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Differing Views on Essential Health Benefits Extend to Drug Coverage

P&T Journal...March 2013

Composition of Formularies a Major Point of Contention

     With state health exchanges set to open their doors on January 1, 2014, the qualified health plans (QHPs) who will offer health insurance to individuals and small businesses under Obamacare still don't know what standards their pharmacy formularies will have to meet. In a reprise of some of the battles over formularies within the Part D Medicare drug program, insurance companies, drug manufacturers, and PBMs are now in hand to hand combat with drug manufacturers and patient advocacy organizations over how the Department of Health and Human Services (HHS) should define the "pharmacy" benefit, one of 10 categories of "essential health benefits" (EHBs) each QHP will have to offer.

        Drug companies are concerned insurance companies and their pharmacy benefit managers (PBMs) will limit access to drugs (read brand name drugs), especially to vulnerable populations with drug higher costs, such as cancer and psychiatric patients. Insurance companies are worried that any requirements that pry open formularies will prevent them from offering premiums within Affordable Care Act (ACA) parameters. 

     The Obama Administration is trying to broker compromises on numerous issues percolating beneath that cost v. access divide. The proposed rule issued by the HHS last November describes the formulary structure QHBs are expected to use, and ranges over issues such as P&T committee oversight, use of USP classifications to determine breath and depth of coverage (i.e. number of drugs in each class) and use of tiers, when to add newly approved drugs to formularies, how each state should establish a "benchmark" formulary for QHPs in their state, where specialty pharmacy tiers can be used and the appeals process for patients who initial prescriptions are off-formulary, which gets into questions of prior authorization.

     While the pharmaceutical access requirements clearly apply to out-patient pharmacies, there is considerably confusion over how they apply to in-patient hospital formularies and Part B drugs administered in physician offices. "In the proposed rule, HHS is silent on what the EHB minimum standards are for hospital inpatient formularies or for physician-administered drugs," states an industry source. "Lack of standards on coverage of these treatments could lead to benefit designs that do not provide patients sufficient access to medically necessary care."

      The HHS will issue a final rule before the end of the year, hopefully, from the QHPs' standpoint, well before then. Companies such as UnitedHealth Group, Aetna and Humana are currently deciding how many states they want to offer health plans in. There will be separate markets for individual and small business plans. Insurance companies will decide which states to participate in based on the parameters the HHS sets in all 10 EHB categories, including pharmaceuticals. In January, UnitedHealth Group Inc. CEO Stephen Hemsley told analysts, "We will only participate in exchanges that we assess to be fair, commercially sustainable and provide a reasonable return on the capital they will require.”

      Interested parties have criticized the proposed rule as much for what it includes as for what it excludes. Aside from omissions having to do with tiering, there is no requirement that QHPs with formularies (and most will have formularies) have a P&T Committee, as is required under Part D. Drug manufacturers want every health plan with a formulary to have a P&T Committee, one that is independent. The Pharmaceutical Care Management Association (PCMA) answers, in effect, "fine;" but let the P&T Committee make the decisions on which drugs should be available in which classes, and on what tiers. 

     That is not the approach taken by the HHS in the proposed rule it published last November. Its core requirement is that plans subject to the EHB standard provide prescription drug coverage that is at least the greater of the following: (1) one drug in every United States Pharmacopeia (USP) category and class; or (2) the same number of prescription drugs in each category and class as the EHB-benchmark plan. That is an expansion of the standard the HHS preliminarily endorsed in December 2011 in its EHB Bulletin. That would have required health plans to cover at least one drug in each category and class in which the EHB-benchmark plan covered at least one drug. The Bulletin did not include a reference to the USP Classification System. The specific drugs on each plan's drug list could vary under this approach, as long as a drug in each category and class was covered. 

    That "one drug per class" requirement provoked considerable consternation among many interested parties. Somewhere around 11,000 comments flooded the HHS. The "benchmark plan" alternative was then added when the November 26 proposed rule was published. By comparison, the Medicare Part D program requires plans to provide a minimum of two drugs per class.

     Under Obamacare, each state chooses a benchmark health plan from among four possibilities operating in that state. These are (1) The largest plan by enrollment in any of the three largest small group insurance products in the state's small group market; (2) any of the largest three state employee health benefit plans by enrollment; (3) any of the largest three national Federal Employees Health Benefits Program (FEHBP) plan options by enrollment that are open to Federal employees; or (4) the largest insured commercial non-Medicaid Health Maintenance Organization (HMO) operating in the state. 

     The addition of the "benchmark" formulary option did not satisfy too many people. Opposing sides want numerous, additional modifications. For example, drug manufacturers are unhappy the HHS has said that formularies operating in 2014 and 2015 would only have to carry drugs that were on the formulary of the state benchmark plan when that plan was originally selected by the state. Some states chose benchmark plans in 2011 and 2012. "That would allow plans to exclude coverage for life-saving medical innovations and result in coverage that lags far behind standards of care and typical coverage in the commercial marketplace," says Richard Smith, Executive Vice President, Policy & Research, PhRMA. He also argues that the USP drug classification system was developed for the senior population serviced by Part D. It should not be used to guide EHB formularies. The American Hospital Formulary System would be a better classification yardstick. "The combined effects of multiple policy choices in the proposed rule risks creating powerful incentives to narrow coverage of prescription drugs and limit patients' access to innovative therapies as compared to today's typical coverage," Smith argues.

