The Department of Health and Human Services (HHS) recently issued its proposed annual rule regulating state health insurance markets, which would require health plans to count drug rebates and price concessions retained by pharmacy benefit managers (PBMs) as administrative expenses. HHS predicts this change could generate $18.2 million more per year in medical loss ratio (MLR) rebate payments to consumers.
Health plans contract with PBMs to administer their pharmacy benefits and to negotiate discounts and rebates – called price concessions in the proposed rule – from drug manufacturers in exchange for placing their drugs on a health plan’s formulary. PBMs work on behalf of health plans to secure drug rebates, refunds, discounts, coupons, and direct or indirect remuneration, among other discounts. Health plans compensate PBMs in a variety of ways, including:
Paying administrative fees;
Allowing a PBM to retain the difference between the amount a PBM charges the health plan for a drug and the amount a PBM pays the pharmacy (called “spread pricing”); or
Allowing a PBM to retain all or a portion of any negotiated discounts from manufacturers, including rebates.
What is a medical loss ratio?
It is the portion of insurance premiums that health plans spend on clinical services and quality improvements, as opposed to the amount used for administrative costs and profits, including executive salaries and marketing. The Affordable Care Act sets minimum MLRs for different markets, as do some state laws.
The proposed rule leverages federal MLR requirements, which dictate that health plans must spend 80 or 85 percent of premium dollars on medical care, and includes rate review provisions that impose limits on health insurance rate increases, which is expected to force health plans to change their relationships with PBMs. If a plan doesn’t meet the MLR standard in a given year, it must provide a rebate to consumers enrolled in the plan. Maine, for example, in 2019 enacted a similar provision that explicitly classifies PBM expenses as a health plan’s administrative costs for purposes of calculating plans’ anticipated loss ratio within its comprehensive prescription drug law.
The current federal MLR rule requires health plans to deduct from their prescription drug claims both rebates they receive from manufacturers and any payments the PBM retains from the spread. However, the current federal regulation does not address situations in which the PBM retains rebates or other price concessions negotiated on behalf of the plans.
As a result, any rebates retained by PBMs that are not passed onto the plans are not reflected in the plan’s MLR reporting or calculation even though the PBM is working on behalf of the health plan. If MLR reporting does not reflect the full pricing concessions negotiated by PBMs, enrollees don’t receive the benefit of those price discounts.
The proposed rule would classify the portion of premium revenue that a health plan expends on pharmacy costs as the actual reimbursement to pharmacies – minus any rebates or price concessions from manufacturers – no matter if the plan or its contracted PBM receives the price concession.
If this provision in the proposed rule is finalized, health plans that use PBMs to administer pharmacy benefits may have to change their contractual arrangements, particularly related to compensation, to ensure accurate MLR reporting. For example, allowing PBMs to retain rebates as their compensation, which would be calculated as an administrative expense, may be impossible for a health plan that needs to keep all administrative expenses within 15 or 20 percent to meet the MLR.
The National Academy for State Health Policy (NASHP) recently released its Model PBM Contract Terms that offer specific language that insurers can use, including administrative-fee-only compensation and a guarantee of 100 percent pass-through of rebates and manufacturer-derived revenue from the PBM to the health plan.
Under the NASHP model contract, the sole compensation a PBM receives is an administrative fee calculated on a per-member, per-month basis. An administrative fee compensation structure would simplify plans’ compliance with the rule because plans can easily classify that fee as an administrative expense and deduct it from incurred claims, rather than relying on PBMs to report retained rebates.
For more information, read this summary of all of the provisions in the federal proposed rule. HHS is accepting comments on the rule until March 2, 2020.
https://nashp.org/wp-content/uploads/2019/01/rx-bill-calculator-shutterstock_10_15_2018.jpg37445616Melanie Felicianohttps://nashp.org/wp-content/uploads/2019/06/NASHP-Logo.pngMelanie Feliciano2020-02-24 19:57:522020-02-25 13:07:16Proposed Rule Could Save Consumers Millions by Changing the Insurer-PBM Relationship, Comments Due March 2
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