US Pharm. 2010;35(5):51-53.
Regardless of which of the various political ideologies affecting health care you identify most strongly with, the reality is that there will be changes to health care delivery coming down the pike as a result of recent federal legislation. While the myriad of laws and regulations are far too complex to examine here in detail, a summary of predictable effects on pharmacy could be useful in preparing for reforms that are on the way.
Expanded Coverage
Perhaps the single most important fact is that by 2014, approximately 32 million Americans who are currently uninsured will gain access to health care benefits including prescription drugs through Medicaid, Medicare, and other insurance programs. The most prominent outcome of this development is that there will surely be a lot more prescriptions generated. More prescriptions mean a demand for more pharmacists and pharmacy personnel, and, if supply-and-demand economic theory holds true, pharmacy wages are sure to rise as well. This bodes well for the stock of the major suppliers of prescription drugs such as CVS Caremark, Express Scripts, Medco Health Solutions, and Walgreens, as well as for the interests of the corner drugstore and institutions providing pharmacy care.1
Legislative Developments
A little history of when and how these reforms came about might help keep perspective on what has changed and what will change in the near future. On December 24, 2009, the Senate passed the Patient Protection and Affordable Care Act (PPACA). On March 21, 2010, the House of Representatives approved the PPACA and, on the same day, passed the Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”), which modified certain tax, revenue, and Medicare and Medicaid provisions of the PPACA. On March 23, 2010, President Barack Obama signed the PPACA into law and the amendments in the Reconciliation Act were sent to the Senate for passage. On March 25, 2010, the Senate adopted the Reconciliation Act with additional amendments and returned the legislation to the House for approval. On March 25, 2010, the House passed the Senate amendments, and the amended Reconciliation Act was signed by the president on March 30, 2010. Taken together, all of these actions are commonly referred to as “Health Care Reform Legislation.”2,3
Medicare
Lobbying efforts by a coalition of pharmacy organizations helped reduce the dramatic cuts in Medicaid reimbursement rates for generic drugs that were in the original bills and exempt most pharmacies from the Medicare Part D Durable Medical Equipment, Prosthetics, and Supplies (DMEPOS) accreditation requirements.4
Another major impact of the Health Care Reform Legislation on pharmacies will be elimination of the so-called Medicare drug “donut hole.” Currently, under the Medicare Prescription Drug Plan, also commonly called “Medicare Part D,” Medicare-eligible patients pay the first $310 for prescription drugs out of pocket. After that, Medicare pays 75% up to $2,830, leaving the beneficiary to pay the remaining 25%. Then the donut hole kicks in, where patients have to pay the full cost of prescription drugs until those costs reach a total of $4,550. At this point “catastrophic coverage” begins where Medicare pays 95% of the future drug costs.5 This year, once the patient hits the donut hole, Medicare will issue a $250 rebate. The donut hole will gradually decrease in size until totally eliminated in 2020. For generic drugs, the phase-in will begin in 2011 and rise to 75% by 2020. For brand-name drugs, the phase-in will begin in 2013 and rise to 25% by 2020. Pharmaceutical manufacturers will be required to provide a 50% discount on brand-name drugs in the coverage gap beginning in 2011.6
Transparency
Another reform that might impact pharmacy providers is in the transparency provisions that have shielded prescription drug benefit managers (PBMs) from disclosing business practices that have allegedly afforded them greater profits at the expense of employers and employees who thought they were reaping savings that never seemed to match expectations.7 PBMs were originally intended to manage prescription drug formularies to reduce costs generally paid by employers. However, as some critics have observed, “PBMs for decades have been able to game the system where patients have no knowledge of the real prices being paid, thus preventing health plans from ever knowing if they are getting the best deal for their money.”8 The critique is that PBMs engage in practices that retain possible savings for their own profit, with the effect of actually driving up costs. In reality, PBMs negotiate significant rebates with drug makers in exchange for placement of a drug in a preferred place on the PBM’s formulary. Lawsuits by consumer groups and several state attorney generals have disclosed that many PBMs fail to pass these rebates on to their health plan clients. In addition, PBMs have been accused of unfairly inflating their charges to a health plan in comparison to what the PBM actually pays a pharmacy to dispense a drug.9
Under the reform measures, group plans and issuers must provide to the secretary of Health and Human Services (HHS), the applicable state insurance commissioner, and the public the following information: claims payment policies and data, financial disclosures, enrollment (and disenrollment) data, information on cost-sharing and payments with respect to out-of-network coverage, data on rating policies, information on participant rights under the Reconciliation Act, and other information as determined by HHS.10
While all of these transparency developments were greeted with much exultation by the pharmacy organizations and others that lobbied extensively for their inclusion in the Health Care Reform Legislation, there are arguments that the reforms will have little or no impact on the long-term operations or profits of the PBMs targeted in the laws. In analyzing the fiscal impact of the transparency legislation while it was pending House and Senate approval, the Congressional Budget Office (CBO) determined that these measures were budget neutral, meaning no practical impact.11 Based on the CBO analysis, critics argue that pharmacy will experience no net benefit from the transparency legislation.12 The jury will have to wait to see what the outcome on this issue will be.
