Fact sheet

Part D Payment Modernization Model Fact Sheet

Overview

In January 2020, the Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (Innovation Center) will begin the Part D Payment Modernization model to test the impact of a revised Part D program design and incentive alignment on overall Part D prescription drug spending and beneficiary out-of-pocket costs. The model aims to reduce Medicare expenditures while preserving or enhancing quality of care for beneficiaries. The model is open to eligible standalone Prescription Drug Plans (PDPs) and Medicare Advantage-Prescription Drug Plans (MA-PDs) that are approved to participate.

The President’s Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs called on HHS to increase competition, improve negotiation, create incentives for lower list prices and reduce out-of-pocket costs.  Through the Part D Payment Modernization model announced today, CMS is executing on the Blueprint. This model advances President Trump’s commitment to lower prescription drug prices, with Medicare beneficiaries, Part D plans, and CMS all benefiting from a more aligned system.

This voluntary, five-year model tests the impact of a modernized Part D payment structure that creates new incentives for plans, patients, and providers to choose drugs with lower list prices in order to address rising federal reinsurance subsidy costs in Part D. Eligible standalone Prescription Drug Plans and Medicare Advantage-Prescription Drug Plans that are approved to participate in the model will take two-sided risk for CMS’s federal reinsurance subsidy (80 percent of catastrophic phase liability), allowing for performance-based payments to plan sponsors or payments to CMS based on spending. As part of the model, CMS will also provide participants with additional programmatic tools, including a Part D Rewards and Incentives program, to increase engagement between plans and their enrollees and to promote better enrollee understanding of their Part D benefit, out-of-pocket costs, and clinically equivalent therapeutic options. Ultimately, CMS expects that testing a modernized Part D payment structure will maintain or improve beneficiaries’ access to affordable and necessary covered Part D prescription drugs.

Background

The Medicare Part D program began providing prescription drug coverage to Medicare beneficiaries in 2006. A number of risk-abating mechanisms were included in the original benefit design included to ensure Medicare beneficiaries had access to a robust choice of Part D plans.   These mechanisms include the direct subsidy risk corridors, risk adjustment, and federal reinsurance in the catastrophic phase of the benefit. This structure has allowed CMS to successfully implement and administer a market-based Part D program, providing critical access to prescription drugs, decreasing premiums over time, and promoting high enrollee satisfaction with their Part D benefit.

Over time, however, pharmaceutical innovation and patent expirations have led to a bifurcation in Part D prescription drug utilization and spending. While the percentage of Part D prescriptions filled with safe and effective generic medications is higher than ever, overall Part D spending has almost doubled from 2010 to 2016, increasing from $77.5 billion in total spending to $146.1 billion, with costs projected to increase further.[1] In evaluating the reasons for this trend, the high list price of new specialty and branded medications for cancer, Hepatitis C, rheumatoid arthritis, and other conditions has led to a six-fold increase in Part D catastrophic phase spending relative to 2006. This is due, in part, to the fact that the list price determines both beneficiary out-of-pocket costs and where an enrollees are in their Part D benefit.

Given the potential difference between the list and net price of specialty and branded medications, the amount that both beneficiaries, through premiums and out-of-pocket costs, and CMS, through the federal reinsurance subsidy and low-income subsidies, pay has continued to increase. However, while payments to Part D plan sponsors to administer the benefit have more than doubled from 2006 to 2017, the portion of the Part D benefit that plan sponsors are liable for managing, termed the direct subsidy, has decreased.  In 2017, the direct subsidy was 14 percent lower than it was in the first year of the Part D program. This has prompted recommendations from the Medicare Payment Advisory Commission (MedPAC), the U.S. Health and Human Services Office of the Inspector General, and other stakeholders that the original Part D risk-sharing mechanisms be updated to better reflect the current and future prescription drug landscape.

