By: Kelly Dempsey, Esq.
That’s a pretty big question as we learn more about the Trump Administration’s attempt to reduce drug costs.
We all know drug prices are off the charts and several attempts to control pricing have failed to get up and running. As you may recall, President Trump indicated during his campaigning that he would develop a plan to lower prescription medicine costs. The U.S. health secretary (Azar) is making some moves and has indicated that eliminating drug rebates may help reduce costs.
Cost containment is key to self-funding and high drug costs have caused employers and plans to explore options to keep plan costs down, including utilizing vendor programs that obtain drugs from outside the U.S. and/or build certain rebate programs into the customized plan design. While there’s still a lot that must be worked through before changes are implemented, these four key takeaways may give plans, employers, brokers, PBMs, and other vendors some heart burn:
Plans and vendors that utilize these types of programs should be on the look-out for rule changes to ensure continued health plan compliance.
By: Brady Bizarro, Esq.
Prescription drugs are some of the most costly benefits for any health plan, especially for those plans that are self-funded. In 2017, total spending on prescription drugs in the U.S. reached $453 billion. Specialty drugs are particularly culpable, accounting for more than one third of all drug expenditures in 2016 despite making up less than one percent of all written prescriptions. In May, the Trump administration released a forty-four-page blueprint for executive action on prescription drug prices, entitled “American Patients First.” The document contained many strategies for combating rising drug costs; but it also focused in on the use of patient assistance programs (“PAPs”) and considered whether they might be driving up list prices by limiting the transparency of the true cost of drugs to patients.
Plan sponsors originally utilized the typical tools available to them to try to offset the cost of specialty drugs: higher copayments, coinsurance, and deductibles. In an effort to mitigate the impact on patients, several pharmaceutical manufacturers developed PAPs to help offset patients’ out-of-pocket drug costs. Some of these programs are very generous. For example, a PAP run by Enbrel offers up to $660 per month toward the cost of a specialty drug for members who would not otherwise qualify for financial assistance.
Assistance programs are marketed as a kind of altruism for patients, which has great public relations benefits. They can also increase the demand for specialty drugs, even when generic alternatives are available. This results in a huge cost to the patient’s health plan. Consider the following scenario: a specialty drug’s list price is $10,000. A generic alternative is available that has a list price of $2,000. The health plan imposes a $500 copay for specialty drugs when generics are available and a $100 copay for generics. In this case, however, the specialty drug manufacturer offers the patient a $450 copay card. For the patient, the out-of-pocket cost for the specialty drug is $50 cheaper than the copay for the generic alternative. The patient chooses the specialty drug, and the health plan pays $9,500. Had the patient selected the generic alternative, the plan would have only paid $1,900.
As the scenario above reveals, PAPs can incentivize patients to choose specialty drugs even when cheaper, generic alternatives are available. For most patients, the only price they are aware of is the amount they pay at the register. The cost to their health plan remains hidden to them, although they eventually feel the effects downstream. In other words, PAPs can save patients money on the front end while driving up the cost to patients on the back end through increased premiums and cost-sharing. With PAPs now in the crosshairs of both plan sponsors and the Trump administration, we should expect new regulations on their use in the coming months.
By: Chris Aguiar, Esq.
Last week, I teased this blog post on Linkedin with vague commentary about effective cost containment not being just about recovering as much money as possible, but also about being knowledgeable and understanding when its best to cut losses. One of the attorneys in our office is currently working on a file where a benefit plan may be ill-advisedly pushing the limits of the law. You see, in subrogation and reimbursement cases, there is a rule called the “Made Whole Rule”. This rule is one of equity that operates to eliminate a plan’s recovery rights when a plan participant does not recover the full amount of their damages (i.e. they weren’t “made whole”). Now, those of us with private self-funded plans that enjoy the benefit of state law preemption can point to our plan terms and the current state of Federal law which holds that clear and unambiguous language that disclaims application of this rule and others like it will control and allow plans to recover regardless of whether the participant was made whole.
