Formulary Policies a Battleground In HHS Proposal on Nondiscrimination

P&T Journal - March 2016 for the original online article go HERE.  

Are Tiering and Cost Sharing Civil Rights Issues?

Is the federal government once more on the cusp of tweaking rules for marketplace, Medicare, Medicaid, and other federally funded health programs with regard to formularies and P&T committees? It could happen. Patient advocacy groups and drug companies are pushing for more aggressive requirements with regard to things such as pharmaceutical cost sharing and utilization management techniques. Health insurers and pharmacy benefit managers (PBMs) are fighting against that.

The political venue for this is the proposed rule the Department of Health and Human Services (HHS) issued last September on Section 1557 of the Patient Protection and Affordable Care Act.^1,2 It bans discrimination in health care and jumps off from previous nondiscrimination laws in the areas of voting rights, education, access to facilities, and much else. Those earlier, existing laws prohibit discrimination on the basis of race, color, national origin, sex, age, or disability.

However, the upcoming nondiscrimination rule from the HHS has prompted concerns from various quarters for a couple of reasons. The proposed rule extends the definition of sex discrimination to include discrimination based on gender identity. It will also require hospitals, health plans, physician offices, pharmacies, state and local programs, and others to do some things they currently do not do under existing civil rights laws in terms of notification, training, and translation services for patients. The HHS estimates the industry-wide cost at $558 million over a two-year period.

Interestingly, the proposed rule nowhere mentions the application of Section 1557 to “formularies.” That word doesn’t appear anywhere in the proposed rule’s text. Neither does “P&T committee.” The proposal concerns itself with such issues as access to facilities for the disabled, translation services for non-English speakers, and how health plans, hospitals, and other providers must describe and provide medical services for transgender and gay individuals. That said, many, if not most, of the 2,000-plus comments that arrived on the HHS doorstep in the wake of the proposed rule raise, among other concerns, the issue of formularies, either pressing for extension of Section 1557 to formularies or opposing it.

“It is our understanding that the department continues to face pressure from several patient advocacy groups and pharmaceutical manufacturers to prevent or severely restrict application of clinically based utilization management and formulary design processes under a pretext that use of step therapy, tiering, or other such tools are in fact discriminatory practices in and of themselves,” says Jonah Houts, Vice President of Corporate Government Affairs for Express Scripts, Inc.

Lisa Joldersma, Vice President of Policy and Research for Pharmaceutical Research and Manufacturers of America (PhRMA), says, “The evidence on today’s formulary landscape clearly indicates that too often plan formularies have designs that discourage individuals with certain disabilities from enrolling in their plans. Across HIV classes, certain cancer classes, and medicines that treat multiple sclerosis, many marketplace plans are putting all medicines, brand and generic, on the highest cost-sharing tier.”

Drug Access in Federal Health Plans Has Long Been a Controversy

The issue of formulary “discrimination” has come up over the past few years in the context of marketplace and Medicare Part D/Medicare Advantage guidance—which has no legal standing—and proposed rules dealing mostly with appeals to denials of particular drugs. Health plans have argued against the Centers for Medicare and Medicaid Services (CMS) addressing tiering and cost-sharing requirements and are doing so again with regard to the proposed 1557 rule.

“We recommend revising the rule to provide specific safe harbors with respect to pharmacy benefits, so that formularies designed by a pharmacy and therapeutics committee would not be considered discriminatory,” says David Schwartz, Head of Global Policy for Cigna Federal Affairs. “CMS has already issued detailed rules on drug formularies and the department should defer to CMS’s rules to ensure uniform, clinically based, sound formulary decisions.”

Again, the only rules the CMS has issued on formularies deal with time frames for health plans to respond to appeals of denials of specific medications, mandating that all drugs be provided in certain “protected classes” of drugs, and, with regard to marketplace formularies, establishing the standard for which drug classes must be made available.

That is not to say the CMS and the HHS are not worried about drug cost-sharing policies adopted by health plans and how P&T committees arrive at those formularies. The CMS has already been doing an outlier analysis that assesses marketplace plans’ cost-sharing requirements. Year 2015 and 2016 “Letters to Issuers in the Federally-facilitated Marketplaces” sent by the CMS promised to perform “an outlier analysis on QHP [qualified health plan] cost sharing (e.g., co-payments and co-insurance) as part of the QHP certification application process.” Both letters go on to say that “outliers may be given the opportunity to modify cost sharing for certain benefits if CMS determines that the cost-sharing structure of the plan that was submitted for certification could have the effect of discouraging the enrollment of individuals with significant health needs.” QHPs are required to ensure nondiscrimination in each of the 10 categories of essential health benefits they must provide, one of which is prescription drugs. In that vein, the 2015 letter said, “CMS intends to review plans that are outliers based on an unusually large number of drugs subject to prior authorization and/or step therapy requirements in a particular category and class. We encourage states performing plan management functions in an FFM [federally facilitated marketplace] to implement this type of review.” ^3,4

The 2017 draft “letter” went further. It said: “CMS is also concerned about adverse tiering, which occurs when a formulary benefit design assigns most or all drugs in the same therapeutic class needed to treat a specific chronic, high-cost medical condition to a high cost-sharing tier. Since adverse tiering is potentially discriminatory, this review may examine the tier placement of prescription drugs to determine whether QHPs are also consistently placing drugs used to treat these medical conditions on a high cost-sharing tier.” ⁵

These “letters,” whether to marketplace health plan or Part D providers, are advisory. They do not have the force of law. Moreover, while the CMS has apparently been applying outlier analyses to federally regulated formularies, the agency has never published the results of these, nor published a list, for example, of “bad practices,” which might guide health plans.

Timothy Jost, Emeritus Professor at Washington and Lee University, who has written widely on federal health policy, notes that the CMS and states review marketplace and Part D plans annually and, if they feel an individual plan uses drug tiering in a discriminatory fashion, they can kick the plan back for remediation. Jost adds that where states review marketplace plans, “they are all over the lot” in how they enforce marketplace essential health benefit standards as they apply to pharmaceutical access.

The CMS has, however, established federal policies related to P&T committees operating in Medicare Part D plans. There is some concern among PBMs and health insurers that the HHS might extend those policies, or even enrich them, in the context of a final Section 1557 rule. “As we share the department’s priorities in preventing discriminatory practices from occurring in health care, our concern focuses on whether any future proposals affecting the P&T committee process will enhance the protections already available to patients, or add only complexity and costs to plan compliance at the expense of patients and sponsors,” says Express Script’s Houts.

