Bridging the “Gap” Between Medicare Parts C and D: A Discussion of Important Considerations When Preparing Medicare Bids
By Michelle Angeloni, James Cooper and John May
Health Watch, January 2021
Actuaries with Medicare expertise regularly receive information specific to either Part C or Part D, but a key component of successful bid preparation is effective coordination between these two programs. This article explores pricing and regulatory common ground between Part C and Part D bids to aid actuaries as they guide decisions impacting both benefits.
Each year, Medicare Advantage Prescription Drug (MAPD) plans must submit Part C, i.e., Medicare Advantage (MA), and Part D, i.e., Prescription Drug (PD), bids to the Centers for Medicare and Medicaid Services (CMS). A “bid” in this context represents a comprehensive pricing and documentation package, outlining the projected costs, benefits, and revenues for the upcoming plan year. Part C and Part D pricing teams that effectively collaborate can better identify opportunities for increased efficiency and CMS compliance throughout the pricing process.
CMS requires plans to project consistent populations across a plan’s Part C and Part D bids. This requirement impacts various aspects of bid development. For example, while the Part C and Part D manual rates may not need to rely on the same underlying data, the manual rates will need to be representative of the same members projected to enroll. This required consistency also affects a plan’s risk score projections. Plans anticipating a change in risk score due to a change in enrolled members should consider the impact to both the Part C and Part D bids as they prepare their Bid Pricing Tools (BPTs) for CMS submission.
Plans must evaluate how all enrollment changes, initiatives, and benefits impact both their Part C and Part D projections. For instance, plans including the impact of chart review or coding initiatives in their bids should consider the impact of these activities on both Part C and Part D risk scores.
CMS also requires base and projection period enrollment to be consistent across a plan’s Part C and Part D bids. As a result, plans should audit their bids for compliance prior to submitting BPTs. This is particularly important when two different teams are processing enrollment data and populating the Part C and Part D BPTs.
Plans should also be aware of the different pricing populations underlying the Part C and Part D BPTs. The Part C BPT partitions the bid population based on those dually eligible for Medicare and Medicaid benefits without full Medicare cost sharing (DE#) versus all others (non-DE#), while the Part D BPT differentiates between low-income (LI) and non-low-income (NLI) members. These populations overlap, but a plan’s LI enrollment typically exceeds its DE# enrollment.
The Part C and Part D bids also treat the end-stage renal disease (ESRD) and hospice populations differently. The Part D bids include these members and their claims for which Part D is responsible, whereas the Part C bid is prepared excluding the ESRD and hospice populations from all enrollment and claims entries. These differences are due to the varying treatment of these populations in Part C and Part D. Recent changes to ESRD eligibility and a new value-based insurance design (VBID) hospice program have increased the need for plans to better understand these populations and their effect on the Part C and Part D BPTs.
Medicare Part C and Part D pricing teams should understand how their particular areas of focus impact the entire MAPD product. In particular, plans should consider how Part C benefits impact the Part D experience (and vice versa), and might consider the following illustrative scenarios in doing so:
Scenario 1: A plan is considering adding a Part C supplemental acupuncture benefit to the plan. The plan may consider the following questions:
- Will this benefit attract a greater proportion of members who use alternative medicine? How will this impact Part D experience?
- Would additional over-the-counter (OTC) benefits be more attractive to this potential population?
Scenario 2: A plan is considering additional Part D coverage for erectile dysfunction drugs. The plan may consider the following questions:
- How will this additional drug coverage impact medical costs? Will beneficiaries who use these drugs pursue surgical alternatives?
- Could this benefit attract healthier members who are more active than the average Medicare beneficiary?
The home infusion benefit is another area that necessitates coordination across Part C and Part D. Plans can offer a home infusion bundle as a Part C supplemental benefit that includes home infusion drug coverage, as well as the professional services, equipment, monitoring and educational services to administer the drug. Alternatively, plans can cover the home infusion drugs under Part D, and separately cover the professional services, equipment, monitoring, and educational services under Part C. In constructing this benefit, plans must weigh the financial impact of covering the drugs under Part D (e.g., benefits of Part D federal reinsurance and the ability to charge member cost sharing) against the administrative impact of offering the bundled Part C benefit (e.g., potentially increased coordination, which may translate to greater member satisfaction). As regulations evolve to provide more innovative and complex benefits, increased communication and coordination between departments within a Medicare Advantage organization (MAO) will be critical to a plan’s success.