This plan, however, is unfortunately governed by state law as it is not a private self-funded benefit plan; preemption does not operate in its favor. The participant had $800,000.00 in medical damages, alone, and received a $1,000,000.00 settlement. Those numbers alone may indicate to some that the participant was, indeed, made whole. However, the damages discussed above are ONLY the medical damages. We have yet to discuss any other damages, including but not limited to: 1) lost wages (present and future) 2) pain and suffering 3) future care, etc. The list of damages in serious accidents such as this can be extensive, and all of those categories hold considerable value and are compensable in the eyes of the law. The particular jurisdiction in which this plan sits happens to have one of the most aggressive made whole rules in the country, and the judges there tend to be very pro participant. Accordingly, it’s a safe assumption that given the participant will really only receive about $600,000.00 after fees and costs of pursuit – it’s quite easy to see that the participant will not likely be considered to have been “made whole” in the eyes of the court.
Despite that, The Phia Group’s attorney has been able to negotiate for a reimbursement of approximately 20% the Plan’s interest. Should the Plan decide to try to enforce a right of full reimbursement, and the court apply the made whole rule, the Plan will receive no recovery at all and will have endured the extra time, expense, and possibly even media fallout for ‘dragging its participant through this ordeal’, of protracted litigation.
Plans, and we as their advisors, must be cognizant of the rules of the jurisdictions in which we operate and realize when a good outcome is unlikely. Sometimes, even if one has a good case and can win and recover its entire interest, the cost of doing so paired with the inability to obtain reimbursement of the costs of pursuit can render the action moot, because the cost can in many instances outweigh the interest. This is even more true, of course, in situations where the Plan is likely to lose.
Effective cost containment is about looking at the situation and determining the most cost effective approach – winning does not always equate to the best outcome.
By: Corrie Cripps
In June, the US Food and Drug Administration (FDA) issued the nation’s first approval for a drug derived from marijuana-based compounds. The drug’s name is Epidiolex, and is used to treat patients with forms of severe epilepsy (Dravet syndrome and Lennox-Gastaut syndrome).
The drug uses CBD, or cannabidiol, which is an oil that comes from resin glands on cannabis buds and flowers.
Prior to the FDA marketing Epidiolex, the Drug Enforcement Administration (DEA) must reclassify CBD, since it is currently listed as a Schedule I drug. Schedule I drugs are considered to have “no currently accepted medical use and a high potential for abuse.” The DEA is expected to make this change for CBD, but will likely leave cannabis itself at Schedule I.
Currently CBD is legal to purchase in only some states. In the states where medicinal or recreational marijuana is legal, CBD is legal. In 17 other states, there are specific laws about what CBD products can be used by whom and for what.
If the DEA reclassifies CBD so that it is no longer a Schedule I drug, thus making CBD legal at the federal level, plan sponsors will need to determine if/how they want to address this in their plans (i.e., if they want to specifically exclude or cover it). Plan sponsors will need to determine how this change will impact their plans, including stop loss.
By Patrick Ouellette, Esq.
The Federal Drug Administration (FDA) recently issued the nation's first approval for medicine derived from marijuana-based compounds, cannabidiol (CBD). Given this news, the next reasonable question for the self-funded industry is how it will impact health plans’ coverage and exclusions of medicinal marijuana.
This has been and continues to be an unsettled area of law between federal and state statutes. Up until now, medicinal marijuana was not approved by the FDA and thus typically would either not fall under a plan document’s definition of a drug or otherwise be excluded. Traditionally, a plan offering CBD as a benefit had, on the surface, appeared to violate federal law because marijuana has been illegal at the federal level. Simultaneously, CBD was considered legal in many states, creating a conflict between federal and state law.
The FDA approval will likely not affect plans that want to continue to exclude all types of marijuana; if such plans have not already, they would only need to broaden their plan document exclusion language a bit to account for medical marijuana. Plans that do want to cover medical marijuana, however, may now see less risk in doing so now that a CBD product has been approved by the FDA. From a statutory perspective, these plans have the authority to dictate whether or not they want to cover FDA-approved CBD. Importantly, despite the fact that these plans will now have more flexibility to cover CBD, there are still administrative consequences to consider.