First in its Call Letter for 2015 and again in its 2016 letter for Medicare Part D plans, the HHS laid out refinements of “independence” requirements for P&T committees. A minimum of two members on each P&T committee must be independent from the plan sponsor and drug manufacturers, but not the PBM. The 2016 letter, for example, required that the sponsor’s P&T committee clearly articulate and document processes to determine that members who are supposed to be independent are indeed independent, and committees must have a policy to manage recusals due to conflicts. Those processes must be enforced by “an objective party,” which may be a representative of the PBM—as long as that representative is not also a member of the sponsor’s P&T committee.

Jost believes the HHS may have its work cut out for it in applying Section 1557 to formularies and P&T committees. He believes nondiscrimination in the context of disabilities, as is the case with Section 1557, is different than nondiscrimination with regard to health status, which is what the marketplace plans are charged with avoiding. Also, the proposed rule doesn’t raise the issue of discriminatory formularies. “The HHS is limited in going off in a new direction if that direction is not mentioned in the proposed rule,” Jost explains. “But it could issue a final rule and another proposed rule dealing with formulary discrimination.”

Allyson Funk, Senior Director of Communications at PhRMA, thinks the HHS could and should apply Section 1557 to formularies. “We would like to see additional clarification in the final rule which would be a logical outgrowth of the proposed rule’s prohibition on ‘benefit designs that discriminate on the basis of race, color, national origin, sex, age, or disability in a health-related insurance plan or policy, or other health-related coverage,’ ” she says.

Expansion of Current Nondiscrimination Policies ... or Not

Complaints about current discrimination have been loud from transgender advocacy groups, who have been among those pressing for formulary expansion provisions. But they have been equally concerned about availability of medical services. In the proposed rule, the HHS said “coverage for medically appropriate health services must be made available on the same terms for all individuals, regardless of sex assigned at birth, gender identity, or recorded gender.” It used pelvic exams as an example. They cannot be denied for an individual for whom a pelvic exam is medically appropriate based on the fact that the individual either identifies as a transgender man or is enrolled in the health plan as a man.

The HHS goes on to say that coverage cannot be denied for gender transition. If, for example, a health plan or state Medicaid agency denies a claim for coverage of a hysterectomy that a patient’s provider says is medically necessary to treat gender dysphoria, the HHS Office of Civil Rights (OCR), if it gets a complaint, will evaluate the extent of the plan’s coverage of hysterectomies under other circumstances. The OCR will also carefully scrutinize whether the covered entity’s explanation for the denial or limitation of coverage for transition-related care is legitimate and not a pretext for discrimination. But the HHS makes it clear that a final rule will not require covered entities to cover any particular procedure or treatment for transition-related care; nor do they preclude a covered entity from applying neutral standards that govern the circumstances in which it will offer coverage to all its enrollees in a nondiscriminatory manner.

However, the HHS proposed policy on transgender access to services is not totally clear to everyone. “As it is currently worded, the proposed rule suggests that clinicians who recommend screening tests and similar services usually performed only on those of the individual’s birth gender may be acting in a prohibited manner. We do not believe this was HHS’s intention,” says Ashley Thompson, Acting Senior Executive of Policy at the American Hospital Association.

Nondiscrimination Beyond Medical Services

Whatever the HHS decides in the final rule, any edicts will affect not just the kinds of services that hospitals, physicians, and pharmacies will have to provide, but potentially even the continuation of certain federally funded health programs. For example, Unite for Reproductive & Gender Equity (URGE) wants some federally funded health programs to be canceled because they do not square with Section 1557. It cites abstinence-only-until-marriage (AOUM) programs currently funded by HHS and administered by the Family and Youth Services Bureau within the Administration for Children and Families. “AOUM programs are inherently discriminatory against LGBTQ [lesbian, gay, bisexual, transgender, and queer] young people,” says URGE. According to the Society for Adolescent Health and Medicine, “in addition to abstinence-only classes being unlikely to meet the health needs of LGBTQ youth, as they largely ignore issues surrounding homosexuality, they often stigmatize homosexuality as deviant and unnatural behavior.”

But insurance companies worry about how antidiscrimination laws newly applied to transgender individuals might adversely affect them. According to Cigna’s Schwartz:

While Cigna supports measures of diversity and inclusivity, there are operational procedures today that may be construed as violating Section 1557, albeit unintentionally. Claim adjudication programming helps to protect against abusive billing practices by using edits, such as gender identifiers, to identify an anomaly; such as a male gender indicator on a claim for an annual well-woman exam or a female gender edit for a prostate exam. Medical claim adjudication procedures as well as pharmacy claim adjudication procedures would be impacted by the proposed rule. Furthermore, based on the language in the proposed rule, it is unclear if a gender question on an application is even acceptable or if it could be construed as sex stereotyping.

Disability groups are concerned that Section 1557 regulations would allow private entities to essentially decide for themselves when their provider network is “readily accessible” to people with disabilities. “A large for-profit insurance carrier could arbitrarily decide that, among the great majority of its providers who operate in existing facilities, only 10% need to be physically accessible or have accessible equipment,” says the Consortium for Citizens with Disabilities (CCD). “Moreover those accessible providers could be clustered together in some central location, and whenever a member calls member services and mentions the need for accessibility, that member will be actively directed toward ‘the accessible provider offices.’ ”

Groups representing the deaf also cite shortcomings in interpretation services currently available and thus the need for Section 1557 regulations to specify more rigorous requirements than those in the current nondiscrimination laws. “Too often, patients who use ASL [American Sign Language] are denied access to health care because most providers do not provide qualified ASL interpreters,” reports the National Association of the Deaf. “Furthermore, the department should emphasize that by no means should family members act as interpreter for the deaf or hard of hearing patient. Many health care entities mistakenly believe that it is perfectly acceptable to utilize family members as interpreters. In fact, the website for the American Medical Association states that ‘qualified interpreters may include: family members or friends,’ which demonstrates an incorrect understanding of the regulatory definition for a ‘qualified interpreter’ (QI).”

Implications for Pharmacies and Hospitals

As opposed to formularies, the Section 1557 proposed rule does have specific requirements for brick-and-mortar health facilities covered by the upcoming rule. They would have to notify patients that they offer auxiliary aids and services, free of charge, in a timely manner, to individuals with disabilities. The notice would need to be translated into at least 15 different languages.

