A new, independent analysis of the Montana state employee health plan’s transition to reference-based pricing – which limits hospital prices to a multiple of what Medicare pays – found significant savings for the state in the two years after its implementation. Further, there is no evidence that utilization artificially increased as a result of the new payment model, which could occur if hospitals needlessly push more services onto patients to offset lower reimbursement rates, and, to date, there have been no hospital closures in the state.
State spending on health care for employees, retirees and health plans for teachers, university and municipal employees continues to challenge state budgets and raises questions about how best to allocate resources. It is also known that prices in the United States exceed those in other developed nations and that there is significant variation in prices paid by payers. In this webinar, we will hear from state health policy officials who are working to standardize prices paid to hospitals to maintain access and keep spending in check. This webinar will provide descriptions of two state models, and provide an opportunity to discuss the challenges these initiatives face and how they may be overcome. Panelists will answer your questions during this lively and substantive exchange.
Facilitated by Trish Riley, NASHP Executive Director
Marilyn Bartlett, Special Projects Coordinator, Office of the Montana State Auditor, will provide an overview of Montana’s success in implementing reference-based pricing, the savings it has achieved, and discuss whether other purchasers might join the effort.
Dee Jones, Executive Director, State Health Plan, State of North Carolina, will describe developing plans in North Carolina to implement reference-based pricing and the move to direct contracting.
Supported by Kaiser Permanente
The Trump Administration’s effort to address drug prices surfaced unexpectedly in the Department of Health and Human Services (HHS)’s recently issued proposed annual rule that regulates state health insurance markets, including coverage sold through the Affordable Care Act (ACA) marketplaces. The proposal encourages the use of generic drugs over brand-name drugs by both health plans and enrollees in an effort to “bring down overall health plan costs and perhaps premium increases.”
State officials need to consider whether the proposed changes will result in cost shifting from health plan premiums, which are subsidized for many individuals through advance premium tax credits, to consumers’ unsubsidized, out-of-pocket cost responsibilities. If this cost shifting occurs, how would it affect overall individual and small group market affordability? Or, are there ways to implement the proposed changes to minimize cost shifting onto consumers and truly reduce overall health expenditures? Below are some key policy issues that state officials should consider when reviewing the proposed rule.
The proposal allows health plans to eliminate brand-name drugs from essential health benefit (EHB) coverage requirements if a generic equivalent is available.
Under the proposed rule, if a health plan covers both a brand-name prescription drug and its generic equivalent, the plan could specify that only the generic drug would qualify as EHB, and the brand-name drug would no longer be considered part of EHB coverage. If a plan takes this option, premium tax credits and advanced premium tax credits (APTC) could not be applied to any portion of the premium attributable to coverage of brand-name drugs that are not considered EHB. Issuers would have to calculate that portion of the plan’s premiums and report it to the appropriate health insurance exchange for accurate APTC calculation.
It is also important to remember that lifetime and annual out-of-pocket limits only apply to cost sharing for benefits classified as EHB. Therefore, HHS is seeking comments on whether any portion of enrollees’ out-of-pocket expenditures for brand-name drugs not considered EHB should be counted toward out-of-pocket limits. One HHS proposed strategy would apply the cost of the generic toward the individual’s out-of-pocket limit and the other would not apply any portion of the brand-name drug cost toward an individual’s cost-sharing limit. Issuers pursuing this option would need to establish an appeals process for enrollees to petition for EHB coverage of brand-name drugs.
HHS notes these proposals will provide “additional flexibility for health plans in individual and small group markets that must provide coverage of the EHB to consumers to use more cost-effective generic drugs.” State officials may consider the following questions:
- Would it be possible for a state to carve out brand-name drugs from EHB, and would this rule preempt state laws, particularly in states that have already adopted their own list of essential health benefits in response to ACA challenges?
- Can issuers currently calculate the portion of a qualified health plan’s premiums spent on brand-name drugs excluded from EHB? If not, what would it cost to perform that calculation?
- How would this change be explained to enrollees? Would enrollees receive an advance notice that certain brand-name drugs would not be covered, along with information explaining how to pursue an exception process? Would enrollees be informed at the point of sale? Would enrollees purchasing brand-name drugs receive a summary of benefits that show which costs are attributed to lifetime and annual limits?
The proposal allows health plans to limit prescription drug coupons.
In another effort to encourage generic drug use, HHS proposes that amounts paid toward cost sharing using any manufacturer coupons for a brand-name drugs that have a generic equivalent not be counted toward enrollees’ annual limits on cost sharing. According to HHS, “the proliferation of drug coupons supports higher cost brand drugs when generic drugs are available, which in turn supports higher drug prices and increased costs to all Americans.”
This proposal addresses a concern that coupons can distort the true cost of drugs by offering limited-time cost reductions for enrollees’ out-of-pocket expenses, and manufacturer coupons may inflate drug prices that insurers pay. Limiting the use of coupons for brand-name drugs may steer consumers toward less-costly generic medications with lower cost-sharing responsibilities. Additionally, HHS suggests that not counting coupon amounts toward the annual cost-sharing limit would “promote prudent prescribing and purchasing choices by physicians and patients based on the true costs of drugs [as well as] price competition in the pharmaceutical market.”
HHS seeks comments on whether states should be able to decide how coupons are treated. This proposal reflects state legislative action on coupons. In 2017, California banned the use of manufacturer coupons when a generic equivalent is available. Since the 2019 legislative session began, both New Jersey and New Hampshire have proposed similar measures. State officials may want to consider:
- How difficult would it be for insurers to carve out manufacturer assistance from their pharmacy benefit and the annual limitation on cost sharing (as well as exceptions)?
- Would it be difficult for issuers to differentiate between manufacturer coupons and other types of assistance?
- What consumer education would be required?
The proposal explores implementing reference pricing for prescription drugs.
HHS is also exploring the possibility of implementing reference-based pricing for prescription drugs. Reference-based pricing, as described in the proposed rule, would allow an issuer covering a group of similar drugs (perhaps a therapeutic class of drugs) to set the price that its health plans would pay for those drugs. Enrollees would be responsible for paying the difference between the cost of a drug and the reference price that the health plan sets if enrollees desire a drug that exceeds the reference price. HHS notes that while reference-based pricing could “bring down overall health plan costs, and perhaps premium increases,” it could also increase consumer out-of-pocket costs if an enrollee opts for a drug priced above the reference price. When submitting comments, state officials might consider:
- How would issuers determine the reference prices? Would there be a standard process for selecting reference prices? What role would the states or HHS play in that process?
- Would enrollees’ entire out-of-pocket spending on drugs that exceeds the reference prices go toward their annual cost-sharing limit?
Under the proposed rule, HHS seeks to encourage use of generics over brand-name drugs to decrease overall spending on pharmaceuticals and reduce health plan premium price increases. The proposed rule would likely benefit plans by reducing spending on brand-name drugs, which could in turn lower premiums if savings are passed to enrollees. However, in the short-term, consumers could face increased out-of-pocket spending for brand-name drugs. Are there ways to minimize cost shifting and pursue such proposals to reduce overall costs?
For more information, read this summary of all of the provisions in the federal proposed rule. HHS is accepting comments on the rule until Tuesday, Feb. 19, 2019.