Much of the news about the Inflation Reduction Act (IRA) has focused on negotiated prices, vaccine coverage, biosimilar reimbursement, and the insulin payment cap; we covered these topics in a previous issue of ComputerTalk. However, an important component of the IRA, out-of-pocket price smoothing, is largely flying under the radar. We will explain this component, which is still open for public comment and may change; the final ruling is expected in the spring of 2024
PROPOSED IRA REQUIREMENTS RELATED TO MEDICARE PART D PRICE SMOOTHING
If approved, the price smoothing proposal would assist Medicare Part D beneficiaries in managing their out-of-pocket spending and would go into effect Jan. 1, 2025. The proposal introduces a maximum out-of-pocket cap of $2,000 per year. The out-of-pocket price smoothing feature is a benefit that allows participants to pay their out-of-pocket costs over the course of the plan year. Part Medicare D plans are required to offer price smoothing to all enrollees; however, enrollees are not required to participate.
The goal of the program is to “smooth” the member’s costs over the plan year to avoid experiencing a considerable, and sometimes unaffordable, out-of-pocket cost, generally in the beginning months of the plan year. Opting into the program will not affect how enrollees move through the Part D benefit or what counts toward their deductible or annual out-of-pockets threshold.
As proposed, the maximum out-of-pocket cost for the first month is equal to the out-of-pocket maximum ($2,000) minus the out-of-pocket costs incurred by the beneficiary to date, divided by the number of months remaining in the plan year. The out-of-pocket maximum in following months would be calculated by taking the sum of any remaining out-of-pocket costs owed by a beneficiary that have not yet been billed to the beneficiary, divided by the number of months remaining in the plan year.
STAKEHOLDER CONSIDERATIONS
Medicare beneficiaries may enroll in the program at annual enrollment, prior to the beginning of the plan year. The Centers for Medicare & Medicaid Services (CMS) also recognizes that a new prescription for an expensive medication could occur at any time during the plan year, in which case price smoothing could benefit the member. To account for these instances, CMS has made a provision that patients may enroll during the year.
From a plan perspective, Part D plans are responsible for providing information on the out-of-pocket smoothing benefit and educating potential enrollees. If a patient fills a prescription for an expensive drug and could potentially benefit from smoothing, the patient’s plan is required to notify the patient’s pharmacy. This could occur at any point in the calendar year. The pharmacy must notify the patient upon receipt of the plan’s communication of the out-of-pocket smoothing opportunity and communicate out-of-pocket financials to patients.
Plans are also responsible for accurately calculating the out-of-pocket expenses. This includes calculating a patient’s annual deductible, taking multiple prescriptions copays and out-of-pocket expenses into consideration. The plan must also transmit this information to the pharmacy during the adjudication process. If the patient is eligible for smoothing and chooses to accept the plan’s smoothing option, the pharmacy may be responsible for enrolling the patient. How pharmacies would handle enrolling patients is yet to be determined.
REIMBURSEMENT
Pharmacy reimbursement details are vague. The legislative text includes a provision that Part D plans “shall ensure that such an election by an enrollee has no effect on the amount paid to pharmacies (or the timing of such payments).” Pharmacy reimbursement should not be reduced, but cash flow may be impacted. One scenario suggests that plans will act as the creditor, fronting the full out-of-pocket cost to the pharmacy on behalf of their members. Plans will have to implement processes to bill and collect payment from enrollees who opt into the smoothing program.
There is only vague language surrounding how plans should handle enrollees who fail to pay smoothing costs. If a patient fails to pay an out-of-pocket smoothing cost billed by their plan, the plan has the option to remove them from the out-of-pocket smoothing benefit for the rest of the plan year and may preclude participation in the subsequent year. It is unknown if a plan can exclude a member from enrolling in a smoothing benefit if they previously did not pay smoothing costs on a different plan in previous plan years.
A second scenario places the pharmacy acting as creditor, with the plan reimbursing the pharmacy over the course of the year, as opposed to current prompt-pay rules. The pharmacy would incur the purchase and dispensing expenses up front but would receive payment gradually over the course of the calendar year. Due to declining reimbursement rates, pharmacies are unlikely to voluntarily agree to this scenario.
It will be interesting to see how plans navigate this legislation. It is in their financial best interest to be unforgiving toward missed payments, but will there be an appeals process for special situations? If a member is hospitalized and misses a payment, will they be removed from the smoothing benefit by their plan? Will plans use strict criteria to determine who can benefit from out-of-pocket smoothing to limit awareness, enrollment, and financial risk? These are all questions that will need to be answered.
TECHNOLOGY ENHANCEMENT NEEDED
Pharmacy adjudication systems will require enhancements, primarily surrounding the communications required between the plans and the pharmacy. The specific new data components required for financial and enrollment data remain unclear but should be anticipated. The National Council for Prescription Drug Programs (NCPDP) has initiated a task group to identify and update the Telecommunication Standard to include new codes for plan-to-pharmacy required communications and is expecting that new financial codes will be required.
ADDITIONAL CONSIDERATIONS
The out-of-pocket price smoothing will distribute the out-of-pocket costs to members who are on a plan and medication for 12 months, but there will also be situations where a member may initiate an expensive specialty medication in the late months of a plan year. Since the remaining months in the plan year are used to calculate the maximum out-of-pocket cost, that member would be subject to exactly what the IRA is trying to avoid, a high out-of-pocket cost. The same is true for a member who may switch or escalate therapies to a more expensive alternative later in the year.
It has been proposed that the unpredictability of the out-of-pocket price smoothing program could be remedied by altering the calculation for the monthly out-of-pocket maximum cost, distributing the costs over the next 12 months, instead of the remaining months of the plan year. This solution introduces additional issues. Should a member change Medicare plans, they may still owe their previous plan sponsor. The previous plan would be tasked with billing its former member. Since the member already received their medication and is on a new plan, there may be less incentive for the member to pay their former plan. There are pros and cons to both methods that need to be weighed carefully.
All unanswered ethical and operational concerns will need to be addressed prior to the proposed implementation date. Stakeholder discussions with CMS about these concerns, as well as conversations surrounding the needed technology enhancements, are imperative. Luckily, there is still time to find the best approach to the out-of-pocket smoothing program before it is implemented in 2025.
From now until the fall of 2023, stakeholder engagement will continue with CMS on the implementation of the out-of-pocket smoothing programs. Between the fall of 2023 and February 2024, proposed Medicare Part D rules, with details regarding the implementation of out-of-pocket smoothing programs, are expected to be released. CMS is expected to make the final rule between by April 2024 before the program goes into effect on Jan. 1, 2025. The fine details of the program still need to be thoroughly considered before the program can run smoothly. CT
The authors are with Pharmacy Healthcare Solutions, LLC. Ann Johnson, Pharm.D., is partner and president; Patricia Milazzo, R.Ph., is a senior consultant; and Logan Graham is a pharmacy intern. You can reach Ann and Patricia at ajohnson@phsirx.com and pmilazzo@phsirx.com.