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Medicare Advantage and Part D Drug Pricing Final Rule: Pharmacy Price Concession

Posted: January 14, 2022

Insurance companies or their pharmacy benefit managers (PBMs) often receive compensation after the point-of-sale that lowers the final net amount they pay for the drug. Annual reporting shows that pharmacy price concessions grew more than 107,400% between 2010 and 2020 in Medicare Part D. While manufacturer price concessions still account for the largest category, CMS is currently focusing on pharmacy price concessions because of this staggering annual growth. To that end, CMS proposes two main changes: first, the agency proposes to redefine “negotiated price” and, second, the agency proposes to establish a program-wide definition of “price concession.”

Negotiated Price
Currently, negotiated prices must include all price concessions from network pharmacies except those that cannot reasonably be determined at the point-of-sale. Since performance adjustments typically occur after the point-of-sale, they are not included in the price of a drug at the point-of-sale. That has created a loophole for the plans and PBMs, because they can report negotiated prices that do not yet reflect the retroactive claw-backs the PBM will assess against the pharmacy. This results in Medicare relying on inflated prices in its program calculations; it also hurt beneficiaries because they experience higher cost-sharing than they should. In light of these concerns, CMS plans to amend the definition of “negotiated price” to ensure that the prices available to Part D beneficiaries at the point-of-sale are inclusive of all pharmacy price concessions, even retroactive ones. CMS will accomplish this by defining “negotiated price” as the lowest possible reimbursement a network pharmacy will receive, in total, for a particular drug.

Price Concession
While the proposal does not address pass-through of manufacturer price concessions, CMS proposes to establish a program-wide definition of “price concession” for the first time. CMS plans to broadly define price concession to include all forms of discounts, direct or indirect subsidies, or rebates that serve to reduce the costs incurred under Part D plans by Part D sponsors. Included in the definition will be a non-exhaustive list of examples: discounts, chargebacks, rebates, cash discounts, free goods contingent on a purchase agreement, coupons, free or reduced-price services, and goods in kind. This broad definition will finally create a uniform approach to the categorization and reporting of price concessions, which is key first step in creating more transparency and – ultimately – achieving full pass-through of all price concessions to patients.

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