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Proposed FDA Rule Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses, November 26, 2018

What’s New/Significant

This proposed rule (the Rule) would amend the Medicare Advantage (Part C) and Prescription Drug Benefit (Part D) programs to allow health and drug plans to negotiate for lower drug prices and reduce out-of-pocket costs for enrollees.  Centers for Medicare & Medicaid Services (CMS) seeks to improve the regulatory framework to facilitate development of Part C and Part D products that better meet the individual beneficiary’s healthcare needs and reduce out-of-pocket spending for beneficiaries at the pharmacy and other sites of care.


The Rule will allow Part D plans more flexibility to negotiate discounts for Protected Class Drugs and create substantial savings for recipients.


Creates three exceptions to the requirement that sponsors include on their formularies all drugs in the following six categories: (1) antidepressants; (2) antipsychotics; (3) anticonvulsants; (4) immunosuppressants for treatment of transplant rejection; (5) antiretrovirals; and (6) antineoplastics (Protected Class Drugs). The exceptions would allow Part D sponsors to:

  • Implement broader use of Prior Authorization (PA) and Step Therapy (ST) for Protected Class Drugs, so that patients receive lower-cost options first for new drug starts and existing therapies.  PAs and STs must be clinically supported and be approved by the Part D plan’s Pharmacy and Therapeutics Committee
  • Exclude a Protected Class Drug from a formulary if the drug represents a new formulation of an existing single-source drug or biological product that does not provide a unique route of administration, regardless of whether the older formulation remains on the market 
  • Exclude a Protected Class Drug from a formulary if the price of the drug increased beyond the rate of inflation over a defined period, using the Consumer Price Index for all Urban Consumers (CPI-U)

Additional Proposals

Proposes that each Part D plan adopt an electronic health record-integrated, real-time benefit tool (RTBT) by January 1, 2020, that provides beneficiaries complete, accurate, timely and clinically appropriate patient-specific real-time formulary and benefit information (including costs, formulary alternatives and utilization management requirements).

Proposes that the Part D Explanation of Benefits include drug pricing information and lower-cost therapeutic alternatives.

Proposes that Medicare Advantage plans implement ST as a utilization management tool for Part B drugs.   

Proposes to (1) redefine “negotiated price” as the lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D plan sponsor or the sponsor’s intermediary (e.g., the amount the pharmacy would receive net of the maximum negative adjustment that could result from any contingent pharmacy payment arrangement and before any additional contingent payment amounts, such as incentive fees) and (2) add a definition of “price concession” to include all forms of discounts and direct or indirect subsidies or rebates that serve to reduce the costs incurred under Part D plans by Part D sponsors. 

Proposes to prohibit pharmacy gag clauses by Part D sponsors that prohibit or penalize pharmacies from disclosing lower cash prices to enrollees.

Proposes that health plans be required to include two drugs in each protected class.  

Proposes that insurers not be required to pass along rebates from drug manufacturers to Medicare beneficiaries.

Proposes that Part D sponsors be responsible for monitoring price increases, determining the cumulative CPI-U increases for the corresponding applicable periods and deciding whether to submit for CMS approval a formulary that excludes Protected Class Drugs with price increases that exceed the rate of inflation.

Public Comments Sought w/in 60 Days

Whether an alternative pricing threshold to the CPI-U should be considered as the appropriate rate of inflation for the pricing exception.

Whether an increase in a price other than the drug’s Wholesale Acquisition Cost (WAC), such as the negotiated price, or some other pricing standard (e.g., the Average Wholesale Price (AWP) or the National Average Drug Acquisition Cost (NADAC)), should be used to determine whether the Protected Class Drug could be excluded from a Part D formulary.

Whether the pricing exception should apply only to single-source drug and biological products, or whether a broader mix of drugs should be eligible for formulary exclusion in accordance with the pricing exception.

Whether an increase in WAC beyond CPI-U for any National Drug Code (NDC) assigned to a particular brand drug or single-source generic drug should be grounds for allowing a sponsor to exclude all NDCs assigned to that drug from the formulary.

Whether to propose that a Part D sponsor could exclude a Protected Class Drug from its formulary for any future contract year once its WAC increased more rapidly than the cumulative increase in inflation.

Whether the pricing exception should be applied to all drugs in the protected classes of a given manufacturer if any one of those drugs’ WAC, when compared to the baseline WAC, increases beyond the cumulative rate of inflation.

Whether the proposal to implement RTBT by January 1, 2020, is feasible; and whether the proposal expedites CMS’ goal of giving Part D enrollees and clinicians access to meaningful information and support.

What the impact of the RTBT proposal is on plans and providers, including overall interoperability and the impact on medical record systems.

Whether there are additional considerations that would be necessary to minimize: (1) interruptions in existing therapy of Protected Class Drugs for protected class indications during PA processes; and (2) increases in overall Medicare spending from increased utilization of services secondary to adverse events from interruptions in therapy.

Regulatory Impact

The Rule will result in substantial overall savings to federal health plans and enrollees.