C-Suite Cheat Sheet: Medicare Part D

Educational briefing for suppliers and service providers

Executive summary

Medicare Part D, also known as the Medicare prescription drug benefit, is a voluntary program funded by CMS that subsidizes the costs of outpatient prescription drugs and prescription drug insurance premiums for Medicare patients. It was put into action as part of the Medicare Modernization Act (MMA) of 2003 and went into effect on January 1, 2006.

There are two types of Part D plans: Prescription Drug Plan (PDP) and Medicare Advantage Prescription Drug Plan (MA-PD). Medicare Part D plans are administered by private payers, patients’ former employers, and now health care providers. In 2016, nearly 41 million Medicare patients were enrolled in Part D plans; the continued increase in the Part D market will push providers to boost quality and cost containment efforts for their patients.

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Why is Medicare Part D a key issue for providers?

Approximately 75% of Medicare patients are enrolled in Part D plans currently. While plan sponsors are typically commercial insurers, a rising number of providers are taking on more risk to receive a stake in an existing plan or sponsor their own. As the Medicare population using Part D plans grows, providers are financially incentivized to reduce the total cost of care and enhance quality of health care delivery.

CMS administers the Five-Star Quality Rating System program to score Medicare Advantage organizations (MAOs) and ties a plan’s ratings with quality bonus payments. Some health plans have begun rewarding top-performing physicians and pharmacists through Pay-for-Performance (P4P) models. Since Part D specialty drug costs are growing exponentially, providers will also need to modify the medications they prescribe by favoring generics to cut their patients’ out-of-pocket expenditures.

How does Medicare Part D work?

In Medicare Part D, CMS contracts private payers to offer different plans that cover various doctor networks, categories of drugs and benefits, and premium structures. CMS pays the participating plan a lump sum per Medicare patient and has no influence on the prices paid to drug manufacturers by the plan or the prices charged to patients by the plan.

However, legislation promotes competition among plans to put downward pressure on drug prices and premiums. Each Medicare patient can then select a Part D plan offered in their region based on the drugs covered, the prices of those drugs, the monthly premium, and other parameters. Medicare patients are eligible for prescription drug coverage under a Part D plan if they are signed up for benefits under Original Medicare (Medicare Part A and/or Part B).

CMS requires Part D plans to cover all drugs in 6 protected therapeutic classes (antineoplastics, anticonvulsants, antiretrovirals, antipsychotics, antidepressants, and immunosuppressants). Patients obtain the Part D drug benefit through two types of plans:

  • Prescription Drug Plan (PDP): This is a standalone Medicare Part D plan for drug coverage only, which can be added to Original Medicare coverage. In 2016, 60% of Part D enrollees were in PDP plans.
  • Medicare Advantage Prescription Drug Plan (MA-PD): This is a Medicare Advantage (Part C) health plan that jointly covers all hospital care and medical services covered by Medicare Part A and Part B at a minimum. It generally covers additional health care costs, such as prescription drugs. There are 4 types of MA plans: HMO, PPO, PFFS, and SNP.

How does Medicare Part D affect providers?

Clinical

Through the Five-Star Quality Rating program (where 5 = Excellent, and 1=Poor), CMS lends an objective quality measure for a Medicare patient to compare health plans. It also gives an incentive for plans to enhance quality outcomes for enrolled patients and creates a system for plans to gain financial rewards for achieving high quality performance.

The MA-PD plans are given an Overall Rating, based on weighted performance on both Part C and Part D measures. The PDP plans are only assigned a Part D rating based on 15 Part D measures that fall under 4 domains.

Domains and Measures of Part D Ratings

Financial

Medicare Part D incentivizes providers to offer high-value, rather than high-volume care. CMS assigns financial rewards to in two parts: direct bonus payments to the plan sponsor and rebates for the patient in the form of reduced premiums or enhanced benefits. Bonus payments are paid per Medicare patient according to MA county benchmarks. Plans that are rated 4 stars or higher are given a 5% bonus payment of the county’s bonus benchmark, while plans that are rated 3.5 stars or below are not paid a bonus.

Operational

Medicare Part D incentivizes providers to offer high-value, rather than high-volume care. CMS assigns financial rewards to in two parts: direct bonus payments to the plan sponsor and rebates for the patient in the form of reduced premiums or enhanced benefits.

Bonus payments are paid per Medicare patient according to MA county benchmarks. Plans that are rated 4 stars or higher are given a 5% bonus payment of the county’s bonus benchmark, while plans that are rated 3.5 stars or below are not paid a bonus.

How might Medicare Part D impact provider-supplier sales relationships?

Medicare Part D will push providers to collaborate more with suppliers and service firms to achieve cost management and quality improvement goals. Providers will be looking for support in three major areas:

Prove value of drugs. Providers will need help to reduce drug spending for their patients, especially for chronic diseases. Vendors should offer value-based metrics and real-world clinical evidence to help providers determine the efficacy of drugs in driving down key utilization costs and hospitalization rates.

Lend data reporting and tracking expertise. Vendor partners can help develop quality reporting tools to track complicated clinical and financial measures. Moreover, vendors can offer clinical decision support infrastructure and use data analytics to help providers make more informed and safer treatment decisions for their patients.

Improve patient experience and education. Finally, providers will look to vendors for improving patient adherence, education, and engagement. Providers may need help designing customer-friendly and accessible portals to address patient appeals and complaints in a timely fashion.

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