On January 1, 2014, the Affordable Care Act’s (ACA) Exchange Plans will open for business, and millions of Americans will access insurance coverage for the first time. No one yet knows just how many Americans will sign up—recent White House estimates hope for seven million newly-covered lives, although the number could be far greater.1 Either way, the Exchange Plans, combined with Medicaid expansion, promise to bring millions more into the healthcare system, and in turn create new markets for prescription drugs. However, exactly how much of a new prescription market really exists is far from clear.

Prescription Drugs—An “Essential Health Benefit”

In crafting the ACA, Congress set a basic set of coverage requirements for health insurance plans that wanted to participate in the Exchanges. Called the “essential health benefits,” or EHBs, Congress dictates that to be eligible to participate in the Exchanges, a health insurance plan had to guarantee to provide: 1) Ambulatory patient services; 2) Emergency services; 3) Hospitalization; 4) Maternity and newborn care; 5) Mental health and substance use disorder services, including behavioral health treatment; 6) Prescription drugs; 7) Rehabilitative and habilitative services and devices; 8) Laboratory services; 9) Preventive and wellness services and chronic disease management; and 10) Pediatric services, including oral and vision care.2 The inclusion of prescription drugs within the list was far from certain during Congressional debate over the healthcare bill, and the addition of drugs to the list was considered a major victory for the pharmaceutical industry.

That being said, the devil remained in the details, and Congress entrusted the Center for Medicare and Medicaid Services (CMS) to decide through rulemaking exactly what access to an essential health benefit really meant. From the manufacturer perspective, if prescription drugs were essential, that simply meant every prescription drug was essential, and if a physician prescribed a medication, an Exchange plan would have to cover it. Opposing that view were the plans and Prescription Benefit Managers (PBMs), who argued that one drug in each therapeutic class was more than sufficient, and that each health plan should be free to set its own formulary, choosing among drugs in each class, and between classes.

The Precedent: Part D

The debate over the scope of drug coverage is not new; the very same controversy was joined in 2006 when the Part D Prescription Drug Benefit was rolled out. At that time, Congress mandated that Part D plans cover “drugs within each therapeutic category and class,” which CMS defined to mean at least two drugs per therapeutic class.3 The therapeutic classes, however, were benchmarked against the very broad categories defined by the U.S. Pharmaecopeia, which resulted in many Part D plans offering relatively limited drug coverage for many beneficiaries.

What happened? Patients with diseases for which drugs were not interchangeable suffered real access issues. For example, HIV/AIDS patients, epilepsy patients and patients with serious mental illnesses suddenly found themselves on January 1, 2006, with no access on their new Part D formulary to the medications they had been taking just a week before. Instead, the plans forced them to switch medications, even in cases where they had previously failed on that same drug in the therapeutic class. In response, and once the Part D program was up and running, CMS stepped in and created “Six Protected Classes” of patients for which “all or substantially all” drugs within a therapeutic class were needed. The six classes were: immunosuppressant (for organ transplant rejection), antidepressants (for mental illness), antipsychotics (for mental illness), anticonvulsants (for epilepsy), antiretrovirals (for HIV/AIDS), and antineoplastics (for cancers).

Shortly after CMS adopted the “all of substantially all” policy for these six classes, Congress memorialized the classes into statute.4 Thus, today, particularly for those disease states in which drugs within the therapeutic category are not interchangeable, Part D plans must cover all drugs in the class. While the plans and PBMs raised alarm that the “expansive” coverage would cost significant sums and require them to raise premiums for Part D plans, in fact the opposite has happened and premiums have not been impacted at all (indeed, premiums have dropped year after year since implementation of the program). And the good news is that at least some manufacturers have some protection that their products will be covered by Part D.

Coverage in the Exchanges—One Drug per Class

Yet, CMS is poised to repeat the same mistake that occurred in January 2006—not requiring broad access to all drugs in these disease states. Indeed, on February 25 of this year, CMS issued its Final Rule on EHBs, defining the required coverage level as the greater of either: 1) One drug per therapeutic class, or 2) The same number of prescription drugs in each category and class as the EHB benchmark plan in each particular state.5 In other words, whether in a disease state in which drugs are or are not interchangeable, the Exchange Plans only must offer one drug in each class or a benchmark plan equivalent to satisfy the “essential” requirements.

The implications for pharmaceutical manufacturers is significant—while the Exchanges promised millions of new covered lives who could access medication therapy, the reality is proving to be far less than the promise, and the very minimal requirements created by CMS may significantly limit the opportunities for access to medically necessary prescriptions. Of course, the implication for the uninsured with complicated illnesses is even more serious—the promise of new access to health insurance may prove illusory, as needed medications in a new insurance plan may not be “covered” at all.

Ray of Hope for the Future?

While the Exchange regulations are not a positive outcome for either patients or drug manufacturers, time will tell how the issue plays out in the market. There is significant evidence that broad medication coverage reduces overall healthcare costs (an argument even the government is beginning to accept6), and since Exchange plans are responsible for all healthcare costs (unlike Part D plans, which only cover drugs), the health economics may drive broader coverage. Similarly, if the same bad health outcomes that the Part D program experienced are replicated in the early days of the Exchanges, it may very well be that CMS adopts a similar “all of substantially all” policy for high risk health conditions.

It remains to be seen how the Exchanges will unfold, and how narrow or broad Exchange medication formularies will be. The implications for drug manufacturers, and for the newly insured, however, will be profound.

References:

1. Obama Pleads for Californians, Latinos, Young People to get Coverage Under New Health Care Law, Washington Post (June 7, 2013); see also Affordable Care Act: Insurance Coverage Effects, Congressional Budget Office (Feb. 2013).

2. PPACA Section 1302.

3. Medicare Prescription Drug Benefit Manual, Chap. 6, Section 30.2.1, available at: http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/downloads/Chapter6.pdf

4. Section 176 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). The Affordable Care Act further memorialize the six protected classes into law. ACA section 3307. Whether Part D Plans are actually following the law on the six protected classes is an open question. A very recent Avalere study suggested that plans are not affording epilepsy patients with the broad access to anticonvulsants that the law requires.See Study: Medicare Part D Patients Struggle More Attaining Anticonvulsants, June 11, 2013 (available at http://www.pharmalive.com/study-medicare-part-d-patients-struggle-more-attaining-anticonvulsants).

5. HHS, PPACCA, Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation, Final Rule, 78 Fed. Reg. 12833 (Feb. 25, 2013). See also Center for Consumer Information and Insurance Oversight, Affordable Exchange Guidance: Letter to Insurers on Federally-facilitated and State Partnership Exchanges (April 5, 2013) (providing further guidance and requiring access to all clinically appropriate drugs, and further clarifying appeal rights). Preliminary studies indicate that those State Benchmark Plans.

6. See Congressional Budget Office, Offsetting Effects of Prescription Drug Use on Medicare’s Spending for Medical Services (Nov. 2012), available at http://www.cbo.gov/publication/43741 at 2.

  • David Farber, JD

    David Farber is a partner at the law firm of King & Spalding, based in Washington, D.C. David is a health policy expert, representing clients before the Courts, CMS and the Congress on a range of healthcare issues.

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