      Daniel Durham, Executive Vice President, Policy and Regulatory Affairs, America's Health Insurance Plans (AHIP), the insurance industry lobby, wants the HHS to ditch the USP option entirely, and the larger option for formularies to provide one drug per class. "Instead, HHS should require plans to cover the same categories and classes covered under the EHB benchmark plan in a state," he states.

    Greg Low, RPh, PhD,  thinks that is a bad idea. Program Director, MGPO Pharmacy Quality & Utilization Program, Performance Analysis & Improvement, Massachusetts General Hospital, he is largely a disinterested observer, but a highly informed one. He serves on two P&T Committees, one that directs ambulatory coverage for the employees of all Partners Healthcare hospitals in Massachusetts who are covered by its self-insured insurance program, the other that determines the inpatient drug formulary at Massachusetts General Hospital. "The proposed approach would incent manufacturers to discount to the benchmark plan via generous rebates, but to inflate costs for other plans," he states. "Unless the benchmark plan captured a majority of the population, the net effect would be an increase in overall healthcare costs without a corresponding benefit in quality of care or outcomes."

     While he can only speak for the formularies he works on, Low explains that most drug plans cover more than one drug per class, whether that is USP class or some other class. There can be rare exceptions. Take weight loss drugs. PhRMA in its comments to the HHS pointed out that some states, which chose benchmark plans prior to the HHS publishing its proposed rule, some plans did not offer drugs for obesity. There are very few of those drugs on the market. Two that are available, Qsymia and Belviq, have been placed on Low's formularies, but at Tier 3, the highest co-pay level. "That is because they have substantial risk profiles," Low states.

     That said, Low explains that there is no reason why in many classes insurers can't offer several drugs, including entrants in Tier 1, the lowest co-pay category. His formularies offer 13 Tier 1 ace inhibitors, for example. Tier 2 includes Ramipril, a more expensive generic with no clinical advantage. Tier 3 includes brand-name Zestril. "But there is no reason a formulary couldn't offer only six drugs in Tier 1 for ace inhibitors," he offers. "But four is as low as you would want to go since we have two options that are combination products, including hydrochlorothorizide (HCTZ).

     However, drug companies and some patient advocacy groups want the HHS to import into the EHB pharmaceutical standard the requirement in the Part D program: that formularies offer "all or substantially all" of the drugs in six "protected classes:" Antidepressants, Antipsychotics, Anticonvulsants, Immunosuppressants, Antiretrovirals, and Antineoplastics.  Drug companies, physicians and patient groups say failure to do so particularly disadvantages cancer and psychiatric patients. Derek L. Asay, Senior Director, Government Strategy, Federal Accounts and Quality, Eli Lilly and Company, says, "Incorporating the same policy within the EHB benefits standards can help ensure that these benefits are implemented in a way that does not discriminate against certain patient populations, as is also required by the Affordable Care Act." 

      The PBMs and insurance companies say including that language will launch premiums into the stratosphere. Kristin A. Bass, Senior Vice President, Policy and Federal Government Affairs, argues, "The Medicare protected classes effectively eliminate the ability of health plans and their PBMs to negotiate rebates for drugs in those classes, thereby causing drugs in those six classes to be considerably more expensive than they would be if competitive forces were allowed to come into play."

     Low does not support the "all or substantially all" formulary requirement though he acknowledges the need for health plans to offer at least a couple of choices in the lowest co-pay tiers for atypical antipsychotics and anticonvulsants. His formularies offer six antipsychotics on Tier 1; they are all generics and a mix of typical and atypical antipsychotics. Tier 2 offers Abilify. That brand name is on Tier 2 because it is labeled for patients with apathy, giving it a unique clinical profile. Tier 3 includes only brand names, some of which have generic competitors on Tier 1.
      But even in antipsychotics or anticonvulsives, Low does not support some hard and fast requirement that formularies cover X number of drugs. "I think P&T committees will get there on their own," he states. 

      Though the HHS proposed rule does get into the number of classes on a formulary, and the number of drugs in each class, it does not discuss tiering, which enables P&T committees to manage pharmaceutical costs. The Obama Administration hopes to keep premiums within the reach of buyers. So, for example, all plans sold or renewed in 2014, must limit the out-of-pocket exposure of consumers to approximately $6,000 for individual and $12,000 for families. The deductible for plans in the small group market will be limited to $2,000 for individuals and $4,000 for families in 2014, also indexed to average premium growth in future years. 

