John Linehan

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In recent years, the federal and state legal requirements governing drug distribution and reimbursement have become increasingly discordant. This has stemmed in part from a politically divided Congress, which has made it difficult to pass comprehensive federal legislation, and the fact that many states have pioneered ahead with ambitious reforms. It also stems from the differing incentives and concerns facing federal and state lawmakers. While the federal government is the sole funder of Medicare and a large portion of Medicaid, and therefore acts primarily as a payer, state governments regulate insurance on the local level and are more susceptible to the influences of patients and prescribers.

Coupon Accumulators and Coupon Maximizers, Explained

This federal-state dynamic has become especially pronounced with regard to the copay coupons promoted by drug manufacturers and the copay accumulator and maximizer programs that health plans and pharmacy benefit managers (PBMs) have employed to mitigate the negative effects that coupons can have on their costs. On the one hand, coupons are prohibited under federal healthcare programs,[1] but the U.S. government has afforded plans significant leeway to implement accumulators and maximizers. 

At the same time, coupons are generally permitted at the state level, but a growing number of states have quietly passed laws prohibiting fully insured plans from using accumulators and maximizers. As a result, the industry battle between drug manufacturers and payers continues to play out over an increasingly complicated and inconsistent compliance landscape.

Drug copay coupons, which may be used to reduce patients’ out-of-pocket costs, are used by drug manufacturers to promote access to branded drugs. By 2015, drug manufacturers were offering coupons to boost sales for more than 700 branded drug products, and manufacturers are estimated to have provided approximately $13 billion in copay coupons in 2018.

 Health plans and PBMs have vigorously opposed coupons due to concerns they may undermine cost-sharing requirements designed to incentivize economical drug prescribing and purchasing choices.

State legislatures have, understandably, struggled with the role that copay coupons play in healthcare because they present difficult trade-offs. Providers and patient advocacy groups have fiercely defended coupons as essential to facilitating access to expensive drugs, especially for beneficiaries in high-deductible health plans. The countervailing argument from health plans and PBMs is that coupons are a marketing tool that can incentivize the use of higher cost therapies and lead to higher premiums. Several states have considered legislation that would curb coupon use, and California and Massachusetts have enacted laws that would restrict coupons in circumstances where generic alternatives are available.

As health plans, PBMs and employer group sponsors have increasingly employed copay accumulators and maximizer programs in recent years, the controversies associated with copay coupons have deepened. Under a copay accumulator program, the health plan prevents a copay coupon from counting against the beneficiary’s deductible or out-of-pocket maximum. Once the coupon’s value is exhausted, the beneficiary must cover the entire amount of their deductible before plan benefits are triggered. With copay maximizers, the plan increases a drug’s copay amount so that it approximates the copay coupon’s monthly value. The total value of the coupon is applied evenly throughout the benefit year but is not applied against the beneficiary’s cost-sharing obligations.

Health plans have embraced these new benefit designs as a means to reduce their financial liability by drawing from the value of the coupon and the beneficiary cost-sharing amounts before providing drug coverage. However, opponents have raised concerns that beneficiaries may lack adequate understanding of how these programs work and be surprised by having to pay high deductibles once their coupons are exhausted. Accumulators have been especially criticized for abruptly shifting a large portion of costs to beneficiaries. Maximizer programs, which have more varied and flexible designs, are often tailored to apportion costs in a more equitable manner among the plan, beneficiary and manufacturer. Nonetheless, accumulators and maximizers are alike in that they prevent the coupon from applying in some manner to the cost-sharing obligations.

In 2019, CMS issued a rule restricting the use of accumulators by health plans subject to the Patient Protection and Affordable Care Act’s essential health benefits rules. However, CMS subsequently reversed course by issuing a new rule in May 2020 that removed these restrictions to “enable issuers and group health plans to continue long-standing practices with regard to how and whether direct drug manufacturer support accrues toward an enrollees’ annual limitation on cost sharing.”

