Tagged: Health Care

To Combat Problematic PBM Practices, Eliminate the Rebate Safe Harbor

May 21st, 2020 in Administrative Law, Federal Legislation

Pharmacy Benefit Managers (“PBMs”) are at the center of the discussion about the causes of high pharmaceutical prices and efforts to reduce the nations pharmaceutical spending. Currently over 80% of pharmaceuticals in the United States are purchased through PBMs. While PBMs were originally intended to reduce drug costs to consumers, they now face criticism for actually increasing drug prices. A 2016 study found $23billion of health care spending was directly attributable to PBMs. In order to reduce pharmaceutical spending in the United States, legislative efforts must aim to align the incentives of PBMs and their payer clients. One such effort would be to eliminate the rebate safe harbor.

PBMs are for-profit entities that broker deals in the pharmaceutical supply chain. PBMs are entitled to retain profits for the services they provide. However, the problematic practices of PBMs all have to do with the amount of profit they are able to retain. PBMs act as middlemen between payers, pharmaceutical manufacturers, and pharmaceutical retailers. PBMs use their payer client networks to create a large network that has more buying power in order to negotiate for lower prices from pharmaceutical manufacturers, usually in the form of rebates.

The rebate system is extremely controversial and receives a lot of criticism. It works like this: PBMs negotiate for lower drug prices for their health insurance payer clients by offering different types of placement on health plan formularies.  Manufacturers agree to give rebates to the health plan for use of the drug based on where the drug is listed on the health plan formulary. When the drug is paid for by the health plan, the manufacture gives a discount to the plan in the form of a rebate. The rebate passes through the PBM to get to the plan, and the PBM often retains a portion of the rebate as part of the contract (“Some research has found that major PBMs can retain around 38-40 percent of rebate dollars collected from drug manufacturers”).  The rebate that the PBMs negotiate is not a rebate that is given to the consumer directly at the pharmacy; the purported benefit of the rebate to the beneficiary is a decrease in premiums.

The central concern is that the reduction in price from the rebate is benefiting PBMs, drug manufactures and health plans, but not patients.  Health plan beneficiaries often have deductibles and co-insurance payments, and the price they pay is not based off of the discounted price the insurer gets, but rather the list price of the drug  (“many rebates do not flow through to consumers at the pharmacy counter as reductions in price. In these instances, beneficiaries experience out-of-pocket costs more closely related to the list price than the rebated amount during the deductible, coinsurance”). The rebate does not apply to the price that a beneficiary directly pays for a drug, it only applies when the health plan is covering the cost.

Niall Carson / PA Wire / PA Images

The rebate system is also harming patients by driving up the prices of drugs.  The system creates perverse incentives for PBMs, where they are incentivized to include drugs with higher list prices on formularies. This is because the portion of the rebate that PBM retains is based off of the amount of savings, meaning that a higher priced drug generates a higher rebate.  In addition to incentives placed on PBMs to select higher priced drugs, the system can also incentivize manufacturers to raise or keep list prices high.  Logically, if PBMs are selecting the higher priced drugs in order to get larger rebates, drugs with lower list prices will not be selected for preferred placement on formularies.  Lower list prices reduce the savings generated which results in removal from formulary. The nature of the rebate system means that rebates effectively function as kickbacks to PBMs.

PBMs are subject to a host of federal regulations due to the highly regulated nature of health care.  The industry is affected by federal regulations because PBMs contract with the federal government to administer drug benefits for Medicare Part D and because they submit claims to federally funded programs, Medicaid and Medicare, on behalf of their clients. The Federal Anti-Kickback Statute (“AKS”) “prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate federal health care program business.” 42 U.S.C § 1320a-7b(b) (2012).  The AKS and subsequent regulations include voluntary safe harbors, which “describe various payment and business practices that, although they potentially implicate the federal anti-kickback statute, are not treated as offenses under the statute.” 42 C.F.R. §1001.952 (2018). The AKS has a mandatory discount safe harbor, meaning that the government will not prosecute for arrangements that fall within the discount safe harbor requirements. 42 U.S.C. § 1320a-7b(b) (2012). The discount safe harbor applies to PBMs because they use rebates to negotiate deals between drug manufactures and clients.  These rebates fall within the definition of kickbacks under AKS because the PBM retains, as revenue, a portion of the rebates that it negotiates for each drug, and the amount they are paid is based on how much that drug is purchased using the rebate. 

