New rules related to Health Insurance Exchanges as part of the health care reform law are examined, as they signal the potential for a dramatic shift in the insurance market.
On July 11, 2011, the US Department of Health and Human Services (HHS) published 2 Proposed Rules related to Health Insurance Exchanges that were established under the Affordable Care Act (ACA). The first proposed rule, the Exchange Rule, describes the federal requirements that states must meet if they elect to establish and operate an Insurance Exchange.1 This rule outlines the minimum requirements that health insurance issuers must meet in order to participate in an Insurance Exchange and also details the basic standards that employers must meet to participate in the Small Business Health Options Program (SHOP).
The second proposed rule addresses standards related to reinsurance, risk corridors, and risk adjustment to assure stability in these newly established markets.2 These policies are designed to stabilize premiums and mitigate potential adverse selection in the individual and small group markets as insurance reforms and Insurance Exchanges are implemented, starting in 2014. These proposed rules are just 2 in a series of proposed rules and other guidance documents that have been issued by HHS. Further guidance documents are expected.
A Dramatic Shift
Taken together, the proposed rules signal the potential for a dramatic shift in the insurance market. With as many as 24 million Americans expected to enroll in the new Insurance Exchanges by 2019, the impact on the specialty pharmacy community could be immense—both in terms of the number of patients served and the new regulatory requirements under which insurers will be operating.
By way of background, the ACA requires the creation of Insurance Exchanges in all states by January 1, 2014. States have the option to decide not to operate an exchange at all, in which case the federal government will assume this role. These exchanges are intended to facilitate the purchasing of insurance by individuals and small employers, and eventually, large employers.
Although all legal residents are eligible to purchase insurance through these exchanges, the ACA dictates that individuals with incomes between 138% and 400% of the Federal Poverty Level will be eligible to receive federal subsidies, in the form of tax credits, for the purchase of health insurance through these exchanges. It is expected that these subsidies, increased purchasing flexibility via the creation of exchanges, and the inclusion of an individual requirement to purchase health insurance in the legislation will lead to increased insurance coverage among Americans.
By and large, the 2 proposed rules signal an increased anxiety by HHS to avoid setting up a Federal Exchange.By allowing states and the federal government to share some duties involved in the administration of the exchanges (“shared business functions eligibility and enrollment,” including “financial management” and “health plan management systems and services”), the federal government is hoping to avoid having to set up and manage Federal Exchanges in countless numbers of states due to what the states perceive as unduly burdensome requirements. As such, the proposed rules also allow for “conditional approval” as an alternative to full approval, allowing a state to move forward with the implementation of a state exchange, even if it is not ready for certification in 2013.
New Requirement for PBMs
For specialty, the most dramatic change in the insurance market will likely come from a new requirement imposed on PBMs that participate in exchanges to confidentially disclose information on their pricing mechanisms and savings rate. This controversial provision, which has pitted community pharmacists against representatives of the PBM industry,3,4 establishes federal disclosure and reporting standards for health plans and entities participating in the exchanges that provide pharmacy benefit management services.
According to the proposed rule, plans operating in the exchange will be required to report, among other measures, the aggregate amount of types of rebates, discounts, or price concessions that are attributable to patient utilization under the health plan and the aggregate amount of rebates, discounts, or concessions passed through the health plan issuer, and the number of prescriptions dispensed. The proposed rule also requires reporting by the health plan on the aggregate difference between the amount the health plan pays its PBM and the amount the PBM pays retail and mail order pharmacies. HHS anticipates providing additional guidance on the reporting requirements, and seeks comments in the proposed rule on how a health plan whose contracted PBM operates its own mail order pharmacy can meaningfully report on the aggregate differences.
Will these new reporting requirements on PBMs signal a shift in market power for specialty pharmacies? Will states, based on the new flexibility provided in the proposed rule, move forward in establishing exchanges or will the federal government end up carrying a large burden? Most importantly, as the Congressional Budget Office predicts, will millions of American move into exchanges over the next 5 to 10 years, and what does this mean for specialty pharmacies? No matter the answer, as the regulations roll out over the next several years, specialty pharmacies should expect to see major changes in the marketplace. SPT
1. 76 Fed. Reg. 41866 (July 15, 2011). www.gpo.gov/fdsys/pkg/FR-2011-07-15/pdf/2011-17610.pdf.
2. 76 Fed. Reg. 41930 (July 15, 2011). www.gpo.gov/fdsys/pkg/FR-2011-07-15/pdf/2011-17609.pdf.
3. For the National Community Pharmacists Association’s response to the Exchange regulations see: http://ncpanet.org/index.php/news-releases/1038-ncpa-commends-inclusion-of-pbm-transparency-provision-in-proposed-rule-for-health-insurance-exchanges.
4. For the response of the Pharmaceutical Care Management Association to the original request for comments on the Exchanges see: www.regulations.gov/#!documentDetail;D=HHS-OS-2010-0021-0275.
Ross Margulies is a health policy specialist at Foley Hoag LLP with expertise in federal and state health law and policy issues including Medicare and Medicaid, community health, and the impact of health care reform.
Jayson Slotnik focuses on health policy at Health Policy Strategies LLC. He was formerly the director of medicare reimbursement and economic policy at the Biotechnology Industry Organization in Washington, DC. He is on the Specialty Pharmacy Times Editorial Board.