a customer call center, post all information on the internet and make information available to enrollees in writing if requested.

Cost Control and Quality Improvement: PDPs will be required to establish cost effective drug utilization management programs, as well as programs to control fraud and abuse. The NPRM also notes that CMS is seeking more information about "medication therapy management services" (defined as efforts to manage high cost "specialty" medications for targeted beneficiaries with multiple chronic diseases). The NPRM also notes that explicit notification and approval would be required in cases where a plan imposes therapeutic substitution.

Plan Approval and Bids: The NPRM contains hundreds of pages of standards for the process by which plans would submit bids and negotiate with CMS on coverage areas. The law is designed to have multiple plans available for beneficiaries to choose from. If this fails to happen, CMS is allowed to set up no-risk "fallback" plans in specific regions. CMS will also be allowed to make risk adjustment payments to certain plans based on the health status of the plan’s enrollees (i.e. higher payments to plans that might attract beneficiaries with higher costs).

True-Out-Of-Pocket (TROOP): This provision in the law relates to calculation of when beneficiaries’ costs reach the catastrophic threshold of $3,600 that triggers deeper coverage. On this issue, beneficiaries won a major victory as the NPRM sets forth a broad definition of TROOP (including most drug assistance programs and charities). The NPRM also puts responsibility on the PDP to electronically track such expenditures.

Grievances and Appeals: The NPRM generally follows the current structure for beneficiary grievances and appeals under the Medicare Advantage program. It is important to note that grievances generally cover complaints about a plan’s conduct, while appeals cover a plan’s coverage decisions. Unfortunately, the NPRM does not appear to settle the issue of the scope of appealable issues (e.g., it is unclear if a prior authorization requirement is appealable or not). The NPRM does require a plan to track and maintain all records of grievances and provide written notice of all coverage denials.

The NPRM also sets forth a series of beneficiary rights including timely coverage determination, the ability to request an exception to tiered cost sharing, the right expedited redetermination of an adverse decision, reconsideration by an "Independent Review Entity," an Administrative Law Judge (ALJ) hearing and finally, judicial review. Specifically, this includes a decision within 14 days for a request for drug and decision for payment within 30 days. Expedited determinations would have to be made in no longer than 72 hours. If a PDP fails to render a timely decision for an exceptions request, then the enrollee would be entitled to a 1 month supply of the drug. The grounds for an appeal closely follow the statute, i.e. that a preferred drug would not be either as effective or have adverse effects for the individual. Finally, in the NPRM, CMS asks for criteria for exceptions to "fail first" requirements and the need for a requirement for access to a product that is removed during the middle of a plan year.

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