Medicare Part D Bids and Discount Safe Harbor Timeline

For those whose only association with Medicare comes from being a participant in a health insurance plan, chances are individuals are not aware of the extensive path each plan takes up to the beneficiary enrollment period. This blog provides an overview of the Medicare Part D plan process that providers will take part in for coverage in 2020.


It is important to review this timeline in relation to the recently proposed Discount Safe Harbor rule released by the Department of Health and Human Services (HHS) which directly affects Medicare Part D. Specifically, the proposed rule discusses amending the Anti-Kickback Statute to remove protection for manufacturer rebates for Medicare Part D plan sponsors, Medicaid Managed Care Organizations (MCOs), or Pharmacy Benefit Managers (PBM) under contract with them. The rule also proposes two new Safe Harbors. The first being a Safe Harbor to protect point-of-sale reductions in prescription prices, and the second is to protect PBM service fees. A key question arises: How will the annual Medicare Part D process affect the final rule?


When we dissect Medicare, it is split into four sections (Part A, B, C, and D). Each of these parts cover a specific service for those who qualify for coverage.

  • Part A references inpatient/hospital related benefits
  • Part B specifies any outpatient/medical coverage
  • Part C describes alternate ways to receive your Medicare benefits
  • Lastly, Part D is the section of Medicare that provides prescription drug coverage

Established in 2006, Medicare Part D was a voluntary outpatient drug benefit program. A significant change introduced in Medicare Part D was the shift from government as the provider, to private insurance companies filling that role.

Private insurers deliver Medicare Part D benefits through a combination of Medicare Advantage Prescription Drug plans (MA-PDs) and stand-alone prescription drug plans (PDPs). Prior to these plans establishing their selling features for enrollees (such as premiums, pharmacy network, covered drug therapies, and quality of service), there is a mandatory bidding process for each plan to determine the nationwide average for enrollee premiums. With the average calculated, all plan sponsors must structure their program cost at or below the premium. After the plans determine their specific drug benefit features, an open enrollment window for prospective consumers begins.


As mentioned previously, the plan sponsors will submit bids that determine the average for enrollee premiums.

What do these bids look like? In the simplest form, the bids reflect the plan’s cost to the consumer, the plan administrator, and the government. Specific costs such as enrollee deductible, federal subsidies, and administrative expenses are all used to determine a pricing strategy. The plans structure their bids based on the expected costs for an average health plan enrollee. Once the average cost is determined, the Centers for Medicare and Medicaid Services (CMS) adjusts payments for the plan based on the varying health statuses of potential enrollees.


Even though we are still several months out, as we approach the benefit enrollment period for 2020, the entire process to cross the finish line will have been in the works for years. Let’s review the typical timeframe the bidding process travels from drug manufacturer to Medicare Plan D enrollee.


As mentioned previously, the primary focus of the HHS proposed rule is the removal of PBM rebates to plan sponsors under Medicare Part D and Medicaid MCOs and the addition of a new Safe Harbor protecting point-of-sale reductions in prescription prices (when the consumer fills their prescription at the pharmacy). Removing rebates and amending the Discount Safe Harbor will have a significant impact on how the plan sponsors determine their bid strategy in the future. The new rules will force plan sponsors to restructure their entire financial model due to changing costs and profitability margins. Instead of being able to spread discounts and administrative fees across all business, they will be held to fixed service fees per transaction. In addition, if the pricing for prescriptions is altered, plan participants will likely take more time meeting out-of-pocket deductibles (depending on the plan) than they would have previously. Since this deductible phase could be delayed, plan sponsors will realize these cost savings later in the year.

Considering the statute was published on February 6, 2019, when we compare it to the already in motion Medicare Part D timeline, the bidding strategies for plan sponsors may require more restructuring than in previous years.

The deadline to submit bids is quickly approaching on June 3rd. In anticipation of this due date, Part D sponsors and manufacturers have turned to CMS for guidance. In response to the plan sponsors inquiries, CMS released a communication relating to bidding strategies. The message urges the sponsors to continue their bidding strategies under the current legislation and guidelines. If plan sponsors submitted bids based solely on anticipation that legislation will change, it could greatly increase their symmetric risk corridor (plans profits and losses for participating in Part D).

Contract negotiations for 2020 are far in the process. Although there is a short time period known as a “Formulary Update Window” (late July – early August 2019) during which plan sponsors may adjust their bids, it is not reasonable to think that significant changes to the bids will be submitted.

Most recently, CMS has stated the final rule will not be published by HHS prior to the June 3rd deadline.


CMS said that if the statute were implemented in 2020 and 2021, they will conduct voluntary demonstration projects to aid plans and participants under the new Medicare Part D program. Under the demonstration, the overall objective would be to help beneficiaries and plans transition to any changes in the Part D program. This transition would assist primarily by modifications to the risk corridors, through the government retaining 95% of the deviation between the targeted and actual costs of the plan (beyond the first 0.5%). The assistance is offered to any eligible Part D plan that is susceptible to the risk corridors. Group MA-PD plans, such as labor and teacher union plans, are not seen as eligible since they do not partake in the same bid process as other PDPs and MA-PD plans.

Whether or not the rule passes, the next several weeks will determine the immediate future of Medicare Part D plans. The industry patiently waits for a finalized rule and potential changes that will revolutionize Part D.


  1. Fein, Adam J Ph.D. (2019, April 16). The Road to 2020: Understanding the Regulatory Timeline for Part D Rebate Reform. Retrieved from
  2. Part D Payment System. Retrieved from
  3. Medicare Interactive. The Parts of Medicare (A, B, C, D). Retrieved from
  4. Federal Register. Proposed Rule. Retrieved from
  5. Guidance Regarding Part D Bids. Retrieved from
  6. Unions, Employers Gear Up To Lobby On Drug-Rebate-Related Policy. Retrieved from
  7. HHS Won’t Publish Rebate Rule Before Part D Bids Due June 3. Retrieved from