Another requirement would force hospitals, pharmacies, and health plans to provide language assistance services, including interpreter and translation services for non-English speakers and similar services for the deaf. Those have to be available at the point a service is being provided.

In the case of an individual with limited English proficiency, the covered entity must offer that individual an on-the-spot, qualified, oral interpreter, who generally may not be a family member and almost never a child. There is an exception which is narrow in scope. Interpreters at a remote location can be used.
The American Pharmacists Association (APhA) is making the argument that pharmacies shouldn’t be covered (though hospital pharmacies, as part of a hospital’s corporate structure, would be) to the same extent as other “covered providers.” Retail pharmacies do not get marketplace, Medicare, or Medicaid reimbursement, though, in the latter case, they do receive dispensing fees. The APhA believes the amount of federal financial assistance a covered entity receives for a particular service should be a determinative or heavily weighted factor when imposing requirements related to Section 1557 and in OCR’s determinations related to nondiscrimination claims. Scaling down the requirements on pharmacies is important, in the APhA’s view, because of the mandates related to things such as translation services for customers, to give one example.

“APhA is very concerned that OCR requires the notice to include a statement that the covered entity provides auxiliary aid and services and language assistance services, free of charge, and makes no mention of the inclusion of a disclaimer or caveat related to the fact that the provision of services is balanced against the burden placed on the entity,” says Thomas E. Menighan, Executive Vice President and CEO of APhA. “Such a notice basically provides a guarantee of the services and fails to factor in the burden on the entity which OCR claims to consider.”

Pharmacies currently providing translation services (written or oral) have noted that costs may be considerable. Additionally, written translation services are effective only if the patient is literate. Pharmacists may also have difficulty identifying which language the patient is speaking, further exacerbating the difficulty of connecting the patient to a qualified QI. Even if a QI can be found, those without the appropriate medical training may be unable to accurately translate technical information, making such services less meaningful to patients and a source of potential liability for pharmacies.

At least hospitals and pharmacies know what they are in for when the Section 1557 final rule is published. The rule’s impact on QHP and Part D formularies is harder to predict. The political pressure has been building on the HHS to take a stronger stand on tiering and associated practices. But given the very recent disclosures of the money major health insurers are losing on their marketplace plans, it may be hard to justify putting out of reach what the plans have long argued are major, justifiable cost-control practices.

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

Insurance Companies Struggle to Balance Medical and Pharmacy Networks

P&T Journal - January 2015 - for a PDF copy of the published version go HERE.

Cost and Access Are Often at Odds; Enrollees Are Caught in the Middle

As of January 1, 2015, the facilities and physicians of the University of Pittsburgh Medical Center (UPMC) are no longer available to members of the Highmark health plans offered on the marketplace exchange in Pennsylvania and through Medicare Advantage. Or maybe they are available, at least in some cases. Highmark and UPMC, which has its own health plan, are going through a messy divorce. The split has left the region’s health insurance customers wondering whose network is a better deal—that is, if they can figure out which physicians and hospitals are “in network” for each plan.

That is the situation confounding Highmark members, especially, in the new year as UPMC facilities, part of UPMC’s health plan, partly depart from the Highmark plans as a result of consent decrees signed by the UPMC and Highmark plans. UPMC decided to pull its 22 hospitals out of the Highmark plans after Highmark in 2011 bought the West Penn Allegheny Medical Center, whose eight hospitals compete with UPMC’s 22 hospitals in several counties in the western Pennsylvania area. Highmark bought West Penn to lessen its dependence on UPMC hospitals, where services presumably cost more. UPMC sought a divorce, but there were legal problems—hence the consent decrees.¹ As of January 1, Highmark patients have access to some UPMC physicians and hospitals in network, but others will be out of network. In fact, some UPMC doctors at UPMC hospitals will be in network for Highmark subscribers, while that same doctor at a different UPMC hospital may be out of network. Some employers have thrown up their hands and dropped Highmark for a national insurer with an open network. Westinghouse, for instance, left Highmark, which it used for employees who wanted a preferred provider organization (PPO), and went with Aetna.

Steven Shapiro, MD, UPMC’s Executive Vice President, explains, “We now are spending a lot of time trying to educate the patients so that they know that, for example, the UPMC doctors within the greater Pittsburgh region are out of the network except if it’s [a] children’s hospital, psychiatric, oncology, or emergency services. The same physician who is out of network in Pittsburgh could be in network outside of Pittsburgh, so you get the point. It’s very confusing,” confusion over which physicians, facilities, and pharmacies are in networks put together by insurance companies appears to be an issue among enrollees in marketplace plans under the Patient Protection and Affordable Care Act (PPACA) and Medicare Advantage plans. But signs of uneasiness about networks, which health plans use to control costs and keep premiums from exploding (though rarely for ensuring quality), have spread far and wide. Even members of accountable care organizations (ACOs) are apparently restive. Seniors in Medicare Part B whose physicians are members of ACOs are automatically assigned to an ACO, although they can opt out. But ACO patients are not required to visit the network’s providers; there is no penalty, in terms of copayments or deductibles, for going out of the ACO’s network. Patients who do so make it a lot harder for the ACO to manage patient costs and quality. That flight of ACO patients to non-ACO physicians has made it much more difficult for Pioneer ACOs (which have the strictest requirements from Medicare) and even more conventional ACOs to earn profits, which is why many ACOs are leaving the program.

The dissatisfaction with Medicare Part D drug plan networks has a different nature. The Centers for Medicare and Medicaid Services (CMS), which runs Medicare, reports that seniors are choosing—not departing—plans based on the availability of a preferred network offering lower prices. However, these networks may not include pharmacies convenient for the enrollee, and they may not offer lower prices than pharmacies outside of the preferred network. Often, the Part D plans use mail-order options through pharmacy benefit managers (PBMs) as their preferred option. Pharmacies at mega-retailers such as Walmart are also often included in the preferred tier. Members who want to drive around the corner to their neighborhood pharmacy, or to the on-site pharmacy at their nearby hospital—in effect going out of the preferred tier, which is a second cousin to going out of network—are charged a higher price for the prescription. Groups such as the Consumers Union, Medicare Rights Center, and National Senior Citizens Law Center are supporting congressional legislation that would allow community pharmacies in medically underserved areas to participate in all Medicare drug plan networks, including plans’ discounted or “preferred” networks.

