Employer Health Plans Fear State PBM Crackdown Preemption Threat and other notes from around the interweb:

• Employer Health Plans Fear State PBM Crackdown Preemption Threat. Employers looking ahead to a continued push by state and local governments to regulate pharmacy benefit managers more tightly in 2024 are set to back stricter federal law preemption of these measures. PBMs, which manage prescription drug plans of behalf of health insurers, have been criticized over lack of transparency and inflated costs to health plans, but the federal government has not yet enacted legislation to rein in these middlemen. Groups representing companies with self-insured health plans say the states’ attempts to fill the void on PBM legislation threaten preemption protections under the federal Employee Retirement Income Security Act. What’s more, maintaining a nationally uniform regulatory system under ERISA, which turns 50 in 2024, is necessary to avoid a problematic patchwork of state laws, the employer groups say.

• 3 thing to know about specialty pharmacy in 2024. Specialty drugs may be covered by a medical benefit (what patient-members likely think of as “their insurance”) or pharmacy benefits. There’s often a gray area for where specialty falls, but it can relate to whether the drug is being administered in a clinical setting, like a doctor’s office, outpatient clinic, or infusion center. Reimbursement for these drugs can also vary between average wholesale price (AWP) for pharmacy reimbursement and average sales price (ASP) for the medical benefit. It’s complex to compare, and both ASP and AWP are used in the health care industry, but they’re different. ASP is a government-regulated tool that uses manufacturer sales information including discounts, such as rebates. AWP is the average price that wholesalers sell drugs to pharmacies, prescribers, and others. A government report found the median percentage difference between ASP and AWP to be 49%.

• Plan Sponsors Have a Fiduciary Duty to Employees that Includes Scrutiny of PBM-Owned Rebate Aggregators. Drug manufacturer rebates can be a valuable tool for controlling the rising costs of prescription drugs. Most manufacturers offer a rebate program through which they agree to return a part of the drug’s list price to plans in exchange for access to the plans’ drug “formulary”. Rebates are intended to flow through to the plan sponsors and benefit patients, reducing their overall drug spend. The rebate process has been hijacked by PBMs and their sister-aggregators. PBMs utilize rebate aggregators to negotiate drug manufacturer rebates on behalf of the plans they administer. In 2022, just three PBMs along with their rebate aggregators, controlled 79 percent of the market. Some of the largest rebate aggregators include Zinc (owned by CVS Caremark), Ascent (owned by Express Scripts), and Emisar (owned by United Healthcare).

• Why such ‘high markups’? Senators seek drug price probe of insurers who own PBMs. The senators urged Inspector General Christi Grimm to determine if large insurance companies are using their vertically integrated pharmacies to evade federal requirements that limit the percentage of premium dollars spent on profits and administration, known as the Medical Loss Ratio, or MLR. The letter follows an investigation by the Wall Street Journal revealing significant markups of generic drugs at specialty pharmacies owned by CVS Aetna (which operates the Caremark PBM), Cigna (which owns Express Scripts) and UnitedHealthcare, which owns a PBM and specialty pharmacy. The Journal’s analysis found that the three companies charged up to twenty-seven times more than a generic reference pharmacy for a selection of nineteen drugs. For example, a monthly supply of the generic version of Tarcera, a lung cancer drug, costs $73 at the generic reference pharmacy, compared to $4,409 through Cigna.

In an era where healthcare expenditures are skyrocketing, particularly due to the soaring prices of specialty medications, stakeholders across the spectrum are grappling with financial strategies to manage these burgeoning costs. This blog delves into the complexities surrounding the economics of healthcare, emphasizing the pivotal role of innovative insurance solutions in this ever-evolving landscape. Navigating the waters of stop-loss insurance requires a keen cost-management process and knowledgeable staff.

The healthcare industry is witnessing an unprecedented rise in the cost of specialty medications. These drugs, essential in combating various chronic and life-threatening conditions, demand extensive research and development, often targeting smaller patient populations. This necessity for intensive investment has led to these medications now representing a sizable portion of healthcare spending.

The Dilemma for Employers: Cost Containment Strategies

Employers, particularly those managing self-funded healthcare plans, face the daunting task of balancing quality healthcare provision with financial sustainability. Initiatives like patient assistance programs offer some respite, but the reliance on traditional stop-loss insurance reveals inherent shortcomings. This insurance, designed to mitigate large claim impacts, often falls short in offering long-term, comprehensive protection, particularly in managing the costs of specialty medications.

A critical aspect often overlooked in stop-loss insurance is ‘lasering’ – a practice where insurers exclude high-cost claims or claimants from coverage. This practice, while not directly affecting members due to continued benefits, leaves employers financially exposed. The implications are profound, especially when considering catastrophic drug claims that can escalate employer liabilities exponentially.

Imagine a company, XYZ Corp, operates a self-funded health plan for its employees. In a given year, an employee’s child is diagnosed with a rare illness requiring an expensive treatment costing $500,000. XYZ’s stop-loss insurance has a specific deductible of $200,000 per claimant, meaning the insurer will cover costs above this threshold.

However, mid-year, the insurer applies lasering to this claimant, increasing the specific deductible to $400,000 for the next policy year due to the high cost. Now, if the child’s treatment continues to be expensive, XYZ will be responsible for costs up to $400,000.

This is where supplemental stop-loss insurance comes in. It can provide coverage for the gap between the original specific deductible and the increased amount due to lasering. For example, it might cover costs between $200,000 and $400,000, protecting XYZ from bearing the full financial burden of this unexpected increase in healthcare costs.

