Medicare Part D, CMS Recent Regulations, and Their Impact — What Does it Mean for Seniors?

Senior health care is covered by Medicare and its four programs, including Medicare Part D, the prescription drug benefit program.  According to CRS, in 2012, 62 percent of Medicare-eligible seniors participated in Part D.[1] Over the last ten years, the Medicare Part D program has performed better than expected.  According to recent statistics, the estimated cost for 2012 decreased from $122.88 billion to $65.1 billion over the projected 2004-2011 budget window.[2] Actual costs for 2012 came in lower at $55 billion.[3]  Moreover, the level of satisfaction is high with 17 percent of beneficiaries reporting extreme satisfaction and 42 percent reporting they are very satisfied.[4]

Yet, earlier this year, the Centers for Medicare and Medicaid Services issued a 700 page proposed rule that would fundamentally alter the structure of the Part D program.[5]  If finalized, the rule will jeopardize seniors’ access to low cost prescription drugs, increase seniors’ prescription drug plan premiums, and leave taxpayers to foot an increase in the program’s costs.

Enacted in 2003, the Medicare Part D program updates the Medicare program, providing 35 million seniors with access to critical, low cost, prescription drugs.  Participation in the Part D is purely voluntary, with coverage made available in one of two ways – through private prescription drug plans (PDP) or through Medicare Advantage health care coverage (MA-PDs).[6]  All plans must meet minimum requirements but wide latitude is given to benefit design, including difference in premiums, drug formularies, and cost sharing.[7]

The effectiveness of the Medicare Part D program can be attributed to its competitive model.[8] Through direct negotiations with manufacturers and providers (pharmacies), plans determine payments for drugs.  It is important to note that the federal government is prohibited from interfering in negotiations between these private parties.[9]  Medicare Part D payments to plans are determined through an annual competitive bidding process by plans in 34 geographic regions of the country.  Bids contain the proposed “rate of coverage of standard required benefits, and designate the cost of additional services”[10] as well as “enrollee premiums.”[11]   Plans select the region that they would like to compete.

What the Regulation Does and Its Impact on Seniors

On January 6, 2014, CMS issued a proposal that will fundamentally alter the structure of the program.  Among other things, the rule for the first time interprets Medicare Part D’s non-interference clause, allowing for federal interference in negotiations between plans and pharmacies. The rule also limits the number of bids that plans may offer in a region to two, limiting the number of options that seniors will have available. Finally, the rule adds an “any willing provider” provision that requires plans to accept any provider into a network, disrupting a system that already is proven to work.[12]

At a minimum, if finalized, the rule will force tens of millions of seniors off their current prescription drug plan or significantly limit the benefits available.  The new cost burdens that result from limited competition will raise seniors’ premiums by more than 20 percent and more than likely will limit their access to life saving drugs.  CMS has yet to justify its reasoning for such an intrusive and overreaching regulation – particularly one that tens of millions of seniors approve by more than 90 percent and has program costs that are more than 40 percent below original CBO expectations.[13]  Together with the cuts to the Medicare Advantage Program, CMS has inserted yet another uncertainty into an already vulnerable senior health care system.