Making Networks More Attractive

Consumer dissatisfaction with networks has registered with some providers. Kaiser Permanente dominates California, for example, handling health care for about 40% of employees in the state. But as a health maintenance organization (HMO), Kaiser offers members limited choice within its network and covers out-of-network services only in certain emergency situations. In September, some of the biggest hospitals in the Los Angeles area announced the formation of a new health plan called Anthem Blue Cross Vivity, which hopes to lure Kaiser patients by giving them more choice. Anthem is a division of WellPoint. The venture will market a new health plan to employers with no deductible and premiums 10% below competitors, according to Anthem.² So not only will the plan be cost-competitive with Kaiser, it will offer a broader network—this is the important part—that will include two of Los Angeles’ leading academic and research medical centers: Cedars-Sinai Health System and UCLA Health. Those two hospitals are known for their high prices. All the hospitals will assume financial risk, à la ACOs. Whether they will profit in a Vivity network that capitates payments, to vie with Kaiser, remains to be seen. The California Public Employees’ Retirement System (CalPERS), the state’s giant pension plan, has agreed to include the Vivity network in its HMO plan.

Some health plans are offering a menu of networks, giving subscribers an option to pay higher premiums for more choice. Marc Barclay, Vice President of Provider Networks and Contracting at BlueCross BlueShield of Tennessee, says his company has 90% of the subscribers to marketplace policies in the state. “We do offer a broad network that includes everybody in the state of Tennessee for these members, and we have a smaller network, and then an even smaller network, and there’s a tier premium,” he says. “The one size fits all … is probably not going to work in the future, so we offer our members choices.”

Insurers are generally fine with state and federal laws (more on those in a moment) that allow them to cherry-pick providers when forming networks, within some general boundaries. But what health insurers generally oppose are state efforts to legislate the ability of providers to force their way into a network. On November 4, 2014, voters in South Dakota agreed by a vote of 62% to 38% to allow any provider to be in network if that provider is willing to accept the payment the health insurer gives its preferred providers for a particular service. Such measures are called “any willing provider” (AWP) laws. Opposing the initiative were, among others, the South Dakota Association of Healthcare Organizations, Avera Health System, and Sanford Health System; the latter two are the state’s biggest health insurers.

While AWP laws are in one sense proconsumer, they can also be anticonsumer. Last March, responding to a proposed CMS plan to apply an AWP standard to the Part D program, the Federal Trade Commission wrote:³

The proposed any willing pharmacy provisions threaten the effectiveness of selective contracting with pharmacies as a tool for lowering costs. Requiring prescription drug plans to contract with any willing pharmacy would reduce the ability of plans to obtain price discounts based on the prospect of increased patient volume and thus impair the ability of prescription drug plans to negotiate the best prices with pharmacies. Evidence suggests that prescription drug prices are likely to rise if prescription drug plans (“PDPs”) are less able to assemble selective pharmacy networks.

Proliferating Definitions of ‘Network’

Most states have laws dictating what a health care network should include, but those laws are all over the place, and they either fall short of or exceed federal regulations that pertain to marketplace exchanges, Medicare Advantage, and Medicare Part D plans, which themselves are subject to different standards. So there’s a Wild West feeling to network standards.

The CMS changed its standard for marketplace qualified health plans (QHPs) in 2015.⁴ The agency will no longer simply use issuer accreditation status, identify states with review processes of a minimum stringency, or collect network access plans as part of its evaluation of plans’ network adequacy. Rather, CMS will assess provider networks using a “reasonable access” standard, and will identify networks that fail to provide access without unreasonable delay. In making that analysis, the CMS will focus most closely on areas that have historically raised network adequacy concerns. These areas may include the following:

·         Hospital systems

·         Mental health providers

·         Oncology providers

·         Primary care providers

One month before the CMS announced its 2015 standard last May, the National Association of Insurance Commissioners (NAIC) wrote to Mandy Cohen, the Interim Director of the CMS Center for Consumer Information and Insurance Oversight, asking her not to increase federal scrutiny of plans’ provider networks, which the letter said “will add an additional layer of review and duplicate much of the work of states. We believe prescriptive federal regulation of network adequacy standards will lead to conflicting standards between state and federal requirements and that network adequacy regulation will be most effective at the state level where the needs of consumers, the cost of care, and the standards of the area, can best be evaluated,” the NAIC wrote.⁵

The NAIC Model Act requires covered health care plans to maintain a network that is sufficient in numbers and types of providers to ensure that all services to covered persons will be accessible without unreasonable delay. So it is somewhat less demanding than the PPACA standard for QHPs in 2015. Neither the Model Act nor the PPACA’s final rules include specific requirements for minimum geographic distances or time frames for access to providers.

Because of the perceived shortcomings of both the Model Act and the QHP standard, some states have come up with more detailed definitions of network. Take California, for example. It has two state agencies that regulate health plans, depending on the nature of those plans. One is the Department of Managed Health Care (DMHC), the other the California Department of Insurance (CDI). The DMHC regulates QHPs, HMOs, and Blue Cross PPOs. The CDI regulates all other PPOs. The California marketplace is called Covered California. All its QHPs must provide access to primary care and hospitals available within 15 miles or 30 minutes of an enrollee’s home or workplace. In addition, DMHC plans must provide ancillary services—that is, “laboratory, pharmacy, and similar services and goods dispensed by order or prescription on the primary care provider”—within “a reasonable distance” of primary care facilities. CDI-licensed plans (which are a very small percentage of QHPs) must provide access to specialty care within 30 miles or 60 minutes, and access to mental health care within 15 miles or 30 minutes. In addition, CDI-licensed plans must ensure that “facilities used by providers to render basic health care services are located within reasonable proximity to the workplaces or the principal residences of the primary covered persons, are reasonably accessible by public transportation, and are reasonably accessible to people with disabilities.”

California, as is normally the case when it comes to regulation, is an outlier among states, not to mention the federal government. Its network requirements are much more stringent than anyone else’s. Again, the CMS rules for QHPs don’t come close. Neither do the CMS rules for Medicare Advantage plans,⁶ although they are more detailed than the federal QHP rules.