 Accordingly, under federal law, commercial health plans and PBMs enjoy substantial leeway in how they structure accumulator programs.

While the legal landscape for accumulators has become clearer at the federal level, it has gotten cloudier at the state level. Patient advocacy and provider groups have begun to have some success shaping state-level laws and policy regarding accumulators. In the past two years, bills have been introduced in close to 20 states that would affect accumulator programs, and five states — Arizona, Georgia, Illinois, Virginia and West Virginia — have enacted laws.

The state accumulator laws are largely alike in that they require plans to consider payments made by a beneficiary, 

, when calculating their overall contribution to any cost-sharing obligations.

 This serves to broadly restrict accumulator and maximizer programs by prohibiting plans from blocking the value of a manufacturer coupon (i.e., a payment made on behalf of a beneficiary) from counting against a beneficiary’s deductible or annual maximum out-of-pocket limit. Some slight differences in wording among the various pieces of legislation could impact their scope and application. For instance, the laws in Arizona and Georgia include exceptions that would allow plans to apply accumulators when there is a medically appropriate generic. Some of the state laws only seem to refer to outpatient prescription drugs, whereas others appear to apply more broadly to drugs reimbursed under both a plan’s pharmacy and medical benefits. Finally, some of the laws specifically reference PBMs, whereas others only refer to health plans. Nevertheless, plans affected by these laws may need to ensure that any contracting PBMs similarly comply with prescribed restrictions when administering their drug benefits.

So far there has been strong bipartisan support for accumulator restriction bills in state legislatures, indicating that a growing number of states will likely be considering and adopting these laws. This is testament to the power that patient and prescriber advocacy groups have had in influencing state lawmakers with stories about how patients can be disadvantaged, sometimes unexpectedly, by accumulators. By contrast, plan and PBM opposition to coupons and support for accumulators and maximizers have been based on more abstract arguments relating to the need to manage costs and promote economical prescribing practices.

If additional states join the ranks of those states restricting accumulator programs, then the place for coupons will be increasingly secure, at least with respect to beneficiaries covered under fully insured plans regulated under state insurance codes. In the meantime, a growing legal asymmetry is arising as health plans (particularly self-insured plans)

 will have significant latitude to impose accumulators and maximizers under federal law but fully insured plans will need to thoroughly understand state laws before administering them. In addition, health plans must grapple with the nuances of other laws and regulations, including but not limited to IRS rules governing high-deductible health plans eligible for health savings accounts, disclosure rules under the Employment Retirement Income Security Act of 1974 and a variety of consumer protection, anti-discrimination and benefit uniformity standards.

Looking forward, stakeholders should expect more uncertainty and fluctuation in the legal treatment of coupons and accumulators as well as in other areas impacting drug reimbursement and distribution. If commercial health plans and PBMs are restricted in their ability to use accumulators and maximizers to mitigate the effects of coupons, then some premiums may increase and formulary offerings may narrow. If this were to happen, some lawmakers may decide to reverse course by pulling back on the accumulator restrictions that have been put in place. On this and other matters concerning pharmaceutical pricing, reimbursement and distribution, applicable laws may continue to zig and zag with uneven cost-shifting effects for competing stakeholders.

John “Jack” Linehan is a member of the health care and life sciences practice group at the law firm Epstein Becker & Green

 Coupons have long been barred under federal healthcare programs because they can be categorized as unlawful inducements under the Anti-Kickback Statute and beneficiary inducement provision of the Civil Monetary Penalties Law. Accordingly, copay coupons have been directed to patients taking branded drugs who are reimbursed in the private insurance market.

Jonathan Gray, Manufacturer Coupons and Patient Assistance Programs, The Actuary (May 2020), 

https://theactuarymagazine.org/manufacturer-coupons-and-patient-assistance-programs/

 Cal. Health & Safety Code §132000 et seq.; Mass Gen. Laws, ch. 17.5H, §3(b)(2).

