Industry Trends

Perspectives on New MA Rule That Touches Protected Classes

January 24, 2019

CMS on Nov. 26, 2018 issued a proposed rule making changes to the Medicare Advantage and Part D programs that would take effect in 2020. Key provisions in CMS’s latest drug pricing rule include a proposal to extend new flexibility to plan sponsors in the area of so-called six “protected” drug classes and the required implementation of a new electronic real-time benefit tool (RTBT), AIS Health reported.

CMS on Nov. 26, 2018 issued a proposed rule making changes to the Medicare Advantage and Part D programs that would take effect in 2020. Key provisions in CMS’s latest drug pricing rule include a proposal to extend new flexibility to plan sponsors in the area of so-called six “protected” drug classes and the required implementation of a new electronic real-time benefit tool (RTBT), AIS Health reported.

Under CMS’s Contract Year 2020 Medicare Advantage and Part D Drug Pricing Proposed Rule, plans would be able to:

  • Implement broader use of prior authorization and step therapy for protected class drugs;
  • Exclude a protected class drug from a formulary if the drug represents only a new formulation of an existing single-source drug or biological product, regardless of whether the older formulation remains on the market; and
  • Exclude a protected class drug from a formulary if the price of the drug increased beyond a certain threshold over a specified look-back period.

Michael Strazzella at Buchanan, Ingersoll & Rooney PC., says, “I think being able to exclude [certain] protected class drugs from the formulary is going to be very significant for plans….And it is going to force the pharmaceutical companies to work more within the formulary managed care communication.”

CMS in the proposed rule extended the opportunity given to plans for 2019 to implement appropriate utilization management tools for managing Part B drugs. The new rule included a proposal to modify Part D adjudication time periods for organization determinations and appeals involving Part B drugs to make sure that enrollees maintain access to all medically necessary Part B covered therapies.

According to Heidi Harmon at Gorman Health Group, “This Part B and Part D comingling will be easier for MA-PD [Medicare Advantage prescription drug] plans that already have a Pharmacy & Therapeutics Committee in place. MA-only plans will now need to develop and utilize a P&T Committee.”

The recent rule also proposed a new requirement that each plan adopt an RTBT by Jan. 1, 2020. This tool would allow prescribers to have a “complete view of the beneficiary’s prescription benefit information.” Plans are encouraged to “promote full drug cost transparency by showing each drug’s full negotiated price.”

“I think it’s going to be very interesting if they decide to try and forward with the tool,” says Strazzella. “Information doesn’t hurt decisions, but whether it gets utilized or not is unclear to me. And if medical decisions are going to be totally based on pricing, that’s a dangerous way to go.” And it would require “constant monitoring” and additional education to providers, which could be challenging, he adds.

Radar On Market Access: Drug-Pricing Transparency, Vertical PBM Deals Are Top of Mind for Employers in 2019

January 22, 2019

As they look to win over employer clients this year, PBMs should be prepared to face stiff competition and embrace emerging trends such as value-based formularies and rebate-free models, benefits consultants tell AIS Health.

As they look to win over employer clients this year, PBMs should be prepared to face stiff competition and embrace emerging trends such as value-based formularies and rebate-free models, benefits consultants tell AIS Health.

“I’ve heard more interest about RFPs and going out, looking for or market-checking vendors than I have in a while — particularly on the PBM side,” says Suzanne Taranto, a principal and consulting actuary for Milliman, Inc.

Companies are also considering how the vertical integration in the PBM space is “reshaping the landscape,” says Renya Spak, who leads Mercer’s Center for Health Innovation.

“The main players in the pharmacy and medical space are all going to start operating a little bit differently,” Spak says. “We thought we knew how they operated and their business model, but now that they’re vertically integrated, I think we need to apply a whole new lens to understanding how they will operate and what will drive their business forward in the future.”

That said, many of the same themes that employers are focused on will apply, including greater transparency around drug pricing and rebates, and even rebate-free models, she says. Presumably in response to that demand, CVS in early December unveiled a Guaranteed Net Cost PBM model, under which it will pass 100% of rebates to plan sponsors.

Along similar lines, Spak says she’s seeing renewed interest in formularies that are based on the value that certain drugs deliver versus how rebates flow.

Another trend that Taranto is seeing involves “more care management programs, more interest in the specialty space and looking at alternative ways to procure those drugs,” she says.

