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Implementing IRA provisions Beyond 2023 and Managing Rising Financial Liability

by Yvonne Tso, PharmD, MBA

Since passage of the Inflation Reduction Act (IRA) in August 2022, the Centers for Medicare & Medicaid (CMS) has published a series of guidance for the implementation of various provisions in the IRA for 2023 and beyond. Most notably, beginning January 1, 2023, covered insulin products are capped at a monthly cost of $35 for all Medicare beneficiaries. Covered insulin products include insulins as a single agent, in a combination formulation with a non-insulin drug and insulins which are not on the plan sponsor’s Part D formulary but are approved as non-formulary exceptions pursuant to a coverage determination. The other major benefit from the IRA as of January 1, 2023 relates to vaccines recommended by the Advisory Committee on Immunization Practices (ACIP) for adults. These vaccines must be approved by the Director of the Center for Disease Control and Prevention (CDC) and published in the CDC’s Morbidity and Mortality Weekly Report (MMWR).

The Advance Notice of Methodological Changes for Calendar Year (CY) 2024 for Medicare Advantage (MA) Capitation Rates and Part C and Part D Payment Policies published on February 1, 2023 also reminds plan sponsors of the IRA provisions beyond 2023:

  • Cost sharing for covered Part D drugs will be eliminated for beneficiaries in the catastrophic phase of coverage beginning in CY 2024. Part D sponsors (Sponsors) will be liable for 20 percent of costs incurred compared to 15 percent in preceding years after a Part D beneficiary has incurred costs above the annual out-of-pocket (OOP) threshold[1]. In 2025, the maximum OOP for beneficiaries is $2,000.

  • Expansion of full low-income subsidy (LIS) and sunset of partial LIS as of January 1, 2024, those who were previously eligible for the partial low-income premium and cost-sharing subsidies and a reduced deductible will be eligible for full low-income premium and cost-sharing subsidies, and a $0 deductible which means category 4 beneficiaries will have the same Part D benefit parameters as beneficiaries in category 1 of the LIS, category 2 and 3 remain unchanged.

  • Deductible will continue not to apply to covered insulin products and ACIP-recommended vaccines. Sponsors, not beneficiaries, will pay the dispensing fee and for the vaccine administration fee, if any, for CY 2024.

  • Part D base premium may not increase more than 6% from the preceding year between 2024 and 2029.

  • Sponsors will be required to include all pharmacy price concessions in the Part D negotiated price[2] and pass these price concessions through to beneficiaries at the point of sale (CMS Final rule 4192F). This policy, which reduces beneficiary OOP, is applied across all phases of the Part D benefit. Sponsors will need to work with their pharmacy benefit managers (PBM) to determine the “negotiated price” as redefined by CMS.

  • In September 2023, CMS will release a list of “selected drugs” (drugs selected for price negotiation with manufacturers subject to maximum fair price, 10 will be selected in 2026) for initial price applicability year 2026 (Part D only, drugs for Part B will be selected in 2028).

  • In 2025, CMS will implement the re-designed Part D benefit phases from the current 4 to 3 as follows.

    1. No change to the annual deductible - beneficiaries pay 100 percent of their gross covered drug costs until the deductible is met.

    2. In the initial coverage phase, coinsurance is 25 percent for covered Part D drugs. Sponsors pay 65 percent for applicable drugs and selected drugs, and 75 percent for all other covered Part D drugs (generics). For applicable drugs, the manufacturer pays a 10% discount through the Discount Program. For selected drugs, CMS pays a 10 percent selected drug subsidy. Beneficiaries have a maximum OOP incurred cost of $2,000 in 2025, after which the beneficiary enters the catastrophic phase.

    3. In the catastrophic phase, enrollees have no cost sharing. Medicare’s share of drug costs falls from 80 percent[3] to either 20 percent (for brand drugs) or to 40 percent (for generics). Manufacturers provide discounts of 20 percent for brand-name drugs, not for selected drugs. The Sponsor’s share of drug costs increases from 15 percent to 60 percent.

With elimination of the coverage gap, the share of costs assigned to the enrollee and covered by Medicare decreases[4], while the shares covered by drug plans and manufacturers increase.

The rationale behind the re-design is to motivate beneficiaries to greater use of Part D drugs with lower OOP costs, which will reduce spending in Medicare Part A and Part B[5]. Plan sponsors will have a stronger incentive to control costs because they will be responsible for a greater percentage of covered drug expenditure.

To mitigate the rising financial liability for Part D drugs, Sponsors should:

  • Understand better the drivers of drug spending and utilization;

  • Aim for the lowest net acquisition costs of Part D covered drugs irrespective of rebates;

  • Apply utilization tools to manage drug spend to the extent permissible by CMS;

  • Engage in the guidance process – submit comments to CMS when solicited. CMS is requesting comments on the May 12, 2023 announcement on Medicare Part D Manufacturer Discount Program Draft Guidance. The deadline for submission is June 15, 2023.

Most important of all, Sponsors should ensure the IRA provisions are implemented timely and correctly through their oversight monitoring to be compliant. The IRA is making significant changes to the Part D program. Integritas Medicare has professionals with expertise in data analysis, utilization management, and drug pricing, who can help you strategize and plan the phase-in of the IRA provisions. Please contact us at 415-596-5277.

[1] In CY 2024, the out-of-pocket threshold is $8,000 [2] Negotiated price is redefined as the lowest possible reimbursement that [the dispensing network pharmacy] will receive, in total, for [the] particular drug,” including all post-adjudication pharmacy price concessions (frequently referred to as “DIR fees”) that the pharmacy may be required to pay. [3] The proportion of gross Part D spending made up by catastrophic benefits more than doubled, 2010–2018, according to MedPac analysis reported in June 2020 [4] In coverage gap, costs assigned to LIS beneficiaries are covered by Medicare subsidy [5] Congressional Budget Office projects increased Part D spending by $4 billion in 2031, decreased Part C spending by $2 billion with a net increase of $2 billion for Part D.

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