 85 Fed. Reg. 29164, 29231 (My 14, 2020).

, Va. Code Ann. § 38.2-3407.20(B) (“To the extent permitted by federal law and regulation, when calculating an enrollee’s overall contribution to any out-of-pocket maximum or any cost-sharing requirement under a health plan, a carrier shall include any amounts paid by the enrollee or paid on behalf of the enrollee by another person.”).

 State insurance codes generally do not apply to self-insured employer-sponsored group plans governed by the Employment Retirement Income Security Act.

Articles

States are moving to curb copay accumulators as federal government pulls back from regulation.

New state copay accumulator laws complicate the coupon compliance landscape 

, John Linehan explained the complex and often confusng history of drug coupon accumulators and maximizers and the halting effort to regulate them. Today Linehan is using a hypothetical example to show how they work. 

The patient is prescribed a drug that costs $36,000 per year, or $3,000 per month. She gets a copay card from the manufacturer that is valued at $12,000 per year.  Patient’s benefit plan has a $3,000 deductible and, after the deductible has been met, a monthly copay of $500. The benefit plan has an annual maximum out-of-pocket (MOOP) of $9,000.
	 


	Patient uses the copay coupon to cover the monthly drug costs through April - and has no out-of-pocket expenses during the first four months of the year.  However, because accumulator prevents coupon from applying toward cost-sharing requirements, she must pay the full deductible amount ($3,000) in May and monthly copays of $500 per month thereafter until the $9,000 MOOP may be reached. The health plan’s financial liability is reduced to at least $17,500 by the coupon's value and the beneficiary's full cost-sharing payments (deductible and copays).    
	
	


	Benefit plan’s maximizer increases patient’s monthly copay to slightly more than the coupon’s monthly value, say, to $1,200 per month. Coupon value is applied evenly across year at $1,000 per month, so patient is responsible for a copayment of $200 per month. But the coupon does not count toward meeting the deductible of $3,000 or MOOP of $9,000.  The plan makes monthly $1,800 payments that sum to $21,600; the plan’s financial liability is reduced by the combination of the coupon’s value and the beneficiary’s copay payments. 

Usually, but not always, accumulators are a better deal for health plans than maximizers, although there are other reasons plans might prefer maximizers.

John "Jack" S. Linehan is a member of the health care and life sciences group of Epstein Becker & Green. 

Payers have used accumulators and maximizers to counteract drug coupons.

Coupon Accumulators and Coupon Maximizers, Explained 

While not a topic in most household kitchens, copay coupon accumulator programs (and their closely associated maximizer programs) have stirred up a range of controversies, operational difficulties, and policy tradeoffs. Accumulators and maximizers are archetypes of the larger issue drug pricing reform.

At first blush, it seem simple-who doesn’t want to lower costs for U.S. consumers? But difficult questions arise upon close inspection.  How should costs be shifted, and to whom?  Can an effective policy be implemented and enforced? Can the burdens and benefits be equitably distributed among stakeholders without compromising industry innovation?

During the past year, government policymakers have waded into the murky area of drug copay coupons and accumulators. In April 2019, CMS released a final rule (“2019 Final Rule”) governing the use of accumulators by health plans subject to the ACA’s essential health benefits (“EHB”) rules. However, due to confusion and objections raised by plans and employers, CMS suspended the policy several months later, pending their plan to revisit the issue in 2020. In the meantime, multiple states have passed laws prohibiting accumulator programs for fully insured plans. Finally, in May 2020, CMS issued a new rule (“2020 Final Rule”) with a reworked policy that affords health plans wide latitude to employ accumulators - a scenario that will look eerily familiar to many stakeholders.

While CMS’s new policy is relatively easy to summarize, the history of how we got back to where we are now, the details of ensuring compliance, and the potential ramifications require closer analysis.  

The controversies generated by accumulators and maximizers stem from copay coupons, which drug manufacturers have offered to patients. Their appeal is obvoius: They effectively shield them from out-of-pocket costs. But heath plans and PBMs have opposed coupons, saying that cost sharing is an important tool in managing their formularies and curbing  more expensive utilization. 