While these rebates are technically a violation of AKS, they do not currently put PBMs at risk for prosecution under the statute because the rebates are a form of discount, and, consequently, the discount safe harbor applies. In order to be protected by the safe harbor, PBM arrangements for rebates with manufacturers and clients must strictly comply with the requirements or else the PBM is in violation of AKS. 42 U.S.C. § 1320a-7b(b)(3)(A) (2012); 42 C.F.R. § 1001.952(h) (2018). This safe harbor, as presently understood, applies to prescription drug rebates paid by drug manufacturers to PBMs, Medicare Part D, and Medicaid managed care organizations, and thus protects the rebates from violation of the Anti-Kickback Statute.

On February 6, 2019, the HHS Office of the Inspector General (“OIG”) published a proposed rule to eliminate the AKS safe harbor applicable to PBMs. The proposed rule would have revised the discount safe harbor “to explicitly exclude from the definition of a discount eligible from safe harbor protection certain reductions in price or other remuneration from a manufacturer of prescription pharmaceutical products to plan sponsors under Medicare Part D, Medicaid managed care organizations … or pharmacy benefit managers under contract with them.” This would have meant that the rebates from manufactures to PBMs would constitute kickbacks and put the PBMs at risk for AKS violation. The basis for the proposed rule was that the safe harbor is operating to decrease transparency and increase costs to consumers, instead of increasing transparency and lowering costs to consumers.

The proposed rule would have removed the incentive that PBMs have to negotiate for rebates on their own behalf instead of on behalf of the plans and their beneficiaries.  Under the terms of the proposed rule, safe harbor protection would have still applied to discounts that the patient receives at point of sale. This protects the consumer interest by ensuring that they receive the discount directly, and allows PBMs to still use discounts as a negotiating tool for their clients. The proposed rule would have also granted safe harbor protection to PBM service fees, which would allow PBMs to continue to profit, at fair market value, from the services they provide.

The response to the proposed rule was, naturally, divided. Proponents of the proposed rule argued it would fulfill its intended purpose and lower the list prices of drugs to price that PBMs are currently negotiating for after rebates, and also lead to increased use of lower cost generics.  That result is supported by analyses prepared by Milliman for HHS, which estimate that implementation of the proposed rule would lead to up to a ninety-eight billion dollar reduction in spending by federal programs over ten years.  However, the PBM industry argued the rebates do not have the negative effects that HHS claim, and that  there are no “viable alternatives to rebates, in light of drug manufacturers’ inability to offer up-front discounts under current antitrust case law.”  Industry push-back also contended that the prohibition on rebates would lead to increased premiums because the use of rebates allows plans to lower premiums. Unfortunately, the Trump Administration sided with the industry perspective and reversed course and withdrew the proposed rule.

Eliminating the rebate discount safe harbor would have had a significant impact toward eliminating a major conflict of interest inherent in the PBM model. If the administration is not willing to put federal programs and beneficiaries ahead of industry, then Congress must enact legislation that achieves the result necessary to reign in excessive and unnecessary pharmaceutical drug spending.

Rebecca Mashni graduated from Boston University School of Law in May 2020.

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Can Single-Payer Really Happen?

February 7th, 2019 in Analysis, State Legislation

Healthcare is on the frontlines of legislative debates— the U.S. has the most expensive care and reports the poorest outcomes of all rich democracies (RDs). Several states have proposed legislation to innovate healthcare access and to safeguard against the destruction of the ACA. One “old idea” that recently  gained momentum is single-payer, and for New York (NY), it may become a reality, with its fate resting with the new legislature. To date, only one state has briefly “experimented” with single-payer – Vermont, and it failed due to gross underestimation of its costs. In NY, a landmark study that evaluates the viability of NY’s single-payer bill, known as the New York Health Act (NYHA), conducted by RAND, detailed benefits and setbacks of the proposed legislation, and public reaction was mixed. Despite the not so encouraging findings, lessons can still be learned from this report.

