CMS Walks ‘Tightrope’ With Generic-Coverage Proposal for Exchange Plans

Tucked into the annual payment rule for Affordable Care Act exchange plans is a proposal that, if finalized, would upend the way health plans and PBMs go about designing formularies — if only for one business line. Already, industry groups are weighing in to both applaud and criticize the concept of requiring ACA marketplace plans to put only generic drugs on their lowest cost-sharing tiers.

“There will be legitimate points to be made on multiple sides of this, and I think that this is going to be a very delicate tightrope that is going to have to be walked,” says Massey Whorley, a principal at Avalere Health.

The new requirements related to formularies stem from CMS’s reintroduction of standardized exchange plans, which it began requiring all plan issuers to offer in 2023 in an attempt to help consumers navigate the increasingly robust menu of plan choices.

In the proposed Notice of Benefit and Payment Parameters for 2024 that CMS released on Dec. 12, the agency goes further, floating a policy of limiting non-standardized plans to two options per network type and metal level in any given service area. As part of that proposal, CMS says it wants to “continue to use the following four tiers of prescription drug cost sharing in the proposed standardized plan options: generic drugs, preferred brand drugs, non-preferred brand drugs, and specialty drugs.” The idea is to help consumers more easily compare plan formularies, the agency explains.

CMS goes on to say that it is “aware of concerns that issuers may not be including specific drugs at appropriate cost-sharing tiers for the standardized plan options; for example, some issuers may be including brand name drugs in the generic drug cost-sharing tier, while others include generic drugs in the preferred or non-preferred brand drug cost-sharing tiers.” Generally, consumers are likely to expect generic drugs to be in the lowest tier, with branded drugs placed higher, the agency says, so it proposes to require exactly that.

Specifically, all standardized-plan issuers starting in 2024 would have to place generic drugs in their standardized plans’ “generic cost-sharing tier” and branded drugs in those plans’ “preferred brand or non-preferred brand tiers,” unless either the generic or branded drug in question has a clinically appropriate reason for being in a specialty tier. “CMS proposes this specification to reduce the risk of discriminatory benefit designs, to minimize barriers to access for prescription drugs, and to reduce the risk of consumer confusion for those enrolled in these plans,” the agency said in a fact sheet about the proposed regulation.

Rebates Can Land Brands on Lower Tiers

Although the issue doesn’t appear to have been studied much in the ACA exchange markets, Avalere research in the Medicare Part D space has found a “significant shift away from generics being primarily placed on Tier 1 and being shifted toward higher-level tiers that are typically associated with a higher level of cost sharing,” Whorley tells AIS Health, a division of MMIT. “And you do have significant crossover between the types of companies who are running plans in the exchange versus in Part D,” he points out.

Generally, “when you see generics placed [on a formulary] in a way that may not be intuitive, based on list price, for example, it is very likely that there is a rebate structure on the back end for the branded product that reduces net cost for the plan,” Whorley explains. But as CMS points out in the 2024 payment rule, this isn’t clear to consumers, who may be left wondering why some generic drugs are on higher cost-sharing tiers and why some brands are placed lower on formularies.

CMS’s proposal, meanwhile, “certainly would alter the structure and decision-making logic that plans and PBMs have had as it relates to formulary tiering,” Whorley says. He adds that “there is a world in which these kinds of restructurings can have unintended consequences,” since typically health plans create formularies with a goal of minimizing net cost, and the proposed regulation effectively prohibits them from doing that. If that part of the rule is finalized and results in higher costs for health plans, they could pass that along to consumers — although the generous premium tax credits available to many ACA exchange enrollees could blunt that impact, Whorley acknowledges.

PCMA Predicts Policy Would Increase Spending

In a statement emailed to AIS Health, the PBM industry’s primary trade group warns about the new proposed formulary requirements’ potential to push up costs.

“The first tier in prescription drug formularies is designed for the lowest net cost drugs that provide the highest level of treatment for patients, whether that is a generic or brand-name drug,” says the Pharmaceutical Care Management Association. “Placing mandates on formulary tier placement can lead to overall higher drug spending.”

But the Association for Accessible Medicines — which represents manufacturers of generic and biosimilar drugs — had only praise for the proposal. “This common-sense approach will result in meaningful savings for America’s patients,” David Gaugh, the trade group’s interim CEO, said in a statement. “As CMS notes, ‘it is reasonable to assume that consumers expect that only generic drugs are covered at the cost-sharing amount in the generic drug cost-sharing tier.’ Not only is this a reasonable assumption, but it is an important step to ensuring that patients are not forced to overpay for low-cost generics.”

Whorley observes that CMS and other stakeholders have long been discussing the idea of requiring Part D formularies to place generic and brand drugs on specific tiers, but it has never come to fruition. Now that the Biden administration is floating a similar policy for the ACA exchanges, “will this level of scrutiny be applied to other major markets?” Whorley wonders.

Meanwhile, just because mandating formulary placements hasn’t taken hold in the Part D world doesn’t necessarily preclude it from occurring in the individual insurance market, he suggests. “Part D does have a decade or so more establishment than the exchanges, and we have seen some innovation in the exchanges that could lead you to believe that some people would be open to this idea.”

Ultimately, “it’ll be interesting to see where CMS lands on this, because there is a push and pull — you’re not going to make everyone happy,” he says.

Contact Whorley at

This article was reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.

© 2024 MMIT
Leslie Small

Leslie Small

Leslie has been working in journalism since 2009 and reporting on the health care industry since 2014. She has covered the many ups and downs of the Affordable Care Act exchanges, the failed health insurer mega-mergers, and hundreds of other storylines spanning subjects such as Medicaid managed care, Medicare Advantage, employer-sponsored insurance, and prescription drug coverage. As the managing editor of Health Plan Weekly and Radar on Drug Benefits, she writes and edits for both publications while overseeing a small team of reporters who also focus on the managed care sector. Before joining AIS Health, she was a senior editor for the e-newsletter Fierce Health Payer, and she started her career as a copy editor at multiple local newspapers. She graduated with a dual degree in journalism and political science from Penn State University.

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