Featured Health Business Daily Story, Oct. 14, 2013

Insurers, PBMs Are Expected to Ratchet Up Drug Formulary Management on Exchanges (with Chart: Commercial Versus Exchange Formularies)

Reprinted from AIS's HEALTH REFORM WEEK, the nation’s leading publication on the business implications of the massive changes for the health industry mandated by reform.

October 7, 2013Volume 4Issue 19

Health plans and pharmacy benefit managers (PBMs) are likely to take an extra tough line on managing their pharmaceutical formularies in the insurance exchanges, industry sources tell HRW. Drug benefits on the exchange also will generally feature more coinsurance and cost-sharing requirements than similar benefits in commercial plans, new analysis shows.

Pharmacy benefits represent about 10% of overall health care spending. But carriers say they will increase their use of various drug management tools to control costs, especially in certain high-cost therapeutic categories (see chart, p. 3).

“In general, we are seeing public-exchange formularies that are more tightly managed than the commercial plans by leveraging utilization management programs, closed plan designs and generically driven drug lists,” Julie Huppert, vice president of health care reform at PBM giant Express Scripts Holding Co., tells HRW.

The formularies, meanwhile, are likely to be fairly broad, says Sheri Sellmeyer, vice president at health research firm HealthLeaders-InterStudy. “The way health plans are going to restrict utilization is through prior authorization, step therapy and quantity limits, rather than the formulary itself,” she tells HRW.

For the first year, at least, exchange formularies will generally mirror existing commercial formularies, Sellmeyer says, pointing to a survey of pharmacy and medical directors at 40 health plans conducted this summer by the firm’s parent company, Decision Resources Group. Of those surveyed, two-thirds said they would use existing commercial formularies on the exchange, Sellmeyer notes. Of those using a separate formulary, 60% said the drug list would include fewer brand drugs, and 47% said it would require more restrictions.

Sellmeyer says insurers next year are taking the “path of least resistance” in their pharmacy benefit offering. “They’re probably going to see how this first year goes before they start making real different formularies for the exchange plans,” she says.

Lessons learned from the 2006 Medicare Part D drug benefit launch haven’t offered much guidance.

By law, exchanges formularies must include at least one drug in each U.S. Pharmacopeia category, or the same number of drugs in each USP category as offered by the “benchmark” plan in that state, Huppert explains.

“Given that the Part D formulary is a single, nationally managed drug list, there is far more variability of the exchange formularies, which vary from state to state,” Huppert says. “Our initial view is that the public exchange formularies appear to allow less choice than the typical Medicare formulary, which offers a broader array of drugs and utilizes very high copayment tiers for some expensive medications to manage cost.”

In addition, unlike the Part D formularies, exchange formularies do not require “all or substantially all drugs” to be included in six classes of clinical concern. Therefore “the exchange formularies are likely to be narrower — especially in these drug classes — in virtually all cases,” Huppert adds.

Rx Benefit Includes High OOP Costs

Another feature of the new drug benefit on the exchange is that consumers will have to share more of the financial burden early on. Washington, D.C.-based consultancy Avalere Health LLC released a report Oct. 1 that said despite lower than expected premiums, consumers will face high cost-sharing requirements before they reach their out-of-pocket (OOP) caps (set at $6,350 for individuals and $12,700 for families).

Cost-sharing on the exchange includes broad use of drug coinsurance.

Roughly 90% of the lowest bronze-level plans will rely on coinsurance for the higher pharmacy tiers, the Avalere report said. “By comparison to today’s employer-sponsored market, only 29% of those with employer coverage have coinsurance on their highest pharmacy tier,” the report added.

Coinsurance is calculated as a percentage of drug costs rather than fixed dollar copayments. Consumers will pay an average coinsurance rate of 40% for drugs in the third and fourth tiers, according to Avalere, which examined rate filings of plans that had released data before the Oct. 1 exchange launch. Silver-level plans have on average the same 40% coinsurance at these tier levels.

