Under the Medicare Part D statute and its implementing regulations, “any” pharmacy that is willing and able to meet a Part D Plan sponsor’s (PDP’s) standard terms and conditions must be allowed to access the PDP’s pharmacy network.1 PDPs must have a standard contract with “reasonable and relevant terms and conditions” that provide any willing pharmacy (“Any Willing Pharmacy”) with access to the standard contract, and allow any pharmacy that meets those reasonable and relevant terms and conditions to participate in the PDP network.2 Despite this broad mandate, many pharmacies with unique operating models have found it difficult to gain access or maintain inclusion in certain Medicare Part D plans. This is largely due to the disconnect between PDP network requirements and the ever-evolving drug distribution and drug therapy models. While certain terms may have been reasonable and relevant under traditional pharmacy models, these conditions often are not relevant to specialty pharmacy models.
The Centers for Medicare & Medicaid Services (CMS) recently attempted to address this issue in its “Medicare Program; Contract Year 2019 Policy and Technical Changes to the Medicare Advantage, Medicare Cost Plan, Medicare Fee-for-Service, the Medicare Prescription Drug Benefit Programs, and the PACE Program Final Rule” (2019 Final Rule).3 In the applicable proposed rule, CMS noted PDPs’ standard terms and conditions “in some cases has had the effect . . .of circumventing the any willing pharmacy requirements and inappropriately excluding pharmacies from network participation.”4 This article explores the changes promulgated through the Final Rule and the preamble guidance and considers the implications for specialty pharmacies.
While the 2019 Final Rule does not implement specific parameters on standard terms and conditions or define terms that are presumptively deemed reasonable and relevant, it does clarify the Any Willing Pharmacy requirement is designed “to minimize barriers to pharmacy network participation” and terms and conditions must be relevant “in light of the changes and innovations in pharmacy practice and business models.”5 Through the 2019 Final Rule, CMS did promulgate requirements for making the standard contracts available to pharmacies in a timely manner.6
Specialty Pharmacies Defined
The specialty pharmacy model is an example of the innovations in pharmacy practice cited in the 2019 Final Rule. However, CMS has not promulgated or proposed a regulatory definition of specialty pharmacy. In fact, CMS specifically declined to define “specialty pharmacy” in the 2019 Final Rule highlighting that due to the rapidly changing landscape and varied considerations, an attempt “to define specialty pharmacy could prematurely and inappropriately interfere with the marketplace.”7
Generally, specialty pharmacies provide medications for people with serious health conditions requiring complex therapies such as cancer, hepatitis C, rheumatoid arthritis, HIV/AIDS, multiple sclerosis, cystic fibrosis, organ transplantation, and hemophilia and other bleeding disorders.8 These specialty pharmaceuticals often have special handling requirements, such as refrigeration or administration requirements like injection or infusion. Specialty pharmacies also typically provide additional services for their patients, such as enhanced education, insurance reimbursement support, and drug therapy adherence communications. According to the Express Scripts 2017 Drug Trend Report, in 2017 specialty drug spend accounted for 40.8% of total drug spend in the United States, up 11.3% from 2016.9 In fact, CMS noted in the 2019 Final Rule that “Part D enrollees increasingly need access to specialty drugs.”10
Specialty pharmacies are commonly licensed to dispense medications in multiple states, and in some cases, in all 50 states and the U.S. territories. A specialty pharmacy often only has one physical location and ships drugs through common carriers, such as Federal Express. As noted above, a hallmark of specialty pharmacy distribution is dispensing prescriptions through the mail.
Despite this broad mandate, many pharmacies with unique operating models have found it difficult to gain access or maintain inclusion in certain Medicare Part D plans.
Part D Convenient Access Standards and Any Willing Pharmacy Requirements
In addition to the Any Willing Pharmacy requirements, the Medicare Part D regulations mandate “convenient access,” which requires PDPs to include a sufficient number of retail pharmacies in their networks to ensure patients have convenient access to their medications.11 Convenient access standards require a sufficient number of pharmacies to be located within a certain number of miles of 90% of the plan’s members.12 Before the 2019 Final Rule, mail order pharmacies were expressly excluded from the definition of “retail pharmacy.” As a result, inclusion of mail order pharmacies in a PDP’s network would not count toward satisfying convenient access requirements.
