CMS aims to decrease burdens and increase innovation in Medicare parts C and D with new April 2018 guidance

Alerts / April 20, 2018

In regulations published on April 16, 2018, the Centers for Medicare & Medicaid Services (CMS) issued two new documents containing guidance primarily on the Medicare Advantage (MA) program and on the Medicare prescription drug benefit program. Taken together, these two documents – a finalized regulation outlining policy changes for Contract Year 2019 (Final Rule) and a 2019 Rate Announcement and Final Call Letter (Final Call Letter) – represent further steps by the Trump administration to reduce regulatory obstacles to better healthcare delivery, to address prescription drug issues, and to improve choices available to Medicare parts C and D plan enrollees. These Final Rules, with limited exceptions, will be applicable January 1, 2019.

Steps taken to reduce regulatory obstacles

Having noted that approximately two-thirds of Americans 65 and older use the internet, CMS brought some Medicare parts C and D requirements more fully into the online era, a change that CMS estimates will result in savings of almost $55 million per year. To meet the disclosure and delivery requirements for Medicare parts C and D, CMS currently requires MA plans and Part D programs to provide detailed benefit information in paper form, even if this information is also available online. The Final Rule will now only require paper copies of such information to be available on request.

As additional streamlining in Medicare parts C and D, CMS also narrowed reporting on Medicare enrollment “marketing material” and on Medical Loss Ratio (MLR) data. Acknowledging that its previous definition of marketing material was unduly broad, CMS will now only review and approve marketing material aimed at influencing beneficiary decisions. Instead, to retain appropriate oversight, CMS will promulgate requirements and oversight for materials and activities to be defined as “communications.” Similarly, under the Final Rule, CMS will only require four reportable pieces of MLR information: the organization’s name, contract number, adjusted MLR and remittance amount.

And in another nod to minimalism, CMS inverted its previous approach to ensuring program integrity for Medicare parts C and D entities offering healthcare items and services. Currently, prescribers of Part D drugs and providers of MA services and items are required to enroll in Medicare for claims submitted by those individuals and entities to be covered. However, the Final Rule replaces the enrollment requirement with a requirement for denial of payment for claims submitted by individuals and entities on a CMS-created “Preclusion List.” The Preclusion List will include individuals whose Medicare privileges have been revoked and are under a re-enrollment bar or have engaged in conduct for which CMS could have instituted such a penalty, and CMS will make this list available to the MA plans and Part D sponsors.

Steps taken to address prescription drug issues

As part of ongoing administration efforts, the Final Rule instituted changes to make drugs more affordable and more readily available. In addition to expediting the substitution of generic drugs for brand-name drugs in Part D formularies, CMS also made cost-sharing assistance available for certain biological products, those more quickly approved for similarity to existing FDA-approved products, in the same way that such aid is available for generic drugs for low-income enrollees. Worth noting, though, is that CMS had also considered requiring any drug price concessions to be shared with consumers at the point of sale, but it chose not to take any present action on that idea.

The Final Rule also implemented provisions of the Comprehensive Addiction and Recovery Act of 2016 (CARA), establishing guidelines for limiting certain beneficiaries’ access to frequently abused drugs. In the Final Rule, CMS aligns drug management programs with existing monitoring systems, so that Part D sponsors can identify “at-risk” beneficiaries and lock them into certain prescribers and pharmacies, while making exemptions for individuals treated for cancer pain, receiving hospice or end-of-life care, or receiving long-term facility care. In addition to helping reduce dependency on these drugs, CMS noted that these precautions are projected to save the Medicare Trust Fund $19 million or more per year from 2019 through 2023, further reducing beneficiary coinsurance payments.

Steps taken to improve enrollee choices

CMS also made improvements to provide beneficiaries with better awareness of their healthcare choices and more options. Having operated on more informal guidance before the Final Rule, CMS finally codified its Star Ratings system, a quality and performance tool that helps beneficiaries make informed coverage choices, as well as ensuring that the quality and consistency of data submitted is reflected in these ratings. Additionally, the Final Rule eliminated barriers to a wider array of Medicare parts C and D plan options, removing requirements that new plans in a given area must be “meaningfully different” from each other and allowing greater flexibility in Part D sponsor arrangements with pharmacies of all kinds, including retail and mail order pharmacies.

And in a significant policy revision, both the Final Rule and the Final Call Letter expand the ways MA plans can offer supplemental healthcare benefits to beneficiaries. Previously, CMS required plans to offer all enrollees access to the same benefits, but in a “reinterpretation” of this authority, CMS will now only require plans to offer similarly situated enrollees the same benefits, from reduced cost sharing to tailored supplemental benefits. In designing new options for supplemental healthcare benefits, however, CMS noted that there must be a medically objective connection, confirmed through diagnosis, between any specific benefit package and the health condition it is designed to address, and it also noted that existing protections against discrimination based on higher-cost conditions will continue to apply. In response to requests for additional specifics on the application of this reinterpretation, CMS repeatedly emphasized that it would provide further operational guidance before calendar year 2019 bids are due and will take industry comment into consideration in developing future guidance, although not before issuing this 2019 bid guidance.

In a comparable change in the Final Call Letter, CMS interpreted the qualifications for health-related supplemental benefits more broadly than in the past. CMS introduced a new test for determining whether an item or service qualifies, saying that “it must diagnose, prevent, or treat an illness or injury, compensate for physical impairments, act to ameliorate the functional/psychological impact of injuries or health conditions, or reduce avoidable emergency and healthcare utilization.” While elaborating that new supplemental benefits must still be medically appropriate and either provided by or recommended by a licensed provider, CMS continued to decline to constitute a requirement for a physician order. Though CMS did not specify further what kinds of “extras” could now be included, speculation has abounded that services as diverse as home meal delivery, ride-sharing transportation to medical appointments, assistance devices, and non-skilled, in-home care could become regular benefits, even though similar options are not allowed in traditional Medicare.

CMS made clear that these supplemental healthcare benefits are in addition to the expansion of supplemental benefits to chronically ill enrollees that will be permitted in calendar year 2020 pursuant to the Bipartisan Budget Act of 2018. Therefore, by 2020, MA plans can offer three categories of supplemental benefits: standard (offered to all enrollees), targeted (based on health status or disease state) and chronic (offered to the chronically ill). MA plans will need to identify the category of each benefit being offered in their bids and Evidence of Coverage documents.


CMS’s new MA and Medicare prescription drug benefit guidance represents noteworthy deregulation of programs under Medicare Part C and Medicare Part D, with overall savings for public and private parties estimated at $295 million per year for the next five years. But the most intriguing portion of this guidance is the fairly open-ended update to what can be considered a health-related supplemental benefit in MA plans, opening the door to a variety of new technologies and business models freshly aimed at reducing healthcare costs and improving health outcomes. Though it remains to be seen how CMS will specifically apply this approach to 2019 submissions and whether it will continue this experimentation in other areas, these are developments that bear watching.

Authorship Credit: Charlene McGinty and Jeff Murray.

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