Comment Letter: CMS Proposed Rule: Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses

DATE: January 28, 2019

January 25, 2019
Via Electronic Submission
The Honorable Seema Verma, M.P.H.
Administrator Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-4180-P P.O. Box 8013 Baltimore, MD 21244-8013

RE: CMS Proposed Rule: Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses, CMS 4180-P, RIN 0938-AT92, 83 Fed. Reg. 62152 (November 30, 2018)

Dear Administrator Verma:

The Senior Care Pharmacy Coalition (“SCPC”) appreciates the opportunity to comment on the proposed rule entitled, “Modernizing Part D and Medicare Advantage to Lower Drug Prices and Reduce Out-of-Pocket Expenses” (CMS-4180-P; RIN 0938-AT92, 83 Fed. Reg. 62152 (November 30, 2018) (“the Proposed Rule”). The Proposed Rule includes a wide variety of proposed changes to the Medicare Prescription Drug (Part D) and Medicare Advantage (Part C) benefits, many of which would have an important impact on long-term care (“LTC”) pharmacies and the patients we serve — residents of LTC facilities and assisted living facilities (ALFs). We appreciate the opportunity to share our comments with the agency to improve and refine the proposed regulatory changes.

SCPC is the only Washington-based organization exclusively representing the interests of LTC pharmacies, with 80% of all independent LTC pharmacies among its members. Our members serve about 825,000 residents daily in skilled nursing and assisted living facilities across the country. Given the patients served by SCPC’s membership, we have a unique perspective on the Proposed Rule. We share your goals of ensuring that: Part D beneficiaries maintain timely access to needed medications at their lowest possible cost for insurance premiums and co-pays combined; the program remains efficient and consistent with free market principles; LTC pharmacies can dispense medically necessary medications and otherwise comply with requirements to participate in Part D networks free of unnecessary and costly administrative requirements; and physicians rather than insurance companies drive medical practice and clinical care for Medicare beneficiaries.

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SCPC offers comments regarding five aspects of the Proposed Rule. We commend and strongly support many proposed provisions, but also believe that CMS should amend or reject other provisions as contrary to the agency’s goals. We specifically comment on the following issues:

1. The proposal to define “negotiated price” such that all pharmacy Direct or Indirect Remuneration (“DIR”) Fees LTC pharmacies pay to Part D Plans (“PDPs”) or their intermediary Pharmacy Benefit Managers (“PBMs”) are considered when calculating beneficiary co-pays at point-of-sale (“POS”). We urge CMS to abolish pharmacy DIR fees. In the alternative, we urge the agency to prohibit so-called PBM pharmacy quality measures until CMS defines an appropriate pharmacy quality program for LTC pharmacies;

2. The three proposals to provide greater PDP/PBM flexibility in providing beneficiary access to medications in the “six protected classes.” We urge CMS to withdraw its protected class proposed rule as it is not based upon actual market conditions, and will harm beneficiaries and increase health care costs;

3. The proposal to implement the Know the Lowest Price Act of 2018 and eliminate so-called “gag rules.” We support the agency’s proposed regulation, and request that it be finalized;

4. The proposal that PDPs make available to physicians and other prescribers a Real-Time Benefit Tool (“RTBT”). We support the proposal with qualification, and urge CMS to carefully monitor the benefits of mandating an RTBT to beneficiaries, particularly those in the LTC population; and

5. The proposal to permit Medicare Advantage (“MA”) plans to use step therapy for certain Part B drugs. We oppose this proposal as contrary to law and urge CMS to withdraw the proposal and the agency’s related policy memorandum.

Before addressing each issue in detail, it is important that the agency appreciate the unique role LTC pharmacies play in the health care delivery system and the substantial differences between LTC pharmacies and retail or mail order pharmacies. Following consideration of these factors, we address each of the enumerated issues in detail.


The LTC pharmacy marketplace and the increasingly oligopolistic drug distribution system inform SCPC’s conclusions and recommendations. We therefore discuss these underlying dynamics at length.

LTC Pharmacy Context: LTC pharmacies serve patients in skilled nursing facilities (“SNFs”), assisted living facilities (“ALFs”) and other group and residential settings. LTC pharmacies differ substantially from retail or mail order pharmacies in five ways:

1. LTC patients suffer from substantially greater chronic illness, are more clinically complex, have higher dementia rates and take significantly more prescription drugs. The complexity of LTC patient conditions distinguishes LTC pharmacy from retail or mail order pharmacy and underscores the value LTC pharmacies deliver through their services to patients. The average resident in a SNF is a woman in her mid-80s suffering from multiple chronic

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In ALFs, the average number of prescriptions per patient is even higher. As a result, pharmacy services – not simply dispensing medications – are crucial to the quality of care for patients and increasingly important in preventing adverse events like re-hospitalizations, patient falls, polypharmacy complications, medication-induced dementia and other adverse drug reactions. LTC pharmacies provide specialized pharmacy services, thereby improving the quality of care and reducing Medicare expenditures.

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use of remote dispensing technology, and pre-position “emergency kits” in SNFs and other care facilities. Federal statute requires that LTC pharmacies dispense 24-hours a day, 7 days a week, 365 days per year. Given these requirements, LTC pharmacies are especially well suited for automated technologies to complement pharmacists’ clinical expertise, such that LTC pharmacies require greater capital investment than retail pharmacies, despite substantially greater need to operate efficient and lean businesses.

4. LTC pharmacies often dispense medications before PDPs/PBMs confirm payment or patients satisfy co-pay and deductible requirements. While retail and mail order pharmacies receive payment before patients receive prescriptions, LTC pharmacies often provide medications before payers have confirmed payment due to requirements that medications be delivered to patients within as little as two hours following receipt of a prescription or chart order. As many as 30% of prescriptions may leave a LTC pharmacy before payment is confirmed. Medicare does not require that PDPs or their PBMs process claims on a 24/7/365 basis, and the disconnect between LTC pharmacy Medicare requirements and Medicare requirements imposed on PDPs/PBMs is a primary reason that such high percentages of prescriptions leave LTC pharmacies without the pharmacy knowing whether, if at all, it will be paid for medications patients need and use. Of course, if PDPs/PBMs have not approved payment, LTC pharmacies cannot collect copays or deductibles from beneficiaries.