Health plans and PBMs have also been frustrated by their inability to track coupons, which may be processed at the pharmacy point-of-sale through what are effectively shadow claims systems and other means of disguise. In recent years, though, they have developed new technologies to detect the use coupons and counteract their negative plan effects ib . 

With a copay accumulator program, the health plan prevents the value of a copay coupon from counting toward the beneficiary’s deductible or annual maximum out-of-pocket (MOOP) limit.  After the coupon’s value is exhausted, the beneficiary is on the hook for the entire amount of his or her deductible before plan benefits kick-in.

Plans have also developed maximizers - sometimes called variable copay programs -  that are similar to accumulators but have important operational differences. With a maximizer program, the plan increases a drug’s copay amount so that it approximates the coupon’s monthly value and the value of the coupon is then applied evenly throughout the benefit year to cover a portion of drug costs.

Plans have used accumulator and maximizer programs to deter coupons while also leveraging their value to reduce plan liabilities. Accumulators are easier to administer and can save payers more money than maximizers, but they often abruptly foist a larger amount of costs on to beneficiaries. Maximizers are more complicated to administer but can be more flexibly designed to meet plan goals and more equitably apportion costs among the beneficiary, the plan, and manufacturer. 

With the increase in pricey specialty medications, matched by more expansive drug manufacturer assistance, industry battle lines have been drawn between manufacturers and patient advocacy groups on one side and insurers and PBMs on the other over coupon and accumulator programs. But as these program took off, they entered uncharted legal territory.

CMS’s 2019 Final Rule was designed to create a regulatory framework in this area but, perhaps unintentionally, it roiled the waters rather than calmed them.  The rule permitted health plans to exclude the value of coupons for branded drugs that had medically appropriate generics from counting toward the beneficiary’s annual MOOP. The agency’s measure was designed to give health plans the latitude to use accumulators to counteract formulary-eroding coupons for branded drugs that have generic equivalents.  However, it could be inferred from the rule that in other circumstances (i.e., where a branded drug lacks a generic equivalent), plans must count coupons against the MOOP. Therefore, on balance, CMS’s coupon policy was seen as restrictive rather than permissive of accumulator programs, which ran counter to the agency’s communicated purpose to provide plans with more flexibility over formulary controls. 

In response to stakeholder questions regarding the 2019 Final Rule the Departments of Labor (DOL), Health and Human Services (HHS), and Treasury (the “Departments”) issued an FAQ document on August 26, 2019.  The departments temporarily suspended the policy announced in the 2019 Final Rule because of a supposed conflict with a separate set of rules that govern the qualification of high deductible health plans (HPDPs) as health savings accounts (HSAs) (“HSA-eligible HDHPs”). They claimed that existing guidance from a 2004 Internal Revenue Bulletin notice (“2004 Q&A guidance”)  “requires an HDHP to disregard drug discounts…in determining if the minimum deductible for an HDHP has been satisfied and only allows amounts actually paid by the individual to be taken into account for that purpose.” 

As a result, HSA-eligible HDHPs may not be able to simultaneously comply with both the IRS rule, which would seem to require accumulators in the pre-deductible phase, and the CMS rule that accumulators not be used to prevent coupons from counting against MOOPs in the absence of a generic alternative.  To resolve this apparent conflict, HHS proposed to update its policy in 2020.  In the meantime, plans were given the green light to continue using accumulators, as before, to prevent coupons from applying to the MOOP in all circumstances, including when there is no medically appropriate generic available. 