You can reach out to the Phia Group Consulting team here to discuss the effect of the FDA’s approval on your plans or clients.
By: Jen McCormick, Esq.
Massachusetts Governor Charlie Baker signed landmark legislation on June 28, 2019. The legislation, referred to as the “Grand Bargain” Act will increase the minimum wage and create a generous paid leave program. Massachusetts employers should begin to prepare for the impact of this new paid leave program.
The new paid leave program will be available for eligible individuals as of January 1, 2021. All private Massachusetts employers will need to provide eligible individuals with paid family and medical leave, funded via the payroll tax (discussed below). In general, eligible individuals include (a) current (full-time) employees of a Massachusetts employer; (b) self-employed individuals who elected coverage under the law and reported self-employment earnings; and (c) certain former employees. Generally, these individuals will be entitled to 12 weeks of paid family leave to (a) provide care for a family member due to the family member’s serious health condition; (b) bond with their child during the first 12 months after the child’s birth or during the first 12 months after placement of the child for adoption or foster care; or (c) attend to obligations arising because a family member is on active duty or been notified of an impending call to active duty in the United States armed forces. Upon return from paid leave, the individuals must be restored to their equivalent position with the same status, pay, benefits and seniority.
Pursuant to the regulations, a new state agency (the Department of Family and Medical Leave) was created to assist in the administration of this new program. This agency is required to issue proposed regulations regarding the implementation and administrative processes for this new paid leave program by March 31, 2019. The new paid leave program will be funded by a mandatory .63% payroll tax contribution (as adjusted by the agency on an annual basis), which is to be collected by the agency. Employers and employees may contribute towards the cost of the tax. Note, however, that certain small employers will be exempt.
The paid leave will be subject to a one-week waiting period during which no benefits will be paid, however, employees may (but are not required) to use other paid leave (i.e. sick or vacation time). Eligible individuals may receive up to a weekly benefit cap of $850 (as adjusted by the agency). In certain instances, paid leave taken under this program may also qualify under the Family Medical Leave Act (FMLA) or the Massachusetts Parental Leave Act. The new paid leave program is to run concurrent with those protected leaves.
Importantly, pursuant to this program employers must maintain an employee’s existing health insurance for the leave. As the qualifications for this program do not necessarily align with those under FMLA, employers will need to review their existing employee handbooks and health insurance plans to ensure this will not create a gap in coverage. In addition, the regulations note that this program is not intended to interfere with any existing employer programs that may offer greater benefits. For impacted Massachusetts employers, in addition to reviewing current handbooks and materials, this regulation may create the opportunity to expand upon current benefit offerings to ensure compliance with the new law. For example, maybe an employer will want to investigate a self-funded paid leave program.
Stay tuned as administrative regulations are expected in early 2019 to assist employers with the implementation of this new paid leave program.
A few years ago, the 2nd Circuit threw the subrogation industry a bit of a curveball when it ruled that, effectively, a benefit plan could not preempt application of a state law anti subrogation provision because enforcement of the provision did not “relate to” the provision of employee benefits. This made the 2nd Circuit a bit of a difficult Federal Jurisdiction for a bit, if for no other reason than that reading how the Court somehow used “logic” to find its way to a completely illogical decision; that a provision that allows a plan participant to keep plan assets, thereby accessing benefits to which it isn’t entitled because of Its obligation to reimburse the plan, doesn’t “relate to” benefits and therefore is not subject to preemption. Given how the Court was able to justify that decision, how would they rule in the future on issues of subrogation and third party recovery?
The silver lining of that decision is that it was a fully insured benefit plan, so it really shouldn’t have adversely impacted the rights of private, self-funded benefit plans. That reality, however, didn’t stop every single lawyer in New York and the 2nd Circuit to argue that our private self-funded clients no longer had recovery rights in that area of the County. Thankfully, a recent decision in the Eastern District of New York, COGNETTA v. Bonavita, though not binding on all Federal Trial Courts in the 2nd Circuit, present the first step towards correcting this problem in the 2nd Circuit. Perhaps the 2nd Circuit won’t be so difficult moving forward.