5. LTC pharmacies only sell medications and related services. Retail pharmacies sell myriad convenience items to consumers, with pharmacy operations serving often as a “loss leader.” Because LTC pharmacies are “closed door,” they do not have this option, and succeed or fail based entirely on dispensing medications and providing related consultative and mediation management services.

The LTC Market

In addition to the unique services that LTC pharmacies provide, they also operate in a unique market. There are roughly 1,800 LTC pharmacy companies in the country, which operate an estimated 2,300 individual pharmacies. They range in size from companies with one location to one company with an estimated 250 locations. That one company – Omnicare – is a very large provider in the LTC marketplace, dispensing 40% or more of prescriptions that LTC pharmacies dispense annually. By contrast, independent LTC pharmacies dispense the remainder. CVS Health – which also owns Caremark, the nation’s largest PBM, owns Omnicare. Necessarily, therefore, as an intermediary for many Part D plans, Caremark negotiates contracts with and administers Part D claims for its corporate sibling, Omnicare, as well as Omnicare’s direct competitors. CVS Health also owns one of the largest mail order pharmacies in the country, which competes directly with independent LTC pharmacies for patients in assisted living facilities and other congregate living settings.

CMS has a unique and substantial stake in fully appreciating the labyrinthine and opaque business relationships between PDPs, PBMs and their affiliated LTC, mail order and retail pharmacies. Resultant market imbalances should concern the federal government as market concentration and conglomerate integration across historically disparate market segments create interlocking oligopolies that allow insurers and PBMs with undue power to undermine the free market principles underlying the Part D program.

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I. Pharmacy Price Concessions and “Negotiated Price.”

SCPC appreciates the agency’s ongoing concern regarding the substantial increase in PDP/PBM use of DIR fees and other POS and post-POS charges, the dramatic increase in percentage of PDP/PBM revenues from such fees and the implication of these charges for beneficiary co-pays under the Part D program. However, SCPC remains concerned that the proposal to include such concessions – often termed “direct and indirect remuneration” or “DIR fees” – at POS in determining beneficiary co-pay may not reduce overall costs for Part D beneficiaries and could prompt changes in PDP/PBM market behavior that would undermine the agency’s objectives and adversely impact LTC pharmacies.

A. Background.

CMS proposes replacing the current definition of “negotiated prices” with a new definition of “negotiated price” that would take into account all DIR fees and dispensing fees in an effort to “lower” Part D prices for beneficiaries at the point-of-sale (POS). The purpose of this proposal is to reduce beneficiary co-pays, but at the cost of higher beneficiary premiums and greater federal expenditures for supplemental payments to PDPs.

Historically, PDPs have not reduced “negotiated prices” appropriately to account either for DIR/post-POS fees pharmacies must pay to PDPs. In the proposed rule CMS reports a 45,000% increase in PDP use of DIR fees from 2010 to 2017. The agency documented that the percentage of PDP revenues earned from DIR fees increased substantially, at a rate of over 225% each year since 2012.3

3 83 Fed. Reg. at 62174.

It is noteworthy that PDPs have shifted the fundamental rationale for DIR fees over time. PDPs initially claimed that DIR fees were designed to address the gross-to-net spread created by post-POS rebates from manufacturers to PBMs. PDPs argued that, since their costs for drugs effectively declined after POS, they were “overpaying” pharmacies and therefore were entitled to “claw back” these overpayments through DIR fees.

As policymakers began more closely scrutinizing DIR fees, PDPs shifted the primary rationale to improving pharmacy outcomes through “performance-based” adjustments to pharmacy payments. CMS has noted that, from 2012 to 2017, the percentage of DIR fees PDPs classified as performance-based increased 245%, and also noted that PDPs retain or claw back most of the money available for performance-based payment adjustments.

A second, but less acknowledged distinction concerns “performance-based” adjustments. PDPs and others routinely contend performance-based adjustments are designed to improve quality. These adjustments frequently bear little clear relationship to improved quality outcomes, but often seem correlated to the financial benefit of PDPs, PBMs or affiliated corporations like mail-order pharmacies.

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The Proposed Rule also addresses claims processing and other fees to pay for administrative cost incurred by PDPs. The agency notes that PDPs have discretion under current regulation to treat these fees as costs pharmacies must pay or administrative fees reported to CMS to be considered in the annual benchmarking process. CMS proposes that, if PDPs elect to charge pharmacies with administrative fees, then they must include those fees in calculating pharmacy price concessions to reduce beneficiary co-pays. The proposal, however, still would allow PDPs to choose between the two current options.

Given the three elements of the DIR fee proposal, SCPC will comment separately on: (1) the core proposal; (2) performance-based payment adjustments; and (3) treatment of administrative fees.

B. CMS Should Eliminate DIR Fees.

SCPC urges CMS to eliminate DIR fees. DIR fees simply have no place in today’s drug distribution and payment system. When Congress enacted Part D, it assumed that PDPs would pass rebates and discounts through to the beneficiary at the POS in establishing “negotiated prices.” In the Proposed Rule and previous analyses concerning DIR fees, the agency has acknowledged that PDPs have exploited the so-called “gross-to-net spread” and regulatory ambiguities to reap undue financial rewards. The impact on beneficiaries – higher than necessary co-pays – is an understandable point of frustration. However, as CMS acknowledges, if co-pays are reduced in this way, then beneficiary premiums (and correspondingly, Medicare’s costs) may rise. If the objective is to assure that beneficiaries have out-of-pocket expenses that are as low as possible, it is essential that premiums and co-pays be considered together, particularly given that lower co-pays translate into higher premiums.