Single-payer, coined as “Medicare for all”, is a health insurance system in which a single public agency organizes healthcare financing, ideally covering all types of essential healthcare services. Delivery of care itself, however, would remain largely private in a single-payer system.

Proposals for single-payer in the U.S. are not new. The earliest version came in 1943 by Senators Robert Wagner (D-New York), James Murray (D-Montana), and Representative John Dingell, Sr. (D-Michigan), known as the Wagner-Murray-Dingell Bill (and subsequently endorsed by President Truman in 1945). The post-World War II bill proposed funding health care through payroll and income taxes. The bill became entangled with the Cold War , was vilified as socialized medicine by its opponents, and was discarded. The idea was revived in the 1950s, when it was nearly impossible for an aging population to get private health insurance. The elderly advocated for subsidized coverage since they are no longer able to afford their care, and hospitals advocated for it to ensure that the healthcare services they provide were paid for. The result: Medicare was enacted in 1965— the first form of single-payer insurance in the U.S.

Single-payer is gaining popularity once again. According to a Reuters poll, 70% of Americans support some form of single-payer coverage. Why? First, with the implementation of the ACA, there was a national momentum for states to expand their healthcare coverage. The health exchange created by the ACA made coverage accessible for many middle-income families and individuals. On the Medicaid side, progressive states elected to expand their eligibility coverage for individuals earning up to 138% of the federal poverty level in exchange for a 50% match in federal subsidies, a benefit many states enjoy. The most appealing provision of all is the mandated coverage of pre-existing conditions. With the all Republican take-over of the federal government in 2016, many Americans worried about what would happen to their coverage. Over the next two years, the ACA underwent congressional budget cuts, but despite efforts by Congress and President Trump,  the ACA has grown in popularity with the general public.

In NY, the concept of single-payer was first introduced in 1992 by Assembly member Richard Gottfried (NY-D). The goal of NYHA is to provide universal insurance coverage with no cost-sharing for New Yorkers, regardless of legal status, and would cover almost all comprehensive services. Bill proponents expect increased access to care and reduced costs by removing high administrative overhead costs and reducing unjustifiably high prescription drug costs. Much like the Wagner-Murray-Dingell Bill, NYHA would be funded through payroll and income taxes. Since 2015, the NYHA has passed the Assembly floor four times. Although 31 state senators co-signed the bill, it has been stopped in the Senate by just one vote. This may now change with the Democrats taking back the Senate majority, although the cost may be a deterrent.

Despite the national and legislative enthusiasm, New Yorkers have been skeptical of single-payer reform. According to a 2018 Mercury Public Affairs poll, only 33% support the bill. Over 60%, however, said they would support increased subsidies to assist low and middle-income families. Why the opposition? The number one reason of 66% polled: taxes would pose a high burden.

The RAND study assessed “near-term” and “long-term” impacts of the bill. Overall, it found that single-payer would be viable, but with big caveats. The system would expand health care access, all while generating an estimated $15 billion in net savings (3.1%) on healthcare costs by 2031. Still, near-term are where the problems lie. From the political side, this would require the federal government to issue a waiver to redirect all federal and state funds to NYHA. Just weeks prior to this report, the Centers for Medicare & Medicaid Services called California’s similar proposal “unworkableand indicated similar waivers would not be approved. On the fiscal side, health care reform comes with a steep price: $139 billion in additional state tax revenue would be needed by 2022, that is 156% more than what is currently being collected. This amount would be amassed through payroll and income tax that would supplant the employer contribution and premiums and out-of-pocket costs. RAND applied a generic tax schedule based on three income brackets. For low-income families, they would be taxed 6.1% of their payroll income and 6.2% for non-payroll income by 2022. For middle-income families, the rates would range from 12.2% to 12.4%, and for high-income, their tax rate would increase up to 18.3% - nearly three times of what they are paying now. Moreover, Medicaid and Essential Plan (i.e. the NY Health Exchange) enrollees would pay more to get healthcare coverage. Assembly member Gottfried praised the study and suggested that they can adjust taxes accordingly so that high income families would pay more in taxes in order to help low and middle-income families afford their care. These tax hikes would exceed the combined costs of what New Yorkers are currently paying in taxes and healthcare benefits—explaining the bill’s unpopularity. Using the RAND report as a guide, it is likely that the state legislature will explore mechanisms to help finance their proposal in the upcoming session.

