Part D Out-of-Pocket Smoothing Policy Raises Implementation Questions

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Summary

Implementation of the OOP smoothing program will require additional clarity from the Centers for Medicare & Medicaid Services (CMS) on elements that will affect beneficiary experience, access, and overall sustainability of the smoothing program.

Background

The Inflation Reduction Act (IRA), enacted in August 2022, includes provisions aimed at improving affordability for beneficiaries in Medicare Part D. Specifically, beginning in 2025, the IRA redesigns the Part D benefit by implementing an out-of-pocket (OOP) spending cap of $2,000 and launching a new benefit referred to as “OOP smoothing.” Under OOP smoothing, Part D plans will be required to offer a program that allows all Part D enrollees to spread payment of any OOP costs incurred below the cap over the course of the plan year.

Although the IRA details general requirements for the OOP smoothing program, many areas will need to be further considered and clarified by CMS before implementation of OOP smoothing in the Part D program. The details of the smoothing policy, including the level of flexibility CMS provides plans for implementation, will impact beneficiary participation and experience as well as sustainability of the smoothing program for Part D plans, pharmacy benefit managers (PBMs), and pharmacies.

Areas of Implementation Impacting Beneficiary Participation and Experience

Implementation details set by CMS in the following areas will directly impact beneficiary access to and experience in the OOP smoothing program.

Beneficiary Outreach and Education

Beneficiary education and awareness will drive enrollment in the smoothing program. The legislative text specifies that “The Secretary shall provide information to part D eligible individuals on the option to make such [smoothing] election through educational materials” and that Part D plans “shall, prior to the plan year, notify prospective enrollees of the option to make such an election in promotional materials” and ‘‘shall include information on such option in enrollee educational materials”

Beneficiary communications by both CMS and Part D plans occur at various times throughout the plan year, including in advance of the annual enrollment period. CMS offers information to beneficiaries in various publications, such as the “Medicare & You” handbook, Medicare.gov website, and Medicare Plan Finder. CMS will need to specify which plan educational and promotional materials (e.g., Annual Notice of Change and Evidence of Coverage documents on plan websites) must include information on the smoothing program. Like its approach in developing model notices and model language for various purposes in Medicare, CMS may consider requiring plans to use standard language when describing the smoothing program to reduce potential enrollee confusion by ensuring consistent communication to beneficiaries.

Enrollment Process

The ease of enrollment in the smoothing program will also impact the number of members that may benefit each year. The legislative text details that “An enrollee …may make such an [OOP smoothing] election … prior to the beginning of the plan year … or in any month during the plan year.”

Today, if a beneficiary is enrolled in a Part D plan and does not switch plans during the annual enrollment period, they are automatically re-enrolled in the same Part D plan for the next plan year. CMS may establish a similar auto-enrollment process for election of the smoothing program—that is, if a beneficiary elects the smoothing option in one year, they would be automatically re-enrolled in smoothing in subsequent years (absent action by the member to disenroll). Because most beneficiaries do not actively switch plans from year-to-year, automatic re-enrollment in smoothing could maintain beneficiary participation in the smoothing program from year to year.

The legislative text also indicates that beneficiaries would be able to enroll in smoothing at the pharmacy: “[Part D plans] shall have in place a mechanism to notify a pharmacy during the plan year when an enrollee incurs [OOP] costs with respect to covered part D drugs that make it likely the enrollee may benefit from making such an election; [and] … shall provide that a pharmacy, after receiving a notification described in item (dd) with respect to an enrollee, informs the enrollee of such notification.”

Given that approximately one in six enrollees used a mail-order pharmacy for their prescriptions in 2018, alternative options for beneficiary notification should be considered regardless of where the enrollee obtains a prescription (e.g., via retail, specialty, mail-order pharmacy).

Disenrollment

The IRA includes broad language about the ability of plans to disenroll members for failure to make smoothing payments. Without further clarification or guardrails from CMS, this flexibility for plans’ disenrollment decisions could significantly affect the number of beneficiaries enrolled in the smoothing program in future years. The IRA states that “if an enrollee fails to pay the amount billed for a month as required [under smoothing] … the [prescription drug plan] PDP sponsor or [Medicare Advantage] MA organization may preclude the enrollee from making an election … in a subsequent plan year.”

This language does not make clear whether plans would have flexibility to prevent a member from enrolling in the smoothing option in any future plan year for failure to pay. It is also uncertain how re-enrollment in the smoothing program after non-payment would work if the enrollee switches plans.

CMS sets requirements for plan actions following nonpayment of premiums, and it may consider similar guardrails for nonpayment of smoothing costs (e.g., a minimum grace period for failure to pay, written notice prior to disenrollment, and avenues for beneficiaries to re-enroll in the program after failure to pay). Such guardrails are seen as attempts to balance beneficiary protections and financial risk for plans.

Areas of Implementation Impacting Program Sustainability

Under the current policy design, plans and pharmacies will be responsible for promoting awareness of the smoothing program and handling day-to-day operations. As a result, beneficiary access to smoothing could be enhanced if CMS provides guidance to simplify certain operational aspects of the program for plans and pharmacies.

Smoothing Calculations and Payments

Establishing parameters around payments to pharmacies and by beneficiaries will be critical to the day-to-day operations and long-term sustainability of the smoothing program. Specifically, the legislative text includes a provision that Part D plans “shall ensure that an election by an enrollee has no effect on the amount paid to pharmacies (or the timing of such payments).”

Although the text specifies that pharmacy payment will remain unchanged under the smoothing program, other considerations for pharmacies related to the processing of smoothing claims remain. For instance, real-time calculations of patient OOP costs at the point of sale must be accurate and easily integrated into existing workflows. Additional steps required to process a smoothed claim at the point of sale could create administrative burden for pharmacies.

Plans will also need to consider the processes for billing and collecting smoothing payments from beneficiaries.

Changes to Plan/PBM Claims Systems

Although not mentioned in the IRA, actions to simplify or standardize claim transactions for OOP smoothing by CMS or other standard setting organizations (e.g., National Council for Prescription Drug Programs) may help minimize operational complexity and administrative burden for pharmacies and Part D plans/PBMs. Standardized claim processes could also ensure consistency in the calculation and tracking of smoothing payments.

Timeline for Implementation

Given implementation of OOP smoothing in 2025 and the extent of details that will need to be considered before implementation, it is likely that CMS will include many of the specifications around OOP smoothing in the Calendar Year (CY) 2025 MA and Part D proposed rule. The CY 2025 proposed rule may be released as early as the fall of 2023 or in January or February 2024, before CY 2025 plan bids are due in June 2024. Thus, stakeholders will have opportunities to engage CMS in 2023, both while the agency is still in the early phases of drafting the 2025 proposed rule, and during the formal comment process once the draft regulation is released.

Figure 1. OOP Timeline for Implementation
Figure 1. OOP Timeline for Implementation

*Comment period timeline dependent on release date of the proposed rule.

Funding for this research was provided by The Biotechnology Innovation Organization. Avalere retained full editorial control.

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