In practice, CMS requires that PDPs report rebates annually, and base both the annual benchmarks and approved premiums on net drug costs in a given Plan Year. It is true that, due to lagging data, benchmarks and premiums in Plan Year 2019, for example, will be based on net drug costs from Plan Year 2017. Nonetheless, calculations for Plan Year 2019 will be set on net drug costs. On a rolling basis, therefore, CMS reconciles the difference between gross and net drug costs each year. Consequently, there actually is no programmatic basis for PDPs/PBMs to impost DIR fees in the first instance, since there is no differential between rates and premiums determined at POS. DIR fees simply represent windfall profits to PDPs/PBMs rather than a legitimate correction that reflects the gross-to-net spread with respect to Part D payments to PDPs or PDP/PBM payments to LTC pharmacies.

In the Proposed Rule, CMS rightly emphasizes the evolution of DIR fees, and especially pharmacy DIR fees. The rationale for DIR fees during Part D implementation concerned the gross-to-net spread as it impacted Part D rate-setting and PDP contracting. The rationale has changed from the gross-to-net spread concern to purported PDP efforts to improve performance through financial incentives. As we discuss more extensively below, the veneer of performance concerns masks yet another method PDPs employ to shift money from LTC pharmacies to themselves and their corporate affiliates with no apparent benefit to beneficiaries.

CMS has concluded that, contrary to existing obligations, PDPs do not report gross-to-net spread information fully and fairly, allowing PDPs to earn undeserved revenues from LTC pharmacies without incurring the impact of lower overall beneficiary expenditures (co-pays and premiums).

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The direct solution for beneficiaries and for program integrity is requiring that PDPs report fully their gross-to-net spreads, thereby allowing CMS to account fully for these payments when establishing premiums and Medicare supplemental payments in a future Plan Year. The only obstacle to doing so is that PDPs do not fully disclose necessary information to CMS because they exploit regulatory ambiguity. Eliminating such ambiguity is the only measure necessary to solve the true problem associated with beneficiaries paying more than necessary and is a surer path to achieving the goal than the current proposal.

We appreciate the Proposed Rule recommends a “point of sale” (POS) policy solution specific to pharmacy fees, where all pharmacy fees and charges, including so-called “quality program” withholds, would be passed through to the beneficiary at the POS. Unfortunately, this concept would not be effective for LTC pharmacies or the beneficiaries they serve.

A substantial majority of LTC residents are “dually eligible” for both Medicare and Medicaid or otherwise qualify for low-income subsidies (LIS)(collectively “the duals”). Duals do not pay Part D premiums, co-pays or deductibles and are exempt from the “donut hole” and other coverage levels (deductible, basic coverage, donut hole and catastrophic) of the Part D program. For these beneficiaries, “passing through” pharmacy fee DIR at the POS makes no sense since it is not possible for their out-of-pocket costs to be lower than nothing. Thus, while we appreciate the facial appeal of the POS options, none make sense or will achieve the policy goals they have been designed to address – at least for LTC residents or LTC pharmacies.

As the agency is well aware, in January 2017, CMS released a short but important analysis demonstrating that PBMs retain drug rebates and DIR fees as profits, rather than passing those cost-saving measures on to beneficiaries.4 The report also explained how PBM behavior caused beneficiaries to pay higher prices, and, by moving beneficiaries through the coverage tiers of the Part D program as rapidly as possible, unnecessarily increased federal government costs. Moreover, CMS also acknowledges that PDPs/PBMs manipulate the current system to generate profits, and that pharmacies pay PBMs more “performance incentive payments” than they receive in post-point-of-sale performance payments. Further, CMS acknowledged that the system obscures actual costs and prices from consumers and even from the Part D program, and explicitly rejects PBM assertions that DIR is used to reduce beneficiary premiums. The agency’s current findings that so-called “quality” programs have increased in size, and that the payments withheld (purportedly in the name of quality) by PBMs vastly exceed any payments returned to pharmacies, only emphasizes how DIR fees have been misused and abused. It is time to stop this illicit practice.


The Proposed Rule also would create an inverse relationship between DIR fees and co-pays. The higher the dollar value of DIR fees, the lower the co-pays. Creating such a relationship effectively institutionalizes DIR fees as a perceived consumer benefit, establishing the principle that fees imposed on LTC pharmacies – over which the pharmacies have no control – are an important predicate to lower beneficiary out-of-pocket expenses. This principle is fundamentally unfair and irresponsible. CMS repeatedly has documented manipulative behavior by PDPs and PBMs to exploit ambiguities in regulatory and sub-regulatory provisions to their own financial benefit and

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the detriment of pharmacies. A “solution” that targets pharmacies without limiting PDP ability to continue market manipulation simply is wrong.

The Proposed Rule does not address directly its impact on pharmacies. SCPC understands that the agency believes there will be no adverse impact on pharmacies because current contractual language between PDPs and pharmacies requires PDPs to pay pharmacies a set amount, such that lower beneficiary co-pays must be offset by higher direct PDP payments to pharmacies. Although SCPC does not have access to contractual provisions and therefore cannot directly confirm this belief, anecdotal information suggests that current contractual terms generally do protect pharmacies from direct adverse impact.

However, nothing prevents PDPs from changing contractual terms in response to the proposal, which seems probable if PDPs and the PBMs with which they contract believe the proposal will adversely impact their financial interests. The Proposed Rule also does not address its impact on PDPs. However, CMS’ findings concerning the growth in PDP/PBM reliance on rebates and DIR fees, coupled with their willingness to exploit regulatory ambiguity such that they have been able to earn excess revenues from incomplete reporting to the agency, amply demonstrate that the agency should be skeptical of manipulative market responses to the proposal.