New York State Capitol
Albany 1899

While single-payer hasn’t had much luck in the U.S., universal care payment methods, including single-payer, have been successful in other RDs. Regardless of each RD’s financing method, there is one consistent feature of success: national political will to implement it. Imagine if the politics of the cold war did not interfere with establishing a national health insurance plan? Would it have been possible to implement a streamlined and efficient plan? If our culture would have capitalized on the Medicare momentum, would we accept a collective sense of community regarding our healthcare? Vermont tried to implement single-payer with little success due to gross budget underestimations and faint national support. The RAND report sheds light on the cost of single-payer and suggests that there needs to be federal political will to support it. Let these findings and other evidence guide lawmakers as the search for a modest solution continues. Perhaps Wagner’s vision may still be a solution.

Sarah Zahakos is working toward a PhD in Health Law, Policy & Management at the Boston University School of Public Health.

AHRQ T32 Research Fellow
Training in Health Services Research for Vulnerable Populations
Grant # 2T32HS022242

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Legislator of the Year– Senator John McCain

December 30th, 2017 in Legislative Operations, Opinion

John McCain has served in the United States Senate for nearly 31 years, and is probably due a lifetime achievement award.  This award, however, is not for his distinguished service in the US Navy, nor for his many accomplishments over three decades in Congress, nor for the honorable manner in which he ran for and lost the Presidency.  Springsteen and U2 don't win lifetime achievement awards because they keep turning out relevant hits and earning new generations of fans.  Likewise, Sen. McCain wins this year's award for his ringing call over the summer for Congress to return to regular order, backed up by his courageous break with his party during the Affordable Care Act repeal vote.

In late July, Sen. McCain returned to the the Senate to cast a critical vote to proceed to debate on the Senate's Obamacare repeal legislation.  Sen. McCain, who had just disclosed that he was diagnosed with an aggressive form of brain cancer, then offered a passionate plea to his fellow senators:

 

"I've known and admired men and women in the Senate who played much more than a small role in our history, true statesmen, giants of American politics. They came from both parties, and from various backgrounds. Their ambitions were frequently in conflict. They held different views on the issues of the day.  And they often had very serious disagreements about how best to serve the national interest.1200px-John_McCain_official_portrait_2009

"But they knew that however sharp and heartfelt their disputes, however keen their ambitions, they had an obligation to work collaboratively to ensure the Senate discharged its constitutional responsibilities effectively. Our responsibilities are important, vitally important, to the continued success of our Republic. And our arcane rules and customs are deliberately intended to require broad cooperation to function well at all. The most revered members of this institution accepted the necessity of compromise in order to make incremental progress on solving America's problems and to defend her from her adversaries.

"That principled mindset, and the service of our predecessors who possessed it, come to mind when I hear the Senate referred to as the world's greatest deliberative body. I'm not sure we can claim that distinction with a straight face today.

"I'm sure it wasn't always deserved in previous eras either. But I'm sure there have been times when it was, and I was privileged to witness some of those occasions.

"Our deliberations today -- not just our debates, but the exercise of all our responsibilities -- authorizing government policies, appropriating the funds to implement them, exercising our advice and consent role – are often lively and interesting. They can be sincere and principled. But they are more partisan, more tribal more of the time than any other time I remember. Our deliberations can still be important and useful, but I think we'd all agree they haven't been overburdened by greatness lately. And right now they aren't producing much for the American people.

"Both sides have let this happen. Let's leave the history of who shot first to the historians. I suspect they'll find we all conspired in our decline --either by deliberate actions or neglect. We've all played some role in it. Certainly I have. Sometimes, I've let my passion rule my reason. Sometimes, I made it harder to find common ground because of something harsh I said to a colleague. Sometimes, I wanted to win more for the sake of winning than to achieve a contested policy.

...

