Medicare Part D: New confusion on how the 50% brand discount will work

This past week CMS released a memo to Part D plan sponsors with draft guidance on how the 50-percent discount provided by drug manufacturers for Part D beneficiaries in the coverage gap will be operationalized. The guidance includes a few surprises, and departs somewhat from how the program was envisioned by congressional members who were part of the "$80 billion deal" negotiated with PhRMA last summer. From a patient access perspective --- many seniors already have very high expectations regarding the "closing of the donut hole" but the reality is this will take some time given the cost.

Some of the highlights from the draft guidance include the following:

• A Part D drug will only be covered under Part D if the manufacturer has a signed agreement with CMS to provide the discount on coverage gap claims for all of its applicable drugs and remains compliant with the terms of that agreement
• The Part D sponsor must provide the discounts for applicable drugs in the coverage gap at the point-of-sale (POS) (such as the retail pharmacy or specialty pharmacy).
• CMS will coordinate the collection of discount payments from manufacturers and payment to Part D sponsors that provided the discount to beneficiaries
• A CMS contractor will invoice each manufacturer quarterly on the behalf of Part D sponsors
  Manufacturers will be required to pay the invoiced amounts to Part D sponsors directly; manufacturers must pay the entire invoiced amount within 15 days (including any amount in dispute)
• Given the timing of the discount agreements and plan bids, CMS must allow coverage in 2011 of Part D drugs irrespective of manufacturer discount agreements
• In a departure from what was outlined in the new health reform law, CMS will not be using a third-party administrator to oversee the discount program due to HIPAA concerns.

Perhaps a bigger surprise, being described as a "process glitch", is the fact that the agency does not plan to require all branded manufacturers to offer the discount in 2011. According to the guidance, "CMS must allow coverage in 2011 of Part D drugs irrespective of manufacturer discount agreements," which means that some of the brand drugs on plan formularies may not be discounted in the coverage gap, unless all manufacturers agree to the discounts by the 2010 deadline.

In press remarks following the release of the guidance, a CMS official explained that the formularies for the Part D plan sponsors had to be submitted by last month, and CMS has not yet issued a notice of "model manufacturer agreement", by the time the formularies were due for the 2011 plan year. As such, CMS indicated it won't know until closer to the end of the year whether all manufacturers will sign the discount agreements for next year.

According to the new law, manufacturers are required to have model agreements signed by July 1, 2010, for fiscal year 2011. In popular press this week, manufacturer representatives indicate they anticipate offering the discounts next year.

CMS has requested comments to the draft guidance by May 14.