Some policymakers contend that the proposal removes all financial incentives for PDPs to charge DIR fees, aside from quality or performance fees designed to improve pharmacy performance. If this contention proves correct, then presumably PDPs would abandon the use of DIR fees, which would result in pharmacy price concessions being reduced dramatically as well, such that beneficiaries would not experience the reductions in co-pays that the proposal seeks. Alternatively, however, if – as we fear – the proposal creates an inverse relationship between DIR fees and beneficiary co-pays, the larger the amount of DIR fees, the lower the beneficiary co-pays. Rather than becoming the first step toward elimination of DIR fees, the proposal may increase use of DIR fees to gain competitive advantage among PDPs.

In summary, all these factors counsel against addressing the problems created by DIR fees through the approach the agency proposes. Changing the definition of “negotiated price” to require PDPs/PBMs to provide a “lowest possible price” requirement, 83 Fed. Reg. at 62177, will not assure that beneficiaries pay the lowest amount overall since it trades off lower co-pays for higher premiums. Also, CMS itself has previously recognized that the changes it now proposes would inadvertently drive beneficiaries to “lower quality” pharmacies rather than higher quality pharmacies. 82 Fed. Reg. at 56428. Further, there is no justification or reason (other than overwhelming PDP/PBM market power) for such fees to exist. Rather than trying to find ways to refine an admittedly broken system, we urge the CMS to prohibit pharmacy fees to PDPs/PBMs altogether.5 We believe that there are ways to do so notwithstanding the “non-interference clause,” and urge the agency to eliminate DIR fees as part of the current rule-making.

5 If the Administration is not prepared to prohibit DIR fees altogether, SCPC urges it to at least consider doing so for LTC pharmacy claims and for claims for prescriptions dispensed to duals. As noted above, assuring that beneficiaries incur the lowest possible out-of-pocket costs makes little sense for beneficiaries whose out-of-pocket costs already are zero or near zero. Duals represent a large and disproportionate percentage of beneficiaries LTC pharmacies serve, justifying the prohibition of pharmacy fees for LTC pharmacy claims, or at least all claims for prescriptions dispensed to duals regardless of setting.

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C. CMS Should Establish Clear Guidelines for Performance-Based Payment Adjustments.

As noted above, the Proposed Rule documents a 225% increase in pharmacy DIR fees each year between 2012 and 2017.6 Many of these fees are disguised as “quality programs” that actually benefit corporate affiliates of PDPs or PBMs. Currently, PDPs may create and impose any metrics they choose, without any need to demonstrate a reasonable relationship between each metric and patient outcomes and without consideration of conflicting financial incentives for PDPs, PBMs and their corporate affiliates.

6 83 Fed. Reg. at 62174.

7 Affordable Care Act Section 3310; 42 C.F.R. § 423.154.

We offer two illustrations. The first concerns beneficiary adherence to drug regimens. Many PDPs evaluate pharmacies based on beneficiary adherence because patients who take medications consistently have better outcomes than those who do not. Generally, PDPs determine adherence based on prescription refill rates, a metric that is, at best, tangentially related to actual medication adherence. Refill rates provide no meaningful information about the degree to which beneficiaries take their prescribed medications. However, PDPs adjust payments to pharmacies based on refill rates. For patients in LTC facilities, particularly facilities with staff qualified and required to assist beneficiaries in medication administration, both refill rates and actual consumption of prescription drugs as indicated both are very high. For patients in the community, refill rates may be high but actual consumption of medications as indicated simply is unknown.

The second concerns length of prescription. Many PDPs reward pharmacies that dispense higher percentages of prescriptions for 90 days. While this metric may relate to financial performance, it bears no correlation to quality, particularly for LTC patients. Given the medical complexity of patients in LTC facilities, the number of prescription medications the LTC patient population requires each day, the level of cognitive impairment and frequency of medication changes in this population, 90-day prescriptions generally are inversely related to quality. (They are also contrary to statutory short cycle dispensing requirements enacted in 2010, at least with respect to skilled nursing facilities.) 7 However, given that mail order pharmacies typically fill prescriptions for 90 days, this metric benefits mail order pharmacies to the detriment of LTC pharmacies. It is noteworthy that two of the largest PBMs administering PDPs – Caremark and ExpressScripts – are part of corporate conglomerates that also operate the two largest mail order pharmacies in the country.

SCPC therefore urges CMS to establish meaningful parameters to develop quality metrics PDPs may use for quality or performance payment adjustments. We urge CMS to develop appropriate parameters including approved metrics with appropriate stakeholder input from LTC pharmacy representatives and consistent with the parameters outlined below. Specifically, both guidelines established by CMS and metrics developed as a result:

• Should be specific to defined populations, particularly the LTC patient population;

• Should be developed with appropriate and structured stakeholder input from representatives of LTC pharmacies and LTC facilities;

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• Should be developed only by CMS or professional organizations with specific geriatric and LTC pharmacy expertise;

• Should for each guideline or metric specify whether it correlates to improved quality processes or outcomes for beneficiaries, to financial benefits for PDPs or intermediary PBMs or both;

• Should for each guideline and metric be consistent and uniformly employed across PDPs; and

• Should be free from any financial conflicts of interest by the PDP or PBM;

• Should be free from financial benefit to any corporate affiliate, particularly retail, mail order or specialty pharmacies, of PDPs or PBMs; and

• Should be free from changes in metrics or interpretation of metrics for the duration of any contract between PDPs or intermediary PBMs and pharmacies participating in the Part D program.

SCPC also strongly encourages CMS to suspend PDP use of performance-based metrics to adjust payments to pharmacies until parameters and resultant metrics have been developed consistent with the criteria articulated above.

