Proposed Rules Would Affect Prescription Drug Plans

The Centers for Medicare and Medicaid Services has floated proposed regulations that would affect drug benefits for group plans and association plans and attempt to reduce drug expenses for health plan enrollees and drug plans.

While the rules seem to be focused on individual plans sold on government-run exchanges, three of the changes would also affect small and mid-sized group plans.

Mid-year formulary changes

Under current regulations, health insurers are barred from making changes to their drug formularies mid-year. They can only introduce changes upon renewal.

The CMS says it wants to boost incentives for drug plans to use generic drugs, so it is proposing a new rule that would allow insurers to:

  • Add a generic drug that becomes available mid-year.
  • Remove the equivalent brand-name drug from the formulary, or
  • Remove the equivalent brand-name drug to a different tier in the formulary.

Under the rules, insurers would have to notify their affected enrollees at least 60 days before the change would take effect. They must also offer a process for an enrollee to appeal the decision.

This rule would affect insurers in the individual, small group, and large group markets.

Excluding certain brand-name drugs

Under existing regulations, all prescription medications covered under an insurance contract are considered an essential health benefit, including the requirements that aim to ensure that the drug coverage is comprehensive. Under the Affordable Care Act, health plans are required to cover 10 essential benefits, and that includes the medications that are required to treat them.

The CMS wants to change this by letting insurers exclude a brand-name pharmaceutical from “essential health benefits”, or EHBs, if there is a generic equivalent that is available and medically suitable.

As with the current rule, the proposal would only apply to plans in the individual and small group markets. That’s because large group and self-insured plans are not required to cover all 10 categories of EHBs.

The proposal would also permit insurers to count only the cost of the generic equivalent (and not the cost of the brand-name drug) toward the enrollee’s out-of-pocket limit. Also, insurers would be permitted to apply an annual and/or lifetime dollar maximum to the brand-name drug, since the prohibition against annual and lifetime dollar limits only applies to EHBs.

Manufacturers’ coupon-handling

Currently, some insurers will count manufacturer coupons for brand-name drugs in addition to what the enrollee pays in calculating their out-of-pocket outlays for deductible purposes. They may do so depending on laws in the various states in which they operate.

For example, take the scenario of a drug that costs $600, and the manufacturer provides a $400 coupon that can be used to reduce the cost of the drug and the enrollee pays $200 out of pocket. Currently, insurers will count the full $600 towards the deductible and out-of-pocket maximum.

The CMS’s proposed rule would allow insurers to only include the actual out-of-pocket expense for the enrollee when calculating how much of an out-of-pocket maximum has been satisfied.

What comes next

The comment period for the proposed regulations ended on Feb. 19, 2019, and the final rules could be out before summer. We will keep you posted once the new regulations are out.

Pharmacy Benefit Managers: A Brake on Rising Prescription Costs or a Cause of Them?

In 2017, spending on prescription drugs grew 11%, faster than any other category of health care spending, according to the U.S. Centers for Medicare and Medicaid Services.

The report cited increased use of new medicines, price increases for existing ones, and more spending on generic drugs as the reasons for this growth. Increasingly, though, observers of the health care system point to one player – the pharmacy benefit manager.

PBMs are intermediaries, acting as go-betweens for insurance companies, self-insured employers, drug manufacturers and pharmacies. They can handle prescription claims administration for insurers and employers, facilitate mail-order drug delivery, market drugs to pharmacies, and manage formularies (lists of drugs for which health plans will reimburse patients.)

A PBM typically has contracts with both insurers and pharmacies. It charges health plans fees for administering their prescription drug claims, and also negotiates the amounts that plans pay for each of the drugs.

At the same time, it creates the formularies that spell out the prices pharmacies receive for each drug on the lists. Commonly, the price the plan pays for a drug is more than the pharmacy receives for it. The PBM collects the difference between the two prices.

It can do this because the health plan does not know what the PBM’s arrangement is with the pharmacy, and vice versa. Also, a health plan does not know the details of the PBM’s arrangements with its competitors.

A PBM could charge one plan $200 for a month’s supply of an antidepressant, charge another plan $190 for the same drug, and pay the pharmacy $160. None of the three parties knows what the other parties are paying or receiving.

In addition, drug manufacturers, who recognize the influence PBM’s have over the market, offer them rebates off the prices of their products.

Questionable transparency

In theory, the PBMs pass these rebates back to the health plans, who use them to moderate premium increases. However, because these arrangements are also confidential, the extent to which these savings are passed back to health plans is unknown. Many observers believe that PBMs are keeping all or most of the rebates.

To fund the rebates, drug manufacturers may increase their prices. The CEO of drug-maker Mylan testified before Congress in 2016 that more than half the $600 priceof an anti-allergy drug used in emergencies went to intermediaries.

The PBMs argue that they help hold down drug prices by promoting the use of generic drugs and by passing on the savings from rebates to health plans and consumers.

They reject the notion that they are somehow taking advantage of health plans and pharmacies, pointing out that they are “sophisticated buyers” of their services. They also argue that revealing the details of their contracts would harm their ability to compete and keep prices low.

Nevertheless, PBMs are now attracting scrutiny from Congress, health plans and employers. At least one major insurer has sued its PBM for allegedly failing to negotiate new pricing concessions in good faith.

In addition, businesses such as Amazon are considering getting into the PBM business. Walmart is already selling vials of insulin at relatively inexpensive prices.

PBMs earn billions of dollars in profits each year. With the increased attention those profits have brought, it is uncertain how long that will continue.