"Our system doesn't depend on our nobility. It accounts for our imperfections, and gives an order to our individual strivings that has helped make ours the most powerful and prosperous society on earth.  It is our responsibility to preserve that, even when it requires us to do something less satisfying than 'winning.' Even when we must give a little to get a little. Even when our efforts manage just three yards and a cloud of dust, while critics on both sides denounce us for timidity, for our failure to 'triumph.'

"I hope we can again rely on humility, on our need to cooperate, on our dependence on each other to learn how to trust each other again and by so doing better serve the people who elected us. Stop listening to the bombastic loudmouths on the radio and television and the Internet. To hell with them. They don't want anything done for the public good. Our incapacity is their livelihood.

"Let's trust each other. Let's return to regular order. We've been spinning our wheels on too many important issues because we keep trying to find a way to win without help from across the aisle. That's an approach that's been employed by both sides, mandating legislation from the top down, without any support from the other side, with all the parliamentary maneuvers that requires.

...

"I voted for the motion to proceed to allow debate to continue and amendments to be offered. I will not vote for the bill as it is today. It's a shell of a bill right now. We all know that. I have changes urged by my state's governor that will have to be included to earn my support for final passage of any bill. I know many of you will have to see the bill changed substantially for you to support it.

...

"Why don't we try the old way of legislating in the Senate, the way our rules and customs encourage us to act. If this process ends in failure, which seem likely, then let's return to regular order.

"Let the Health, Education, Labor, and Pensions Committee under Chairman Alexander and Ranking Member Murray hold hearings, try to report a bill out of committee with contributions from both sides. Then bring it to the floor for amendment and debate, and see if we can pass something that will be imperfect, full of compromises, and not very pleasing to implacable partisans on either side, but that might provide workable solutions to problems Americans are struggling with today.

"What have we to lose by trying to work together to find those solutions? We're not getting much done apart. I don't think any of us feels very proud of our incapacity. Merely preventing your political opponents from doing what they want isn't the most inspiring work. There's greater satisfaction in respecting our differences, but not letting them prevent agreements that don't require abandonment of core principles, agreements made in good faith that help improve lives and protect the American people.

...

"The success of the Senate is important to the continued success of America. This country --this big, boisterous, brawling, intemperate, restless, striving, daring, beautiful, bountiful, brave, good and magnificent country -- needs us to help it thrive. That responsibility is more important than any of our personal interests or political affiliations."

 

A few days later, Sen. McCain carried out his promise to vote against a bill that he continued to see as an "incomplete shell."  His vote doomed the effort to "repeal & replace" the Affordable Care Act.

Amazingly, after being elected to Congress as a Reagan Republican, and running as the GOP candidate for President, Sen. McCain now has a higher favorability among Democrats and independents than Republicans.  In December 2017, a CCN poll showed 68% of Democrats and 48% of independents had a favorable opinion of the Senator, whereas only 46% of Republicans felt the same.  In this toxic political time, some Republicans even whisper that Sen. McCain is a RINO, a "Republican In Name Only," especially after his health care vote in August. That is truly sad.

What is more conservative than demanding Congress, the branch that has the greatest capacity to do good or harm to the Republic, operate by its own time-honored traditions and rules and subject major bills to bi-partisan scrutiny and amendment before passage?  Many Republicans railed against these practices when former Democratic Leader Harry Reid recklessly used the "nuclear option" to end most judicial filibusters, and routinely "filled the tree" to prevent consideration of Republican amendments.  Yet once the GOP gained control of the Senate, they too placed ideology and winning over creating bipartisan agreement on important issues.

A strong functioning Congress is especially important now.  President Trump is a small man—seemingly devoid of ideals or morals.  He cares nothing for policy details, but just his own image and “winning” deals.  His “leadership” has demoralized executive agency personnel and harmed the nation's image oversees.   Senators should try to emulate the legends that went before them--Goldwater, Kennedy, Dirksen, Inouye, Ervin, Taft, Fulbright--and now McCain.  The House leadership should be taking the example of Cannon, Rayburn, Martin and O'Neill-- and stop kowtowing to the so-called "Freedom Caucus."  Congress needs to pull itself together to first balance, and then cure, Trumpism.

For his bold and timely call for a return to regular order, Dome is pleased to name Senator John McCain our Legislator of the Year.

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