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CMS Proposed 2014 Payment and Policy Updates for Medicare Health & Drug Plans & Draft Call Letter


On February 22, 2013, the Centers for Medicare & Medicaid Services (CMS) released its 2014 Advance Notice and draft Call Letter updating its payment policies for Medicare Advantage plans (Part C) and Medicare prescription drug plans (Part D). Comments on the proposed Advance Notice and draft Call Letter must be submitted by March 1, 2013. The final 2014 Rate Announcement and Call Letter will be published April 1, 2013. Click here to review the 2014 Advance Notice and draft Call Letter.

The Advance Notice discusses changing CMS's actuarial calculation and risk score models for Medicare Advantage plans to comply with the requirements of the Affordable Care Act. CMS also proposes data collection and analysis for Health Risk Assessments (HRAs), which are enrollee risk assessments done by Medicare Advantage plans. MA plans must flag any diagnoses collected in MA enrollee risk assessments, which CMS believes will encourage adequate follow-up by plans for these conditions. The Advance Notice also updates many statistical factors used for payment calculation. Updated statistical payment factors include: normalization factors for its Part C plans, normalization factors for Part D plans, and frailty factors. CMS also proposes recalibration of its prescription drug risk adjustment model (RxHCC).

Proposed Part D Updates

CMS elected to maintain its Part D beneficiary/plan risk sharing percentages for 2014. But it proposes changes to other aspects of Part D plan spending. The proposed Part D updates include lower out-of-pocket beneficiary spending thresholds for prescription drugs under standard Part D benefits. The notice also proposes lower prescription drug co-payments as well as lower deductibles for Part D prescription drug spending. Retiree Drug Subsidy (RDS) cost thresholds and cost limits will decrease. The notice also increases beneficiary coverage for prescription drug spending in the Part D "donut hole."

The notice discusses the process and results of indexing its standard drug benefit formula as required by statute. The standard benefit formula is indexed to the percentage increase in average per capita total Part D drug expenses for Medicare beneficiaries. This allows the actuarial value of the Part D benefit to increase in tandem with increases in Part D drug expenses. Updated parameters include deductible, initial coverage limit and out-of-pocket threshold, among others. 

CMS has proposed the following payment methodology policies for Part D plans in 2014:

  • Include dispensing/vaccine administration fees within negotiated prices to the greatest extent possible. 
  • Require beneficiary and plan liability for each cost component of a negotiated price to be proportional to the beneficiary and plan liability for the entire negotiated price when the claim falls into one phase of the Part D benefit. If a claim straddles multiple benefit phases, CMS is considering two possible options for determining the beneficiary and plan cost components. Under the first option, nearly all cost components would be calculated to be proportional to the beneficiary and plan liability for the entire negotiated price in all benefit phases. Under the second option, each negotiated price cost component would have to be included entirely in one benefit phase as much as possible.
  • These policies are meant to maximize uniform treatment of beneficiary liability and consistent benefit administration across Part D plans. 

MA, MA-PD, and PDP Bid Considerations

The draft Call Letter lays out several considerations for Medicare Part C sponsors (Medicare Advantage Organizations (MAOs)) and Part D plans for submitting their bids in 2014. CMS proposes changing its service category cost-sharing amounts, its per-member-per-month (PMPM) actuarial equivalence factors, and its total beneficiary cost (TBC) limits in 2014. Plans must also address other new Affordable Care Act requirements, such as medical loss ratio and health insurance provider fees, in addition to the bid review requirements. 

CMS also proposes changing various quality and informational measures it uses to evaluate plan services and beneficiary outcomes. For example, the Letter discusses potential measures on use of electronic health records, complaint resolution, and member disenrollment to begin in 2015. 

In 2014, CMS will use plan-specific per member per month (PMPM) out-of-pocket cost (OOPC) estimates to identify meaningful differences among the same plan types. These meaningful differences will allow beneficiaries to distinguish between plans to determine which plan provides the highest value at the lowest cost. Previously, CMS treated health maintenance organizations (HMOs) and HMO point-of-service plans as separate plan types for meaningful difference evaluations, but it will treat them as one plan type going forward. Plans will submit the required data for CMS to calculate meaningful differences, and CMS will compare the plans offered by the same MAO at a county level. 

CMS has indicated that it will deny MAO bids on a case-by-case basis if it determines that the bid proposes an increase in cost sharing or a decrease in benefits (increases in the Total Beneficiary Cost (TBC) requirement) that is "too significant." This is intended to protect beneficiaries who remain in the same MAO plan from significant cost increases. CMS also proposes reducing the permitted TBC change amount on a per member per month basis.    

The Call Letter also includes a table of maximum out-of-pocket (MOOP) spending ranges for MA plans by plan type, for both mandatory and lower voluntary MOOP ranges. Voluntary MOOP limits for plans allow greater flexibility for cost-sharing in individual service categories.

CMS also orders that Part D sponsors require pharmacies to obtain patient consent to deliver any new or refill patient prescription prior to each delivery. This measure is meant to minimize waste and unwanted prescription deliveries. There is an exception to the consent requirement if the beneficiary personally initiates the prescription request, and it will not apply to refill reminder programs that require the patient to pick up the prescription.  

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

A. Xavier Baker
Partner – Washington, D.C.
Phone: +1 202.624.2842