In January, CMS proposed rules that would, among other changes, require health insurers to be more transparent, to lower out-of-pocket costs for prescription drugs and to improve patient outcomes.

In an extensive proposal taking up more than 115 pages in the Federal Register, CMS proposed changes in 14 areas, including new regulations on how Medicare Advantage (MA) and Medicare Part D plans establish networks, report medical-loss ratio (MLR) data, assess members’ risks for social determinants of health, and conduct appeals, marketing and communications.

If approved as proposed, the rule — CY 2023 Medicare Advantage and Part D Proposed Rule (CMS-4192-P) — would require MA, Part D plans and special needs plans (SNPs) to be more transparent in how they calculate MLR and set up networks, says Monisha Machado-Pereira, a senior partner in McKinsey’s Healthcare Systems and Services Practice. SNPs are a type of MA plan for beneficiaries with specific diseases or conditions.

The rules also are focused on improving health outcomes for Medicare members, particularly those in SNPs and who require more care at home, she added. Comments on the proposal were due to CMS by March 7. The rules must be finalized by CMS no later than April 4.

For Medicare members, some of the most significant parts of the proposal zero in on reducing what beneficiaries pay as their share of costs for prescription drugs and would limit the maximum out-of-pocket (MOOP) amounts for dual-eligible beneficiaries who qualify for both Medicare and Medicaid, the state-run public insurance programs for low-income individuals.

Lowering drug costs

To reduce what Medicare members pay in copayments or deductibles for prescription drugs, CMS has proposed eliminating direct and indirect remuneration (DIR) fees to pharmacists.

Under DIR-fee provisions in pharmacy contracts, health plans and pharmacy benefit managers (PBMs) “claw back” payments weeks or months after paying pharmacies for the medications they dispense to health plan members, forcing many pharmacies to close and others to reduce services, according to the National Community Pharmacists Association, which endorsed CMS’ proposal on DIR fees on Jan. 6, the day it was issued.

Under some Part D contracts, the plans claw back payments they’ve made to pharmacists if they do not meet certain criteria when dispensing drugs, according to CMS. When Part D plans claw back payments, they report the previously negotiated price for the drug, which is higher than the final price after claw backs, CMS said. CMS uses that price to set beneficiary cost-sharing amounts and to adjudicate Part D claims. The effect of reclaiming some of what the PBMs and Part D plans have already paid to pharmacies, the PBMs and Part D plans have caused Medicare members and CMS itself to pay more than they should, the agency said.

Flaviu Simihaian, CEO of Troy Medicare, explained how DIR fees affect pharmacies. “DIR fees are when a PBM comes after the pharmacy months later to say, ‘Hey, based on some arbitrary metrics, instead of paying $10 for that drug, the pharmacy should get only $2 for that drug,’” he explained. “Then, the PBM takes the $8 back. Some pharmacies are affected to the tune of hundreds of thousands of dollars every year.” Troy is an MA plan with 3,000 members in North Carolina.

In this extensive new rule, CMS has proposed redefining the negotiated price as the baseline, or lowest possible, payment to a pharmacy by requiring Part D plans to apply all price concessions at the point of sale so that beneficiaries can share in the savings, CMS said. “This policy would reduce beneficiary out-of-pocket costs and improve price transparency and market competition in the Part D program,” the agency added.

Although the proposal on DIR fees could cut what beneficiaries pay for prescription drugs, it is unclear whether or how much the proposal would increase transparency in the pharmacy supply chain, says Julie Carter, senior federal policy associate at the Medicare Rights Center, a nonprofit organization in New York that helps consumers navigate the Medicare program. “We don’t necessarily know exactly how much money we might be talking about or whether it would reduce beneficiaries’ overall costs,” she notes. “It may reduce costs at the pharmacy counter, but also it may increase premiums. Either way, we don’t know by how much.”