D. CMS Should Eliminate Claims Processing Fees and Similar Fees under the Part D Program.

CMS solicits comment on the proposal to treat so-called Pharmacy Administrative Service fees as a reduction in PDP administrative costs that must be reported to CMS by the PDPs as part of their bid. CMS has appropriately characterized these fees as payments for which pharmacies “do not receive anything of value…other than the ability to participate in the Part D plan’s pharmacy network.”8 That is exactly what they are – forced payments by PDPs and their PBMs using their market power to exact inappropriate price concessions. It is no accident that most PDPs/PBMs charge claims processing fees of roughly $0.25/claim, while Humana – whose PDPs/PBM refuses to negotiate with LTC pharmacy PSAOs – charge claims processing fees of roughly $1.00/claim. This difference only hints at the disproportionate market power that PDPs and PBMs unfairly wield, with apparent sanction from CMS.

8 83 Fed. Reg. at 62108.

Pharmacies provide services to PDPs and should be paid a fair price for those services. PDPs do not perform any services for pharmacies and such administrative services fees serve no programmatic or market purpose. CMS should eliminate such fees altogether. We urge CMS to prevent PDPs from assessing or collecting claims processing fees, and other fees reasonably characterized as administrative costs of operating an insurance plan altogether. As with other PDP administrative costs, PDPs should report claims processing costs to CMS at the close of each Plan Year and the agency should include such costs in determining annual benchmarks and negotiating contracts with PDPs each Plan Year.

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II. SCPC Objects to CMS’ Proposal to Limit Patient Access to the Six Protected Classes by Excluding Certain Drugs or Broadening the Use of Prior Authorization and Step Therapy

Since the beginning of the Part D program in 2006, both Congress and CMS have appreciated the need for broad access by beneficiaries to certain therapeutic classes of drugs that are not interchangeable within the class. By adopting a clear and consistent policy in statute, regulation and sub-regulatory guidance, Congress and CMS have ensured that AIDS patients, beneficiaries needing certain cancer drugs, transplant patients, and those suffering from serious mental illness, among others, are able to access needed medications. The “six protected classes” policy has worked, but CMS now proposes two policies that will limit access to these medically necessary drugs. SCPC objects to the proposed changes.

A. Background

When Congress created the Part D program, it permitted PDPs to build their own prescription drug formularies provided that the formularies met certain basic minimum standards. See 42 U.S.C. § 1395w-104(b)(3)(A)-(C). For most drug classes, Part D sponsors are required to cover only two drugs per “therapeutic class.” However, in 2005 CMS through policy, and eventually in 2009 Congress through statute, has acknowledged that certain classes of drugs, commonly known as the “six protected classes,” are of “clinical concern” and thus warrant special treatment as a matter of law and policy. Id. § 1395w-104(b)(3)(G)(ii)(I). For these six protected classes, PDP formularies must cover “all or substantially all drugs” within each class, unless CMS provides otherwise through “established exceptions.” Id. § 1395w-104(b)(3)(G)(i). The reason that these classes of medications are “protected” is very significant – unlike many other medications, drugs in these classes are not therapeutically interchangeable – in other words, it is well known that patients who are forced to switch between drugs in each of the six classes likely will not receive necessary treatment.

To determine which classes of drugs are “of clinical concern”—and thus “protected” through mandatory inclusion in Part D Plan formularies—CMS must establish “criteria” through notice-and-comment rulemaking. Otherwise, the statute designates the protected classes as: (1) anticonvulsants; (2) antidepressants; (3) antineoplastics; (4) antipsychotics; (5) antiretrovirals; and (6) immunosuppressants for the treatment of transplant rejection. See id. § 1395w-104(b)(3)(G)(iv). The choice of these classes is deliberate — each of the six therapeutic categories includes drugs that are non-interchangeable due to different receptor binding profiles, pharmacokinetic effects or pharmacodynamics properties. These differences have important impacts on efficacy, safety and tolerance in patients, many of which often may be determined only by trial and error. In fact, when CMS first set up the Part D program, it looked at coverage practices for comparable populations in other federal health care programs such as the Federal Employees Health Benefit Program (FEHB) and Medicaid, and determined that formulary inclusion was the preferred practice, rather than allowing access through an exceptions process. In other words, a policy of limited coverage with an appeals process was determined to be an inappropriate strategy to ensure appropriate patient access to drugs in these classes; rather, they must be available and on formulary from the outset to ensure timely beneficiary access.

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Such limits remain inappropriate because there have been no significant developments in pharmacology or clinical practice to demonstrate that more restrictive access to protected class drugs would avoid diminished quality of care and deteriorating patient outcomes. CMS’ longstanding policy, now memorialized in the Part D statute itself, should not be changed now in the interests of trying to control drug prices, and ironically would increase costs to both beneficiaries and the Medicare program itself.

In the past, CMS has proposed regulations that would have created certain exceptions or eliminated certain protected classes altogether. CMS finalized none of these proposals due precisely to policy concerns akin to those raised in this comment letter. Despite no changes in underlying facts, CMS takes a different tack in this proposal to limit beneficiary reliance of the classes by: (1) adding a new exception based upon the “price” of the drug; and (2) permitting additional use of prior authorization and utilization management for protected class drugs.9 SCPC respectfully requests that CMS withdraw these proposals for the reasons set forth below.

9 CMS also proposes a third policy permitting PDPs exclude “single-source drug[s] or biological product[s] for which the manufacturer introduces a new formulation with the same active ingredient or moiety that does not provide a unique route of administration.” 83 Fed. Reg. at 62, 155. This proposal relates to an exception currently in the Part D Manual which allows PDPs to exclude, among others, new formulations of old-class protected drugs that still are on the market. CMS’ Proposed Rule would broaden the current manual provision by preventing manufacturers from creating more expensive substitutes for existing single-source drugs and biological products and then removing the older, less-expensive drugs from the market to avoid the Manual’s provisions, as apparently one manufacturer has done. Id. at 62,159. SCPC appreciates the agency’s efforts to address this workaround, takes no position on this proposal and will not comment upon it further below.