     Also, all plans must design their cost-sharing (deductibles, co-pays, coinsurance) to fit into specific levels of coverage.  The levels of coverage are defined as follows:
  • Bronze Level – The plan must cover 60% of expected costs for the average individual
  • Silver Level – The plan must cover 70% of expected costs for the average individual
  • Gold Level – The plan must cover 80% of expected costs for the average individual
  • Platinum Level – The plan must cover 90% of expected costs for the average individual

       The four levels are suppose to guarantee that any individual without health insurance come 2014 will be able to afford it, since he or she, or their family, will have to pay a penalty, which will be small compared to the cost of the insurance if they do not obtain coverage. The point of this requirement, beyond keeping people out of the emergency room and preventing "cross subsidization," is to make sure that these newly covered have access to equivalent policies, in terms of breadth and depth, as those offered by employers to employees. 

      In addition to requirements in each of the 10 EHB categories, there are two broad "anti-discrimination" standards imposed by Obamacare which will also determine access in each category, including pharmaceuticals. One standard prohibits discrimination based on an individual's age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions. The other dictates that benefits not be "unduly weighted." But the HHS proposed rule does not apply either to the prescription drug category except for a glancing reference that "We will use information on complaints and appeals and data on drug lists to refine our prescription drug benefit review policy for future years."

     That is not good enough for Derek Asay, Senior Director, Government Strategy, Federal Accounts and Quality, Eli Lilly. He states, "Stronger standards are needed in the proposed regulation‘s sections on anti-discrimination and prohibitions on discrimination, together with more guidance for state and/or federal level enforcement of such standards."

     The anti-discrimination standards also come into plan with regard to specialty drugs, again traditionally associated with cancer, AIDs and psychiatric patients. They generally require higher cost sharing, and raise, according to the PhRMA, particular discrimination issues. Although the proposed rule does not directly discuss specialty tiers, the actuarial value (AV) calculator that plans will use to determine coverage limits in each of the four color-coded option appears to allow plans to include a specialty tier. Specialty tiers are discriminatory because they lead to benefit designs that aggressively differentiate out-of-pocket costs based on the need for more costly services. That would  violate the EHB's anti-discrimination dictate  that benefits not be "unduly weighted." PhRMA's Smith explains, "Patients with higher cost hospitalizations are not charged a dramatically higher specialty tier coinsurance percentage than patients needing less expensive hospital care."

     Another hot button with regard to application of anti-discrimination standards is utilization reviews. The PhRMA wants the HHS to adopt the full panoply of utilization review prohibitions that are part of the Medicare Part D plan. There Medicare checks plan formularies for tier placement, to assure high-cost beneficiaries are not being discriminated against, whether there is appropriate access in major treatment classes, and broad range of drugs disproportionately used by vulnerable beneficiaries. The PhRMA's Smith wants the HHS to explore the possibility of designing an automated formulary review which would guarantee unbiased utilization reviews. 

     But the PCMA's Bass believes there are some drug management and utilization controls that could be adversely affected by an overly restrictive reading of a EHB anti-discrimination requirement. For example, certain skin medications are typically subject to age-related utilization controls to assure that their use is for medicinal (e.g., acne treatment) rather than cosmetic purposes (e.g., wrinkle reduction or firming up of sagging skin). Vaccines are another type of medication where age is an important determinant for when a patient should receive an initial dose or so-called booster doses. These age-related controls assure appropriate clinical use of certain medications and utilization edits of this nature should not be prohibited under the antidiscrimination ban stated in this provision of the rule. Another category of drugs where utilization management could be impeded, or even prohibited, is the so-called “lifestyle” drugs (e.g., drugs for treatment of erectile dysfunction). Most health plans, both governmental and commercial, impose limitations on access to these drugs, typically in the form of quantity limits. To the extent that use of such drugs is higher among older enrollees, claims of age discrimination could be made in this regard. 

     The question of utilization reviews and lifestyle drugs brings up a second related issue: what flexibility will patients have to request and get off-formulary drugs, and to appeal negative decisions? The proposed rule added the protection that an enrollee can request clinically appropriate drugs. But Lilly's Asay is concerned the EHB standards do not include sufficient safeguards to ensure that this and a number of the ACA‘s important patient protections will be enforced. The ACA and its implementing regulations already provide internal appeals and external review rights when a plan denies a covered benefit, including when a plan denies a formulary exception. But Asay thinks the HHS needs to establish more specific appeal rights for EHB pharmacy benefits, which should include shorter timelines for appeals determinations. Moreover, there seems to be some wiggle room between the proposed rule's application to clinically appropriate drugs and medically necessary drugs." Patients need a meaningful exceptions process that allows access to medically necessary drugs that goes beyond the standard in the proposed rule of merely assuring patients of their right to ―request a drug that is not on the formulary," emphasizes Asay.

     The differences between the drug manufacturers and insurance companies on access v. cost bring to mind, in terms of their seeming conflict, the difference between congressional Republicans and the President on taxes v. spending. But in the case of essential benefits, the Obama administration is the final arbiter, not one of the pleaders. That is probably a relief of sorts for the administration, but maybe not much of one. Instead of being in a foxhole exchanging political fire with Republicans, the White House is caught in the crossfire between insurers on one side and drug manufacturers on the other.