Patient Care vs. Administrative Costs Now the Focus of Part D Health Plan Expenditure Ratios
MOORESTOWN, N.J., April 4, 2018 – Tabula Rasa HealthCare, Inc. (TRHC) (NASDAQ: TRHC), a healthcare technology company optimizing medication safety, has reviewed and determined the impact to TRHC of the Centers for Medicare and Medicaid’s (CMS) April 2, 2018 announcement of changes to its Medicare Prescription Drug Program (Part D). These changes will affect more than 42 million Medicare Part D beneficiaries across the U.S., with the most significant impact being felt by the 19 million, and growing, Part D beneficiaries who receive prescription drug coverage through Medicare Advantage plans.
Significantly, among these changes is one that enhances the way Part D health plans will view and invest in medication therapy management services (MTM). TRHC currently provides MTM programs to 150 Medicare Advantage contracts representing 3 million eligible members. We believe CMS anticipates that Medicare sponsors will expand MTM enrollment.
Under the new requirement, Part D health plans must spend $.85 of every premium dollar on patient care with the remaining $.15 for plans to cover other costs, including administrative expenses and profit. The ratio of patient care expenses to administrative expenses is expressed as a percentage and is referred to as the Medical Loss Ratio (MLR). An MLR lower than 85% results in a Part D health plan paying penalties. Part D health plans, therefore, want to include as many activities as possible in the numerator (i.e., patient care side) of the MLR.
Until now, MTM had been considered an administrative expense and was a required cost of being able to participate in Medicare Part D. Starting in January 2019, however, Part D health plans will be able to attribute the costs of MTM to the numerator (or the “patient care” side) of the MLR.
For TRHC, this means that Part D health plans, including our clients and client prospects, will have far greater financial incentive to invest in the innovative, quality-focused medication therapy management programs that Tabula Rasa provides.
TRHC is presently spearheading a large CMS model program, called Enhanced MTM, across seven states.
“We view Monday’s action by CMS as a significant opportunity to expand our market and bring its innovations in MTM to a larger footprint of Part D health plans,” said TRHC Chairman and CEO, Calvin H. Knowlton, PhD. “For the first time since Part D was adopted and MTM services were mandated, Part D health plans will have incentives to invest in innovative MTM services in order to drive therapeutic outcomes for patients and reduce unnecessary costs in the system.”
In the same action, CMS also made all expenditures related to fraud-reduction activities (including fraud prevention, detection, and recovery) a part of the MLR numerator. These changes also will take effect in January 2019.
Bob East or Asher Dewhurst