A few weeks ago I wrote a blog about Mental Health Parity (MHP) violations and a summary of a recent court case out of the Southern District of New York. In this short amount of time, as predicted, another court has weighed in on the same topic – this time out of the United States Court of Appeals for the Ninth Circuit (the Ninth Circuit is the federal court circuit that oversees the majority of the west coast). The Ninth Circuit heard the case on appeal from the Western District of Washington State.
In Danny P. v. Catholic Health Initiatives, 2018 WL 2709733 (9th Cir. 2018), the employer and self-funded medical plan were sued by a participant for excluding coverage for the participant’s daughter’s room and board at a residential treatment facility. The participant argued that the plan’s coverage for mental health was not in parity with the medical surgical benefits. The trial court sided with the employer, finding that the interim final regulations in effect at the time of the treatment did not prohibit the denial or exclusion in general.
As noted in the prior blog, while the interim final rules were not clear, the final regulations provide a clear explanation that plans must treat residential treatment facilities the same as skilled nursing facilities to show parity between MHP and medical/surgical benefits.
The Ninth Circuit reversed the trial court decision and held that the MHP statute precludes the plan from providing coverage for room and board for a licensed skilled nursing facility (i.e., medical and surgical treatment) but not at a residential treatment facility (i.e., mental health and substance abuse treatment). The court did acknowledge that the interim final regulations did not provide definitive guidance, but those regulations “strong suggested” a lack of coverage for residential treatment facilities when skilled nursing facilities were covered would be impermissible. The case has been sent back to the trial court for further proceedings consistent with the Ninth Circuit Court of Appeals’ decision – in other words, the Ninth Circuit Court told the trial court they were wrong (that the denial was impermissible under MHP) and to reassess the resolution.
By Ron E. Peck
From June 4th to June 6th we hosted The Phia Group’s Most Valuable Partners at our annual MVP Forum. This year, it took place at Gillette Stadium, located at Patriot Place in Foxboro, Massachusetts – home of the New England Patriots. I personally love the Pats, and have been a huge fan since I was a pre-teen growing up in a suburb of New York; (ask me to explain it someday, and I will do so happily). Likewise, company co-owner and CFO, Mike Branco, is a huge fan. The other co-owner and CEO, Adam Russo, however, is not a fan – and by that, I mean he hates the team. Yet, we can all agree the venue, people, and event were exceptional. Above all else, however, I think the guests are what made the event such a success. Speaking of guests, one guest in particular volunteered to act as a presenter; (in fact, he was the only non-Phia Group speaker). That gentleman is Jeffrey S. Gold, MD, of Gold Direct Care; a direct primary care provider located in Marblehead, MA (http://golddirectcare.com/). Amongst the many interesting things Doctor Gold presented, one thing he mentioned that really struck home for me is that we – as a nation – have an addiction to health insurance. Wow.
I took this to heart, and recently asked a newly hired employee of The Phia Group the following series of questions: “Do you own a car? Yes. Do you get oil changes, and fill the gas tank? Yes. Are you going to have a car accident? Uh… I don’t know. I hope not. Maybe? Do you have auto insurance? Yes. Will auto insurance pay for the oil changes? The gas? No. Will they pay for the accident? Yes – that’s what it’s for. Ok. Do you get a flu shot every year? Yes. A physical; a regular check up? Yes. Do you routinely purchase a prescription drug? Yeah… Are you going to be diagnosed with cancer? Oh man. I hope not! Me too! But… answer the question. I don’t know. Ok; are you going to break a leg? Maybe? I don’t know. What does health insurance pay for? Uh… all of it. If auto insurance only pays for unforeseen, but admittedly costly risk, and lets you pay for the routine, foreseeable stuff… why does health insurance pay for everything? I don’t know. Wow. Good question. Uh huh. And if the gas station charged $50 a gallon, would you still fill your tank, or go to the competition? I’d go elsewhere. That’s nuts. Ok… So why do you pay $50 for a tissue box when you go to a hospital? Uh… I don’t. Health insurance does.”
