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Introduction
This is the final article in a three-part series[1],[2] discussing the impact of the Inflation Reduction Act (IRA; H.R. 5376)[3] provisions. First, we’ll cover the Medicare Prescription Payment Plan (aka ‘out-of-pocket smoothing’), then address various implications of all the changes, and finish up with some potential unintended consequences and final thoughts.
Medicare Prescription Payment Plan
The Medicare Prescription Payment Plan is a new feature of Medicare Part D in which the member has the option of enrolling at any point during the plan year where their out-of-pocket (OOP) costs can be paid over the remainder of the plan year through monthly payments instead of paying the full member cost-share amount at the time the prescription is filled. The program goes into effect on 1/1/2025 and applies to all Part D sponsors (PDP, MAPD, and EGWP plans). It is defined within section 11202 of the IRA under the title “Maximum Monthly Cap on Cost-Sharing Payments Under Prescription Drug Plans and MA-PD Plans” but is referred to in shorthand as the “Medicare Prescription Payment Plan”[4].
The monthly payment is determined by the costs incurred, the balance remaining for the member, and the time remaining in the plan year. Caps are determined once enrolled and are different for the initial month and subsequent months as follows:
We’ll show a few examples here of what this looks like in practice (each assumes the member opts into the program at open enrollment prior to the start of the plan year for simplicity). Example 1 is a situation in which a member has a single high-cost claim early in the year and is able to pay it incrementally during the remainder of the year. The second example is the opposite where the high-cost claim comes at the end of the year showing the payment plan was effectively of no utility to the member. The third example presents a member where they have 90-day fills of a higher-cost medication along with monthly fills of a lower-cost generic.
How will members respond to the potential up and down payments? Will payers see higher defaults because payments can be made over time, and will they have to incorporate mortality risk?
Inflation Reduction Act – Possible Implications
There is a lot to consider when investigating the changes introduced by the IRA for Part D as they span many dimensions directly such as drug pricing, cost sharing, member liability, rebates, and Low Income Subsidy (LIS). The IRA may also indirectly affect manufacturer research & development (R&D), stakeholder incentives, formulary & benefit design, and utilization management (UM) practices.
The Part D benefit design changes are already being analyzed by PBMs, manufacturers, and payers to get a sense of how the chips will fall for each stakeholder. Members will see reduced costs from these changes. Will this lead to increased utilization as their costs are capped? Will we see stricter UM as payers respond? CMS liability is expected to increase in aggregate, though most of the increase stems from generic utilization as opposed to brand drugs where CMS’ liability is expected to decrease from the liability change in the catastrophic phase. How will this influence formulary design in the future and will payers push for even higher generic utilization? Both payers and manufacturers are expecting higher liability which will influence their protocols and practices.
With new drug price negotiations by CMS and additional inflation rebates being put into effect, will this reduce manufacturer R&D both in terms of new therapies and efforts to add new indications? Will there be increased market consolidation as stakeholders look for synergies to reduce costs?
The new Medicare Prescription Payment Plan introduces new functionality and complexity to an already confusing system. PDPs will need to make many system and operational changes to bring this program to life from billing to marketing to pricing to claims adjudication and others. It also introduces new payment default risk that plans will have to manage and account for and leads to other questions such as:
- What will enrollment and disenrollment look like?
- Will members fully understand the program?
- What sort of educational materials will be available and who will provide them?
- Will pharmacists have to provide answers to members when they pick up prescriptions?
Other Potential Unintended Consequences
There will inevitably be impact and spillover into Commercial, Individual and Family Plans (IFP), Exchange, and Medicaid markets. As Payer and Manufacturer liabilities increase, it is probable these stakeholders look for ways to reduce their liability in other books of business as an offset. Negotiated prices stemming from the IRA will likely be factored into management and formulary negotiations in other markets. If the Medicare Prescription Payment Plan is successful and received favorably from members, it’s possible that demand for this program will also drive its implementation in some of the other markets.
We’ve already seen pushback through lawsuits[5],[6] raised against the Federal Government for some of the changes in the IRA. How will the outcomes of these lawsuits, and potential future ones, impact the rollout of the IRA, and what revisions will come as the composition of Congress is often in flux?
Final Thoughts and Conclusion
The Inflation Reduction Act is certainly a notable bill that is generating concern and analysis on the direct and indirect impacts. The final effects will not be known until all of the dust has settled. Axene Health Partners has already assisted various organizations in analyzing the impact of the IRA. AHP is ready to assist payers, pharmaceutical manufacturers, PBMs, and other health system stakeholders in charting paths to achieving their goals in this increasingly dynamic environment.
[1] https://axenehp.com/drug-price-negotiation-program/
[2] https://axenehp.com/inflation-reduction-act-pharmacy-provisions-part-d-changes/
[3] https://www.congress.gov/117/plaws/publ169/PLAW-117publ169.pdf
[4] https://www.cms.gov/files/document/medicare-prescription-payment-plan-part-1-guidance.pdf
[5] https://www.advisory.com/daily-briefing/2023/06/14/ira-lawsuits
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