Also, in the CMS proposed rules is a plan to limit the MOOP amount that dual-eligible members in MA plans must pay, after which the plans pay 100% of costs. CMS projects that over 10 years the new limits could save state Medicaid agencies $2 billion and increase payments to providers serving dually eligible beneficiaries by $8 billion.

Oversight of brokers

The proposed rules also call for more oversight of third-party brokers and marketing organizations. Brokers would need to explain clearly which benefits are or are not included, Machado-Pereira explains. They would also need to disclose whether they get paid more to steer consumers to one plan over another.

CMS is also proposing tighter rules for fully integrated dual-eligible special needs plans (D-SNPs). If the proposed rule goes into effect, certain state with integrated care programs could require that MA pans establish a contract including one or more D-SNPs. The idea is to make a health plan’s star ratings more accurately reflect the D-SNPs’ local performance, says Machado-Pereira.

More MLR details

Insurers also would be required to provide more data on how they calculate MLR. In effect, CMS is reinstating the MLR rules it used from 2014 to 2017. Under the previous administration, those rules were relaxed, Machado-Pereira notes.

“For four years, ending in 2017, CMS asked for a full breakdown of what insurers spent on medical care, but since 2017 they didn’t have to report the underlying cost and revenue numbers for providing medical care for members,” Machado-Pereira explains. “Plans didn’t have to tell them how they calculated those numbers.”

Starting next year, MA and Part D plans would need to report the underlying cost and revenue information used to calculate the MLR percentage and what they would need to pay CMS for failing to reach the 85% goal under the MLR rules. In addition, CMS proposes requiring MA plans to report what they spend on such supplemental benefits as dental, vision, hearing or transportation.

More data on medical care spending would allow CMS to see how much health insurers are putting into the supplemental benefits that the MA plans use to differentiate themselves among the growing number of zero-premium offerings, Machado-Pereira says. “This information will help CMS know whether plans are stretching the definition of which supplemental benefits are primarily improving health or not,” she added.

Another advantage of ensuring that supplemental benefits are related to health is that such benefits could help improve member outcomes, notes Machado-Pereira. Improving outcomes is a goal CMS proposed for all Medicare plans and particularly for special needs plans. Recognizing that these members often have food insecurity, may be homeless, or lack transportation and have low health literacy, CMS will require all SNPs to complete health risk assessments for all members at enrollment and annually. Those assessments must include standardized questions on housing, food and transportation, all of which contribute to overall health.

Ensuring adequate networks

Just as the proposed rules on the MLR and health risk assessment aim to increase transparency, so too does the CMS proposal regarding network adequacy. Under the proposal, CMS would require plans to show they have networks of providers under contract who can care for all beneficiaries before CMS will approve an application for a new or expanded MA plan.

The Medicare Rights Center favors this proposal because it has encouraged CMS to provide more oversight of how MA plans structure their networks, as well as accurate and up-to-date information to members about those networks, Carter said. Network adequacy is particularly important to Medicare members with high-cost, chronic conditions, she added.

Simihaian of Troy Medicare sees merit in the network adequacy proposal, but also there’s a drawback to it, he says. For Simihaian, the proposal is unfair to small plans and to those just entering the market because hospitals, physicians and other providers have no requirement to join networks that small and newly established plans set up even when those plans pay fair rates. Hospitals, physicians, and other providers can simply continue contracting with larger, more established insurers rather than work with smaller plans that do not have a dominant market presence, he says.

“Unless there’s a rule for providers to accept a fair rate, there’s no competition because the only plans that have the leverage to negotiate are the big ones that already contract with most or all of the providers in their service area,” Simihaian says.

Health equity

Under the Biden administration CMS has announced that it will be incorporating efforts to address healthcare disparities in all of its programs. As the part of these proposed rules, CMS asked for feedback on several measurement and methodologic adjustments. For example, CMS might include a “health equity index” into the star ratings program. The agency also proposes measuring plans on how well they screen members for health-related social needs such as housing and food security.