Perhaps, reacting to this regulatory prohibition on mail order pharmacies counting toward convenient access requirements, some PDPs imposed standard network terms and conditions that excluded pharmacies that conducted even a minimal amount of mail order activity from their retail pharmacy networks. However, the 2019 Final Rule made clear convenient access and Any Willing Pharmacy standards are two distinct considerations. CMS also cautioned that the definitions of pharmacy types, such as retail pharmacy, “were never intended to limit the scope of the any willing pharmacy requirement,” after noting pharmacies complained PDPs often classify a pharmacy as “mail order” for purposes of network inclusion even though the pharmacy had non-mail order operations.”13 This clarification highlights that a PDP must provide a Part D enrollee with convenient access to directly obtain medication, and the PDP also must offer Any Willing Pharmacy that meets the reasonable and relevant terms and conditions access to its network.
[T]he 2019 Final Rule made clear convenient access and Any Willing Pharmacy standards are two distinct considerations.
2019 Final Rule
The 2019 Final Rule implements two of the four changes CMS initially proposed: (1) a revised definition of retail pharmacy and (2) a modification to the timeline in which PDPs must provide pharmacies with access to the PDP’s standard contract terms. In discussing these two revisions, the preamble emphasizes the Any Willing Pharmacy requirements were not designed to exclude pharmacies due to “unique or innovative business or care delivery models” from retail network inclusion.14
In discussing the new definition of “retail pharmacy” and declining to define “specialty pharmacy” or “mail order pharmacy,” CMS highlighted the definitions apply to convenient access requirements but do not affect Any Willing Pharmacy inclusion requirements. In particular, the 2019 Final Rule clarified that a pharmacy conducting some mail order and some retail activity may still be counted toward the convenient access requirement by way of the retail activity. The revised definition of “retail pharmacy” squarely addresses this concept. Prior to the 2019 Final Rule, retail pharmacy was defined as “any licensed pharmacy that is not a mail order pharmacy from which Part D enrollees could purchase a covered Part D drug without being required to receive medical services from a provider or institution affiliated with that pharmacy.”15 According to this definition, a mail order pharmacy, which is an undefined term, was expressly excluded from satisfying a PDP’s convenient access requirement.
The 2019 Final Rule further highlighted that PDPs should offer contract terms that are reasonable and relevant to the functions performed by the pharmacy and “not theoretically reasonable and relevant based upon outdated pharmacy classifications that do not accurately reflect today’s pharmacy business model(s) and practices.”
In the 2019 Final Rule, CMS revised the definition of “retail pharmacy” to read “any licensed pharmacy that is open to dispense prescription drugs to the walk-in general public from which Part D enrollees could purchase a covered Part D drug without being required to receive medical services from a provider or institution affiliated with that pharmacy.”16 By removing the express exclusion of mail order pharmacies from the definition of retail pharmacies, CMS made it permissible for pharmacies conducting some mail order business to count toward satisfying a PDP’s convenient access requirements.17
In rejecting the adoption of a definition for “mail order pharmacy,” CMS noted the definition was proposed “for the very specific reason of clarifying Part D enrollee cost-sharing expectations” and to remedy the situation of PDPs misclassifying pharmacies as mail order pharmacies when the pharmacies merely offered home delivery services by mail as a portion of their overall operations.18 In rejecting a definition of specialty pharmacy, CMS highlighted the varied nature of specialty pharmacy models, but noted it would reconsider defining this term in the future.19
The 2019 Final Rule further highlighted that PDPs should offer contract terms that are reasonable and relevant to the functions performed by the pharmacy and “not theoretically reasonable and relevant based upon outdated pharmacy classifications that do not accurately reflect today’s pharmacy business model(s) and practices.”20 CMS reiterated pharmacies with “hybrid” operations should be offered standard terms and conditions relevant for each “type” of model the pharmacy represents based upon the services provided by that individual pharmacy.21
While PDPs may construct networks for various types of pharmacies, CMS noted many pharmacies offer “innovative “ services that do not fit within the traditional pharmacy classifications, and accordingly, PDPs “need to offer standard terms and conditions that are reasonable and relevant for the types of services being provided by the pharmacy.” Importantly, CMS reiterated PDPs must offer specialty pharmacies “standard terms and conditions that are reasonable and relevant to the specialty pharmacy’s pharmacy practice business or service delivery model.”22
