MedPAC: Tweaks to Part D plan design chip away at payers’ incentives to keep costs down 

Drug prices
MedPAC issued its latest report to Congress last week. (Getty/Tero Vesalainen)

The Medicare Payment Advisory Commission issued its March report to Congress late last week, warning that current Part D policy may encourage health plans to shirk responsibility for managing spending. 

In its report (PDF), MedPAC says the growing number of Part D payments to health plans taking the form of cost-based reinsurance over fixed-dollar payments cuts back incentives for plans to control spending, particularly in the catastrophic phase of the benefit.  

Reinsurance payments went up annually by 17% between 2007 and 2017, according to the report, while fixed-dollar payments decreased by nearly 2% per year in that same window. 

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Payment changes are occurring in tandem with the rise of pricey treatments, exacerbating the problem, MedPAC said. In addition, starting this year drug companies must offer a 70% discount for medications in the Part D coverage gap—or “doughnut hole”—up from 50%, further encouraging plans to shrug off controlling cost. 

“Changes to Part D’s coverage gap and manufacturer discounts combined with the expanding role of high-cost medicines may be eroding plans’ incentives for and ability to achieve cost control,” the group wrote in the report. 

RELATED: MedPAC recommends Congress target rebate traps, biosimilars to bring down drug prices 

Part D spending has been on the rise, especially in catastrophic coverage. The Centers for Medicare & Medicaid Services estimates that catastrophic coverage spending increased from $9.4 billion to $37.9 billion over the past decade. 

What's the solution? MedPAC said that Congress must take steps to increase risk-sharing in Part D, so that plans have more skin in the game.  

CMS unveiled a new payment model in January that aims to do just that, but the model is voluntary. The agency estimates that the plan could save $2 billion in taxpayer funds each year. 

Other focus areas: Medicare Advantage, hospital quality measurement 

In addition to sounding off on Part D, MedPAC’s report to Congress also touches on potential updates to Medicare Advantage and pushes for a revamped approach to how Medicare measures hospital quality. 

MedPAC said in the report that it remains concerned about MA risk scores, which can list some beneficiaries at a higher risk score than they would have under fee-for-service Medicare due to coding differences. This can boost MA payments by 1% to 2%, MedPAC said. 

The group suggests that Congress address this problem to improve parity and equity. Plus, it says that lawmakers should step in to prevent excessive consolidation among MA plans, with the aim of boosting quality scores. 

RELATED: Medicare Advantage insurers to CMS—Rethink expanding use of encounter data in risk adjustment 

It also says that Congress should consider pushing for greater use of encounter data to determine MA plan star ratings, instead of the current approach, which is based on contracts. 

The report also pushes for legislators to back its Hospital Value Incentive Program (HVIP), which would consolidate several existing Medicare programs that measure hospital quality under one program. HVIP would more effectively reward hospitals with strong quality performance while also applying pressure to keep costs low. 

MedPAC approved the recommendation at its February meeting. 

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