Summary of recent changes to law affecting Medicare Prescription Drug Coverage and Reimbursement
On February 9, 2018, the President signed into law the Bipartisan Budget Act of 2018 (BBA of 2018), which included some provisions related to Medicare Part D prescription drug coverage.
Part D coverage gap and manufacturer discount:
Closes the Part D coverage gap in 2019 instead of 2020 by accelerating a reduction in beneficiary coinsurance from 30% to 25% in 2019, ultimately leaving Part D enrollee with lower cost exposure while in the donut hole.
Increases the discount provided by manufacturers of brand-name drugs in the coverage gap from 50% to 70%, beginning in 2019. As with current law, the manufacturer discount would still go toward the true out-of-pocket costs for the beneficiary, accelerating a Part D beneficiary through the donut hole with less cost exposure.
In 2019 and later years, Part D plans will cover the remaining 5% of costs in the coverage gap, which is a reduction in their share of costs (down from 25%). The manufacturer discount, deductible, and beneficiary’s responsibility will continue to count towards a beneficiary’s total out of pocket “true out-of-pocket spending” (TrOOP), the spending amount that triggers the start of catastrophic coverage.
Beginning in 2019, biosimilars will be treated the same as other brand-name drugs in the Part D coverage gap, with manufacturer discounts of 70%; previously biosimilars were not included in the coverage gap discount program. Under Part D, beneficiaries who fall into the “donut hole” where Medicare reimbursement is not available instead become eligible for drug discounts to help defray their exposure to the additional expenses. The Medicare Coverage Gap Discount Program facilitates a 50% discount for brand and original biologic drugs. These discounts count towards beneficiaries’ total out-of-pocket spending. Biosimilar drugs, however, were excluded from the discount program, which may incentivize the use of more expensive therapies. The new law ends the exclusion of biosimilars from the discount program to encourage the use of less-expensive therapies when available and appropriate.
Income-related Medicare premiums:
Currently, individuals earning $500,000 or more and households earning $750,000 or more contribute 80% to their Part B and D premiums. The new law increases these contribution rates to 85%. The income thresholds will increase starting in 2028 per the consumer price index. Higher-income Medicare beneficiaries will be required to contribute more to the Part B and Part D premiums starting in 2019.
Permanent Repeal of Caps on Outpatient Therapy Services:
Under Medicare, outpatient therapy services (physical therapy (PT), occupational therapy (OT), and speech and language pathology (SLP) services) are covered under Part B regardless of where services are delivered. In the Balanced Budget Act of 1997 (BBA 97), Congress enacted two annual limits (or “caps”) per beneficiary: one cap for PT and SLP services combined, and another cap for OT services.
Cap limits are updated annually to account for inflation and in 2017 were $1,980 each. Almost immediately, caps led to concerns that such spending limits would restrict access to medically necessary services. Congress suspended the caps from 2000 to 2005 but reinstated them with an accompanying exceptions process in 2006. The exceptions process allows beneficiaries to use services above the annual spending limit if a provider certifies that additional services are medically necessary. Congress last reauthorized these exceptions through December 31, 2017, and instituted a medical review process for beneficiaries whose annual utilization exceeded $3,700.
The new law permanently repeals the therapy caps starting in January 2018 but maintains the use of a modifier attesting to medical necessity documented in medical records. The threshold for targeted medical review of claims is lowered to $3,000 until 2028, after which the threshold will be increased per a specified formula.