For Medicare Advantage plans, the CMS first specifies the minimum number of providers that firms must include in their network in order to offer plans in each county. The CMS also specifies the maximum time and distance that can separate providers from beneficiaries in the county. Specifically, 90% of beneficiaries in a county must have access to at least one provider of each type within the required time and distance. The time and distance requirements vary across provider types and by the counties’ population size and density. For example, in urban Philadelphia, a primary care provider must be within a 10-minute drive or five miles, while in Galena, Illinois, a small, rural town, a primary care provider must be within a 40-minute drive or 30 miles. The time and distance requirements for hospitals are longer. In Philadelphia, a hospital must be within a 20-minute drive or 10 miles, while in Galena, a hospital must be within a 75-minute drive or 60 miles.

Even in the Golden State, with its relatively tough laws specifying network accessibility, problems arise. At least three lawsuits have been filed since the summer of 2014 alleging problems with physician and/or hospital accessibility in plans offered by Anthem Blue Cross, Blue Shield of California, and Cigna. “Blue Shield and Cigna lied to patients about the most important aspect of their health care plans: which doctors and hospitals they could visit under their new health coverage. As a result, many patients were left without coverage when they needed treatment,” says Laura Antonini, Staff Attorney for Consumer Watchdog, the group coordinating the lawsuits.

In November, the California DMHC released reports confirming that the directories issued by Anthem Blue Cross and Blue Shield of California contained numerous errors.^7,8 Those directories list the physicians and hospitals that are in network for the health plans, which are marketplace plans under the Covered California umbrella. None of the three health plans being sued by Consumer Watchdog responded to requests for their side of the story.

Preferred Provider Networks in Part D

Network adequacy has also been an issue in the Medicare Part D outpatient drug plans (also referred to as prescription drug plans, or PDPs). Many of them are run by big insurance companies such as Aetna, Humana, and UnitedHealthcare, often through their own PBM subsidiaries. The AARP is a major player, too, through UnitedHealthcare. In almost all of those plans, there is a “preferred provider” network of pharmacies, typically made up of certain retail pharmacies (often big-box chains) and a mail-order option. The big-box alternative is often Walmart, Walgreens, Safeway, or another large player in the drugstore business. Members of the plan are supposed to pay lower prices for prescriptions filled at those preferred pharmacies. But those networks sometimes exclude independent, mom-and-pop pharmacies, which can be a problem for seniors—particularly in rural areas. Those seniors might have to pay higher prescription prices for using an out-of-network pharmacy.

The PBMs have argued, through their industry association, the Pharmaceutical Care Management Association (PCMA), that they are better able to keep costs in check by giving members incentives to use direct mail or favored retail pharmacies, with whom the PBMs have contracts that contain price concessions.

The CMS published a study on April 30, 2013, taking issue with that argument.⁹ “We have determined that negotiated prices are sometimes higher in certain preferred networks— contrary to our expectations,” the study concluded.

Preferred networks are proliferating in both PDPs and Medicare Advantage-Prescription Drug plans. The number increased significantly in the past few years, from 163 in 2011 to 853 in 2014, according to the CMS. In 2014, more than 70% of stand-alone Part D plans offered preferred cost-sharing, according to the CMS.

In early 2014, the CMS proposed two significant changes to PDP operations in 2015 as part of its “Call Letter.”¹⁰ The first would have allowed “any willing provider” to join a PDP’s preferred network. The second required PDPs to provide cost sharing at least as attractive for all preferred drugs as for any one drug. Typically, that attractive cost sharing is available only at preferred pharmacies.

Explaining why it was making the proposal, the agency said: “We are concerned that offers of preferred cost sharing may be influencing beneficiaries to enroll in plans in which they do not have meaningful and/or convenient access to preferred cost sharing. This may have the effect of misleading or otherwise making material misrepresentations to beneficiaries in violation of our marketing requirements.”

But Part D plans objected to the proposed changes. “Adding ‘any willing pharmacy’ requirements will also result in federal government cost increases of up to $9.3 billion over the next 10 years if plans can no longer use preferred pharmacy networks,” said Steve Nelson, Chief Executive Officer, UnitedHealthcare Medicare & Retirement. “Additionally, the proposed rule interferes with plan/pharmacy contracting relationships, contrary to statute and the competitive principles that have kept this program affordable for beneficiaries.”

When the CMS published its final 2015 Call Letter three months later, the AWP proposal was gone.¹¹The agency said it would instead award a contract to study beneficiary access to preferred cost sharing. Since then, dueling surveys have been released by the National Community Pharmacists Association and the PCMA showing diametrically opposite results, i.e., rural seniors have plenty of access to lower-cost preferred pharmacies, or they have very limited access.

Ferment with regard to networks will continue across the health plan landscape. But proving network adequacy is close to an unwinnable argument: Either networks are narrowed, with lower costs to enrollees, or they are broadened, with higher costs to enrollees. To borrow a line from the classic film Network, it’s enough to make anyone yell in frustration: “I’m mad as hell and I’m not going to take this anymore.”

Pennsylvania Insurance Department. Stay informed: document and historical resourcesAvailable at:http://www.portal.state.pa.us/portal/server.pt/community/industry_activity/9276/stay-informed_-_document_resources/1923594. Accessed December 3, 2014

Vivity. Introducing Anthem Blue Cross VivityAvailable at: http://www.vivityhealth.com. Accessed December 3, 2014

Gavil AI, Gaynor MS, Feinstein D. Federal Trade Commission staff comment to the Centers for Medicare and Medicaid Services regarding proposed rule March 72014;Available at:http://www.ftc.gov/system/files/documents/advocacy_documents/federal-trade-commission-staff-comment-centers-medicare-medicaid-services-regarding-proposed-rule/140310cmscomment.pdf. Accessed December 2, 2014

Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid Services. 2015 letter to issuers in the federally-facilitated marketplaces March 142014;Available at:http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-final-issuer-letter-3-14-2014.pdf. Accessed December 2, 2014

Hamm A, Consedine MF, Lindeen MJ, Clark SP.National Association of Insurance Commissioners letter to Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid Services Available at:http://www.naic.org/documents/index_health_reform_comments_140423_naic_letter_cciio_network_adequacy.pdf. Accessed December 2, 2014

Center for Consumer Information and Insurance Oversight, Centers for Medicare and Medicaid Services. Qualified health plans Available at:http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/qhp.html. Accessed December 2, 2014

California Department of Managed Health Care, Help Center, Division of Plan Surveys. Final report: non-routine survey of Blue Shield of California. November 18, 2014. Available at:https://www.dmhc.ca.gov/desktopmodules/dmhc/medsurveys/surveys/043fsnr111814.pdf. Accessed December 3, 2014

