For employers sponsoring self-funded group health plans, the present financial impact and legal risks of prescription drug rebates cannot be deferred or ignored.
As a brief, simplified background, the prescription drug rebate train ride generally originates in terms negotiated between the drug manufacturer and the pharmacy benefit manager (PBM). Then, the rebate travels down the track to the employer via terms negotiated between the employer and PBM. Midsize employers sponsoring self-funded plans often focus these negotiations on financial, clinical standard, and trend mitigation terms. A key focus is balancing the maximization of available rebate guarantees, while ensuring the effective use of high-value prescription drugs.
Most employers then use the resulting projected rebates to lower the funding rates of the health plan, which, in turn, lowers employee participant premium contributions. At the last station on this rebate train ride, this strategy effectively returns the prorated aggregate rebates evenly to all of the plan participants.
Meanwhile, certain PBMs are now offering employers the opportunity to add another station stop along this route. Via point-of-sale rebates, the specific actual rebate would serve to reduce the cost of the actual negotiated drug price before the respective plan participant’s cost-sharing (e.g., deductible, coinsurance) is applied. Then, if any surplus rebate remains, the surplus would continue its ride down the track to the employer and ultimately to the plan participants (via reduced premium contributions).
What are the advantages of adding this new station stop?
· If we look through the lens of the rebate belonging to the consumer and not to the health plan, an advantage is a more equitable arrangement for consumers. Those participants that purchase the rebate-eligible drugs would often now share in a greater percentage of the rebate. However, because this greater share would come at the expense of those plan participants who are not consuming these rebate-eligible drugs, there is an opposite equity argument to be made, as well. What advice does your attorney provide on this topic? Does either option present more or less legal risk to your organization?
· Minimal aggregate rebate dilution is seen at this new train station stop. Because most plan participants using high-rebate drugs will likely still reach the plan deductible, the rebate would most often only be diluted by the reduction of any resulting post-deductible copays (if the structure is set up to credit the rebate against the copays). In other words, adding this new station stop will likely not create a significant cost increase to the health plan, relatively speaking.
· For many midsize employers, an opportunity to gain a greater glimpse into the actual, specific rebate amounts. Most midsize employers currently only see median amounts and/or guarantee amounts. Of course, how much more employers would actually see under this new approach would depend upon the reporting provided and the sophistication of their benefits consultant to back into certain figures.
What are some key questions to consider and evaluate?
· Does your PBM even offer this plan design option? If yes, can your PBM make this approach administratively work with zero issues? What is the PBM’s track record here? Does it have references with whom you can speak? As a benefits manager, your tolerance for panicked calls from participants at the pharmacy counter regarding administrative issues is likely about zero.
· What is the precise financial impact to the plan? For example, what will the cost increment be for 2020 to plan funding rates and employee premium contributions to make this change?
· For a health plan where the deductible applies to the prescription drug benefit, the rebate amount will naturally apply to the plan deductible. If this same plan has a prescription drug copay after the deductible is satisfied, will the rebate also credit against the subsequent copays?
· Let’s say this same employer offers a second plan choice where the deductible doesn’t apply to the prescription drug but copays do apply. Will the rebate credit against this second plan’s copays? Generally, it would seem that if one plan option will receive copay credit, all plan options should. But, are there any compliance concerns if, for example, the rebate credit only applies to the deductible and not the copay and one plan option is a high-deductible health plan with post-deductible copays and the other is a copay-only PPO?
This entire concept rests on the premise that the rebate is used to lower the cost of the discounted drug before the plan participant’s cost-sharing is applied (not after). Otherwise, the arrangement could create other compliance headwinds, including health savings account eligibility disqualification. Please double-check this aspect.
Finally, confusing matters, some employers are implementing point-of-sale rebate arrangements but not allowing plan participants to participate in the rebate at point of sale. Are there possible legal risks in this type of arrangement? Which type of arrangement is your PBM offering?
As with anything new in the benefits world, evaluate and verify these questions carefully. Your attorney, benefits consultant, actuary, and other advisers can help.
