CCAGW Sends Letter to CMS Admin. Marilyn Tavenner Regarding Part D Draft Guidance | Council For Citizens Against Government Waste

CCAGW Sends Letter to CMS Admin. Marilyn Tavenner Regarding Part D Draft Guidance

Agency Comments

October 24, 2014

The Honorable Marilyn Tavenner
Centers for Medicare and Medicaid Services
Department of Health and Human Services
200 Independence Avenue
Washington, D.C.  20201


Dear Administrator Tavenner,

On behalf of the more than 1.2 million members and supporters for the Council for Citizens Against Government Waste (CCAGW), I am writing to express our grave concern that the Center for Medicare and Medicaid Services (CMS) is breaking federal law by issuing “draft guidance for Part D sponsors on reporting direct and indirect remuneration (DIR) data for pharmacy price concessions for contract year (CY) 2016 and beyond.”

CCAGW believes this draft guidance violates the “non-interference” clause contained in the Medicare Modernization Act (MMA), Section 1860D-11(i), which states, “In order to promote competition under this part and in carrying out this part, the Secretary (1) may not interfere with the negotiations between drug manufacturers and pharmacies and PDP [prescription drug plan] sponsors; and (2) may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.”

In addition, CCAGW believes CMS is violating the Administrative Procedure Act since the proposed guidance will change current regulations without a proper notice and comment period.  Releasing this draft guidance with an 18-day comment period is an affront to taxpayers and Part D stakeholders.

In January 2014, CMS issued a proposed rule that would have, among other things, reduced the number of drug plans per service area and interfered with the contract and pricing negotiations between preferred networks and pharmacists.  As you know, a bipartisan group of 20 senators wrote you a letter stating they were perplexed “why [CMS] would propose to fundamentally restructure Part D by requiring immediate, large-scale changes to the program that have direct consequences for beneficiaries.”  As a result of their objections and other complaints about the proposed rule, CMS deleted or modified many of the offensive provisions in the final rule.

Therefore, we find it alarming that CMS decided to release the draft guidance, just as Congress adjourned for the mid-term elections, which revives many of the provisions that would interfere with negotiations of prices and payments by drug plan sponsors and pharmacies.

On September 18, you were queried during a House Oversight and Government Reform Committee hearing on whether you planned to bring forward controversial aspects of the proposed rule issued in January that were pulled in March.  You said that you had no interest in bringing back those parts of the rule and that you were “interested in promoting competition and promoting the private market.”  Yet, the draft guidance contradicts your stated intent and goals since it will stifle competition and lead to higher prices for beneficiaries and taxpayers.

Even though CMS persists in its attempts to interfere with price negotiations, the Department of Health and Human Services (HHS) has already stated CMS cannot do so.  HHS Inspector General Daniel R. Levinson said in a July 29, 2008 report to then-Acting CMS Administrator Kerry Weems, “We agree that the [MMA] Act prohibits the Government from interfering with negotiations between PDP sponsors and pharmacies and from instituting a price structure for the reimbursement of covered Part D drugs.”

Furthermore, CMS is ignoring its own interpretation of the MMA, which was published in the April 15, 2011 Federal Register.  When CMS was asked to provide assurances about monitoring certain pharmacy dispensing fees to ensure they were adequate, the agency responded, “As provided in section 1860D–11(i) of the Act, we are prohibited from interfering with negotiations between Part D plans and pharmacies.”

Since its inception, Medicare Part D has been one of the few government programs that has consistently come in under budget.  In 2004, the program’s projected cost was estimated to be approximately $123 billion in 2012; its actual cost in 2012 was $55 billion.  Part D’s remarkable success is due in no small part to the non-interference clause, which has ushered in robust competition among pharmaceutical companies, drug plan sponsors, and pharmacies, which keeps premiums and drug prices low. 

Negotiated price concessions and incentives, whether they can be reasonably determined at the point-of-sale or not, are all part of the contract deliberations between PDP sponsors and pharmacies.  CMS has repeatedly attempted to insert itself into and interfere with sensitive and fluid negotiations between the drug plan’s sponsors and pharmacies.  Should CMS succeed in this misguided campaign, price concessions and incentives will cease, killing what has helped PDP sponsors and pharmacies respond quickly to what beneficiaries and taxpayers want: low prices and good service.  

CMS should be concerned about the final price ultimately paid by taxpayers and patients.  We urge you to withdraw the proposed guidance immediately.



Thomas Schatz
President, Council for Citizens Against Government Waste



Sean Cavanaugh

Deputy Administrator & Director