CMS’ Proposed Rule includes the following:

1. Exclusion Due to Price Increase. The agency proposes to create an exception to the protected class policy that would allow PDPs to exclude specific drugs from inclusion in a “protected class” if there is an increase to its list price that outpaces inflation. According to CMS, price trends for brand drugs are consistently higher for drugs in protected classes than such drugs in non-protected classes. Id. To address this concern, the agency has proposed allowing formularies to exclude “any single-source drug or biological product” in a protected class “whose price increases … beyond the rate of inflation.” Id. The agency is also considering a broader rule that would permit formularies to exclude all protected class drugs of a manufacturer when the manufacturer has exceeded the inflation standard with respect to any protected-class drug it sells. Id. at 62,160.

In determining whether drug price increases exceed inflation, CMS proposes to use wholesale acquisition cost (“WAC”) to measure the increase in a drug’s price and using the Consumer Price Index for all Urban Consumers (CPI-U). Id. at 62161.

2. Broadened Use of Prior Authorization and Step Therapy for Protected Class Drugs. CMS also proposes to use the same source of statutory authority to expand the availability of utilization controls for protected class drugs. Id. at 62158. Under the statute, CMS may allow Part D sponsors to limit access to a protected class drug, including through prior authorization or utilization management. The current Part D Manual provides:

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Part D sponsors may not implement [prior authorization] or [step therapy] requirements that are intended to steer beneficiaries to preferred alternatives within these classes for enrollees who are currently taking a drug. This prohibition applies to those beneficiaries already enrolled in the plan as well as new enrollees who were actively taking drugs in any of the six classes of clinical concern prior to enrollment into the plan. If a sponsor cannot determine at the point of sale whether an enrollee is currently taking a drug (e.g., new enrollee filling a prescription for the first time), the sponsor shall treat such enrollee as currently taking the drug.10

10 Medicare Prescription Drug Benefit manual, Chapter 6, Section 30.2.5 – Protected Classes (Rev. 18, Issued: Jan. 15, 2016), available at

11 CMS, Final MMA Formulary Guidance Q&A (2005), available at

12 Id.

For HIV/AIDS drugs, utilization management tools such as prior authorization and step therapy are generally not employed in widely used, best practice formulary models. Part D sponsors may conduct consultations with physicians regarding treatment options and outcomes in all cases.

The proposal would allow Part D sponsors to require prior authorization “for any protected class drug with more than one medically-accepted indication to determine that it is being used for a protected class indication.” 83 Fed. Reg. 62,158. The Proposed Rule would also allow indication-based formulary design and utilization management for protected class drugs.

B. SCPC Urges CMS to Withdraw Its Proposals Concerning the Six Protected Classes.

We respectfully disagree with CMS’ proposal to add two exceptions to the protected-class policy and broaden the use of prior authorization and step therapy for protected class drugs. CMS should abandon the proposals for three reasons: (1) they harm beneficiary access, which is the very purpose the classes were designed to achieve in the first instance; (2) they will not lead to reduced prices or deeper discounts or rebates; and (3) they will lead to increased beneficiary and Medicare Trust Fund costs. We therefore urge the agency to abandon them.

Impact on Beneficiary Access. The Proposed Rule inappropriately discounts the history and important purposes of the protected classes policy. CMS first articulated the policy in 2005, explaining that the agency’s “responsibility under the Medicare Modernization Act (MMA) to make sure beneficiaries receive clinically appropriate medications so that formularies are not discriminatory,”11 demanded creation of six protected classes policy. In describing the agency’s policy requiring PDPs to include “all or substantially all” medicines in the six protected classes, CMS noted that “beneficiaries should have uninterrupted access to all drugs in that class,” and that “beneficiaries should be permitted to continue utilizing a drug in these categories that is providing clinically beneficial outcomes”—because “interruption of therapy in these categories could cause significant negative outcomes to beneficiaries in a short timeframe.”12

CMS further clarified that the policy arose because “it was necessary to ensure that Medicare beneficiaries reliant upon these drugs would not be substantially discouraged from enrolling in

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Since at least 2005, CMS has recognized that it “should be concerned about selection and/or discrimination” in connection with the drugs in these classes, and that the six protected classes policy is “consistent with the use of a broad, complex range of drugs for these diseases in actual practice” by physicians.

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and Medicaid quality metrics, with further adverse regulatory and financial consequences. Although these re-hospitalizations would have been completely preventable if needed medication therapy had been maintained under the Protected Class policy, they will now be forced upon nursing home and ALF patients because necessary medications are not “on formulary.” In turn, both nursing home quality measures and pharmacy quality measures will be adversely impacted – even though the LTC facility and the LTC pharmacy are prohibited by the restricted PDP formularies from providing the medically necessary medications that the patient was using prior to enrolling (or being automatically enrolled) in a Part D Plan. Beyond the obvious financial impact on the LTC facility and the LTC pharmacy, both of whom are now artificially restrained from providing the care they were, and want, to provide, the treating physician and the LTC pharmacy are being forced to prescribe and dispense medications that they know may not be effective for the resident. This makes no sense medically, ethically or otherwise. Moreover, because (by definition) therapeutically interchangeable alternatives are not available, the prescribing physician, LTC facility and pharmacy are prevented from providing known appropriate care, rehospitalizations increase, and the entire care system pays the costs for perceived “PDP cost savings.”

The agency’s response to this obvious problem is to state that losing protected class status does not prevent a manufacturer from negotiating appropriate discounts and rebates to remain on formulary. This argument ignores over a decade of experience in the Part D program, beginning with the agency’s efforts to design program implementation in 2004 and 2005. If all medically necessary non-interchangeable medications would have been included in Part D formularies in the first instance, the six protected class policy would not have been needed. Both history and experience demonstrate the opposite, and the fact is that Part D beneficiaries were unable to access needed medications which caused CMS to implement the policy. There is no evidence that the situation is any different today. Thus, to ensure that Part D beneficiaries have access to their medically necessary drugs in these “non-interchangeable” classes, and to ensure that doctors, nursing homes and LTC pharmacies can dispense those drugs to meet their medical, legal and ethical responsibilities, the agency’s proposals should be withdrawn.