MAOs sharing risk with provider organizations will need to consider additional areas for Part C and Part D coordination. For example, providers in these arrangements are often responsible for managing claims (across all, or a subset, of Part C, Part D, and potentially other non-Medicare lines of business). Claims are evaluated relative to a target, and a reconciliation payment is generated between the provider and MAO. Plans engaged in these types of arrangements need coordination between the Part C and Part D bid teams when estimating the reconciliation payment, allocating the reconciliation payment between lines of business, and incorporating the impact of such agreements into the bids.
Value-based Insurance Design
CMS provides plans with additional flexibilities through the VBID models. These models provide plans additional opportunities to customize benefits, including offering targeted benefit designs to enrollees based on chronic condition or socioeconomic status, incentivizing Part D drugs, and/or offering the Medicare hospice benefit to enrollees. Plans must consider how each VBID model impacts both the Part C and Part D bids. For example, plans offering targeted benefit designs based on chronic conditions should evaluate both medical and pharmacy claims impacts, and plans participating in the hospice VBID demonstration should evaluate the impact to projected hospice enrollment, non-hospice claims in the Part C BPT, and the Part D BPT.
Part B Covered Drugs
MAOs should understand the similarities and differences in the drug coverages offered by their MA and PD benefits. Doing so may create opportunities to leverage common information and functions across both benefits. Part D is the outpatient prescription drug benefit for those with Medicare, whereas Part B provides coverage for certain medically necessary drugs typically administered by a medical professional. Part D plans can use formulary management (e.g., preferred status and/or utilization management edits) to negotiate better prices with manufacturers. Historically, CMS prevented MAOs from limiting beneficiary access to treatments required by national and local Part B coverage determinations (however, plans were allowed to have preferred vendors for some Part B medications, like insulin supplies). Effective January 1, 2019, CMS allowed MAOs to apply step therapy requirements to their Part B covered drugs newly prescribed to beneficiaries, offering plans more opportunities to negotiate better prices on these drugs.
When preparing the Part C and Part D BPTs, plans will need to account for all rebates that their pharmacy benefit managers (PBM) earns on their behalf, for both the Part B and D drugs. Additionally, both BPTs require plans to report total rebates and any rebates retained by the PBM. While Part B and D drug coverages are inherently different, several of the bid preparation and pricing considerations apply to both benefits.
Plans must understand what constitutes competitive MAPD benefits and premiums in their particular markets, and should consider the following items as they construct their premium and benefit strategies to meet their Part C and Part D goals.
- Premium optimization. Plans with a nonzero member premium should consider the optimal premium distribution (after A/B rebate allocation) across the MA premium, basic PD premium, and supplemental PD premium. Plans should consider regulatory requirements (e.g., MAOs must offer at least one MAPD plan with a $0 supplemental Part D premium in each service area), marketing goals, and the availability of subsidies (e.g., LI members may receive the low-income premium subsidy amount, or LIPSA). Plans should also consider how a premium relative to the LIPSA affects their competitiveness with LI members, and the types of members that the plan hopes to attract.
- Rebate reallocation. Many plans are required to adjust their benefits and/or premium during the rebate reallocation period after submitting their initial bids. Plans should understand the types of changes CMS will accept during rebate reallocation, and should submit initial bids that allow for desirable benefit changes during rebate reallocation. For example, plans may allocate A/B rebates to Part D during the initial bid submission to provide them with more flexibility during rebate reallocation. In the event that actual Part D benchmarks reduce the Part D premium, plans with zero dollars of A/B rebates allocated to Part D in the initial bid submission are limited in their ability to add Part C benefits in order to return to the target premium of the initial bid submission. Plans must coordinate their Part C and Part D initial bid submissions to provide a range of feasible options during the rebate reallocation period.