Insurance Limits
Although the majority of Health Care Reform Legislation mandates will not begin until 2014, there are some provisions that will start almost immediately. Some group health plans will not be able to impose lifetime or annual limits on health care expenditures, including prescription drug reimbursements, beginning later this year. By 2014, no group health plans or group health insurers will be allowed to enforce any annual spending limits on covered employees and dependants and will be only allowed to impose lifetime benefit limits on nonessential health care spending. Likewise, insurers cannot rescind specified covered benefits (except in cases of fraud or intentional misrepresentation by a benefit applicant) after they are offered; however, this does not mean employers cannot terminate health plan coverage entirely for employees who are eligible for alternate government-sponsored health plans.13 Plans must also provide “first dollar coverage,” meaning no cost-sharing or co-pays, for specified evidence-based preventive care (including well-child care) and pay for certain immunizations. Further, for plans that cover dependent children, coverage must be extended up to age 26 for unmarried children even if a child is not a tax dependent of the covered parent. The elimination of annual and lifetime payment limits, the addition of coverage for many mandatory immunizations, and the extension of coverage payment for unmarried children will certainly benefit pharmacy providers.
Pre-Existing Conditions
Perhaps one of the most contentious parts of the Health Care Reform Legislation was the focus on whether or not insurers could deny coverage for “pre-existing conditions” to people who changed jobs or became eligible for coverage under a new or different plan. This term is generally defined as a medical condition that existed before someone applied for or enrolled in a new health insurance policy.14 It can be something as prevalent as heart disease, which affects 1 in 3 adults, or something as life-changing as cancer, which affects 11 million Americans. But a pre-existing condition does not have to be a serious disease. Even relatively minor conditions like hay fever, asthma, or previous sports injuries can trigger high premiums or denials of coverage. If an individual is diagnosed with an expensive condition such as cancer after he or she is covered by insurance, some carriers will review the initial application to determine if a pre-existing disease was known and not disclosed. Insurance companies can then retroactively cancel the entire policy if any condition was missed, even if the medical condition is unrelated and even if the person was not aware of the condition at the time. Coverage can also be revoked for all members of a family, even if only one family member fails to disclose a medical condition.15 Coverage for antirejection drugs for patients who have received an organ transplant can be limited in both time and amount of money needed to pay for lifelong support.16
Right now, the laws of 45 states allow insurance companies to discriminate against individuals based on their pre-existing conditions when they try to purchase health insurance directly from insurance companies.17 Insurers can deny them coverage, charge higher premiums, and/or refuse to cover a particular medical condition. Domestic violence can even be used as an excuse to deny coverage because it can be classified as a pre-existing condition in some states.18
The Health Care Reform Legislation will prohibit insurance companies from refusing coverage because of an individual’s medical history or health risk. Insurance companies will be required to renew any policy as long as the policyholder pays their premium in full and will be prohibited from dropping or watering down insurance coverage for those who are or become ill.19 Those provisions will start taking effect in 2014. However, later this year, insurers will be prohibited from rejecting payments for covered individuals under the age of 19 years.20,21
There are some limitations on the insurability of people who have to buy health insurance on the open market. States will have up to 4 years to build exchanges where consumers can find, compare, and buy health insurance. These individuals will be eligible for state and federal subsidies to help them pay their monthly insurance premiums. Premiums will be allocated on a sliding scale, which will be determined by income. Any individual earning over 400% of poverty ($43,320 in 2009) will not qualify for subsidies. Further, only individuals who are aged 19 to 64 years will be eligible to apply for this kind of insurance.22
Mandatory Health Insurance
Probably the most cantankerous part of the Health Care Reform Legislation is the requirement that all Americans are going to have to obtain health care insurance coverage from either an employer or a federal or state program they are eligible for or through purchase of a policy on their own. Failure to have the necessary coverage will result in a fine. The fine starts at $95 for an individual in 2014 and goes up each year until 2016, when the fine will be the greater of either $695 or 2.5% of the person’s annual income.23 State and federal subsidies to insurance companies and high-risk insurance pools have been designed to keep the cost of purchasing mandatory health care insurance affordable for most individuals and families. In addition, there will be free or very low-cost programs available to the poorest people. The Foundation for Health Coverage Education (www.coverageforall.org) is available to help direct people to the entities that will make this coverage available. This could be a valuable resource for patients who are having trouble finding the necessary resources to pay for medical needs including prescription drugs.