Conclusion: Charting a Course through Complex Healthcare Financial Waters

As the healthcare industry continues to evolve, understanding and navigating the intricacies of healthcare economics becomes crucial. The rise in specialty medication costs and the challenges of traditional stop-loss insurance underscore the need for comprehensive, forward-thinking solutions. Supplemental stop-loss insurance stands out as a key strategy in this context, offering a safety net for employers and ensuring the sustainability of healthcare provisions.

CMS letter to pharmacy benefit management companies and other notes from around the interweb:

• CMS letter to pharmacy benefit management companies. The Centers for Medicare & Medicaid Services (CMS) values your partnership in providing health care coverage and access to essential treatments, including prescription medications, to millions of people. However, we are hearing an increasing number of concerns about certain practices by some plans and pharmacy benefit managers (PBMs) that threaten the sustainability of many pharmacies, impede access to care, and put increased burden on health care providers. We are writing to share these concerns and to encourage you to work with providers and pharmacies to alleviate these issues and safeguard access to care.

• NC wanted to share information on drug pricing. Here’s how it got shot down. For a brief few weeks, N.C. State Health Plan members had a rare window into the secretive world of drug pricing. Days before the health plan trustees met to discuss whether the plan could afford to continue covering obesity medications manufactured by pharmaceutical giant Novo Nordisk, staff posted online pages of pricing information they had prepared based on an analysis of expenditures. Notably, the documents estimated the discount, or “rebate,” Novo Nordisk had agreed to give NCSHP for these drugs — a piece of information that is considered a trade secret in the pharmaceutical industry.

• Plan Sponsors Have a Fiduciary Duty to Employees that Includes Scrutiny of PBM-Owned Rebate Aggregators. Drug manufacturer rebates can be a valuable tool for controlling the rising costs of prescription drugs. Most manufacturers offer a rebate program through which they agree to return a part of the drug’s list price to plans in exchange for access to the plans’ drug “formulary”. Rebates are intended to flow through to the plan sponsors and benefit patients, reducing their overall drug spend. The rebate process has been hijacked by PBMs and their sister-aggregators. PBMs utilize rebate aggregators to negotiate drug manufacturer rebates on behalf of the plans they administer. In 2022, just three PBMs along with their rebate aggregators, controlled 79 percent of the market. Some of the largest rebate aggregators include Zinc (owned by CVS Caremark), Ascent (owned by Express Scripts), and Emisar (owned by United Healthcare).

• Why such ‘high markups’? Senators seek drug price probe of insurers who own PBMs. The senators urged Inspector General Christi Grimm to determine if large insurance companies are using their vertically integrated pharmacies to evade federal requirements that limit the percentage of premium dollars spent on profits and administration, known as the Medical Loss Ratio, or MLR. The letter follows an investigation by the Wall Street Journal revealing significant markups of generic drugs at specialty pharmacies owned by CVS Aetna (which operates the Caremark PBM), Cigna (which owns Express Scripts) and UnitedHealthcare, which owns a PBM and specialty pharmacy. The Journal’s analysis found that the three companies charged up to twenty-seven times more than a generic reference pharmacy for a selection of nineteen drugs. For example, a monthly supply of the generic version of Tarcera, a lung cancer drug, costs $73 at the generic reference pharmacy, compared to $4,409 through Cigna.

Warrants in outcomes rebates are a financial mechanism used by pharmaceutical manufacturers in their contracts with payers, such as PBMs, insurance companies or government healthcare programs. These warrants are essentially a form of guarantee or insurance that the pharmaceutical companies provide regarding the performance or effectiveness of their drugs. Here’s how outcomes-based rebates in pharmaceuticals work and why they are used:

1. What are Warrants in Outcomes Rebates?
   • Warrants in outcomes rebates are contractual agreements between a pharmaceutical manufacturer and a payer (i.e. PBM, health plan). In these agreements, the manufacturer promises a rebate or financial return if the drug does not meet specified outcomes or performance metrics.
   • These outcomes or metrics are typically related to the drug’s effectiveness in treating a condition, the improvement in patient health, or achieving certain health benchmarks.

2. How Do They Work?
   • When a pharmaceutical company sells a drug, it can include a warrant in the contract that promises a rebate if the drug does not achieve the agreed-upon outcomes.
   • The specific outcomes are predefined and could be based on clinical trial data, real-world evidence, or agreed-upon health metrics.
   • If the drug fails to meet these benchmarks, the pharmaceutical company provides a rebate to the payer. This rebate could be a partial or full refund of the drug’s cost.

3. Why Do Pharmaceutical Manufacturers Rely on Them?
   • Risk Sharing: Warrants in outcomes rebates allow pharmaceutical companies to share the risk of drug performance with payers. This can be particularly important for expensive drugs or those with variable outcomes.
   • Market Access: By offering these warrants, manufacturers can make their products more attractive to payers, potentially increasing market access and acceptance.
   • Building Trust: These agreements can build trust with payers and prescribers by showing confidence in the drug’s effectiveness.
   • Support for Premium Pricing: For drugs that are highly effective but expensive, warrants can justify the high cost by tying the price to actual performance.
   • Encouraging Innovation: They can encourage innovation by aligning the financial incentives of the manufacturer with the actual health outcomes of patients.

To manage the risk associated with outcomes-based rebates in pharmaceuticals, pharmaceutical companies may purchase insurance policies. These policies can cover the potential financial losses that arise if the drug fails to meet the agreed-upon outcomes and a rebate is due. The insurance essentially transfers a portion of the financial risk from the pharmaceutical company to the insurance provider.

Overall, warrants in outcomes rebates represent a move towards value-based pricing in the pharmaceutical industry, where the focus is on paying for the actual value or benefit provided by a drug, rather than just the drug itself. This approach can lead to more sustainable healthcare spending and better alignment of incentives among manufacturers, payers, and patients.