Specialty drug spending is always a high-attention area, Taranto explains, but now there more tools and different options available — not only from the “usual suspects,” PBMs — but also from other vendors that are offering to help manage these pricey medications.

For employers that are large enough, that may mean they consider a different contract, she says. But “if you’re smaller, you may be looking at a number of specialty pharmacy providers outside of the standard PBM, on a carve-out basis, who promise better pricing, better deals.”

Radar On Market Access: Don’t Expect Major Action on Drug Prices in 2019, Experts Say

January 15, 2019

As 2019 gets under way, public outrage over high prescription drug prices does not appear to have abated, especially in light of recent news reports indicating manufacturers are raising prices on hundreds of drugs this month, AIS Health reported.

As 2019 gets under way, public outrage over high prescription drug prices does not appear to have abated, especially in light of recent news reports indicating manufacturers are raising prices on hundreds of drugs this month, AIS Health reported.

Yet there are plenty of reasons why this concern over drug prices might not result in any significant legislative or regulatory action, experts tell AIS Health. And whatever does occur might benefit health plans and PBMs more than challenge them.

Walid Gellad at the University of Pittsburgh says there’s sure to be a lot of drug-pricing bills proposed — and even passed — by the House, but it’s not certain that any will become law. He says that’s because many Senate Republicans aren’t likely to be very interested in passing legislation that harms the pharmaceutical industry. “The real uncertainty is whether the president would get behind one of those bills, and if so, that could change things,” Gellad says.

One hot topic on Democrats’ legislative agenda will be allowing Medicare to negotiate drug prices with manufacturers. While the idea of broad-based Medicare price negotiation probably has little chance of passing, “there could be a tie-in between negotiation and external reference prices for Part D,” says Gerard Anderson, professor at Johns Hopkins University Bloomberg School of Public Health.

In fact, Sen. Bernie Sanders (I-Vt.) and other left-leaning lawmakers introduced a trio of drug-pricing bills on Jan. 10, one of which would direct HHS to negotiate lower prices for Part D drugs, and another that would peg the price of prescription drugs in the U.S. to the median price in five major countries.

Overall, Anderson says he expects most potential actions to lower drug prices will benefit the managed care sector, as the result could be lower costs for such companies.

On the regulatory front, Gellad says he expects “small changes here and there…[but] nothing that’s going to radically change prices now or over the next two years — or until the next election.” However, “the big one for me is whether there will be big action around rebates,” he adds.

If the prescription drug rebate structure changes fundamentally, “it’s going to create a challenge for PBMs and their underwriting strategies, because they have been driven by rebates over the last couple years,” says Brian Anderson, a principal with Milliman, Inc.

Perspectives on Potential Humana/Walgreens Tie-Up

January 10, 2019

In November 2018, reports emerged that retail pharmacy giant and health insurer— Walgreen Co. and Humana Inc. — are in preliminary talks to take equity stakes in each other.

In November 2018, reports emerged that retail pharmacy giant and health insurer— Walgreen Co. and Humana Inc. — are in preliminary talks to take equity stakes in each other.

Walgreens and Humana are already collaborating on a pilot project in which the insurer opened senior- focused primary care clinics in two Walgreens stores in the Kansas City, Mo., region. Now the companies are in “wide-ranging” talks about either expanding that venture or taking stakes in each other, according to The Wall Street Journal.

If Humana and Walgreens do decide to establish cross-holdings in each other, it would be “a very interesting and shrewd play,” Rita Numerof, Ph.D., president and founder of Numerof & Associates, tells AIS Health.

“We know that a lot of outright M&A doesn’t deliver value at the end of the day,” she says. But taking equity stakes in each other isn’t a true acquisition, “so you don’t have all of the risks and costs associated with bringing [a] business under the umbrella of one that’s very, very different.”

In an note to investors, Leerink analyst Ana Gupte pointed to the upside for Humana. “Equity stakes are a way for the two companies to share economics across the different economic pools across clinical, MA distribution and associated retail pharmacy fills and front store sales, which can drive several hundred million dollars of value for [Humana] annually in EBIT [earnings before interest and taxes].”

But Jefferies analysts wondered if perhaps Walgreens might be the bigger winner, since the pharmacy business model “is under more direct attack from disruptive players than are health plans” and “partnering with [Humana] helps [Walgreens] drive market share.”

Jay Godla, a partner at PwC’s Strategy&, says that there could certainly be synergies produced by Humana and Walgreens buying stakes in each other. But any arrangements that are less than a full merger or acquisition can include issues around commitment, agility, not-so-well aligned goals and objectives, and inability to make quick decisions, he notes.

