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CMS Proposes Allowing Part D Plans to Implement a New Preferred Specialty Tier

Summary

Implementation of a preferred specialty tier could have various impacts on Part D plans’ formulary and benefit designs and could affect manufacturer contracting strategies.

Background

As part of the Contract Year 2021 and 2022 Medicare Advantage (MA) and Part D Proposed Rule released on February 5, CMS proposed to allow Part D plans to implement a second specialty tier for placement of preferred specialty drugs. In its June 2016 Report to Congress, the Medicare Payment and Advisory Commission discussed the use of 2 specialty tiers as a strategy that could increase competition among specialty drugs with therapeutic alternatives and incentivize uptake of lower-cost alternatives.

Current Part D program regulations allow Part D plans to implement only one specialty tier. To protect beneficiaries from high OOP costs for specialty drugs, CMS limits cost sharing on the specialty tier to 25% if a plan offers a standard deductible and up to 33% if a plan offers a reduced or no deductible.1 In 2020, all Part D plans have cost sharing of at least 25% on the specialty tier (Figure 1).

Distribution of Cost Sharing on the Specialty Tier, 2020
Figure 1. Distribution of Cost Sharing on the Specialty Tier, 2020
Figure 1. Distribution of Cost Sharing on the Specialty Tier, 2020

Proposed Changes

CMS proposed changes to specialty tiering and specific requirements for plans offering a preferred specialty tier.

Cost threshold

Drugs would have to meet a minimum cost threshold to be placed on any specialty tier. Due to a proposed change in its methodology to update the specialty tier cost threshold, CMS indicates that the cost threshold, which would apply to both the preferred and non-preferred specialty tier, will increase from $670 in 2020 to $780 in 2021.

Cost-sharing requirements

A plan would be required to offer lower cost sharing on the preferred specialty tier compared to the plan’s non-preferred specialty tier. Current maximum cost-sharing requirements (i.e., 25%–33%, depending on a plan’s deductible) would still apply for the non-preferred specialty tier. CMS did not specify a minimum difference in cost sharing that would be required between the 2 specialty tiers.

Tiering exceptions

CMS would require plans to allow tiering exceptions from the non-preferred specialty tier to the preferred specialty tier when a clinically appropriate therapeutic alternative is available on the preferred specialty tier.

Specialty tier composition

While CMS does not propose any requirements around tier composition, the agency requests comments on whether the preferred specialty tier should be limited to certain types of drugs (e.g., biosimilars and generics).

Implications for Stakeholders

These proposed changes raise several key considerations for stakeholders, including:

  • Plan and Manufacturer Contracting Strategies: Offering a preferred specialty tier may increase negotiating leverage for drugs in some therapeutic areas and help drive utilization to lower-cost alternatives when available. Manufacturer contracting strategies will also vary depending on the cost-sharing differential offered on a plan’s preferred vs non-preferred specialty tier. A policy that limits the preferred specialty tier to only generic and biosimilar products could further shift negotiating dynamics.
  • Impact on Actuarial Value: Maximum cost-sharing and tiering exception requirements could have an adverse impact on actuarial value and premiums. To maintain actuarial equivalence, plan sponsors may need to alter other aspects of their formulary and benefit design. For example, offering lower cost sharing on a preferred specialty tier may require plans to increase cost sharing on other tiers.
  • Plan Offerings: Because of the potential impacts on actuarial equivalence, it is possible that some plans (e.g., enhanced plans, MA-PDs) may be more likely to offer a specialty tier, which could further impact Part D market dynamics and plan offerings. Across all benefit offerings for the 2021 contract year, plans will have to consider several factors when deciding whether to implement a preferred specialty tier, including manufacturer interest in contracting for preferred placement of their specialty drugs, enrollee mix (i.e., LIS vs non-LIS), and competitive regional premium offerings.

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Notes

1. Plans with reduced deductibles can implement a maximum coinsurance of between 25% and 33%, depending on the amount the deductible is reduced.

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