Medicare clarifies negotiated prices under Part D

Beginning in 2010, individuals enrolled in the USA's Medicare Part D prescription drug benefit will pay lower prices at the pharmacy counter  under a final rule announced today by the Centers for Medicare &  Medicaid Services (CMS). For beneficiaries with high overall drug  expenditures, the change will slow their movement toward the initial  coverage limit.

The rule revises Medicare's definition of negotiated prices by requiring  drug plan sponsors under Part D to use the amount paid to a pharmacy as  the basis for determining cost sharing for beneficiaries and for  reporting a plan's drug costs to the CMS. The negotiated prices are the  costs for prescription medicines agreed upon through direct negotiation  between the Part D sponsor or an intermediary contracting organization,  such as a pharmacy benefit manager, and the pharmaceutical manufacturer.  PBMs are third-party administrators that process and pay prescription  drug claims for prescription drug plans. The change will become  effective January 1, 2010.

The CMS currently allows Part D sponsors that contract with a PBM to  report to the CMS the amount paid to the PBM (the lock-in price) or the  amount the PBM paid to the pharmacy (the pass-through price). Under the  lock-in approach, a Part D plan agrees to pay a PBM a set rate for a  particular drug. The PBM then negotiates with pharmacies to obtain the  lowest possible price for the drug, which often is lower than the amount  the PBM receives from the plan.