Impact on Drug Prices: CMS assumes that these proposals are necessary because “Protected Class” conditions: (1) force PDPs to pay more for protected class medications than other medications on Part D formularies; and (2) limit PDPs from imposing formulary tiering as leverage to secure greater manufacturer rebates and discounts. Both are assumptions are erroneous. The most current public analysis available demonstrates that existing Part D regulations, including protected class regulations and guidance, are effective at lowering costs and reducing the use of high-cost drugs when cheaper alternatives are available.15 In November 2018, Avalere published research finding that “while only 35% of plan-covered drugs across all 6 protected classes were generic in 2016, the vast majority (91%) of all prescriptions filled were for generic products.” Contrary to CMS’ example in the Proposed Rule, Avalere’s analysis found that “50% of covered drugs in the anticonvulsant class were generic; however, 90% of all anticonvulsant prescriptions filled in Part D were for generic products. A similar relationship was observed for all other protected classes, except antiretrovirals, for which clinical guidelines drive physicians to prescribe therapies not yet available in generic form for the treatment of HIV/AIDS.” Id. In short, PDPs

15 J. Young and K. Brantley, “Patients Use Generics More Frequently than Brands in Medicare’s Protected Drug Classes,” Avalere (Nov. 20, 2018), available at

The Honorable Seema Verma, M.P.H. January 25, 2019 Page 16 of 20 already have extensive leverage through existing prior authorization to both negotiate lower (net) drug prices from manufacturers, and to ensure that generics are used where medically appropriate to do so.

We also note that professional standards and Medicare and Medicaid Requirements of Participation compel LTC pharmacies to dispense drugs to patients in LTC facilities before PDPs are required to complete prior authorization processes or demand step therapy alternatives to prescribed drugs. For many LTC pharmacies, the frail medical condition of the beneficiary patients requires that the prescribed drug be provided, even if subject to prior authorization or step therapy. As a result, when possible many LTC pharmacies are forced to seek such prior authorization or waiver of step therapy. The net result is increased strain on the healthcare system, with significant uncompensated costs being incurred by pharmacies and physicians, that do not justify the “benefit” of purported lower drug prices.

Impact on Health Care Costs: Even if there was evidence that the agencies’ proposed policies would reduce drug prices, there would be a far larger increase in health care costs that would result. This is not new information, and well-known studies of similar efforts in State Medicaid programs have shown a clear increase in health care costs resulting from increased utilization restrictions on drugs in the Protected Classes. For example, when Maine attempted to limit the antipsychotics included on its Medicaid formulary, tolerability issues contributed to unfavorable clinical outcomes and undermined the achievement of any savings. Noting a sharp rise in treatment discontinuities following the introduction of prior authorization (PA) for atypical antipsychotics (often called “AAs”), researchers stated that “[r]esponses to specific AAs and risks of adverse events . . . vary. Thus, if certain patients are sensitive to adverse events associated with preferred agents, the PA policy could increase the incidence of unfavorable outcomes and contribute to medication discontinuation.”16 Maine suspended the restrictive access program nine months later because of “numerous case reports of adverse effects associated with the policy.”

16 Stephen B. Soumerai, et al., Use of atypical antipsychotic drugs for schizophrenia in Maine Medicaid following a policy change, Health Affairs 27.3 (2008): w185-w195 (internal citations omitted).

17 Estimate of the Net Cost of a Prior Authorization Requirement for Certain Mental Health Medications, Driscoll & Fleeter (Aug. 2008), available at

18 CMS, as in prior years, also claims that any reduction in protected class protection can be ameliorated through the beneficiary appeals process. Evidence, however, shows that the Part D exceptions and appeals processes do not effectively ensure access to needed medicines. For example, several years ago the Medicare Payment Advisory Commission (MedPAC) reviewed the Part D exceptions and appeals process and found that most beneficiaries were not aware of their appeals rights and that physicians were frustrated with burdensome requirements. MedPAC also analyzed the second level of Part D appeals, and a recent audit found that many plans fail to make timely coverage determinations or fail to notify beneficiaries of a plan coverage decision. MedPAC, Public Meeting, Sept. 12, 2013, available at Particularly given that the beneficiaries

Ohio experienced the same result. After the Ohio Department of Jobs and Family Services imposed a PA requirement for certain antipsychotics for patients with schizophrenia, bipolar disorder, and other serious mental illnesses, researchers found little or no drug cost savings would result from the increased utilization controls, but that they would add an estimated $23 million in costs in other areas, including emergency department services, incarceration, and hospitalization. 17 In short, the study found that shifting pharmacy costs to other areas both denies access and fails to achieve savings. These findings mirrored results of another study reported earlier the same year, which found that PA policies in West Virginia and Texas likewise did not reduce pharmacy costs.18

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The Honorable Seema Verma, M.P.H. January 25, 2019 Page 18 of 20

We therefore strongly urge CMS to withdraw the Protected Class proposals that would negatively impact patient access to the six protected classes, or at the very least, create an exemption from all these requirements for LTC pharmacies and for Part D beneficiaries who reside in LTC facilities and receive prescription drugs and related serves from LTC pharmacies.

III. SCPC Supports CMS’ Elimination of the Gag Clauses Imposed by Part D Sponsors on Pharmacies (§ 423.120(a)(8)(iii))

SCPC supports the agency’s proposal to implement via regulation the recently enacted “Know the Lowest Price Act of 2018” (Pub. L. 115-262), which prohibits a prescription drug plan under Medicare or Medicare Advantage from restricting a pharmacy from informing an enrollee of any difference between the price, copayment, or coinsurance of a drug under the plan and a lower price of the drug without health-insurance coverage (commonly referred to as “gag clauses”).

