So That's What "Non-Interference" Means: CMS Defines Loaded Term in Proposed Part D Rule

The 700-page Part D proposed rule does much more than change the "protected" class list. Among many other provisions, it spells out how CMS interprets the infamous "non-interference" clause.

You can't accuse CMS of shying away from a fight.

A proposed rule on changes to Medicare Part D is bound to trigger a lot of feedback for the Centers for Medicare & Medicaid Services, because--among many potentially controversial provisions--it dares to take on the list of "protected" classes where all drugs are supposed to be covered. CMS proposes to eliminate "protected" status for three big classes of drugs -- antidepressants, immunosuppressants and antipsychotics. 

That is just one of more than 50 provisions, all of which are sure to generate some questions or concerns, in what amounts to the most sweeping list of changes to Part D since the program began in 2006.

Among those many changes, one section stands out as especially important to the fundamental design of the program: a new regulatory definition of the "non-interference" clause.

The clause—which stipulates that CMS cannot “interfere” in price negotiations between plans and manufacturers—has been a political lightning rod for Part D, as the provision highlighted by Democratic legislators for repeal almost immediately after the Medicare Modernization Act became law in 2003. While the debate in recent years has shifted to focus on calls to impose Medicaid-level rebates on Part D prescriptions for low-income beneficiaries, it remains a talking point that Medicare should be able to “negotiate” better prices with manufacturers.

Not that Medicare has ever actually wanted the power -- nor have the Congressional Budget Office analysts who looked at the issue ever thought that giving CMS the authority to "interfere" would lead to dramatic savings. (Also see "Negotiating Price Negotiation: Why the Democrats Will Struggle to Pressure Part D Prices" - Pink Sheet, 1 Dec, 2006.)

Still, the topic has been controversial enough that CMS has tended to avoid it.

No more. CMS notes in the proposed rule that it has never before defined the term, and goes on to do so -- in language that may be hard for the pharmaceutical industry to improve.

CMS begins the discussion of non-interference in a non-threatening fashion: saying the agency has decided to issue a regulatory interpretation to eliminate confusion – not to change its practices:

“It is increasingly clear from the many questions that continue to arise when working with stakeholders on matters ranging from lawsuits to policy clearance to complaint resolution that the agency and all Part D stakeholders would benefit from a clear, formal interpretation of these limits on our authority. Some stakeholders appear to believe the prohibition on interference in negotiations extends far beyond the boundaries that we consider relevant, while others insist our authority extends into arbitrating matters that seem to us to clearly fall within the intended prohibition.”

CMS explains that it interprets the statute as prohibiting it from interfering in negotiations between pharmaceutical manufacturers and Part D plans, or between manufacturers and pharmacies. CMS, on the other hand, says it can and will "interfere" in contracting between PBM/plan sponsors and pharmacies, since it views that as a key part of administering the benefit.

But when it comes to pricing of drugs, the agency stresses that part of its role in ensuring a competitive marketplace is to encourage equal access to information and transparency, not to involve itself in specifics of contracts or terms. The agency further says that it is not going to engage in interpretation or arbitration of contract terms after the fact, “since it would not make sense to prohibit CMS involvement in discussions leading up to an executed agreement only to allow involvement in arbitrating the terms of the agreement afterwards.”

CMS stresses that it will not get involved in contracting terms even when one side or the other argues that “failure to do so will lead to access issues for Medicare beneficiaries.”

“We believe that our involvement in these sorts of issues is precisely what the statute prohibits in section 1860D-11(i)(1) of the Act – our weighing in on a contract negotiation or dispute could influence the outcome. In other words, government involvement could affect market forces around prescription drugs in ways that change the value that would otherwise be assigned to these products in a competitive market. We believe we should not pick winners and losers in formulary selection negotiations, and that the remedies for disputes should be determined in accordance with the terms of the contracts or in the courts having jurisdiction over the contracts.”

CMS is similarly expansive in elaborating on its interpretation of the statutory prohibition on CMS requiring “a particular formulary” in Part D.

“The most efficient formularies will make formulary selections and then exclude all or most competing multi-source and therapeutically equivalent brand products in order to concentrate volume and maximize rebates. Given the size of the Part D market, if CMS were able to similarly limit access to Part D formularies to certain products, this would bestow significant competitive advantage on the manufacturers of selected products and significant competitive disadvantage on manufacturers of competing products. Such limits would be expected to fundamentally alter supply and demand in the marketplace.”

Finally, CMS notes that it is prohibited from instituting “a price structure for the reimbursement of covered Part D drugs.” The agency interprets that as prohibiting it from “establishing either absolute or relative indices of prices for Part D drugs.”

“Specifically, we believe the intent of this provision is to prohibit two types of intervention by CMS. The first prohibited activity is that CMS may not require Part D drug acquisition costs or sales prices to be a function of (be defined relative to) any particular published or unpublished pricing standard, either existing or future. Thus, we could not require that Part D prices be based on, or be any particular mathematical function (such as a percentage or multiple) of established pricing standards such as Average Wholesale Price, Wholesale Average Cost, Average Manufacturer Price, Average Sales Price, Federal Supply Schedule, 340b pricing, etc.

“The second prohibited activity is that CMS cannot require price concessions (from any standard or basis) to be at any specific (absolute) dollar amount or equal to a level specified in other legislative requirements for other federal programs. Thus, we could not, for example, set minimum or maximum dollar prices for a drug product or require that Part D prices be offered at acquisition cost, or at the 'best price' applicable under the Medicaid program.”

CMS notes that the prohibition on price-setting has to be interpreted consistently with other provisions of Part D which require the agency to “regulate many aspects of how drug costs are made available and displayed to beneficiaries and treated in Part D bidding and payment processes.” In that context, CMS views its role as “establishing rules for consistent treatment of drug costs in the program.”

CMS throughout evinces concern that beneficiaries have access to clear information about the cost-sharing they will face for their particular mix of products during the plan selection process. That is the kind of “interference” industry is likely to support.