Featured Health Business Daily Story, May 30, 2017

Is Grassley Concern Over DAW Penalty Much Ado About Nothing?

Reprinted from DRUG BENEFIT NEWS, biweekly news and proven cost management strategies for health plans, PBMs, pharma companies and employers. Subscribe today!

By Angela Maas, Managing Editor
May 5, 2017Volume 18Issue 9

CareFirst BlueCross BlueShield has become the latest health care/pharmaceutical stakeholder to draw congressional scrutiny. But it’s unclear at this point whether that attention is, in fact, warranted.

On April 17, Sen. Chuck Grassley (R-Iowa) sent a letter to the insurer’s president and CEO, Chet Burrell, questioning the company’s use of so-called “brand penalties.” Imposed on members when they fill prescriptions for a brand drug when a generic is available, the penalty requires members to pay the difference between the cost of the brand and the generic rather than the copayment or coinsurance for the brand. Grassley, who is the chairman of the Senate Judiciary Committee, calls brand penalties “a concerning trend” that “can potentially cost patients thousands of dollars per year through no fault of their own.”

Drug Benefit News

He requested that the health plan respond to a series of questions, including whether it is the company’s “general practice to impose a brand penalty even when a doctor has noted that a drug is ‘medically necessary,’” as well as whether other insurers also follow this practice. Responses were due by May 1.

CareFirst’s prescription guidelines state, “there may be cost-sharing implications for choosing non-preferred brand medications when generics are available. Your cost share depends on which of the three generic substitution coverage levels you have — voluntary, mandatory or restrictive. Refer to your benefit summary or enrollment materials for more information.”

The website also has a form by which a physician can request an exception “for a patient to receive a brand-name drug instead of a generic alternative and pay only the appropriate brand cost-share.” Grassley’s letter does not indicate whether an exception was requested, only that the physician had included “a ‘medically necessary’ annotation, such as ‘Dispense as Written,’…on the prescription.”

Tactic Is One That Plans Frequently Use

“A brand penalty, also called a Dispense as Written or ‘DAW’ penalty, has been implemented by plan sponsors and health plans across the country,” says Josh Golden, area senior vice president, client development at Arthur J. Gallagher & Co.’s Solid Benefit Guidance consulting arm. “I would go so far as to say it is one of the most frequently used plan management strategies within the world of pharmacy.”

In fact, he tells AIS Health, the practice has “stood the test of time as a management tool. To my knowledge, there is nothing remotely illegal about this approach.”

According to Bill Sullivan, principal consultant at Specialty Pharmacy Solutions LLC, “Benefit language is very specific as it is reviewed and approved by state insurance departments and (in the case of Medicare plans) by CMS, which is really the only area where federal oversight could apply.”

Sullivan points out that “As long as the clearly stated language is approved for state insured policies (ERISA-self-insured benefit policies are broadly exempt) or CMS (or state Medicaid) there is nothing illegal about it. However, if the payer adjudicates payment using a formula other than that detailed in the plan’s Summary of Benefits (SoB), then they would be in violation and subject to state or federal oversight.”

Grassley essentially echoed this in the letter, saying, “if CareFirst has entered into thousands of contracts with individuals based upon a certain set of policy promises, it must provide proper notice to policyholders when contracted-for terms change. It is not clear whether CareFirst is providing notice, and it would be helpful to the Committee if it could describe, in detail, how it handles the notice requirement and whether it comports with the standard in the industry.”

Penalty Paid Isn’t Applied to Annual Deductible

Another Grassley concern is that when the member pays a brand penalty, it is not applied to the member’s annual deductible. However, according to Golden, “Under group insurance, this is a decision that the plan sponsor makes when they set up their pharmacy plan with the PBM. For individual policies, the health insurer decides how this is handled. The rationale for excluding these payments from the annual deductible is that they are penalties and not copayments. Excluding the DAW penalty from deductible accumulation creates a stronger financial incentive to use generics instead of multi-source brands.”

Adds Sullivan, “If the patient is not given credit for their spending, that would have to be specifically stated in the SoB [for that to] be actionable.”

Interestingly, Grassley’s letter maintains that “Many patients have tested generics but have found that their body simply does not react positively to them and therefore require brand name drugs.” But according to the FDA, the agency “requires generic drugs to have the same quality and performance as brand name drugs. When a generic drug product is approved, it has met rigorous standards established by the FDA with respect to identity, strength, quality, purity, and potency. However, some variability can and does occur during manufacturing, for both brand name and generic drugs. When a drug, generic or brand name, is mass-produced, very small variations in purity, size, strength, and other parameters are permitted. FDA limits how much variability is acceptable.”

In addition, it points out that “Research shows that generics work just as well as brand name drugs.”

“Generics are, by design, always as effective as their multi-source brand counterparts, unless there has been some kind of manufacturing deficiency,” says Golden. “But the brand drug could also experience manufacturing problems, so that is not an issue that is unique to generics. The FDA ensures that generics have the same safety, strength, quality, route of administration and overall performance as their originator brand product. Some generics may contain different inactive ingredients such as dyes or preservatives, but these are specifically designed to be inert, so adverse reactions to these are extremely rare.”

Golden points out that “The FDA is clear on their position regarding generics. Their website states that generics are just as effective as their brand counterparts and are subjected to the same rigid standards of review and approval. These products are designed to be interchangeable — and the DAW penalty is just a financial mechanism to encourage that interchange.”

According to a STAT Pharmalot article, Grassley “is not confining his interest only to this one insurer, which covers Maryland, Washington, D.C., and northern Virginia. As his letter indicates, he is curious to know whether other insurers similarly impose such penalties and a source familiar with the matter suggested the senator plans to pursue the topic with other health plans as more is learned.”

When asked about Grassley’s letter and CareFirst’s responses, which were due May 1, the health plan declined to comment. A spokesperson said he did not know whether the insurer’s responses would be made public.

View Grassley’s letter at http://tinyurl.com/mch747q and CareFirst’s prescription guidelines at http://tinyurl.com/lku7cgl.

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