National Average Part D Bid Drops 4.7% For 2014, Upping Risks for PDPs, MA-PDs

Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care. By James Gutman, Managing Editor August 8, 2013 Volume 19 Issue 15 For what seems to be a variety of reasons, 2014 bids by plans for Medicare Part D products were again aggressive, resulting in a 4.7% drop in the national average monthly bid amount released by CMS late last month to $75.88 from $79.64 for 2013. The results, which surprised several actuaries, especially coming on top of a 6% drop last year (MAN 8/23/12, p. 1), probably mean that the biggest operators of stand-alone Prescription Drug Plans will continue to take market share among auto-enrolled, subsidized PDP beneficiaries from smaller plans. This could threaten the long-term viability of some of those smaller PDPs. The figures also may mean some Medicare Advantage prescription drug (MA-PD) plans, including Special Needs Plans (SNPs), needed to use a short and now-ended reallocation period to reduce some aspects of their supplemental benefits. That’s because they are locked into minimum drug benefits, and their overall bids may have assumed they would get larger subsidies than they actually will in light of the drop in the Part D national benchmark. Separately, CMS also said July 30 that the average PDP premium will be about $31 for 2014, up just slightly from the $30 in 2012 and 2013 (see table, p. 7). This figure includes the expected effect of switches by beneficiaries to lower-priced products, notes Corey Ford, a senior manager at consulting firm Avalere Health LLC. Before such switches are taken into consideration, the base beneficiary premium for 2014 will be $32.42 next year, CMS said, up from $31.17 in 2013. The base premium results from multiplying the national average monthly bid amount by a fraction called the “beneficiary premium percentage.” Part D Average Bid Tumbles Again The difference in 2014 direction for the premium and bid must be primarily a result of what is happening with costs of the catastrophic portion of the Part D benefit, explains Pat Dunks, a principal and consulting actuary in the Milwaukee-area office of Milliman. The catastrophic portion is the 80% of costs paid by the federal government after the beneficiary gets through the “doughnut hole” coverage gap in the Part D benefit and is rising faster than are costs in the portion paid by PDPs, Dunks says. This may be partly because high specialty-drug prices, which often push beneficiaries beyond the doughnut hole, are rising faster than are overall pharmaceutical prices. “I think everybody was surprised” by the big drop in the 2014 average Part D bid amount, which is weighted by enrollment, Dunks tells MAN. He notes that the figure is especially important for auto-assigned PDP beneficiaries since plans bidding below the benchmark for basic coverage qualify for getting low-income subsidy (LIS) beneficiaries, with the amount of the subsidy varying by region. A plan falling within a de minimis amount, which will remain $2 per member per month for 2014, above the benchmark may retain LIS members if the plan agrees to pick up the additional cost itself. Humana, WellCare Bid Below Benchmarks Humana Inc. President and CEO Bruce Broussard, speaking in the company’s July 31 earnings call with investors (see story, p. 3), said the new CMS data mean that Humana was under the benchmark in all but one region, where it was in the de minimis range. Dunks calls the statement by Humana, which has among the lowest-cost PDPs in 2013, “no surprise.” WellCare Health Plans, Inc. CEO Alec Cunningham said in its earnings call Aug. 7 that the company was below the 2014 Part D benchmark in 30 of the 33 regions in which it bid on PDPs, compared with only 14 below-benchmark bids for 2013. The company lost more LIS members than it gained this year, but should reverse that situation in 2014, Cunningham noted. He attributed the turnaround partly to WellCare’s recent introduction of preferred pharmacy networks that lower its drug costs. Dunks says one possible reason for the big drop in the national average bid for PDPs may lie in risk-adjustment changes CMS is instituting on PDP beneficiaries. Those changes may make certain kinds of PDP beneficiaries more attractive to plan sponsors, thereby leading the sponsors to be “more aggressive” in their bids. But which plans did what, he points out, won’t be known — except in the case of self-disclosures such as Humana’s — until CMS releases the full “landscape” PDP files next month. Other factors that could have led to the drop in the average bid, according to Dunks, include more economies of scale achieved by the bigger plans, improved contracting with drug producers — “but inflation [in pharmaceutical costs] isn’t zero” — and formulary changes. He adds, however, that not as many major brand drugs will get new generics in 2014 as has been the case in 2013, so the opportunities for such formulary changes have declined. This leaves another possibility — that plans decided to accept lower profit margins for 2014 to keep members, Dunks says. The results the national average bid trend will have on smaller PDPs may be substantial, he suggests, and could lead them in the future to either negotiate better drug prices or exit the market. Brian Collender, specialist leader in the health actuarial practice at Deloitte, agrees that it will be “kind of tough” on smaller PDPs in the future and says that many of them “might go away” in light of the risk of continuing to compete in the low-premium environment. The Part D benchmark reduction is less of a problem for MA-PDs, he contends, since the inclusion of medical coverage in those products means there are far more dollars in the premiums and less dependence on auto-enrollees. However, even these plans may have had to cut medical benefits if they assumed the direct Part D subsidy would be higher than it turned out to be. MA-PDs had until Aug. 5 to make such benefit changes, which might just involve a “couple of dollars” less in supplementary benefits, such as for dental, vision or gym memberships, he says. Universal American Corp. Chairman and CEO Richard Barasch said in its Aug. 2 earnings call that the new benchmarks would cause the company “to adjust” its MA-PD bids by the deadline. He did not specify the form of the adjustments or where the company’s MA-PD bids stood in relation to benchmarks. Collender tells MAN he expected the national average to go down because of the continuing introduction of low-premium PDPs, “but not this much.” The trend may continue “a few more years,” but “it will have to stop at some point,” he says. He cites several reasons for the trend, including the moves to lower-priced generics and the potential that lower-priced PDPs have to attract younger, healthier seniors as new customers. Unhealthy seniors probably already are in the market and will tend to stick with their plans out of fear of problems if they switch, asserts Collender. But Ford, who says he was “not surprised” by the new average bid benchmark, tells MAN that perhaps the primary reason for the substantially lower figure for 2014 is preferred pharmacy networks and the continuing ability of them to make low-cost PDPs prevalent and feasible. It is the larger plans that have been “driving this trend,” he says, making it harder for smaller plans to compete, even if like Blues plans they have a strong local presence that makes them very competitive on the MA-PD side. View CMS’s July 30 memo on the 2014 national average bid amount by visiting the Aug. 8 From the Editor entry at www.aishealth.com/newsletters/medicareadvantagenews. Source: Avalere Health analysis of CMS’s annual release of the Part D national average bid and base beneficiary premium information. The average beneficiary premium and base beneficiary premium are from CMS’s press releases. Prepared by Avalere Aug. 2, 2013.