Matt Eyles, executive vice president of Avalere, says plans that use benefit designs with flat dollar copays rather than coinsurance could significantly reduce out-of-pocket costs for patients who regularly take prescription drugs. “Patients need to understand how different health plans will cover the services and medicines that they use most often to determine which plan is best for them or their families,” he adds.

David Dross, a partner and national pharmacy practice leader at consulting firm Mercer Health & Benefits, warns that if the coinsurance is too high, consumers may stop taking their medications.

“If so, the resulting impact is that it actually increases costs overall, because they will typically have higher costs on the medical side,” he tells HRW, noting this results in additional stress on the system. “Pharmacy, even though it isn’t cheap, is still the least costly therapy for most of those chronic conditions, as opposed to hospitalization.”

The OOP maximums will prompt exchange-based plans to “integrate the management of medical, hospital and pharmacy care as never before,” says Ellen Nelson, senior vice president of government relations at the national PBM Catamaran Corp. This comes as qualified health plans on the exchange increasingly are accountable for providing integrated care and measuring outcomes, she tells HRW.

Other tried-and-true practices for controlling pharmacy costs are still a question mark. The use of narrow pharmacy networks, which are a growing feature in the commercial world, is not yet an evident trend on the exchanges, says Sellmeyer.

But others say they do exist. Express Script’s Huppert notes that some insurers are using narrow or limited pharmacy networks while others are offering the same networks as their commercial business. State laws affect a plan’s ability to deploy retail pharmacy network options, she adds. “On the other hand, we expect that more health insurers will include home delivery options in their plans to help control costs and offer members taking long-term medications convenience and choice,” Huppert says.

Another open question is how plans will negotiate rebates with pharmaceutical companies, a practice that allows manufacturers to receive favorable placement of their products on drug formularies. “It’s not as clear whether that is going to be used as a tool, or accepted in the exchange world as it is in the private sector today,” says Dross.

Drug manufacturer trade group PhRMA declined HRW’s request to discuss the question. But in an Oct. 1 statement, PhRMA Senior Vice President Matthew Bennett said, “Given that open enrollment has just begun, it is too early to know whether the coverage offered in the exchanges will provide all patients with meaningful access to the prescription medicines they need. PhRMA is dedicated to pursuing improved patient access to high-quality health care coverage, including access to needed treatments.”

Meanwhile, PBMs are bullish on the exchanges. Express Scripts, the largest PBM in the country, will participate in exchanges in more than 35 states through its health plan clients, Huppert says. “We believe that the public exchanges offer our clients a significant growth opportunity, and we have worked closely with them to ensure they can offer the best quality offering at the most competitive price,” she adds.

Catamaran too is optimistic about the new marketplaces. “The ACA will introduce 30-plus million new people into the marketplace,” says Nelson. “All of these new citizens will have access to comprehensive pharmacy benefits at little to no cost to them. This new marketplace will bring volume and demand value in return. This is a historic challenge.”

Commercial Versus Exchange Formularies: Insurers Expect More Aggressive Management on Exchanges, Survey Finds

Note: Zitter Health Insights surveyed 103 health plans, representing more than 130 million covered lives, that planned to participate in exchanges as of July 2013. The survey asked plans how aggressively they intended to manage certain therapeutic areas in comparison to their commercial formularies.

 Insurers Expect More Aggressive Management on Exchanges, Survey Finds

SOURCE: Zitter Health Insights’ Health Insurance Marketplace/Exchange Monitor, Summer 2013.

For valuable insight and expert analysis on pharmacy benefit management trends, check out Drug Benefit Trends and Strategies: 2013, now available at the AIS MarketPlace. Available as a printed book and a CD version, this well-organized resource serves as an “Executive Summary” of pharmacy benefits corporate activity with details of financial results, leadership changes, enrollment statistics, and mergers and acquisitions activity and includes a directory of pharmacy benefit vendors.

© 2013 by Atlantic Information Services, Inc. All Rights Reserved.

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