More on Medicare & Medicaid

Part D plans take on more risk in new CMMI model

CMS also updates Medicare Advantage value-based insurance design, offering more benefits to attract beneficiaries and increase competition.

Susan Morse, Managing Editor

The Centers for Medicare and Medicaid Services is testing new models through the Center for Medicare and Medicaid Innovation to bring down prescription drug costs in Part D and to add benefits and increase competition in Medicare Advantage plans. 

Both models are voluntary.


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The Part D payment modernization model is aimed at giving plans an incentive to reduce costs.

Currently in Part D, once a patient's prescription drug spend is high enough for the patient to enter the final phase of the benefit, known as the "catastrophic phase," Medicare is responsible for 80 percent of drug costs.

"This introduces perverse incentives and leaves plans with little reason to negotiate lower costs for the highest-spending patients," CMS said.

Under the new model, which takes effect in the 2020 plan year, participating plans will take on greater risk for spending in the catastrophic phase of Part D.

Based on plan year performance, CMS will calculate a spending target for what governmental spending would have been without plans taking on this additional risk. Participating Part D plans will share in savings if they stay below the target but will be accountable for losses if they exceed the target. 


The model for Medicare Advantage plans starts in 2020 and is an update to the Medicare Advantage VBID model that CMS first launched in 2017.

It will allow plans to provide reduced cost sharing and additional benefits to enrollees, including customization based on chronic conditions, socioeconomic status, or both, and even for benefits not primarily related to healthcare, such as transportation.

It will also boost the rewards and incentives programs that plans can offer beneficiaries to take steps to improve their health and increase access to telehealth services.

Beginning in 2021, the VBID model will also allow Medicare Advantage plans to offer Medicare's hospice benefit.

The Part D payment modernization and VBID models will run through 2024.


From 2008 to 2017, federal spending in the Part D catastrophic phase has nearly quadrupled from $9.4 billion to $37.4 billion, reflecting an average increase of 17 percent per year. 

In 2016, 3.2 million beneficiaries reached the Part D catastrophic phase, and the beneficiaries in catastrophic who did not qualify for the low-income subsidy faced average annual out-of-pocket drug costs of over $3,000.

Medicare beneficiaries will be able to select plans participating in the VBID models for the 2020 plan year, giving these plans an edge in promoting their benefits.


The Part D payment modernization model advances President Trump's Blueprint to lower drug prices.

Because of the Bipartisan Budget Act of 2018, Medicare Advantage plans in all 50 states and territories may apply for the VBID model for 2020, CMS said.


"Expanding choices for patients, aligning incentives, and providing new flexibility for insurers in Medicare Advantage and Medicare Part D will deliver better value from these programs," said Health and Human Services Secretary Alex Azar.

"The American healthcare system is very different today than it was 13 years ago when the Medicare Advantage and Part D programs were launched in their current forms, but due to the slow pace of change in government, these programs have not been fully updated to reflect today's realities," said CMS Administrator Seema Verma. 

Twitter: @SusanJMorse
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