This exchange encapsulates one of the issues driving the cost of healthcare through the roof. Health insurance isn’t insurance. It’s a community funded piggy bank that we use to pay for everyone’s healthcare – foreseeable and not. Because some people’s care is more costly than others, but they can’t afford to pay their pro-rated share, everyone needs to chip in something extra to pay for those people. Frankly, I morally don’t have an issue with that. I understand the value of everyone pitching in to lift up society in general. Furthermore, that person in need could be you, or someone you love, with the snap of a finger. So I see the need. My issue is that the concept – collecting funds from everyone to care for a society’s need – is by definition, a tax. The fact that we’re forcing that square peg through the round hole of private insurance is foolish. Insurance was invented to shift unforeseen (and unlikely) but extremely costly risk onto an entity willing to gamble that the loss won’t occur, but who can afford the hit in the unlikely scenario that it happens. Forcing a private entity to pay for foreseeable, absolutely certain events – without adequately funding them – is just passing the buck in its worst form.
Furthermore, by removing the consumer of healthcare from the exchange, the person picking the care has no incentive whatsoever to consider price when assessing providers of the good or service. It’s unnatural not to balance cost against benefit. When a young male lion wants to mate with a female, but first he needs to defeat the alpha male of the pride, he has to weigh the cost against the benefit. If that lion had insurance akin to our health insurance, he’d be chasing every female he sees – after all, his insurance will fight the alpha male for him, right? Isn’t that what insurance is for?
For too long insurance has been treated as a shield, blinding people from the cost of their care. I don’t begrudge providers of healthcare their profits; as someone with my own medical needs, and whose family has had its share of health issues, I value our nation’s providers above all others. I think, however, that the system – as currently constituted – does no one any favors. Providers who achieve maximum effectiveness and quality of care should are able to charge less for their services, while those who are routinely wasteful or fixing their mistakes, need to charge more for the same services. As with the competing gas stations, so too here, we need to reward the provider that can do more for less, and the first step in doing that is to shake our addiction to insurance. Until people see how the cost of care ultimately trickles down to their own pocket, they won’t care enough to pick the better options.
Lawsuits and Department of Labor audits related to Mental Health Parity (MHP) violations are still arising. MHP is a shortened term that refers to the Mental Health Parity Act of 1996 (MHPA) and the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), collectively, the mental health parity provisions in Part 7 of ERISA.
A recent case out of New York (Munnelly v. Fordham Univ. Faculty and Admin. HMO Ins. Plan, 2018 WL 1628839 (S.D.N.Y. 2018)) provides another court’s opinion on one of the hot topics of MHP – residential treatment facilities. The plan at issue denied participant claims for a residential treatment facility indicating that the plan contained exclusions for both residential treatment services and out-of-network inpatient mental health treatment. The plan contended that the interim final regulations were in effect at the time of the claims and thus the plan was in compliance with the rules (as the guidance that clarified MHP compliance with respect to resident treatment facilities was issued after claims were incurred). Additionally, the plan indicated the participant did not comply with the plan’s pre-certification requirements.
For certain portions of the case, the court decided in favor of the participant. The court found that the plan did violate MHP by placing a treatment limitation (excluding coverage for residential treatment facilities) on mental health/substance abuse benefits that was more restrictive than the medical/surgical benefits – in other words, there was no comparative medical/surgical exclusion. Ultimately the plan did not provide a remedy for the participant as there were still questions surrounding the precertification requirements and the application of the out-of-network treatment exclusion.
While the interim final rules were not clear, the final regulations do provide a clear explanation that plans must treat residential treatment facilities the same as skilled nursing facilities to show parity between MHP and medical/surgical benefits. This isn’t the first case about residential treatment facility exclusions and likely won’t be the last if plans do not review and update their plan documents to ensure compliance.
Like most hot topics, until it happens to your plan or your client, this issue isn’t in the forefront of our minds. There are strategies to control these costs which we know can be outrageous; however, plans must be careful when implementing cost containment as some ideas may not comply with MHP.