2023-07115.pdf

the definition of gross covered prescription drug costs was codified in regulation for the sole purpose of describing the methodology for calculating the reinsurance payment amount, in using the phrase actually paid in the regulatory definition of gross covered prescription drug costs, CMS was incorporating a requirement from the statutory definition of allowable reinsurance costs to emphasize that DIR would be netted out in the calculation of costs eligible for Part D reinsurance. In light of certain provisions added to the Social Security Act by the Inflation Reduction Act of 2022 (IRA) that refer to gross covered prescription drug costs as defined in section 1860D 15(b)(3) [of the Act] (see sections 1191(c)(5) and 1860D14C(g)(4)(D) of the Act), we revisited the regulatory definition of gross covered prescription drug costs. We proposed to revise the regulatory definition of gross covered prescription drug costs to mirror the language in the statutory definition and to remove any ambiguity that might arise from the current regulatory definition as it may now also be applicable outside of the reinsurance context. Specifically, we proposed to amend the definition of gross covered prescription drug costs at  423.308 to remove the phrase actually paid. As we explained in the proposed rule, the proposed revisions to the definition would not change the fact that Part D reinsurance is ultimately based on net drug costs or change the final reinsurance payment amount a Part D sponsor receives. Rather, allowable reinsurance costs would continue to be defined at  423.308 as the subset of gross covered prescription drug costs actually paid. Thus, the revision would not constitute a change in policy or require a change in operations under Part D, and would not place any additional burden or reduce existing burden on Part D sponsors, nor result in government savings or costs. 1. Background The term gross covered prescription drug costs (hereinafter referred to as GCPDC) is defined and used at section 1860D15(b) of the Act for the purpose of describing the methodology for calculating the reinsurance payment amount. As specified in section 1860D 15(b)(1)(A) of the Act, the reinsurance payment amount for a year preceding 2025 is equal to 80 percent of the allowable reinsurance costs (as specified in paragraph (2)) attributable to that portion of gross covered prescription drug costs as specified in paragraph (3) incurred in the coverage year after such individual has incurred costs that exceed the annual out-of-pocket threshold specified in section 1860D 2(b)(4)(B). Although the statutory definition of allowable reinsurance costs at paragraph (2) of section 1860D15(b) of the Act specifies that such costs are the subset of GCPDC that are actually paid (net of discounts, chargebacks, and average percentage rebates), the statutory definition of GCPDC at paragraph (3) of section 1860D15(b) of the Act does not use the phrase actually paid or otherwise specify that such costs must be net of all DIR. As we explained in the proposed rule, this distinction, coupled with the use of the modifier gross to describe these costs, indicates that the best reading of section 1860D15(b)(3) of the Act is that GCPDC should reflect gross costs, not net costs that reflect all DIR that a Part D sponsor may receive. We also stated that CMS use of the phrase actually paid in the current regulatory definition of GCPDC was intended to emphasize that all DIR would be netted out in the calculation of costs eligible for Part D reinsurance consistent with the plain language of the statute, which requires that the reinsurance payment amount be based on net drug costs. While the use of the phrase in the current regulatory definition of GCPDC is consistent with the statute for this reason, we recognized that it may have led to ambiguity as to when the DIR would be netted out. We also recognized that the use of the phrase could create ambiguity when GCPDC is referenced outside of the reinsurance context. We further noted in the proposed rule that the statutory definition of GCPDC describes these costs as not including administrative costs, but including costs directly related to the dispensing of covered Part D drugs during the year and costs relating to the deductible. CMS has long held that costs directly related to the dispensing of covered Part D drugs are most logically calculated as the accumulated total of the negotiated prices that are used for purposes of determining payment to the pharmacy or other dispensing entity for covered Part D drugs, and which are required under section 1860D2(d)(1) of the Act to be made available to Part D beneficiaries and are used to adjudicate the Part D benefit (that is, used to determine plan, beneficiary, manufacturer, and government liability during the course of the payment year).135 136 As stated in several past rulemakings, we interpret the statutory definition of negotiated prices at section 1860D2(d)(1)(B) of the Act as allowing the application of DIR at the POS, to reduce the negotiated price, either at the discretion of Part D plan sponsors or at the direction of CMS (see, for example, 70 FR 4244, 74 FR 1511, and 87 FR 27833). Therefore, even if the phrase actually paid were not included in the regulatory definition of GCPDC, GCPDC would continue to be reduced by POS DIR reflected in negotiated prices. However, such an accounting of POS DIR would not make the resulting amount actually paid, which requires accounting for all DIR, including DIR not applied at the POS. As a supplement to the background we included in the NPRM, we also wish to clarify that in using Part D negotiated prices to calculate GCPDC, we currently include manufacturer discounts paid under the Coverage Gap Discount Program under section 1860D14A of the Act and will continue to do so through 2024. Such manufacturer discounts are paid at the POS by the Part D sponsor on behalf of the manufacturer, and the manufacturer is required to reimburse the Part D sponsor on behalf of the Part D beneficiary, with the discounts counting as incurred costs as required by section 1860D2(b)(4)(E) of the Act. Manufacturer discounts paid under the Coverage Gap Discount Program have been included in GCPDC since the beginning of the Coverage Gap Discount Program, and this practice is consistent with the current statutory VerDate Sep<11>2014 21:20 Apr 11, 2023 Jkt 259001 PO 00000 Frm 00142 Fmt 4701 Sfmt 4700 E:\FR\FM\12APR2.SGM 12APR2ddrumheller on DSK120RN23PROD with RULES222261 Federal Register / Vol. 88, No. 70 / Wednesday, April 12, 2023 / Rules and Regulations and regulatory definitions of GCPDC, which generally require the inclusion of all costs