In the recently issued 2020 Final Rule, CMS announced its refurbished coupon policy.  Acknowledging that its prior rulemaking “may have caused confusion,” the agency stated that plans would be permitted - but not required - to employ accumulators to prevent coupons from accruing to a member’s MOOP. The new policy affords flexibility to “enable issuers and group health plans to continue longstanding practices with regard to how and whether direct drug manufacturer support accrues towards an enrollees’ annual limitation on cost sharing.” Such flexibility is designed to give plans latitude to develop tailor-made coupon policies and comply with any applicable legal requirements, such as those imposed under state law or the IRS rules for HSA-eligible HDHPs. Nevertheless, CMS noted that plan policies regarding the treatment of coupons “must apply in a uniform, nondiscriminatory manner,” thereby invoking the ACA’s nondiscrimination rules.

As stakeholders pore over the 2020 Final Rule, seeking to decipher its meaning and real world application, they should consider the greater context. Rather than usher in a new paradigm for coupon regulation, CMS is authorizing a return to the status quo ante, which prevailed before the 2019 Final Rule, in which drug manufacturers and health plans have engaged in business warfare in a largely unregulated arena at the federal level.

Having dipped its toes into this murky area with its 2019 Final Rule, CMS is now pulling them out quickly with the 2020 Final Rule. As a result, health insurers and PBMs, will enjoy substantial leeway in how they structure accumulator programs - just as drug manufacturers have been largely free to design coupon programs. The battle lines over coupons and accumulators/maximizer programs will remain - and are likely become more entrenched than ever.

If the story surrounding coupons, accumulators, and government policy seems confusing, it’s because it is. The mechanics of how accumulators and maximizers work, and how they may affect beneficiaries, plans, and manufacturers have led to frequent head-scratching.

Even harder to follow and understand is their legal status, which primarily depends, somewhat arbitrarily, on the context in which they may be employed. While coupons and accumulators are generally allowed in the commercial setting, coupons are flatly prohibited under government healthcare programs, and since last year, a growing number of states have issued laws heavily restricting accumulators. Finally, adding to the complexity is the government’s rationale for its latest rulemaking, which is based on the IRS’s recent, and yet heretofore unstated, interpretation of its 2004 Q&A guidance.  

One could argue that the IRS insistence that coupons be applied to deductibles does not necessarily follow from the Q&A’s actual language. Also, such a requirement seems strange, given that many plans have lacked the technological capability to administer accumulators until the past few years; in fact, many plans are still unable to reliably identify coupon use by their members.

Despite the confusion, stakeholders may focus on the 2020 Final Rule’s key takeaway - that commercial plans will once again enjoy wide latitude to employ accumulators. Still, specific questions requiring more nuanced analysis may arise. Here are a few examples:

• How can accumulators/maximizers be structured so they don’t run afoul of state law? 
	• How can copay maximizers (aka variable copay) programs be structured in compliance with current law?
	• How, and under what circumstances, can HSA-eligible HDHPs employ accumulators or maximizers?
	• How can plans administer accumulators/maximizers in a uniform and nondiscriminatory manner?
	• What is “direct support offered by drug manufacturers,” and what legal rules govern the treatment of indirect manufacturer support, charity payments, or support originating from non-manufacturer sources? 
	• What sorts of specific disclosures are plans required to make to satisfy transparency to beneficiaries?  

The government has signaled its intent to continue monitoring the area of drug coupons and accumulators. For instance, CMS indicated it would consider financial support from, or routed through, nonmanufacturer sources (identified to include, for example, crowdfunding amounts, waived medical debt, and support toward the purchase of durable medical equipment) for potential future rulemaking. It also noted that the IRS is reviewing comments on administrative issues in this area as they relate to HDHPs - guidance that many would welcome.

Stakeholders should remain similarly vigilant in assessing how applicable law and guidance may continue to evolve. In the meantime, unless or until new regulations are enacted, observers will likely see continued combat between drug manufacturers and health plans over drug copay coupons, accumulators, and maximizers.  

John "Jack" S. Linehan is a member of the health care and life sciences group of Epstein Becker & Green.  

John S. Linehan of Epstein Becker & Green provides an in-depth analysis of drug coupons, coupon accumulators and maximizers and the federal government's halting efforts to regulate them.

John Linehan

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