In a rule (the Rule) affecting both the Medicare Part C and Medicare
Part D programs, the Centers for Medicare & Medicaid Services (CMS)
has recently implemented changes that impact the relationship between
pharmaceutical manufacturers and the Medicare Part D program. The Rule
was published in the Federal Register on April 12. The changes are effective June 1, 2012. Manufacturers should take note of the following key aspects of the rule.
What the Rule Covers
The Rule covers a vast array of topics relating both to Medicare
Advantage plans authorized under Medicare Part C and to Medicare
Prescription Drug Plans authorized under Medicare Part D. Some of the
provisions reflect statutory changes enacted under the Affordable Care
Act, but others reflect changes from far less recent legislation.
Medicare Part D Coverage Gap Discount Program
Pursuant to statutory changes made by the Affordable Care Act, the
Medicare Part D Coverage Gap Discount Program requires that
manufacturers of innovator products (and their licensees) pay half of
the negotiated price of their drugs for patients in the coverage gap
(also called the "donut hole") in their Medicare prescription drug
program as a pre-condition to coverage of their drugs under Medicare
Part D. Although CMS has previously issued instructions, and has had
manufacturers sign a model agreement, CMS is still codifying key
requirements in regulation. Some of the specific provisions are as
follows:
Definition of "Applicable Drug"
The Rule identifies that the drugs to which the program applies are
those that are authorized under a New Drug Application (NDA) or a
Biologics License Applications (BLA). It is irrelevant if those drugs
are treated as generics by a particular Part D plan. Furthermore, the
Rule expressly excludes compounded products. Even though such products
might qualify as Part D drugs, no Part D coverage gap discount
obligations attach to such utilization.
Definition of "Manufacturer"
A manufacturer is defined as any entity with a unique labeler code
included in the National Drug Code (NDC) of applicable drugs. In other
words, the entity that physically "manufactures" a product may not
actually have any rebate liability. That liability is associated with
the owner of the labeler code.
Definition of "Negotiated Price"
CMS defines this term for purposes of the program as the total amount
the pharmacy has agreed to receive for a drug (or if out of network,
the allowed amount), minus any price concessions passed along to the
beneficiary at the point of sale, and excluding any dispensing fees or
vaccine administration fees. Manufactures intending to reduce the
"negotiated price" of their products through rebates to Part D plans
should be very specific in their agreements as to the Part D plan's
responsibility to make the discount available at the point of sale.
Definition of "Other Health or Prescription Drug Coverage"
CMS distinguishes between Medicare Part D benefits and non-Medicare
benefits. Medicare Part D benefits are applied before calculating the
manufacturer's coverage gap liability, and non-Medicare benefits are
applied afterward. CMS has determined that employer group waiver plan
(EGWP) benefits are considered non-Medicare benefits, which are also
known as "other health or prescription drug coverage." In other words,
any supplemental benefits furnished to employees and retirees in an
employer-based EGWP do not reduce a manufacturer's Part D coverage gap
liability. Note that these benefits' identification as non-Medicare
benefits means that beneficiaries are not entitled to any protections in
connection with these benefits, such as appeal rights. It is quite
likely that, in addition to manufacturers, entities that protect
workers' rights, such as unions, will find CMS's interpretation of this
term to be less than ideal.
Implications of Decision Not to Sign Agreement
Although a manufacturer will find no coverage of its "applicable
drugs" if it fails to sign an agreement, CMS has decided to eschew the
"plainest reading" of the statute, which would preclude coverage even of
generics manufactured by a manufacturer. Instead, any drug approved
under an Abbreviated New Drug Application (ANDA) will be allowed
coverage, even if the manufacturer fails to execute an agreement for its
"applicable drugs." Such an interpretation may be of benefit to
entities that sell few drugs approved by NDAs or BLAs, but do sell large
volumes of drugs approved under ANDAs.
Manufacturer Responsibilities
There are several key responsibilities manufacturers have under their
agreements with CMS. One is to make payment to each Part D plan within
38 days of receiving its invoice, even if the amount is disputed.
Another is that the manufacturer adds any new labeler codes the Food and
Drug Administration (FDA) assigns to it within three business days of
FDA's assignment. A manufacturer must retain for 10 years from any
payment date information regarding manufacturer labeler codes, FDA drug
approvals, FDA NDC Directory listings, NDC last lot expiration dates,
and utilization and pricing information relied on by the manufacturer in
disputes. One other requirement that is included in the agreement, and
now memorialized in regulation, relates to uses of the data received on
manufacturer invoices. Manufacturers must stringently protect the
privacy of this data and ensure that its use is limited to determining
the manufacturer's liability under the Coverage Gap Discount Program.
Manufacturers should make sure that their operations are set up to
comply with all of these requirements, including their policies and
procedures regarding record retention and privacy of information
received from CMS.
Timing and Length of Agreement
Agreements must be entered into by January 30 of the year before a
drug is to be covered under Part D. The initial term for such agreements
is 24 months. Once entered into, they are automatically renewed for
one-year periods. CMS has the ability to terminate the agreement for
cause. It is unclear what process a manufacturer must follow to
terminate an agreement.
Dispute Resolution
There is both a formal dispute process and an audit process. The
dispute process involves three levels of review. The first is with the
program's third party administrator (TPA), and must be formally launched
within 60 days of the invoice. Disagreements not resolved at this
initial level are elevated to an independent review entity, and then
finally the CMS Administrator reviews remaining disputes. Launching a
dispute entails submitting material evidence that the invoice is wrong,
as CMS presumes that its data, which is sanitized using several screens
for aberrations, is accurate. Manufacturers are separately allowed to
audit the TPA's records, but such audit can only occur annually and must
be onsite at the TPA. Only work papers may be brought out of the audit,
and no claims-specific information may be copied or maintained. The
work papers as well cannot be shared with anyone other than the auditor,
who is only allowed to share his or her conclusion as to the accuracy
of the invoices. Given the limited audit right and the degree of
specificity CMS is requiring with respect to disputes, manufacturers
should have a fully developed strategy for pursuing an appeal before
they submit a request to dispute or audit questionable data.
Civil Monetary Penalties
Manufacturers that fail to timely pay their invoices, even by a day,
must pay the amount otherwise due, plus an additional 25% of such
amount. The only exception applies if there were technical difficulties
beyond the manufacturer's control. Manufacturers are allowed to appeal
determinations of any such liability.
Definition of "Bona Fide Service Fee"
The concept of a bona fide service fee is an important one for Part D
plans, as well as manufacturers doing business with them. If a
manufacturer pays a Part D plan a bona fide service fee, that amount
need not be viewed as a price concession, or reported as such in cost
statements Part D plans submit to CMS. As these cost statements form the
basis of payments from CMS to the Part D plans, characterizing a
payment as a bona fide service fee instead of as a price concession
results in increased income to the Part D plan. CMS has defined "bona
fide service fees" consistent with its definition for Average Sales
Price reporting purposes. As now defined, fees must be (a) paid at fair
market value, (b) for itemized services that the manufacturer would
otherwise need to perform for itself, and (c) not passed on to any of
the Part D plan's clients or customers. It is important for a
manufacturer when signing rebate agreements with Part D plans to ensure
that it only allows fees to be considered "administrative fees" rather
than rebates when these criteria have been met so as to avoid even the
implication that the manufacturer aided a Part D plan in submitting a
false claim to CMS.