California Department of Managed Health Care, Help Center, Division of Plan Surveys. Final report: non-routine survey of Anthem Blue CrossNovember 182014;Available at:https://www.dmhc.ca.gov/desktopmodules/dmhc/medsurveys/surveys/303fsnr111814.pdf. Accessed December 3, 2014

Centers for Medicare and Medicaid Services.Part D claims analysis: negotiated pricing between preferred and non-preferred pharmacy networksApril 302013;Available at: http://www.cms.gov/Medicare/Prescription-Drug-Coverage/Prescription-DrugCovGenIn/Downloads/PharmacyNetwork.pdf. Accessed December 3, 2014

Centers for Medicare and Medicaid Services.Advance notice of methodological changes for calendar year (CY) 2015 for Medicare Advantage (MA) capitation rates, Part C and Part D payment policies and 2015 call letter February212014;Available at: http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Advance.2015.pdf. Accessed December 3, 2014

Centers for Medicare and Medicaid Services.Announcement of calendar year (CY) 2015 Medicare Advantage capitation rates and Medicare Advantage and Part D payment policies and final call letter April 72014;Available at: http://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/downloads/Announcement.2015.pdf. Accessed December 3, 2014

Author bio: 
Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

Hospitals Struggle With ACA Challenges

P&T Journal - September 2014 - for a PDF copy of the published version go HERE.

More Regulatory Changes Are in the Offing in 2015

The results released on July 10, 2014, by CareFirst of Maryland, a Blue Cross Blue Shield plan, probably had some Maryland hospitals shaking in their boots. It wouldn’t be surprising if hospitals around the country felt the vibrations.

CareFirst was reporting for the first time on the results of its patient-centered medical home (PCMH) program, which the insurer initiated three years ago. The Patient Protection and Affordable Care Act (ACA) established a formal PCMH pilot program within Medicare, and insurers in the commercial market who aren’t part of the pilot, such as CareFirst, have been experimenting with the concept too. A PCMH program pays physicians incentives to monitor the health of their patients more closely, with the objective of minimizing referrals to specialists and hospital admissions. Members seen by medical home physicians participating in the CareFirst program experienced 6% fewer hospital admissions, 11% fewer days in the hospital, and 11% fewer outpatient visits than other CareFirst clients last year.¹

The PCMH is just one of the ACA initiatives aimed at reducing hospital admissions and, by extension, hospital revenue. The ACA’s emphasis on primary care as a bulwark against hospitalization, and its endorsement of accountable care organizations (ACOs) and bundled payments, is having, and will continue to have, a major impact on hospital revenue—in some cases not in a good way, speeding hospital consolidations and closures. Stephen Schimpff, MD, retired Chief Executive Officer of the University of Maryland Medical Center, puts it this way:

It is a changing world for hospitals; it is harder to thrive in the way in which it was done in the past. We used to be in the business of disease and pestilence, the more disease and pestilence the better. Now we are in a totally different business, improving the health of your community.

But the ACA has been something of a double-edged sword. While its payment initiatives are staunching the flow of patients to hospitals, its insurance expansion has opened the spigot. The ACA’s Medicaid expansion has sent waves of people through hospital doors in some states. Many of them were previously “self pay”—with some percentage being “no pay”—and hospitals are suddenly being compensated for their care. The health insurance marketplaces have brought eight million customers, not all of them newcomers, to hospital doors. However, hospitals have had to contend with the pricing demands of qualified health plans (QHPs), which sell individual health plans and must comply with federal rules, some of which filter down to hospitals.

The Revolution Gathers Steam

Just as the application of steam power to manufacturing in Great Britain in the mid-1700s ignited the industrial revolution, the 2010 passage of the ACA has prompted an emerging upheaval in health care. Traditional hospital operations across a broad range of activities have been upended and are being refashioned.

Hospitals are merging at a pace previously unseen, buying insurance companies (and being bought by insurance companies), and piling into “clinically integrated networks” faster than high school seniors jumping into beach-bound cars on the last day of school. Health systems are also buying physician practices to establish PCMHs or ACOs, or simply to have a better footing to contend with insurance companies outside of Medicare that are requiring some form of risk-based “value,” “bundled,” or “capitated” purchasing contract—terms that are being tossed around with varying meanings.

“At the strategic level, the Affordable Care Act has certainly colored the internal dialog at Catholic Health Initiatives [CHI] around the positioning of our health system and our markets,” says Juan Serrano, Senior Vice President of Payer Strategy and Operations at CHI, which owns about 90 hospitals around the country. CHI has about 15 hospitals participating in the Shared Savings Program at the Centers for Medicare and Medicaid Services (CMS).

The Shared Savings Program is an ACO option, a companion to the smaller, more radical Pioneer ACO program. Both programs promote what has come to be called “value purchasing,” in which Medicare and Medicaid, and an increasing number of commercial insurers, pay hospitals for integrated clinical care. There were 32 Pioneer ACOs and about 350 hospitals in the Shared Savings Program. Only two organizations have terminated Medicare ACOs, while seven have shifted from the Pioneer program (in which they must assume “downside” risk for losses) to the more financially forgiving Shared Savings Program, which permits one-sided (bonus-only) financial arrangements.

About 100 hospitals participate in the Medicare bundled payments pilot program, which is another product of the ACA. Medicare has also begun testing PCMHs, although the CMS had been experimenting with the concept prior to ACA passage. The demonstration program kicked off in 2011. It pays a monthly care management fee for beneficiaries receiving primary care from a designated medical group. The care management fee is intended to cover care coordination, improved access, patient education, and other services to support chronically ill patients. The program is operating in select states, and like other ACA programs it has sent ripples into the commercial marketplace, where companies such as CareFirst have inaugurated their own programs. The idea is to keep patients from being referred to specialists at hospitals, where care is more expensive.

While “clinical integration” and “value purchasing” have become watchwords in the hospital industry thanks to the ACA, the law has also prompted some hospitals to look outward, beyond their normal operational borders, particularly in terms of capitalizing on the eight million entrants into the federal and state health insurance marketplaces. As a result, hospitals are slowly moving into the health insurance business. CHI recently purchased QualChoice, a health insurance company based in Arkansas. Serrano says the purchase may become a platform for CHI to offer plans in the state and federal marketplaces. “The purchase of QualChoice allows us to accelerate our value delivery to the market; it gives us a distribution channel for our products and new models of care: for example, new disease management programs and narrow networks,” he states.

