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Will I receive the Donut Hole discount on the portion of my compounded medication that is covered by my Medicare Part D plan?

Category: Donut Hole Discounts
Updated: Aug, 16 2022


No.  Medicare changed positions on this policy and first provided Donut Hole discounts for compounded Medicare Part D drugs in May 2010:

"Part D sponsors shall only provide a discount on a compound if the [National Drug Code] NDC submitted on the [Prescription Drug Event] PDE (for the most expensive Part D drug ingredient) is for an applicable drug. The Part D sponsor shall only provide the discount on the negotiated price (as defined in section 100.11 of this guidance) of the applicable drug submitted on the PDE because only that NDC is reported to [the Centers for Medicare and Medicaid Services] CMS and only that manufacturer can be invoiced. The applicable discount for the NDC submitted on the PDE is the total discount that shall be provided for the compound."

(Source: CMS Memo, May 21, 2010, "Medicare Coverage Gap Discount Program Beginning in 2011: Revised Part D Sponsor Guidance and Responses to Summary Public Comments on the Draft Guidance" (previous version: April 30, 2010, "Medicare Coverage Gap Discount Program beginning in 2011"), Section 70.6 Part D compounds, (https://www.cms.gov/ Medicare/ Prescription-Drug-Coverage/ PrescriptionDrugCovContra/ Downloads/ MedicareCoverageGap DiscountProgramGuidance.zip)(previous version: https://www.cms.gov/ Medicare/ Prescription-Drug-Coverage/ PrescriptionDrugCovContra/ downloads/ 2011CoverageGap Discount_043010v2.pdf))

But then in September 2010, CMS reversed positions and found that Part D compounds would not receive a Donut Hole discount:

"In the previously issued May 21, 2010 guidance [above], CMS stated that Part D sponsor shall provide a discount on a Part D compound if the NDC submitted on the PDE is for an applicable drug and that such discount shall only be provided on the negotiated price of the applicable drug submitted on the PDE. Upon further consideration, CMS has determined that Part D compounds are not applicable drugs for purposes of the CGDP [Coverage Gap Discount Program].

While Part D sponsors can cover compounds with at least one Part D drug ingredient for the cost associated with the Part D drug ingredients only, we believe that the applicable drug determination must be made with respect to the compound as a whole. We changed this policy based upon a better understanding of the complexities associated with trying to accurately determine and validate discounts on an ingredient level basis given the information that is available on pharmacy claims transactions and PDEs. Given that a compound as a whole is not approved under an  [New Drug Application] NDA or [Biological Licensing Agreement] BLA, a compound does not meet the definition of an applicable drug. Therefore, Part D sponsors will apply the “generic” gap cost-sharing to the Part D drug components of all Part D compounds." [emphasis added]

(Source: CMS Memo, September 10, 2010, "Additional Guidance concerning Closing the Coverage Gap in 2011", Section 70.6 Part D compounds, (https://www.cms.gov/ Medicare/ Prescription-Drug-Coverage/ PrescriptionDrugCovContra/ Downloads/ MedicareCoverageGap DiscountProgramGuidance.zip)

Furthermore, in a 2016 revision to Chapter 6 of the Medicare Prescription Drug Manual, CMS noted in Section 10.4 - Extemporaneous Compounds:

"Compounded prescription drug products can contain: (1) all Part D drug product components; (2) some Part D drug product components; or (3) no Part D drug product components. As defined in [CFR] §423.120(d), only compounds that contain at least one ingredient that independently meets the definition of a Part D drug, and that do not contain any ingredients covered under Part B as prescribed and dispensed or administered, may be covered under Part D. Only costs associated with those components that satisfy the definition of a Part D drug are allowable costs under Part D because the compounded products as a whole do not satisfy the definition of a Part D drug.

For a Part D compound to be considered on-formulary, all ingredients that independently meet the definition of a Part D drug must be considered on-formulary. Bulk powders (i.e., Active Pharmaceutical Ingredients for compounding) do not satisfy the definition of a Part D drug and are not covered by Part D. For any non-Part D ingredient of the Part D compound, the Part D sponsor’s contract with the pharmacy must prohibit balance billing the beneficiary for the cost of any such ingredients.

Sponsors treating compounds as non-formulary products should be applying the cost sharing associated with an exceptions tier, regardless of whether the compound contains brand name or generic products. For a Part D compound considered off-formulary, transition rules apply such that all ingredients that independently meet the definition of a Part D drug must become payable in the event of a transition fill and be covered if an exception under §423.578(b) is approved for coverage of the compound.

The labor costs associated with mixing a compounded product that contains at least one Part D drug component can be included in the dispensing fee (as defined in 42 CFR §423.100). For compounds containing all generic products, the generic cost-sharing should be applied. If a compound contains any brand name products, the Part D sponsor may apply the higher brand name cost-sharing to the entire compound. For low income subsidy (LIS) beneficiaries the copayment amount is based on whether the most expensive ingredient that independently meets the definition of a Part D drug in the Part D compound is a generic or brand name drug." [emphasis added]

(Source: Medicare Prescription Drug Benefit Manual, Chapter 6 – Part D Drugs and Formulary Requirements, (Rev. 18, Issued: 01-15-16, Effective: 01-15-16; Implementation: 01-15-16) https://www.cms.gov/ Medicare/ Prescription-Drug-Coverage/ PrescriptionDrugCovContra/ Downloads/ Part-D-Benefits-Manual-Chapter-6.pdf)

And we also found a supporting answer to this question from the Medicare approved firm that handles Medicare Part D appeals, "Maximus":
"Are Part D covered compounded drugs eligible for a discount through the Coverage Gap Discount Program (CGDP)?"

"NoWhile a Plan can cover a compounded drug with at least one Part D covered drug, a compounded drug is not eligible for a discount through the [Coverage Gap Discount Program] CGDP.  CMS has determined that because a compounded drug as a whole is not approved under a New Drug Application (NDA) or Biological Licensing Agreement (BLA), a compound does not meet the definition of an applicable drug under the CGDP.  Accordingly, [Medicare prescription drug plans] Plans will apply the "generic" gap cost-sharing to the Part D drug components of all Part D compounds." [emphasis added]
(source: MAXIMUS Federal Services, selected by the Centers for Medicare and Medicaid Services (CMS) as the national Independent Review Entity for external reviews of Medicare Part D appeals) (https://www.medicarepartdappeals.com/ content/ frequently-asked-question#Q23)
(no longer online as of 05/11/2021) see: C2C Innovative Solutions, Inc. (C2C), https://partdappeals.c2cinc.com/Prescribers/Frequently-Asked-Questions, https://partdappeals.c2cinc.com/Part-D-Enrollees-Representatives/Frequently-Asked-Questions)

For more information, please contact the Member Services department of your Medicare Part D prescription drug plan or call a Medicare representative at 1-800-633-4227.





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