Featured Health Business Daily Story, April 27, 2015

States Target Prescription Drugs in ‘Cap The Copay’ Bills; Analysts Warn of Offsets

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry. Sign up for a $91 two-month trial subscription today.

By ,
April 20, 2015Volume 25Issue 13

State legislatures are stepping into the ring in the fight over the rising cost of pharmacy drugs, introducing bills designed to limit the costs to consumers through a myriad of methods, including improved price transparency and capping member copays.

Measures proposing those regulations, for instance, are currently in play in the Oregon House of Representatives, sparking an intensive debate among advocacy groups, health insurers and pharmaceutical companies. House Bill (H.B.) 2951, a “cap the copay” bill, would require state-regulated fully insured carriers to limit the combined cost of copays or coinsurance to $100 for a 30-day supply of prescription medication, and prevent them from making medication subject to a deductible.

That bill is currently pending in committee, along with H.B. 3486, which requires drug companies to provide a breakdown on costs associated with research and development, clinical trials, manufacturing and distribution, as well as government grants and a number of other items, on any therapy with a wholesale acquisition cost that exceeds $10,000 either annually or over the course of one treatment. The bills set up a face-off between insurers and pharma companies over who should bear the burden in reducing the cost to consumers.

Some opponents say cap the copay bills relieve public pressure on pharmaceutical companies to price their drugs at more reasonable rates, a notion that Pfizer Inc. said in an email to HPW that it “categorically rejects.” But Providence Health Plan (PHP), a unit of Portland, Ore.-based Providence Health & Services, is one such naysayer, claiming at H.B. 2951’s public hearing last month that the bill would exacerbate the problem by masking the true cost of drugs and by forcing insurers to shift the cost elsewhere.

“Some pharmaceutical companies offer people with high co-pays some level of assistance; a reflection of the fact that many drug prices are neither affordable nor tied to the actual cost of the product,” Providence’s Chief Medical Officer Bob Gluckman, M.D., said in a written statement to the committee. “Eighty five percent of PHP’s members who utilize specialty pharmacy drugs receive some form of such co-pay assistance. If this bill passes, pharmaceutical companies will succeed in jettisoning the one manner in which they alleviate the extraordinary costs of their drugs to consumers.”

While other Oregon health plans weren’t as bold in their statements to HPW, they’re still not keen on the idea of absorbing the extra cost.

“Regence believes this will further mask the true costs of prescription drugs. Rising drug costs are hurting consumers and creating unsustainable costs in our health care system,” said Jared Ishkanian, spokesperson for Regence BlueCross BlueShield of Oregon, a division of Cambia Health Solutions, Inc., in a statement to HPW. “We need to address the root cause of rising drug costs by increasing transparency around the costs of creating, manufacturing and marketing medications — rather than focusing on the back end when consumers end up footing the bill.”

“We have concerns that H.B. 2951 doesn’t appear to focus on controlling or monitoring rising drug costs,” echoed Deana Strunk, spokesperson for Portland, Ore.-based LifeWise Health Plan of Oregon, an affiliate of Premera Blue Cross, in an email to HPW. “Additionally, there is a potential that the bill could limit our ability to continue our value-based formularies where we place drugs according to their effectiveness versus their cost.”

Plans Like Transparency Measures Better

Insurers are much more amenable toward drug pricing transparency laws, however. Oregon H.B. 3486 drew favorable statements at its hearing from the same groups that protested H.B. 2951, such as America’s Health Insurance Plans, which called the copay cap bill a “shell game” on consumers. With the exception of Pfizer, which funds a “Cap the Copay” organization currently advocating for two such bills in Illinois, the pharma industry is mostly mum on copay cap legislation. But it came out firmly against H.B. 3486 in Oregon through industry trade groups like the Pharmaceutical Research and Manufacturers of America and the Biotechnology Industry Organization (BIO), claiming the bill violates the confidentiality of protected business information and fails to explain how it would benefit consumers. A pricing list cannot fully capture the “market forces” and “assessment of value” that factor into a drug’s retail cost, BIO said in a statement to the committee.

Other states are waging similar debates, with Illinois, Kentucky and Virginia legislatures all considering cap the copay proposals. While efforts in Kentucky and Virginia have stalled, Illinois’ bill was voted out of a House committee on March 25 and is currently awaiting action on the floor. A second Illinois measure, which was shot down, would have established a “maximum allowable cost” for any drug with at least three therapeutic equivalents.

Oregon State Rep. Mitch Greenlick (D), chairman of the House Health Care Committee, has no delusions about the negligible impact the two bills would have on the rising cost of drugs, nor does he have much optimism the two measures will pass, but he says he does believe this is an important first step in addressing the problem. One Oregon woman, he says, has two hemophiliac children with prescription costs of $20,000 per month, a high copay and a $13,000 out-of-pocket maximum. “So the first of each year, she needs to get a check for $13,000 to get the kids’ first month’s prescriptions,” Greenlick tells HPW. “Those kinds of stories are a weight on us.”

H.B. 2951, he says, would impact premiums by only an estimated 0.5% to 1%, so the benefit outweighs the potential additional cost to consumers. He hasn’t yet decided his position on H.B. 3486, but contends more transparency in information is always useful in devising a solution.

Costs Will Not Just Disappear

Neither Regence nor LifeWise specified how they would adapt to the additional cost if H.B. 2951 were to pass, but market analysts say there are a number of ways in which insurers could compensate, including upping premiums and making adjustments elsewhere in the plan’s benefits to maintain its actuarial value.

If a plan is offered through the public exchanges, a change in benefits could bump it up into the next metal tier. Since the prescription benefit accounts for less than 20% of the overall value, says Mike Thompson, a senior analyst at PricewaterhouseCoopers LLP, the change would have to be significant to have an effect.

“The actuarial value applies to the entire medical plan, not just the pharmacy cost,” he tells HPW. “Chances are even putting a limit on the cost sharing wouldn’t necessarily drive that dramatically. It depends on where you’re coming from, but it might only have an impact of a point or two on the overall cost.”

Additionally, plans are given leeway of two percentage points in either direction, says Shannon Keller, a senior consultant at Deloitte Consulting LLP, meaning a silver plan’s 70% actuarial value is really anywhere between 68% and 72%.

“So if the extent of that change pushed you outside and made you 73%, if you were already on the top end of the corridor, you would have to make an adjustment to some other benefit, make it less rich, in order to offset that change,” she says.

Plans could tweak other copays, or increase the deductible or coinsurance, Keller says, but such changes aren’t likely.

“People want deductibles to be round numbers, so if you have a $2,000 deductible today, and this change impacted your plan by a small percentage, you’re not going to change your plan to be $2,057,” she says.

Thompson says plans could also restrict their formularies, either by not covering a drug outright or by requiring step therapy or prior authorization before giving a member the green light. While Keller isn’t familiar enough with the state legislation to predict if they’ll pass, she says passing similar measures on the federal level would be tough.

Both analysts agree copay cap legislation wouldn’t impact the price of drugs, and figuring out what will is “a zillion dollar question,” according to Thompson. If anything, he says, H.B. 2951 would remove pressure on drug companies to keep prices low.

“Managing drug costs is a highly complex area,” he says. “There isn’t a lot of market control, particularly over single-source drugs that come out, so the focus tends to be more on appropriateness and, in some instances, plans have used economic incentives — coinsurance, for example — to make it more difficult for people to get those drugs. I think what this is trying to do is eliminate that practice and force plans to make more value-based judgments in terms of formulary and other mechanisms that determine whether or not their members will have access to these medications.”

© 2015 by Atlantic Information Services, Inc. All Rights Reserved.

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