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CMS Call Letter: Pharmacy Network Implications

As part of our continuing series on CMS's 2016 Call Letter, we take a closer look at the provisions in the Call Letter affecting PBM and plan sponsor pharmacy networks.  In the Call Letter, CMS raises concerns about preferred pharmacy networks and maximum allowable cost (MAC) pricing, and also provides clarifying guidance on mail order pharmacy auto-ship policies.

Preferred Pharmacy Networks

Preferred pharmacy networks create financial incentives for members to utilize preferred pharmacies where their out-of-pocket costs will be lower and where their plan sponsor receives reduced pricing.  Preferred pharmacy networks have experienced significant growth in the past few years and have been the subject of criticism.  In 2014, CMS proposed regulations that would have significantly limited the benefits of preferred networks.  However, in the wake of sharp criticism from industry stakeholders, CMS withdrew its proposed regulation of preferred networks.

In response to complaints that plan sponsors have not provided enrollees with reasonable access to preferred cost-sharing pharmacies, CMS engaged a contractor to study the issue and found that some beneficiaries residing in all types of geographic areas, but particularly in urban areas, face limited or no access to preferred pharmacy networks.  While CMS does not propose to establish access standards for preferred pharmacy networks, it does intend to take a two-pronged approach to ensure that plan marketing materials are not misleading with respect to the availability of preferred pharmacies.

  1. CMS will publish information on preferred pharmacy network access levels for each plan offering a preferred cost-sharing benefit structure.
  2. During bid review and negotiation, CMS will work with plans whose preferred networks are outliers (i.e., bottom 10th percentile compared to all Part D plans in a given geographic type) to either increase access or prevent marketing of such networks in areas where the benefit is not meaningfully available.

CMS indicates it will continue to monitor access levels and may consider broadening its outlier review.

MAC Pricing

Effective January 1, 2016, drug pricing based on MAC will be subject to new disclosure and update standards.  Plan sponsors will need to disclose updated MAC pricing in advance of their use for reimbursement but, CMS does not specify any particular time period, format layout, or delivery method for such advance notice.  In the absence of such standards, CMS expresses concern that plan sponsors may provide pharmacies with constant, unorganized updates.  CMS cautions plan sponsors that MAC updates must be provided in a usable manner that allows that the pharmacies to validate prices.

Mail Order Auto-Ship Policies

CMS's current auto-ship policy contains two exceptions (one for new prescriptions and one for refills) that address automatic shipment of mail prescriptions without obtaining prior member consent, provided specified conditions are met. Starting in 2016, any plan sponsors that automatically send prescriptions not directly initiated by the member may do so without submitting a specific request to CMS, but are still expected to meet all of the existing exception conditions.  CMS offers the following guidance for implementing auto-ship programs:

  • Members should be able to easily opt-out of auto-shipments at any time and the plan sponsor should timely respond to such requests.
  • Auto-shipments sent without prior consent after a member has opted-out should be eligible for a full refund.
  • Once a plan sponsor receives notification that a member is deceased, auto-shipments should be cancelled and medications shipped to deceased beneficiaries should be refunded.
  • A member who chooses to opt-out of automatic deliveries should still be permitted to use mail order services.

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Theresa advises clients on all aspects of the pharmaceutical supply chain, including counseling industry stakeholders on a range of business, legal, transactional, and compliance matters. She provides clients with strategic counseling and creative business modeling that considers legal restrictions and regulatory risk in light of innovation and business goals.