CMS’ newly announced payment model in Part D may be an attractive option for plan sponsors, but the impact is unlikely to be immediate, according to an analysis from Bernstein Research.
The Centers for Medicare & Medicaid Services unveiled the payment model last week, with the explicit goal of reducing spending and costs in the catastrophic phase of the Part D benefit. The agency said that spending on catastrophic coverage has nearly quadrupled over the past decade, ballooning from $9.4 billion to $37.4 billion.
CMS will maintain patients’ out-of-pocket spending requirements in the catastrophic phase at 5%, but the agency said that payment model incentivizes payers to negotiate lower prices, saving beneficiaries money. It also reduces incentives for plan sponsors to push beneficiaries into the catastrophic phase—where CMS picks up most of the tab.
The key draw?
The model is voluntary for both payers and patients, and they have the option to exit after the first year of participation if it’s not working out. Part D plan sponsors who want to enter the program can also continue to offer traditional Part D plans alongside the new ones.
The challenge lies, however, in generating enough savings for these alternative plans to be beneficial, according to the analysts. The new model will require payers to push beneficiaries with chronic illnesses to change behavior to achieve savings, in comparison to Medicare Advantage, which focuses mostly on healthy seniors.
The proposal is “tough to argue against,” the analysts said. “However, it may take some time to get off the ground.”
Bernstein notes that the new model is likely to be most effective for patients with certain conditions, like diabetes, where insurers can most effectively push for lower-cost medication options.
“No one will choose a cheaper cancer drug based on a rewards program,” the analysts said. “However, we can see patients with diabetes, [inflammation] or migraine being amenable to using lower cost drugs if it means eliminating copays.”
The proof is, to some degree, in the pudding: Medicare Advantage’s growing population shows that plenty of patients are open to these types of programs. The key will be identifying which beneficiaries are most likely to jump in and would benefit most, the analysts said.
The policy change is one that drug company investors should also be watching closely, the analysts said, especially as catastrophic Part D coverage accounts for about 10% of all drug costs.
It’s also crucial for investors to follow as there’s a very slim chance that this program is blocked. As CMS is launching it as a demonstration under its innovation center, the new Part D model will, in all likelihood, take effect as planned for the 2020 plan year, the analysts said.