Model Description

Through this model, CMS is testing the impact of a modernized Part D payment structure that increases and better aligns Part D plan sponsor liability with the costs paid for by CMS and Medicare beneficiaries. Ultimately, this model will allow CMS to address the high list price of drugs covered by Medicare Part D and evaluate the impact on cost and quality for Medicare beneficiaries.  The voluntary, five-year (CY 2020-2024) Part D Payment Modernization model aims to promote a decrease in total Part D program spending in the following two ways:

  1. Creating new incentives for plans, patients, and providers to choose drugs with lower list prices to better manage catastrophic phase federal reinsurance subsidy spending by introducing two-sided risk to align payment incentives for plan sponsors with their enrollees and CMS; and
  2. Providing programmatic flexibilities, including Part D Rewards and Incentives programs, to ensure Medicare beneficiaries are able to maintain affordable access to the prescription drugs that they need.

CMS will be releasing a Request for Applications (RFA) for eligible standalone PDPs and MA-PDs to participate in plan year 2020, the first year of the model. As part of a competitive application process, the model will accept applications from eligible Part D plan sponsors nationally.

If a Part D sponsor chooses to apply with a standalone PDP in a Part D region, the Part D sponsor must include all standalone PDPs in that Part D region. If a Medicare Advantage Organization (MAO) chooses to apply with an MA-PD, the MAO must include all of the eligible MA-PD plan benefit packages (PBPs) offered in or across the Part D region(s) that the MA-PD serves.

CMS will review plan sponsors’ applications for participation and only accept applications to the extent the model still ensures a competitive Part D market and CMS preserves the ability to evaluate the impact of the model.

CMS is only announcing an application period for participants beginning in the model for CY 2020 at this time. Based on participation, initial model impact, and additional considerations, CMS may consider offering additional application periods in the future.

CMS is maintaining all current Part D bid, payment, and reconciliation processes, including the application of risk corridors. Plans will continue to bid a prospective federal reinsurance amount, which will be fully reconciled as per current law.  In addition, the direct subsidy amount will be reconciled per the existing direct subsidy Part D risk corridors, including the current 15 percent plan liability in the catastrophic phase. Payment, risk adjustment, and reconciliation processes will still apply to each subsidy consistent with current law.

After a plan year, CMS will retrospectively create a spending target benchmark that represents the federal reinsurance subsidy (80 percent of Part D catastrophic phase costs after rebate) CMS projects would have been paid to participating organizations if they were not participating in the model. At the parent organization level, based on standalone PDP or MA-PD PBPs, if plan federal reinsurance subsidy spending is lower than its spending target benchmark (i.e. savings), then the parent organization will receive performance based-payments, based on the total percent saved. If the federal reinsurance subsidy spending is higher than their spending target benchmark (i.e. losses), participating parent organizations will have to repay ten percent of the difference from any additional spending. Additional details on the spending target benchmark methodology will be provided in the model RFA.

CMS will also allow model participants to propose clinically-based drug utilization management techniques that make prescription drugs with lower list price available while also ensuring appropriate beneficiary access. To that end, model participants will be granted the flexibility to create a Part D Rewards and Incentive program to strengthen the clinical relationship between their enrollee and the enrollee’s provider, and his or her chosen Part D plan. Additional programmatic flexibilities available will be outlined to model participants.

Overall, through the Part D Payment Modernization model, CMS aims to test better alignment of CMS and plan risk-sharing in Part D to increase Part D market competition, decrease beneficiary out-of-pocket and premium costs, preserve or enhance quality of care for beneficiaries, maintain and ensure affordable access to prescription drugs, and decrease Part D programmatic spending.

Additional information on the Part D Payment Modernization model can be found on the model website at https://innovation.cms.gov/initiatives/part-d-payment-modernization-model/.  The RFA to join the model for CY 2020 will be available on the model website and applications will be accepted through March 1, 2019.

For any questions about this model, please email PartDPaymentModel@cms.hhs.gov


[1] For an overview of Medicare Part D programmatic spending, please refer to the 2018 Annual Medicare Trustees Report: https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2018.pdf