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Qualified Insurance Plans on Health Exchanges May Reduce Drug Availability

P&T Journal
November 2013 - for a PDF copy of the published version go HERE.

Hospital Pharmacies Could Face New Pressures

Hospital pharmacy directors around the country are trying to figure out how their formularies match up with the formularies that will be used by the qualified health plans (QHPs) selling Obamacare policies in their state. "Hospital pharmacy formularies and QHP formularies will probably never be aligned as they have differing financial agendas, costs, etc., due to purchasing differences," says one West Coast pharmacy director who declines to be named given the political sensitivity of the issue. "If the hospital and the plan are aligned it would be best for patient care as there would be no changes between ambulatory care and hospital care and medication reconciliation. But that will probably not happen unless all incentives are aligned or one entity has control of the entire process/longitudinal care."

Of course, differences between commercial plan formularies today and hospital formularies are widespread. But the arrival of QHPs presents a whole new dynamic for hospital pharmacists. That is because QHP formularies must meet minimum federal drug access standards, which commercial, and even Part D, formularies do not. In addition, the QHPs are under intense pressure to reduce premiums, co-pays and co-insurance--again, a challenge of a different order than that faced by employer health plans, for example. Restricting drug access, whether through utilization reviews or off-formulary restrictions--may be the sharpest knife in the QHP apron.
But QHP formulary construction is only one of the issues that will be sorted out as the state health insurance exchanges open for business on January 1, 2014. The exchanges were conceived as a way to make health insurance affordable for about 40 million Americans who are without it. They are divided into two groups. The first is the quasi-poor, who earn too much to qualify for Medicaid currently, but would enter Medicaid as a result of what has come to be called Obamacare. The second is the better-off, self-employed and those working for smaller companies, neither of whom currently has health insurance.

The second group will buy their health insurance from the QHPs--the designation under Obamacare--in their state. The roster of QHPs will differ from state to state. All of them will have to provide benefits consistent with the federally-designated essential health benefit (EHB) standard, which is broken down into 10 categories.

One of those categories is pharmaceuticals. It is the only one of the 10 where the Department of Health and Human Services (HHS) established a minimum requirement. The EHB rule on pharmaceuticals says the QHBs in a given state must 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 designated by the state. In most instances, the states chose a small group plan as a benchmark. In California, for example, that is the Kaiser small group plan. 

So for purposes of complying with the EHB pharmaceutical category requirement, every QHP in California must, at a minimum, have a formulary which has the same number of drug categories and classes as the Kaiser small group plan formulary. And the QHP must have the same number of drugs in each class as Kaiser, although they can be different drugs, as well as different formulations.  Or the QHP has to follow the USP option. In fact, almost all, if not every, QHPs will echo the benchmark formulary, a likely scenario given that the trade group for health plans--called America's Health Insurance Plans (AHIP)--tried to convince the HHS to delete the USP option. AHIP was unsuccessful. 

QHPs can have more drugs in a class than their state benchmark plan. The variability of benchmark formularies across the country is pretty striking. Avalere Health, a Washington, D.C. consulting firm, looked at the 50 states and assessed the number of total drugs each state's benchmark plan offered on its formulary. Some formularies were "open" and included 98 percent of the drugs sold today. Others like California were closer to 50 percent. 

Avalere came up with its percentages by looking at all 50 benchmark formularies, and taking the highest number of drugs, regardless of the state, in each category and class. This denominator was 1032. Then it looked, for example, at the Kaiser small group formulary in California and totaled up the drugs it offers in its categories and classes. That number is 644. Colorado is the low state on that totem pole, with 565, and Connecticut is at the top, with 1023.

Most QHPs will not supplement the benchmark because limiting drug access will be one of the few levers plans have to control plan costs. "Plans have significant flexibility on formularies," says Caroline Pearson, Vice President at Avalere. "That is something we will have to watch." The QHPs will use that formulary flexibility when setting drug deductibles, tiers and the exact drugs they will cover. Most commercial plans today charge dollar co-pays in higher drug tiers. However, based on some initial submissions from some states, QHPs could charge co-pays in the 30 percent to 50 percent range for their tier 4 drugs, especially in "bronze" plans. "That is just not done today," notes Pearson.

Conventional wisdom says formulary restrictions will have their biggest impact on out-patient access at retail pharmacies, and be of only limited concern to in-patient pharmacies, since drug costs for in-patients are bundled into the diagnosis related groups (DRGs). Moreover, the final EHB rule from the HHS said not a word about whether drugs on an in-patient pharmacy could count toward the QHPs "counts" in each category and class.

The Centers for Medicare and Medicaid Services (CMS) did attempt to clarify that question  after the final rule came out. "The CMS did say it would allow medical benefit drugs to count toward minimum requirements on pharmacy, but I don't think they realized the full implications," says a drug company policy expert. "There could be some gaming. Allowing medical benefit drugs to count toward the minimum requirements for pharmacy benefit drugs is like comparing apples to oranges."