As long-term care pharmacies, SCPC members believe it is vitally important that CMS implement this provision within the Proposed Rule to prohibit plan sponsors from imposing gag clauses on pharmacies as part of their contracts, which will enable pharmacies to accurately communicate to customers the availability of drugs at a cash price below what the enrollee would be charged under their Part D plan. SCPC therefore supports CMS’ proposal to finalize regulations that would prohibit the use of gag clauses, consistent with the federal legislation.

IV. SCPC Supports CMS’ Proposal to Implement a Real-Time Benefit Tool Standard, but Urges CMS to Exclude the Use of RTBT by Long-Term Care Facilities (§ 423.160)

SCPC endorses with caution CMS’ proposal to update the Part D electronic prescribing standards by requiring Part D sponsors who operate in the retail setting to implement a real-time benefit tool (“RTBT”) capable of integrating with prescribers’ E-Prescribing (“eRx”) and electronic medical record (“EMR”) systems to provide “complete, accurate, timely, clinically-appropriate, and patient-specific real-time formulary and benefit information to prescribers.” 83 Fed. Reg. at 62,165. However, SCPC strongly urges CMS to explicitly avoid any requirement that the RTBT be required in in long-term care settings such as SNFs and ALFs, given that the use of such a tool is impractical and unrealistic for use by residents of such facilities (e.g., nursing homes, Assisted Living facilities, prisons, and other communal living settings) where medications are dispensed by the institution rather than at a retail counter.

SCPC agrees that there is significant benefit to prescribers and consumers having access to a RTBT available at the point-of-care to allow collaboration between the prescriber and patient to select a medication based on clinical appropriateness and cost. Id. at 62,165. We caution, however, that health care decisions and specifically medication decisions should not be driven by cost concerns alone and considering the ongoing consolidation in the insurer/PDP/PBM community, we are concerned that the RTBT may assume an outsized role in focusing prescribers on cost rather than efficacy. We urge the agency to consider that issue in developing its RTBT policy.

In addition, we recommend that CMS consider excepting providers in LTC and ALF facilities from these requirements prior to assessing how the RTBT is working in the field. As a general matter, the “prescriber and patient” relationship in a LTC facility is distinct from a retail pharmacy or from a typical provider-patient interaction. In LTC facilities, medications are not dispensed at

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a retail counter, but rather, are dispensed by an institution to the individual. Thus, the patient – provider interaction is much more tenuous, and it would be impractical, if not impossible, in certain situations for LTC facilities to engage in such discussions and access to this information would impose more of a burden than a benefit on patients and providers in these facilities. Further, many LTC facilities have a large proportion of dual-eligible individuals who qualify for both Medicare and Medicaid benefits and are not necessarily sensitive to co-payments and other cost considerations, which would make use of RTBT unwieldy and moot for many LTC patients. SCPC therefore proposes that CMS exempt LTC facilities from these provisions but supports finalization of these requirements for retail pharmacies.

V. SCPC Does Not Support CMS’ Proposal to Permit MA Plans to Utilize Step Therapy for Part B Drugs.

CMS’ Proposed Rule would permit Medicare Advantage (MA) plans to apply step therapy as a utilization management tool for Part B drugs. CMS views this proposal as a way to “implement appropriate utilization management and prior authorization programs for managing Part B drugs to reduce costs for both beneficiaries and the Medicare program.” Id. at 62, 194.20 Furthermore, CMS believes that use of tools like step therapy for Part B drugs would “enhance the ability of MA plans to negotiate Part B drug costs and ensure that taxpayers and MA enrollees face lower per unit costs or pay less overall for Part B drugs while maintaining medically necessary access to Medicare-covered services and drugs.” Id. at 62,153. For the reasons set forth below, SCPC respectfully disagrees with CMS’ proposed approach to permit Medicare Advantage organizations (e.g., MA Plans under Medicare Part C) to utilize step therapy as a utilization management tool for Part B drugs.

20 Although many of these Part B drugs are covered through the Part D benefit when dispensed to nursing home residents, they remain covered in the Medicare Advantage program as a Part B benefit when dispensed to ALF residents and residents of other communal living facilities.

First, the CMS proposal to permit MA plans to utilize step therapy for Part B drugs is contrary to law. As previously reflected in the agency’s now rescinded August 7, 2018, CMS guidance, CMS regulations require MA plans to “provide coverage of, by furnishing, arranging for, or making payment for, all services that are covered by Part A and Part B of Medicare…and that are available to beneficiaries residing in the plan’s service area.” Social Security Act section 1934(b); 42 C.F.R. §§ 417.414(b) and 422.101(a), (b). As such, the agency’s proposed policy “would create an unreasonable barrier to coverage of and access to Part B benefits that MA plans must provide under the law.” Id. at 62,169. The agency’s prior conclusion was correct that MA plans “must have, at a minimum, equal access to items and services covered by the Original Medicare in their service area. While plans may create coverage policies in the absence of a National Coverage Determination or a Local Coverage Determination, those policies may not be more restrictive than what Original Medicare allows and may not impose barriers to Parts A and B services, including, as described above, the imposition of step therapy requirements for Part B drugs and services.” Id. The agency’s reversal of its position is contrary to law, and should be abandoned.

Second, and even if the law did not require withdrawal of the proposal, implementation of such a policy will substantially harm beneficiary access to treatment. Step therapy requires that patients try cheaper medications first before they are permitted to move to newer, costlier drugs. Given

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the potential frailty and health of the LTC population, patients may lose access to important and life-saving treatments because of lack of access to less onerous, but potentially more expensive, medications. And even if they have such access, they still must be willing and able to “fail” on cheaper medications.


We thank you for consideration of these comments and welcome any questions that you may have.

Please feel free to contact me at (717) 503-0516 or if we can provide any additional information.

Alan G. Rosenbloom
President & CEO
Senior Care Pharmacy Coalition

Click here to download the comment letter.

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