The talks reportedly going on between Humana and Walgreens “could be a starting point for a long-term future merger,” Godla adds.

Radar On Market Access: PBMs May Be Able to Handle Pressure From State Medicaid Programs

January 8, 2019

As states take a hard look at how they can reduce prescription drug spending in their Medicaid programs, they’ve put an already heavily scrutinized type of organization in their crosshairs: PBMs, AIS Health reported.

As states take a hard look at how they can reduce prescription drug spending in their Medicaid programs, they’ve put an already heavily scrutinized type of organization in their crosshairs: PBMs, AIS Health reported.

Ohio, for example, is forcing PBMs to abandon their current “spread pricing” models — in which PBMs pocket the difference between the amount they reimburse a pharmacy for a drug and the (usually higher) amount they charge a plan sponsor. Instead, they’ll move to a “pass-through” model, where PBMs will be paid an administrative fee by the Medicaid program and have to pay pharmacists the same amount that they bill the state for drugs, The Columbus Dispatch reported.

Most recently, Pennsylvania Auditor General Eugene DePasquale (D) released a report that advocates for legislation that would trade a spread-pricing model for a flat-fee model and allow the state’s Medicaid program to directly manage its prescription drug benefits instead of contracting with managed care organizations.
It might seem as though PBMs are facing a considerable threat from these moves, but industry experts say they are likely to be able to adjust to states’ changing preferences.

“I’d say that the PBMs’ business model could definitely change if more payers move toward this pass-through pricing model, but it doesn’t necessarily eliminate their role entirely,” says Tiernan Meyer, a director at Avalere Health. States can often be strapped for resources, and having a contractor administer pharmacy benefits instead of using their own resources to do so, “can be useful,” she adds.

What’s more, “the PBMs are very much used to this from other contracts that they hold, and they can certainly make money in a transparent environment,” says Robert Ferraro, R.Ph., a principal at the consulting firm Buck’s national pharmacy practice. “I think they would prefer a traditional model where their revenue wasn’t so easily identified by all their customers, but that doesn’t mean they can’t earn a very good living in a transparent or pass-through model.”

A more transparent approach to PBM contracting also helps smaller PBMs compete with the likes of UnitedHealth Group’s OptumRx, CVS Health Corp. and Cigna Corp.-owned Express Scripts Holding Co., because it simplifies the procurement process to an examination of administrative fees, he says.

Radar On Market Access: Judge OKs CVS Plan to Keep Aetna Separate Pending Review

January 3, 2019

Facing an unexpected judicial roadblock in the plan to combine their two business, CVS Health Corp. and Aetna Inc. successfully negotiated a deal to keep their PBM and health insurance operations separate for at least the next few months, AIS Health reported.

Facing an unexpected judicial roadblock in the plan to combine their two business, CVS Health Corp. and Aetna Inc. successfully negotiated a deal to keep their PBM and health insurance operations separate for at least the next few months, AIS Health reported.

At the heart of the holdup is U.S. District Court Judge Richard Leon, who has the right to review the agreement that CVS and Aetna struck with the DOJ to resolve antitrust concerns with their deal.

CVS said it is currently operating Aetna’s health insurance business separately from CVS’s retail pharmacy and PBM business units, with Aetna maintaining control over pricing and product offerings. Aetna personnel will also retain their current compensation and benefits, and CVS will maintain a firewall to prevent the exchange of competitively sensitive information between the two companies.

Leon issued a Dec. 21 order accepting CVS’s plan, saying he’s satisfied that “so long as these measures remain in place, the assets involved in the challenged acquisition will remain sufficiently separate” to facilitate his review of the deal.

John Matthews, KPMG’s strategy leader for health care and life sciences, points out that if the restrictions remain in place for a long time — or potentially permanently — “then I think it actually really undermines the strategic rationale and value creation proposition for what the deal is intended to do.”

In particular, if the firms have to keep their PBM separate from their insurance business — in terms of both product offerings and data sharing — that could stymie “what was going to be exciting and different about the deal, which was it allowed them to combine pharmacy and benefit data to really understand total cost of care for certain key conditions,” he adds.

Whether that comes to pass largely depends upon timing, according to Matthews. “I think if they start getting into six, nine, 12 months, then it starts becoming a problem, even if it’s not a permanent injunction,” he says.