Will MA have yet another rate headache with the GUARD and GLOBE models?
I have been a major proponent of President Donald Trump’s GUARD and GLOBE drug pricing models for Medicare Part D. More than any president, Trump has really made great traction on drug pricing. Of course, critics poke holes in the myriad of reforms. I have some questions too, such as why brand drug makers agreeing to other drug price deals with Trump should be exempt from these MFN programs. But on balance, the movement is important to finally get our arms around the ongoing surge in drug prices. Yes, I admit the Biden administration took steps with the Medicare drug price negotiations. But it is ironic that a Republican administration now has done more than any administration to pursue real reform.
Today’s blog, though, covers a concern Medicare Advantage (MA) plans should have about how GUARD and GLOBE are being implemented. While these programs are designed to lower what Medicare pays for prescription drugs, there is a fascinating and I think overlooked effect that could result in the MA world. The result could be lower MA rate payments with no benefit from the most-favored-nation (MFN) pricing models.
The GLOBE MA impact
GLOBE is the Global Benchmark for Efficient Drug Pricing Model. It would apply international reference pricing in the form of MFN to certain physician-administered brand and other Part B drugs in Medicare. In this model, the MFN payment is achieved via a rebate route after the drug sale. The rebate goes in the Medicare fund to offset gross costs. The important point here is that GLOBE reduces traditional Medicare costs, not MA drug costs.
But here is the rate-setting twist. MA rates are substantially based on traditional Medicare fee-for-service (FFS) costs. MA rates are then further adjusted by various factors before setting county or regional benchmarks. Thus, when GLOBE’s net rebates are applied to traditional costs, MA rates will drop even though MA plans did not have the advantage of lower Part B drug costs. You could argue that MA plans should force drug makers to give them the same rate. But that won’t happen – at least not easily – as the current pricing structure remains the same because a rebate is granted to the federal government. In fact, the gross price could go up even more as brand drug makers seek to offset the revenue loss from the MFN pricing.
The Centers for Medicare and Medicaid Services (CMS) has actually estimated an MA impact from GLOBE. The agency projects that the model will produce approximately $288 million in MA payment savings over the relevant payment period. In other words, the government saves money on the FFS side, and some of that lower spending eventually shows up in the economics of MA. That is not necessarily a bad thing for taxpayers. But it will be a bad thing for MA plans unless CMS adjusts MA rates upward due to the lack of the rebate going to plans. Or the model could theoretically be amended to allow MA plans to benefit from the GLOBE rebate by demanding that drug makers pass on the rebate to the MA plans as well.
GUARD may create a similar dynamic for MA
GUARD is running a little behind GLOBE but could have a similar impact. GUARD stands for the Guarding U.S. Medicare Against Rising Drug Costs Model and is the Part D drug benefit MFN counterpart.
The mechanics are different as Part D drugs are furnished only by private plans. GUARD would use international pricing MFN benchmarks for certain Part D drugs and require additional manufacturer rebates when U.S. prices exceed those benchmarks. But again, the resulting savings accrue to the Medicare program rather than MA plans.
Again, at first glance, lower Part D drug costs sound like an obvious benefit. But how CMS accounts for the savings in MA rates will again be important. MA plans will continue to have to conduct business as usual using gross pricing. The rebate then is calculated and goes to the federal government. The gross economics an MA plan will deal with will be very different than the net effects to the Medicare program. CMS will need to be sensitive to this as well or MA plans’ rates are again impacted unfairly. As with GLOBE, an alternative would be to have MA plans benefit directly from the MFN rebate.
The paradox of drug pricing success
In both the GLOBE and GUARD cases, MA plans could be negatively impacted just as they are sorting through Stars problems, risk adjustment rate reductions and recoupments, and ongoing cost trends not recognized in the rate-setting process. Admittedly, risk adjustment and Stars revenue dwarfs any impacts from poorly implemented GLOBE or GUARD savings. Nonetheless, it adds to the possibility of further benefit reductions and retrenchment in the industry. It reminds me a little of the unforeseen consequences of the Inflation Reduction Act’s Part D cost-sharing caps and changes.
This is why I think GUARD and GLOBE deserve to be watched beyond the headlines about prescription drug prices. Lower drug pricing is important but watch for the impacts on beleaguered MA.
#medicareadvantage #drugpricing #guard #globe
— Marc S. Ryan