Medicare Advantage is a highly regulated market, and requires significant investment to ensure plans are complying with all CMS requirements. There are regulatory requirements specific to the Part C and Part D benefits, and there are also requirements that apply to, or require coordination across, both Part C and Part D.
Total Beneficiary Cost
At a high level, Total Beneficiary Cost (TBC) is calculated as the plan’s out-of-pocket cost (OOPC) value plus member premium, and is used by CMS as a metric to limit total beneficiary cost changes year-over-year. TBC is comprised of both Part C and Part D components, and effective coordination between Part C and Part D will provide plans with a range of options as they construct bids that comply with TBC requirements. Because the OOPC value is based on a CMS prescribed model (rather than plan-specific experience), a plan’s TBC increases or decreases when the CMS OOPC model and the plan’s bid pricing do not align (e.g., when a benefit reduction increases OOPC by more than it reduces premium). Plans should understand the types of Part C and Part D benefit offerings that are driving TBC results, and evaluate the entire MAPD benefit for opportunities to rectify TBC compliance issues.
TBC compliance is important during both the initial bid submission and the rebate reallocation period. Once a plan’s premium is updated to reflect the Part D direct subsidy and regional benchmarks during rebate reallocation, a plan’s TBC may no longer meet regulatory requirements. In these instances, CMS allows MAOs to adjust a plan’s margin by the minimum amount required to meet the TBC requirement. Plans with a TBC change close to the statutory upper bound in the initial bid submission should consider the range of possible Part D benchmarks, and resulting implications during rebate reallocation.
Gain Loss Margin
CMS outlines specific margin requirements for the MAPD bid, including the relationship between Part C and Part D margin, requirements for negative, anticompetitive, or high margin, and relativity to corporate target margin. MAPD plans should ensure that the Part C and Part D bids are coordinated, consistent, and in compliance with CMS requirements, and should consider the following in doing so:
- Relationship between Part C and Part D margin. Plan sponsors may set Part D margin relative to Part C margin at the bid level or at the level of aggregation selected in the BPT. Under both options, CMS requires the Part D margin to be within 1.5% of Part C margin (as a percentage of revenue). Plans should additionally consider the optimal way to allocate margin between the Part C and Part D bids while still meeting all CMS requirements. This allocation may depend on requirements for financial solvency, anticompetitive or high margins, goals for aligning future actual and expected margins, and the financial implications of allocating margin across the two lines of business (i.e., there may be an optimal allocation depending on the particular plan situation).
- Bid margin evaluation. CMS requires plans to submit additional documentation and substantiation for bids with high (i.e., greater than 12%) Part C margin, regardless of the Part D margin. The Part D margin is implicitly evaluated by way of margin requirements that compare Part C to Part D. CMS similarly requires plans to submit additional margin-related documentation regarding financial solvency and anticompetitive margin practices.
- Corporate target margin. MAPD plans must ensure that the Part C and Part D BPTs are populated with consistent corporate target margin information. In general, CMS evaluates an MAPD’s margin relative to corporate target margin using the Part C bid, and the Part D margin is implicitly bound by way of the margin requirements between the Part C and Part D BPTs.
Medicare bid preparation is a detailed exercise that requires significant expertise in Part C and Part D. However, it is easy to imagine a variety of scenarios where a lack of communication across Part C and Part D pricing teams can cause noncompliant bids or other suboptimal outcomes. Plans that foster coordination and knowledge sharing across the entire MAPD product are better positioned to efficiently create bids that comply with CMS regulations.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.
Michelle Angeloni, FSA, MAAA, is a consulting actuary with Milliman’s Hartford Health Practice. She specializes in Medicare Part C and D bid development, with extensive experience in the medical and prescription drug benefits space. She can be reached at email@example.com.
James Cooper, FSA, MAAA, is an actuary with Milliman’s Tampa Health Practice. His experience includes pricing and new plan design consulting for both Medicare Advantage and Commercial ACA clients. He can be reached at firstname.lastname@example.org.
John May is an actuarial associate with Milliman’s Hartford Health Practice. He supports Medicare Part D pricing for his Medicare Advantage clients, by providing technical and strategic support related to pricing and formulary development. He can be reached at email@example.com.