Some hospitals participate in the ACO and bundled payment programs simultaneously. “We are working with both health systems that have bundles with CMS, and with health systems that have bundles with CMS while at the same time participating in the Medicare Shared Savings Program,” explains Morgan Bridges-Guthrie, a spokeswoman for Premier, Inc., which provides buying, data, and other services to hospitals. “So, ACOs instituting bundled payment programs is a natural fit.”
Hospital executives will need to be even more nimble next year as ACA programs continue to morph. The QHPs that sell individual policies in federal and state insurance marketplaces face new requirements in 2015, some of which affect hospitals. In addition, the CMS will rework its ACO program, both the narrow Pioneer and broader Shared Savings models.

Debate Over ACA Shifts to New Issues

The debate about the ACA seems to have morphed since spring 2014. Then, there were questions about whether the eight million people the Obama administration had forecast would enroll in federal and state marketplaces would actually show up. When they did, the question became whether all of the new entrants would pay their premiums and actually get coverage. Most did. Competing studies by national organizations have offered differing results about what percentage of that eight million (or whatever the final 2014 number turns out to be) were previously uninsured. That was the whole point of the ACA, to insure the uninsured. But even the fire over that question has died down.

Interestingly, no one seems too concerned that 90% of marketplace participants are receiving federal subsidies for their premiums and that those premiums average 75%. Maybe those federal costs are less than what taxpayers were paying for the portion of the eight million who were previously costing hospitals money in the form of uncompensated care. However, a report from the Department of Health and Human Services (HHS) inspector general in July said that at the end of 2013, the federal marketplace (13 states have their own marketplaces) had 2.9 million inconsistencies relating to an applicant’s income status and Social Security number.²

It is probably because of the federal subsidies that QHPs, having offered reasonable premiums for the four plan levels (bronze, silver, gold, and platinum) in 2014 while they got a feel for the costs of covering essential health benefits, now feel free to jack up 2015 premiums. Companies began filing 2015 premiums with HHS this summer; they take effect on January 1, 2015. The Wall Street Journal in June looked at potential 2015 premium increases in 10 states and found that the largest carriers were proposing increases of 8% to 22.8%.³ These proposed increases may not stick: Both the states and HHS have the power to negotiate lower rates. But it seems clear that a certain percentage of marketplace participants will switch to lower-priced plans using more constricted networks. This will put even more pressure on hospitals.

A New World for Hospitals

That uncertainty aside, some trends now seem immutable. In the name of clinical integration, some of the biggest hospital companies, such as CHI and Ascension Health, have been adding hospitals and considering buying insurance companies. The not-for-profit Denver-based CHI system, which provides health care services in 18 states, assumed control of several hospitals and a health system and purchased a majority interest in a physician-owned health plan last year.

In the reverse scenario, health insurers are buying hospitals. Highmark Inc., one of the biggest Blue Cross/Blue Shield plans in the country, in 2013 bought the West Penn Allegheny health system, which boasts eight hospitals in western Pennsylvania. Highmark offers marketplace and nonmarketplace policies in Pennsylvania, Delaware, and West Virginia, and is the only marketplace carrier in the third state. Spokesman Aaron Billger says Highmark’s acquisition of the West Penn hospitals was not done with marketplace leverage in mind. Rather, the hospitals provide Highmark with a platform to create an integrated delivery network—called the Allegheny Health Network—that serves as an ACO/PCMH-type destination for the 218,000 policyholders (marketplace and nonmarketplace) in western Pennsylvania.

Highmark’s ACO program is not a part of either Medicare model, so it illustrates how the commercial insurance marketplace is picking up the ACA ball and running with it. There were 147,000 Highmark-insured individuals whose physician practices were members of the Highmark Accountable Care Alliance between October 2012 and October 2013. In clinical quality performance measures, those practices showed a 26% improvement in quality scores and a reduction in medical costs, with total six-months savings of about $11.5 million.

ACA Impact on Hospital Financial Health Unclear

This scurrying by hospitals to capitalize on the new ACA programs has had an uneven financial impact on them. A June Modern Healthcare analysis of earnings reports for about 200 hospitals and health systems, both not-for-profit and investor-owned, found that hospital margins narrowed significantly last year despite an improving economy.⁴ The magazine wrote: “Despite a buoyant stock market streak by some publicly traded chains, health care providers as a group continue to operate with slim and shrinking margins. Overall, a smaller percentage of health care providers saw positive operating margins last year compared with the previous two years.”

The Modern Healthcare analysis found that the average operating margin in 2013 was 3.1%, down from 3.6% in 2012 based on data available for 179 health systems, which included acute-care, post-acute-care, rehabilitation, and specialty hospital groups and some stand-alone hospitals. A total of 61.3% of organizations in the Modern Healthcare analysis saw their operating margins deteriorate over the previous year.

Probably the best news for many hospital systems is the influx of Medicaid patients, via the ACA Medicaid expansion. For example, LifePoint Hospitals reported a 14% increase in net income in the first quarter of 2014. That is based on just seven of LifePoint’s 20 states expanding Medicaid, although 35% of its self-pay volume was generated in those states in 2013. About 22% of its self-pay patients during the first quarter had enrolled in Medicaid, and 3% had enrolled in an exchange plan—on the high end of previous expectations. Diane Huggins, Vice President of Communications at LifePoint, says not all of the gain in net income came from treating new Medicaid recipients. “Clearly, there were a confluence of factors that impacted our Q1 2014 results compared to the same quarter of the prior year in addition to Medicaid expansion,” she states.

There has been little analysis of how ACOs have specifically affected hospitals, which are just one member of an ACO team that depends heavily on physician practices as, for want of a better term, quarterbacks. However, hospitals are the key team member because they drive shared savings via better quality care that results in fewer hospital readmissions. The only financial results issued so far by the CMS were in July 2013 for the 32 Pioneer ACOs.⁵ Thirteen of the 32 produced shared savings with CMS, generating a gross savings of $87.6 million in 2012 and saving nearly $33 million for the Medicare Trust Funds. Overall, Pioneer ACOs performed better than published rates in fee-for-service Medicare for all 15 clinical quality measures for which comparable data are available. Medicare has not published any comparable results for the Pioneer programs in 2013 or for the much larger Shared Savings ACO program.