Here is how that might work. Take the case of QHP A operating in a state with a benchmark formulary requiring 10 drugs for a chemotherapy "class." One class can cover multiple conditions. Further assume that the typical benchmark formulary today includes 10 oral drugs, perhaps the most recently-approved ones. If a hospital in that QHP's network instead uses five IV chemotherapy agents for that particular class, those five would count toward the 10 on the QHP formulary, and knock off the QHP formulary five of those other orals, some of which might be the only oral agent available for that condition. 

The second potential impact affects a hospital serving numerous QHPs. What if each of those QHPs uses a slightly different formulary? Would the hospital in-patient formulary be compelled to carry all the drugs on all the formularies of the, for example, 12 QHPs currently operating in California. 

Greg Low, RPh, PhD, Program Director, MGPO Pharmacy Quality & Utilization Program Performance Analysis & Improvement, Massachusetts General Hospital in Boston, thinks there may be a potential impact on MGH from that scenario, but he believes it will be very small. "The inpatient P&T does consider how frequently its formulary is causing switches and non-formulary requests," he explains. "The hospital does make some effort to align with ambulatory insurer’s formularies, but this is a tertiary concern to safety, efficacy, and economics."

Low illustrates a common situation. "For example, Nasonex (mometasone) is a formulary product for many of our local payers, but is not on the hospital formulary," he states. "A patient who uses Nasonex who is admitted will either use MGH’s formulary nasal steroid (fluticasone), go through MGH’s non-formulary process, or if the drug is unnecessary during the admission it would simply be restarted at discharge."

Ah, but for both in-patient and out-patient pharmacies, there is the rub: non-formulary process. The EHB final rule is unclear as to when QHPs have to pay for a non-formulary product. Drug companies wanted the HHS to lay out specific requirements such as more specific appeal rights for EHB pharmacy benefits, which should include shorter timelines for appeals determinations. The HHS did not include any additional safeguards in the final rule, or alter its proposed rule language in the slightest on that score. Instead, it said "additional guidance regarding our expectations for the required exceptions process is forthcoming in sub-regulatory guidance." It added that its research shows that a large number of plans already offer this option (i.e. access to non-formulary drugs) in the market today. "It is expected that plans that currently have such a process in place will not be expected to modify their existing process."

Besides HHS requirements for formulary coverage within the "pharmaceuticals" category under the EHBs rule, insurance plans will also have to meet anti-discriminatory standards which apply to all 10 categories, but have unique relevance when applied to pharmaceutical access. The big issue here has been whether plans can use utilization management techniques to tamp down unnecessary or overly-expensive drug costs. 

The final rule simply states the Affordable Care Act's prohibition against discrimination in formulary design and drug access but goes on to approve the use of "reasonable medical management techniques." It explicitly endorses the use of prior authorization, but a plan could not implement prior authorization in a manner that discriminates on the basis of membership in a particular group based on factors such as age, disability, or expected length of life that are not based on nationally recognized, clinically appropriate standards of medical practice evidence or not medically indicated and evidence-based. The final rule states: "For example, a reasonable medical management technique would be to require preauthorization for coverage of the zoster (shingles) vaccine in persons under 60 years of age, consistent with the recommendation of the Advisory Committee on Immunization Practices."

It is clear that QHPs will be relying on medical management and utilization reviews to keep patient drug costs under control. Molina Healthcare, Inc. will be offering a QHP in nine states. Like many of the other QHPs operating across the country, Molina has had a low profile. Companies such as United Healthcare, Cigna, Aetna and the other "big boys" have been missing from almost all states. Molina, started in California as a clinic in 1980, has had a thriving Medicaid managed care business in nine states. It is using those platforms to establish QHPs serving primarily lower income but not poor individuals looking for individual or family insurance on an exchange. In California, Molina will be offering exchange policies in Los Angeles, San Diego, and San Bernadino/Riverside areas where its Medicaid business is currently located, for the most part.

California has established different requirements for the QHP drug benefit than most other states. In the Golden State, all  QHPs must offer the same benefit structure with regard to co-pays and deductibles in each of the four health insurance categories. The least expensive, and therefore least expansive, is the bronze plan. Moving up the ladder is silver, gold and then platinum. So, for example, all QHPs in California must assess a 30 percent co-pay for tier 4 drugs in a bronze plan. For a bronze HSA, the co-pay is 40 percent. In a platinum plan that slides down to 10 percent. That is different in other states where QHPs have flexibility on co-pays as long as they meet an "actuarial value" for that level plan. In the case of bronze, that means the insured--on average--must pay 40 percent of the costs of coverage.

In California, because the pharmacy benefit structure is prescribed by the state, the QHPs try to keep premiums low by keeping costs low. Hashim says the key will be keeping administrative costs low, getting discounts from hospitals for medical charges and then "doing a great job in medical management," which will include prior authorization for off-formulary drugs which physicians may prescribe for patients. 