CMS declined to enact regulations to specify what constitutes “reasonable and relevant” standard terms and conditions, citing the desire to provide PDPs with maximum flexibility to structure standard terms and conditions, but cautioned further regulation could be appropriate if the “current requirements are no longer sufficient to implement the statutory any willing pharmacy requirement as a result of the changing pharmaceutical distribution marketplace.”23 Focusing on the changes in drug delivery models, CMS noted that historically classifications such as retail or mail order may have been appropriate in constructing PDP networks and meeting Any Willing Pharmacy inclusion requirements, but the “traditional labels likely do not sufficiently encompass today’s evolving pharmacy practice.”24 In support of the contention that broad categorizations are outdated, CMS cited to pharmacy complaints of PDP network exclusion because their business models did not squarely meet the PDP pharmacy classifications for the network, not because the pharmacy was unwilling or unable to meet the standard contracting terms and conditions.25
CMS distinguished Any Willing Pharmacy “floor” standard terms and conditions from those required to participate in a preferred network or a subset of the broader PDP network.26 In exploring the concept that standard terms and conditions should establish a “floor,” the 2019 Final Rule discussed exceptions made by PDPs, in which only some network pharmacies are required to adhere to “quality” standards.27 Recognizing in certain situations exceptions to accommodate “unique geographic issues or ensure access to specific drugs” may be appropriate, CMS cautioned standard terms and conditions should be applicable broadly across the PDP network.28 In situations where standard terms and conditions may need to be modified, CMS suggested PDPs look for “reasonable alternatives” rather than waiving the standard terms and conditions outright, reasoning if a term is “truly necessary for ensuring a minimum quality standard” it ought to remain in some form.29
Despite declining to define what constitutes “reasonable and relevant,” CMS did provide guidance on the subject, specifically with regard to mail order activity, accreditation, and requirements that a pharmacy be able to dispense certain drugs as a condition of inclusion. Addressing mail order and specialty pharmacy activity with regard to Any Willing Pharmacy requirements, CMS noted a pharmacy that predominately provides retail services, but also some mail services, would presumably be offered terms and conditions reasonable and relevant to both types of services.30 CMS pointed to comments that some PDP retail network standard terms and conditions prohibited any mailing of prescriptions, with network termination as the consequence rather than nonpayment for drugs mailed by that pharmacy.31 CMS acknowledged mailing prescriptions entails unique considerations and often specific requirements for mail order activity that would be reasonable and relevant.32
In the past, some pharmacies reported PDPs often delayed by weeks or months, or required extensive paperwork, before providing pharmacies with their standard contract terms and conditions.
Explaining the interplay between specific requirements for preferred networks or a subset of the general network and standard network terms and conditions, CMS provided the following example: if a PDP offers a preferred specialty pharmacy network and a pharmacy holding itself out as a specialty pharmacy does not meet the additional terms and conditions for the preferred or subset network, the PDP cannot preclude the pharmacy from joining its broader contracted pharmacy network, as long as the pharmacy meets the PDP’s reasonable and relevant terms and conditions.33
With regard to accreditation, CMS noted a concern that PDPs might use standard network contracting to limit the dispense of specialty drugs to certain pharmacies, observing that with the growth of the specialty drug market the number of entities competing to dispense specialty drugs has grown to include “pharmacy benefit managers (‘PBM’), health plans, wholesalers, health systems, physician practices, retail pharmacy chains, and small, independent pharmacies.”34 CMS discussed complaints from pharmacies that PDPs required multiple accreditations for network inclusion or imposed specific PBM credentialing.35 While CMS acknowledged accreditation requirements may be appropriate, it expressed concerns duplicative or inconsistent requirements may circumvent the Any Willing Pharmacy requirements, remarking that standard terms and conditions should serve as a “floor.”36 CMS addressed pharmacy concerns that the pharmacies had been effectively excluded from 75% to 80% of the market or only sought accreditation to gain PDP network inclusion by questioning the requirements for one accreditation over another. CMS stated it is “unrealistic to expect pharmacies to obtain multiple accreditation certifications.”37