The Pioneer results are partly encouraging and partly not. Some hospitals earned substantial profits. Others turned themselves inside out to no avail. “We’ve spent a lot of money and haven’t shown much progress on the revenue side,” said Richard Barasch, Chairman and CEO of Universal American Corp., at an investor conference in June. “There’s a limit to our public service feelings about this. We are going to scale it back to some degree.” Universal has 34 ACOs and is one of the biggest players in the ACO world. Most of its ACOs participate in the Shared Savings Program.
The CMS has not published financial results or health outcomes from its Bundled Payments for Care Improvement (BPCI) initiative. Its four bundled payment models allow providers to bid as a team to provide a continuum of services for a predetermined target amount to include physician payment, nursing-home care, surgery, and other care, most commonly for treatments such as heart, colon, and spinal surgery, as well as hip and knee replacements.

The Premier, Inc., Bundled Payment Collaborative includes 17 health care provider systems with more than 45 hospitals across the nation. Members of the collaborative are committed to sharing best practices and data with each other. They focus on improving care and reducing costs across multiple episodes of care, including hip and knee joint replacements, lumbar spinal fusions, coronary artery bypass grafts, heart valve replacements, congestive heart failure, percutaneous coronary interventions, and colon resections.

“We haven’t charted the financial impact yet,” Premier’s Bridges-Guthrie explains when asked how the Premier bundled payments participants have fared so far. “Our Bundled Payment Collaborative members went live beginning of January, so it is a bit too early to tell real results versus estimates. At this time, we only have partial results. Unfortunately, it’s just too early to know performance.”

Changes in ACA Programs on the Way

Even as hospitals try to gain traction in current ACA programs, some of those programs will be changing. The CMS was supposed to publish a proposed rule in May 2014 detailing changes it wants to make in the Shared Savings Program. That proposal had not been issued as of mid-July. But just the prospect of the proposed rule forced the American Hospital Association (AHA) to launch a pre-emptive strike in the form of a long letter to Patrick Conway, MD, Acting Director of the CMS Innovation Center. In that letter, Linda E. Fishman, Senior Vice President of Public Policy Analysis and Development, said the AHA continues to have “significant concerns about the design of the current Pioneer ACO Model and the Medicare Shared Savings Program (MSSP).”⁶

The two programs are similar in many regards, although the Pioneer program offers greater potential rewards to participants for greater savings. Both the Pioneer and Shared Savings ACOs enroll Medicare recipients and accept “risk.” Payment is based on traditional fee-for-service (FFS) in the first two years, but Pioneer ACOs can transition to population-based payment after that if “results” warrant the transition. Population-based payment is per-beneficiary-per-month compensation intended to replace some or all of the ACO’s FFS payments. The CMS also requires that 50% of Pioneer revenue come from participating in “risk” contracts with other payers by the end of the second performance period.

The AHA wants a laundry list of changes, as does the American Medical Group Association (AMGA), whose members—larger physician group practices—typically drive the ACOs, which almost always include hospitals. Fishman’s letter to Dr. Conway complained that the Pioneer ACO and MSSP programs place too much risk and burden on providers with too little opportunity for reward in the form of shared savings. She made a number of suggestions for changes to improve the programs, all of them technical and all of them practically requiring a doctorate in statistics to understand for anyone not steeped in ACO terminology and methodology. Suffice it to say that the AMGA has some of the same concerns about requirements, for example, attached to the minimum savings rate (MSR) for ACOs. The MSR accounts for the potential random variation in savings that may not be linked to improvements in quality and efficiency.

The QHPs already have new rules to follow in 2015, those established by the so-called “2015 Letter to Issuers in the Federally-facilitated Marketplaces.” ⁷ One change drills down to hospitals and opens up new liability: the first-time imposition of civil money penalties (CMPs) for any breach of federal rules by any party, including consumer assistance entities such as hospitals. When the draft letter was published, the AHA argued that applying CMPs to individual and institutional assisters, especially voluntary certified application counselors (CACs), would have a chilling effect on some hospitals continuing to serve in that role. It wanted the CMS to reconsider the application of CMPs to voluntary assisters, and to limit CMPs in general to egregious violations of selected requirements in which there are no other enforcement mechanisms already in place. Otherwise, hospitals could be penalized for simple human errors of judgment or facts that are unintentional, nonmalicious, and consistent with the purpose of the ACA—to provide coverage to the uninsured.

The CMS seems to have ignored the AHA’s pleas, so hospitals may have to tiptoe around efforts to sign up federal marketplace customers. Some hospitals may trip over sign-ups or other impediments suddenly strewn in their path thanks to the ACA. But some hospitals will prosper, too, as they figure out how to make this revolution work for them.

Author bio: 

Mr. Barlas, a freelance writer based in Washington, D.C., covers topics inside the Beltway.

References

1. CareFirst BlueCross BlueShield. 2013;PCMH program performance report. July 102014;Available at: https://member.carefirst.com/carefirst-resources/pdf/pcmh-program-performance-report-2013.pdf. Accessed July 14, 2014
2. Department of Health and Human Services, Office of Inspector General Marketplaces faced early challenges resolving inconsistencies with applicant data. June 2014;Available at: http://oig.hhs.gov/oei/reports/oei-01-14-00180.pdf. Accessed July 14, 2014
3. Radnofsky L. Premiums rise at big insurers, fall at small rivals under health law. Wall Street Journal June 182014;Available at: http://online.wsj.com/articles/premiums-rise-at-big-insurers-fall-at-small-rivals-under-health-law-1403135040. Accessed July 14, 2014
4. Kutscher B. Fewer hospitals have positive margins as they face financial squeeze. Modern Healthcare June 232014;Available at: http://www.modernhealthcare.com/article/20140621/MAGAZINE/306219968/1135. Accessed July 14, 2014
5. Centers for Medicare and Medicaid Services. Pioneer accountable care organizations succeed in improving care, lowering costs. [Press release]. July 162013;Available at: http://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-Releases/2013-Press-Releases-Items/2013-07-16.html. Accessed July 14, 2014
6. American Hospital Association Letter from Linda E Fishman, Senior Vice President, Public Policy Analysis and Development, to Patrick Conway, MD, Acting Director, Innovation Center, Centers for Medicare and Medicaid Services. April 172014;Available at: http://www.aha.org/advocacy-issues/letter/2014/140417-cl-aco.pdf. Accessed July 14, 2014
7. Centers for Medicare and Medicaid Services. 2015 letter to issuers in the federally-facilitated marketplaces. March 142014;Available at: http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2015-final-issuer-letter-3-14-2014.pdf. Accessed July 14, 2014

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.