Besides carefully watching drug utilization and probably restricting off-formulary drug access, QHPs have also been careful in establishing hospital networks. "Where you can get the most competitive hospital contract is a big driver on how you can price your product," explains Hashim. "We have a Medicaid plan in the Sacramento area, but we couldn't get good rates from the providers up there so we aren't offering a QHP there." New Mexico is the only one of the nine states Molina is operating in which requires a QHP to serve the entire state.   
Molina, for example, is including about 80-90 percent of the physicians in its Medicaid networks in its QHP networks and 65-75 percent of its physician specialists. But only 40-50 of its Medicaid hospitals have been included in its QHP networks. Molina is not alone, not in California nor in any state, in picking and choosing the hospitals it wants in its networks. In some states, where there is a dominant hospital provider, the hospital has all the leverage, and can force Molina or any other QHP to pay commercial rates, somewhere around twice Medicare rates. That might be the case in eastern Wisconsin, for example, where Aurora Health Care has 15 hospitals and sits astride the health care delivery system like a colossus. In Los Angeles, where there might be much more hospital competition, Molina might get away with paying a hospital five percent above Medicare. 

Whether Molina or any other QHP in Wisconsin or any of the other 49 states survives is dependent not only on getting reasonable hospital rates but also getting a steady flow of new, profitable patients sent their way via Obamacare. The president and the Democrats in Congress who wrote the ACA, felt that if they "built it"--to parrot a famous line from the movie Field of Dreams--"they will come." But it isn't clear new patients are going to stream in the doors of QHPs starting January 1, 2014. The standoffishness of the major health insurance companies would seem to indicate some healthy skepticism about the profitability of the exchanges. United Healthcare, Aetna, Cigna and other majors have been standoffish. The health plans chosen for the state run plans such as Covered California and New York Health Benefit Exchange are a mishmash of companies, and the list rarely includes the "big guys." The California list of QHPs includes Blue Shield of California, Anthem Blue Cross and Kaiser Permanente. But the remainder of the list is filled in with what appear to be local and regional plans such as the Chinese Community Health Plan, Contra Costa Health Plan, Molina and Valley Health Plan, to name a few of the "no name" entrants. New York's players have a similar cast. Empire Blue Cross and Empire Blue Shield are the only known entities among that state's 12 QHPs.

Early indications are that there will be fewer uninsured signing up on exchanges than originally expected, at least at the start. During a webcast on September 16 hosted by the three major hospital trade groups, Dr. Mandy Cohen, senior adviser to the CMS administrator, told the participating hospital officials that HHS continues to focus its outreach efforts on the “younger cohort”—the 17.8 million uninsured individuals between the ages of 18 and 35—of whom more than 90 percent will be eligible for some sort of financial benefit for health insurance. Meanwhile, Cohen said, HHS continues to concentrate on eight states where more than 50 percent of the nation's uninsured individuals reside: California, Florida, Georgia, Illinois, New York, North Carolina, Ohio and Texas.
Hospitals are supposed to help with the education and sign up of prospective health exchange entrants. But a report published on September 18, 2013 by PwC's Health Research Institute (HRI) concludes that while the new customer base could provide a much-needed financial boost, few hospitals have developed comprehensive strategies to identify, educate and help enroll people in health plans sold through the new exchanges.

HRI  interviewed executives from major health systems that collectively represent more than 150 hospitals across 25 states, as well as national hospital associations and patient advocacy groups to understand their plans, progress and concerns related to participation in the 51 new state exchanges. Many providers have been slow to promote the expanded coverage options, HRI discovered. Health systems attribute delays in their enrollment efforts to multiple factors, including: "reform fatigue;" the need to finalize contracts with insurers; the slow trickle of information from regulators; and the desire for additional regulatory guidance, especially in the area of outreach designations and certification requirements.

"As the health industry moves from wholesale to retail, the customer takes center stage," said Ceci Connolly, managing director, PwC Health Research Institute. "Outreach and education should be top-of-mind for hospitals and health systems, but many are still coping with operational issues to ensure readiness for open enrollment. These companies will have to shift into gear quickly to focus on their consumer strategies and how to attract and retain a diverse mix of exchange customers."

Some of that caution may have to do with worries about reimbursement, either with regard to the commercial rates hospitals will be paid, or with regard to new enrollees choosing mostly the cheaper, bronze level plans, which are suppose to charge holders 40 percent of actuarial value, when cost-sharing, deductibles are added up. That 40 percent is the average for all people holding that bronze level coverage in a given plan. So that 40 percent will translate into a different dollar amount from state to state. Regardless, bronze level policy holders may leave hospitals with significant amounts of unpaid bills. Adding to that hospital angst in some states is the rejection of the Medicaid expansion, meaning the hope of transitioning current uninsured patients to Medicaid becomes a pipedream.
The promise of Obamacare may be illusionary, or it may be fulfilled. What is certain is that how hospitals will fare in this brave new world is, well, uncertain.