Bang for the Buck
Along with mandating health insurance coverage for all Americans, the Health Care Reform Legislation has a provision that takes effect in 2011 called “Ensuring Value for Premium Payments.” This program ensures that people who enroll in any mandatory plan get value for their premium dollars. It accomplishes this by requiring plans in the individual and small-group market to spend 80% of premium dollars on clinical services and wellness activities. In the large-group market, plans must spend 85% of premium dollars on clinical services and wellness activities. Health insurance plans that do not meet these thresholds will be required to furnish rebates to their policyholders; this provision, however, does not apply to self-insured plans.24
Summary
All told, these changes should be good for pharmacy providers, at least in terms of the number of people who are eligible to receive a prescription drug benefit. Whether profit margins will keep up with the increased demand for services is open to debate. But rest assured, pharmacy has some opportunities to benefit from the Health Care Reform Legislation. Look for further coverage of this important topic in next month’s column.
REFERENCES
1. Cohan P. Health care reform should give these four pharmacy stocks a health boost. Daily Finance. March 24, 2010. www.dailyfinance.com/story/
2. Christen A, Kudner K. Health reform impact on employers and employee benefits. Association of Corporate Counsel. April 2, 2010. www.lexology.com/library/
3. Schmidt P, Paravano J. Health Care and Education Reconciliation Act of 2010 (H.R. 4872): summary of main tax-related provisions. Association of Corporate Counsel. April 5, 2010. www.lexology.com/library/
4. Pharmacy provisions in health care reform bill will help pharmacists improve patient outcomes: NCPA. The Medical News. March 22, 2010. www.news-medical.net/news/
5. Jacobson L. Health care bill will gobble up doughnut hole—eventually. St. Petersburg Times. March 26, 2010. www.politifact.com/truth-o-
6. Goldfarb D. Health care reform provisions & Medicare prescription drug donut hole. Elder Law, Aging in America. March 26, 2010. www.silvercensus.com/blog/
7. Hoey D. Hidden drug costs illustrate need for PBM transparency in health reform. The Hill’s Congress Blog. January 12, 2010. http://thehill.com/blogs/
8. Roll call row over Feds and PBM transparency. The Dose. NCPA—The Voice of the Community Pharmacist. March 5, 2010. http://ncpanet.wordpress.com/
9. Support for PBM transparency in health care reform growing. Prescription Access Litigation (PAL) Blog. March 7, 2010. http://blog.
10. Gillihan A, Hickman J, Smith CE. Legal alert: dissecting the health reform legislation (part 1). Employee Benefit News. March 26, 2010. http://ebn.benefitnews.com/
11. Fein AJ. Health care reform: impact on drug channels. Gerson Lehman Group. March 25, 2010. www.glgroup.com/News/Health-
12. Fein AJ. Why do pharmacy owners care about PBM transparency? Drug Channels. February 25, 2010. www.drugchannels.net/2010/02/
13. See Note 10, supra.
14. Coverage denied: how the current health insurance system leaves millions behind. April 9, 2010. www.healthreform.gov/reports/
15. Waxman H, Barton J. Memorandum to members and staff of the Subcommittee on Oversight and Investigations: supplemental information regarding the individual health insurance market. June 16, 2009. http://energycommerce.house.
16. Marfo K. Don’t forget organ transplant drug coverage. Pharmacy Practice News. April 9, 2010. www.pharmacypracticenews.com/
17. Individual market guaranteed issue (not applicable to HIPAA eligible individuals), 2010. Kaiser Family Foundation. http://statehealthfacts.org/
18. See Note 14, supra.
19. See Note 14, supra.
20. Health care reform and consumer impact: eHealthInsurance answers FAQs on program availability and eligibility: consumers should get covered or stay covered. Marketwire. April 7, 2010. http://money.cnn.com/news/
21. See Note 10, supra.
22. See Note 20, supra.
23. See Note 20, supra.
24. See Note 20, supra.
To comment on this article, contact rdavidson@uspharmacist.com.