Reasoning a pharmacy’s ability to dispense one drug does not necessarily affect its ability to dispense any other drug, CMS concluded that the requirement that a pharmacy be able to dispense from a certain list of drugs or dispense drugs for certain disease states would be irrelevant and not reflective of appropriate standard terms and conditions.38 However, such requirements may be appropriate for inclusion in a preferred network to a subset of the PDP’s contract network.39 Further limitations on drug dispensing may be appropriate for drugs under a REMS (risk evaluation and mitigation strategy) program or if the drug requires “extraordinary special handling.”40 Similarly, CMS warned a PDP should not limit a pharmacy’s dispense of certain drugs, such as high-cost specialty drugs, to certain networks or subsets of networks.41 A pharmacy should be permitted to dispense the drugs as long as it is capable and appropriately licensed (including meeting REMS requirements as applicable), and it agrees to meet the PDP’s “reasonable and relevant extraordinary special handling, provider coordination, or patient education requirements in standard terms and conditions.”42
Finally, CMS sought to clarify in the 2019 Final Rule the PDP’s responsibility to provide requesting pharmacies with timely access to the sponsor’s standard terms and conditions. Prior to June 15, 2018, 42 C.F.R. § 423.505(b)(18) stated: “[t]he Part D plan sponsor agrees . . . to have a standard contract with reasonable and relevant terms and conditions of participation whereby any willing pharmacy may access the standard contract and participate as a network pharmacy.” In the 2019 Final Rule, CMS revised this language to provide statutory guidelines on when PDPs must provide requesting pharmacies with such terms and conditions. In the past, some pharmacies reported PDPs often delayed by weeks or months, or required extensive paperwork, before providing pharmacies with their standard contract terms and conditions.43 In response, CMS formalized previously existing guidance by appending two subsections to 42 C.F.R. § 423.505(b)(18), which require Part D plan sponsors to “[m]ak[e] standard contracts available upon request from interested pharmacies no later than September 15 of each year for contracts effective January 1 of the following year; [and provide] a copy of a standard contract to a requesting pharmacy within 7 business days after receiving such a request from the pharmacy.”44
Although this revision does provide an additional tool for pharmacies seeking to gain Part D network access, it is the requesting pharmacy’s responsibility to ask a PDP for terms and conditions that are applicable to the types of services the pharmacy offers so the PDP may provide the terms and conditions appropriate for such pharmacy’s operations.45 As CMS noted, “[t]he pharmacy cannot expect to receive reasonable and relevant terms and conditions if the Part D plan sponsor is not made aware of the different types of services the pharmacy 20 AHLA Connections November 2018 seeking network participation provides.”46 Further, pharmacies are expected to operate in good faith and only request contracts “for the types of services they truly believe they are qualified to offer,” while PDPs should “work cooperatively” with pharmacies to determine the types of services the pharmacies can provide plan enrollees.47
As the pharmacy marketplace continues to evolve, we expect CMS to monitor Part D contracting processes to ensure program participants maintain compliance with the Any Willing Pharmacy requirement. CMS emphasized in the 2019 Final Rule that, in the interest of allowing plans to have “maximum flexibility to structure standard terms and conditions,” it was not proposing to further clarify the “reasonable and relevant” requirement for a PDP’s standard terms and conditions. CMS cautioned, however, that “if [they] find that [their] current requirements are no longer sufficient to implement the statutory Any Willing Pharmacy requirement as a result of the changing pharmaceutical distribution marketplace,” then the agency will consider additional formal rulemaking.48
1 Specifically, a PDP “shall permit the participation of any pharmacy that meets
the terms and conditions under the plan.” 42 U.S.C. § 1395w-104(b)(1)(A).
2 42 C.F.R. § 423.505(b)(18).
3 83 Fed. Reg. 16440, 16593 (Apr. 16, 2018).
4 82 Fed. Reg. 56336, 56407 (Nov. 27, 2017).
5 83 Fed. Reg. 16440, 16596.
6 42 C.F.R. § 423.505(b)(18) (2018).
7 83 Fed. Reg. 16440, 16596.
8 National Association of Specialty Pharmacy, “NASP Definitions of Specialty Pharmacy and Specialty Medications” (Feb. 24, 2016), available at http://naspnet.org/wp-content/uploads/2016/06/633570_864cb572b8b042909a3f207eaf764d7a.pdf.
9 Express Scripts 2017 Drug Trend Report, available at http://lab.express-scripts.com/lab/drug-trend-report/2017-dtr.
10 83 Fed. Reg. 16440, 16590.
11 42 C.F.R. § 423.120(a)(1)–(7).
13 83 Fed. Reg. 16440, 16590.
14 Id. at 16591.
15 42 C.F.R. § 423.100 (2016).
16 42 C.F.R. § 423.100.
17 83 Fed. Reg. 16440, 16592.
18 Id. at 16593–94.
19 Id. at 16596.
20 Id. at 16591.
23 Id. at 16593.
24 Id. at 16591.
26 Id. at 16597.
3030 Id. at 16591.
31 Id. at 16595.
32 Id. at 16594.
33 Id. at 16598.
34 Id. at 16597.
37 Id. at 16598.
41 Id. at 16599.
43 Id. at 16596.
44 42 C.F.R. § 423.505(b)(18) (2018).
45 83 Fed. Reg. 16440, 16591.
47 Id. at 16601.
48 Id. at 16590.