Exchange formularies need flexibility beyond PPACA


Pharmacy leaders say benchmark plans too limited and PPACA too prescriptive

The essential health benefits (EHB) for pharmaceutical drugs mandated by the Patient Protection and Affordable Care Act (PPACA) for health exchanges should create consistency. However, some organizations believe the rules could stifle flexibility.

Edith Rosato, CEO of the Academy of Managed Care Pharmacy (AMCP), a national professional organization, says PPACA is too prescriptive.

“Instead, plans should be able to look at their populations and find the most appropriate, affordable and accessible drugs based on clinical evidence to improve quality of life and produce the best outcomes. A mandate is unnecessary,” she says.

A benchmark plan-that is, a “typical” plan in the state that must be used as benchmark for defining specific benefits-is chosen by each state according to PPACA guidance. Rosato objects to regulators and benchmark plans dictating what should be included on a formulary. That should be the role of pharmaceutical and therapeutic (P&T) committees, she says.

Rich Cunningham, segment vice president, Humana Pharmacy Solutions, agrees with Rosato. He says that under the exchange, plans have less ability to develop their own formularies, such as tiering, and cost-share structures. Humana's P&T committee has studied each drug category and then chosen drugs from the benchmark plan to best serve its members.

Humana and its PBM, Humana Pharmacy Solutions, will offer benefits under the exchanges.

Follow the Rules

Insurers selling non-grandfathered individual and small-group policies must include 10 categories of essential health benefits, including prescription drugs, beginning Jan. 1, 2014. Qualified health plans in the exchanges, however, may choose to provide benefits beyond those mandated-which are prescribed by a state benchmark plan-and that means they can decide which specific drugs to include on formulary.

Although plans are permitted to substitute within benefit categories, they are not allowed to substitute across categories.

A recent study by the Urban Institute of 10 states as they implement healthcare reform indicates that insurers are engaging in minimal substitution of covered benefits in the first year of the exchange, generally keeping pace with the benchmark plans. If there are no drugs in a category or class on the benchmark plan, health plans must cover one agent. Most of the differences have been found in cost sharing and plan design.

Under the EHB for prescription drugs, insurers must cover at least one drug in every category and class in the United States Pharmacopeia (USP) classification system or the same number of prescription drugs in each category and class as the benchmark plan in their state. Two different dosages or strengths of the same drug do not count as two separate entities on a formulary.

Key plans analyzed in a formulary study by Avalere Health in January 2012 covered more than one drug per class-which is the Department of Health and Human Services (HHS) minimum rule. They also covered at least 50% of both brand name and generic drugs in most classes.

Formularies represent 1,032 chemical entities. The Centers for Medicare and Medicaid Services (CMS) has not yet released guidance on formulary tiers.

PPACA, however, enables insurers to deviate from a benchmark plan if they provide benefits that are “substantially equal” to the benchmark in covered benefits and limits. The EHB offerings should be equal in scope to a typical employer health plan.

Insurers also must submit their drug lists to the federal, state exchanges or both and if a drug is not on formulary, provide enrollees an opportunity to request a clinically appropriate drug.


AMCP does not support the idea that a formulary should be based on USP classification-Medicare Part D, for example, uses the American Hospital Formulary Service as an alternative to USP-or on benchmark requirements. Rosato would prefer that insurers have more flexibility in developing evidence-based formularies to specifically meet the needs of their populations.

The Pharmaceutical Care Management Association (PCMA), agrees with HHS’ decision to not mandate that exchange plans adopt certain Medicare Part D program’s requirements. Part D calls for coverage of “substantially all” medications in six protected classes-anti-cancer, anti-psychotic, anti-convulsant, anti-depressants, immunosuppressant and HIV and AIDS drugs. Charles Cote, vice president, strategic communications for PCMA, the trade group representing PBMs, says the mandate would have driven up costs.

“We were pleased that regulators rejected the ‘protected class’ approach that shields competing drug companies from offering competitive pricing to be included on formularies,” says Cote. “Unfortunately, protected classes are used in Medicare and increase costs by $4.2 billion, according to CMS. There is no evidence that protected classes improve quality or access, and they should not be imposed on plans in the exchanges.”

PCMA believes that plans can negotiate greater price concessions from competing drug makers-and reduce overall prescription drug benefit costs-when they have more flexibility to design clinically based formularies.

Although AMCP has its reservations about EHB, Rosato says the organization supports access to drugs-one of the key initiatives of the health reform law-

and medication management. She is optimistic that HHS will eventually reconsider the essential health benefits and make changes based on other parameters to control costs.

Stricter Formularies

Lisa Zamosky, WebMD health reform expert, says that formularies may not necessarily be more restrictive under the exchange, but that it will depend on the state and specific insurance plans.

“In some cases, consumers may have richer benefits than they do now. Or health plans may already be offering more drugs on their formulary than the law requires,” she says. “Plans will have the option of reducing their offerings to match the benchmark plan in the states where they sell insurance.

“States have no say over federal regulations, but they do have flexibility in designing some aspects of plan benefits within the boundaries of federal law,” she continues.

Zamosky says that when it comes to getting coverage for more expensive brand drugs, consumers may be subject to various cost-control designs, such as the tiering, prior authorization, step therapy and the use of mail order to obtain prescriptions.

“These are not new practices, but consumers should expect to see more of this going forward,” she says.

Jenna Stento, senior manager of Avalere Health, an advisory health services company based in Washington, D.C., says that the newly insured will be more price-sensitive and choose plans with the lowest premium. For that reason, she anticipates that insurers will more tightly manage their benefits.

“They are well-positioned to meet these needs,” she adds, “by requiring coinsurance rather than a set copayment to keep premiums down as product costs rise. Insurers will appeal to those most price-sensitive through their formularies.”

Stento expects that with time, there will be more restrictions. She anticipates that insurers will utilize more prior authorization, step therapy and narrower pharmacy networks, as well as more incentives to use generics.

Consumer Preferences

Julie Huppert, vice president, healthcare reform for Express Scripts, a PBM based in St. Louis, says insurers are well positioned to deliver prescription drug costs while meeting federal requirements.

“We already work with clients to evaluate the marketplace, the effect of healthcare reform and how to best position health plans by applying utilization management, creating specific networks and offering home delivery, which will be allowed under the exchanges,” she says.

She is concerned, however, that essential health benefits will require more expansive formularies adding drugs that may not be medically necessary.

“The requirements take away insurers’ ability to construct their own formularies because they must use a uniform drug list. This could negatively impact affordability,” she says.

In November 2012, Express Scripts commissioned an independent consumer market research study to gain a better understanding of the new public exchange consumer and how pharmacy benefits can influence plan selection in the public exchange marketplace. The study focuses on the uninsured, those who currently purchase insurance on their own and those insured through their employers.

Express Scripts concluded that the “long-term” uninsured are likely to be focused on cost and be more receptive to a benefit at a lower cost, while those who recently lost coverage will be seeking options similar to what they had under employer-based coverage. They are willing to pay more for access to broader drug and network coverage, she says.

In addition, the study reveals that the higher the subsidies, the more premium and cost sharing are neutralized as a choice factor. This also increases the influence of pharmacy network, copayments and formulary in regard to plan selection.

For the uninsured, she recommends a narrow, high-performance, managed network, a $100 deductible, higher drug copayment tier structure and home delivery.

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