incurred under the plan paid by the plan or by or on behalf of the Part D beneficiary. The change we proposed to the regulatory definition of GCPDC in the December 2022 proposed rule does not alter that fact, thus, GCPDC would continue to include Coverage Gap Discount payments even if the phrase actually paid is no longer included in the regulatory definition of GCPDC. We also note that section 11201(c)(2) of the IRA adds paragraph (h) to section 1860D14A to sunset the Coverage Gap Discount Program on January 1, 2025. Section11201(b)(2) of the IRA adds subparagraph (B) to section 1860D 15(b)(2) of the Act to require the inclusion of manufacturer discounts paid under the Manufacturer Discount Program under section 1860D14C in the calculation of allowable reinsurance costs, as defined in section 1860D 15(b)(2)(A), beginning in 2025. Additionally, section 11201(b)(3) of the IRA amends section 1860D15(b)(3) in two places to also require the inclusion of manufacturer discounts paid under the Manufacturer Discount Program in the calculation of GCPDC (first, by specifying that the definition of GCPDC is subject to paragraph (2)(B) of section 1860D15(b) and second, by adding language specifying that with respect to 2025 and subsequent years, in the case of an applicable drug, as defined in section 1860D14C(g)(2), GCPDC shall be determined whether the costs are paid by the individual, under the plan, or by a manufacturer). There are two important differences between the Coverage Gap Discount Program and Manufacturer Discount Program that would result in manufacturer discounts paid under the two programs being treated differently for purposes of calculating allowable reinsurance costs and GCPDC absent the explicit statutory requirement to include manufacturer discounts paid under the Manufacturer Discount Program in the calculation of these amounts. First, unlike manufacturer discounts paid under the Coverage Gap Discount Program, manufacturer discounts paid under the Manufacturer Discount Program do not count toward incurred costs per section 1860D2(b)(4)(C)(iii)(II) of the Act and thus are not considered paid by or on behalf of Part D beneficiaries. Second, the Manufacturer Discount Program creates a new manufacturer discount obligation in the catastrophic phase, so the treatment of such discounts has a direct impact on the calculation of the reinsurance payment amount for the first time beginning in 2025. Further information on the treatment of manufacturer discounts paid under the Manufacturer Discount Program under section 1860D14C of the Act for purposes of calculating allowable reinsurance costs and GCPDC will be provided prior to the start of the Manufacturer Discount Program in 2025. In the December 2022 proposed rule (87 FR 79612), we proposed to amend the definition of gross covered prescription drug costs at  423.308 to mirror the statutory language in section 1860D15(b)(3) of the Act and to remove any ambiguity that might arise from the current regulatory definition of GCPDC, as discussed in greater detail in this section of this final rule. 2. Proposed Change Consistent with the language of section 1860D15(b) of the Act, CMS policy, including the current reporting requirements, and operations, including how the industry tracks and reports costs (that is, industry practice), we proposed to amend the definition of gross covered prescription drug costs at  423.308 to remove the two references to actually paid to clarify that GCPDC are not net of all DIR. We explained that the proposed change would have no impact on Part D payment calculations or reporting requirements. Consistent with section 1860D15(b)(2), the reinsurance payment amount would continue to be calculated based on drug costs net of DIR. Outside of the reinsurance context, CMS long-standing operational guidance has instructed plans to report costs without first netting out DIR applied after the POS, and thus, the guidance would not need to be adjusted as a result of this proposed change to the regulatory definition of GCPDC. For instance, the amounts reported in the Ingredient Cost, Dispensing Fee, Vaccine Administration, Sales Tax, GDCB, GDCA, and the TGCDC Accumulator fields on the PDE record are required to include costs incurred by the Part D sponsor and all amounts paid by or on behalf of an enrollee under a Part D plan. Further, CMS guidance instructs Part D sponsors to net out only plan administrative costs and any DIR applied at the POS when reporting GCPDC. Hence, a key step in calculating the Part D reinsurance payment amount is to determine the allowable reinsurance cost amount by subtracting from the GCPDC incurred in the catastrophic phase all DIR attributable to the proportion of catastrophic phase spending that was not already accounted for at the POS in order to determine the amount actually paid by the Part D plan and ensure that the reinsurance payment amount is ultimately calculated based on net drug costs. As we would continue to take this important step in determining allowable reinsurance costs for purposes of calculating the reinsurance payment amount even if actually paid were removed from the regulatory definition of GCPDC as proposed, there would be no change in the final reinsurance payment amount a Part D sponsor receives. Moreover, we noted that no other rules or policies would be affected by this proposed change, including the rules regarding how to account for coverage not provided by the Part D sponsor, and instead provided by other payers, because they do not directly address the calculation of the reinsurance payment amount and thus do not rely on the current regulatory definition of GCPDC. For example, we explained that under rules regarding Medicare secondary payer (MSP) or subrogated claims, the amounts reported in the cost and payment fields of the PDE record reflect a reduction in the Part D plans incurred cost for a drug resulting from other payer arrangements, which is currently captured in GCPDC and would continue to be captured in GCPDC under our proposed revisions. We noted that in the 2022 final rule titled Medicare Program; Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs; Policy and Regulatory Revisions in Response to the COVID19 Public Health Emergency; Additional Policy and Regulatory Revisions in Response to the COVID19 Public Health Emergency (87 FR 27833 through 27851) which appeared in the Federal Register on May 9, 2022, we amended our regulations at  423.100, to add a new definition of negotiated price effective January 1, 2024. The new definition specifies, among other things, that the negotiated price for a Part D drug is the lowest possible reimbursement a network pharmacy will receive, in