Health reform promises expanded drug coverage through ACOs, exchanges, value-based initiatives

February 1, 2012

Last month, economists in the Department of Health and Human Services (HHS) reported a big slow-down in healthcare spending for 2010. Outlays rose only 3.9% to $2.6 trillion, largely because the recession and unemployment reduced healthcare coverage and prompted people to skip doctor visits. Spending on prescription drugs increased at a record low 1.2% to $259.1 billion, as utilization stagnated, more generics replaced old blockbusters, and fewer new drugs came on the market.

Key Points

Last month, economists in the Department of Health and Human Services (HHS) reported a big slow-down in healthcare spending for 2010. Outlays rose only 3.9% to $2.6 trillion, largely because the recession and unemployment reduced healthcare coverage and prompted people to skip doctor visits. Spending on prescription drugs increased at a record low 1.2% to $259.1 billion, as utilization stagnated, more generics replaced old blockbusters, and fewer new drugs came on the market.

The Affordable Care Act (ACA) of 2010 is supposed to expand drug reimbursement and utilization by extending coverage to some 35 million uninsured and promoting preventive services, such as immunization and screenings for cancer and other conditions. Prescription drugs, moreover, are one of several "essential benefits" that have to be covered by all plans marketed through state insurance exchanges.

Equally important, a host of initiatives to test new payment and coverage strategies will rate providers on their proper use of medicines. Programs that promote quality care and risk-based reimbursement put pressure on pharma marketers to demonstrate that their products can improve care and save money and thus merit coverage by plans.

For 2010, though, spending on drugs by private insurers and consumers actually declined, according to analysts in the Office of the Actuary, Centers for Medicare & Medicaid Services (CMS), published in the January 2012 issue of Health Affairs. Medicaid expenditures were flat, as higher manufacturer rebates, imposed by the ACA, reduced total retail drug sales.

Medicare was the only drug program that increased spending in 2010, up 9% largely because the government handed out $250 rebates to about 3 million Part D beneficiaries who reached the Medicare coverage gap. Drug utilization by Medicare drug plans is slated to rise as drug manufacturers do more to close the "donut hole," as required by the ACA. In 2011, manufacturers began offering discounts equal to 50% of the cost of drugs prescribed to seniors in the coverage gap. As of October 31, 2011, those discounts amounted to $1.5 billion for about 2.6 million seniors, primarily those using medicines to treat diabetes, high cholesterol, asthma, heart problems, and psychiatric conditions. HHS will provide added subsidies beginning in 2013 until beneficiaries have to pay only 25% of the cost of gap drugs in 2020.

Even though the Part D discounts are costly for manufacturers, pharma companies stand to benefit because richer coverage of "gap" medicines will prompt seniors to continue to take prescribed drugs, instead of cutting back on treatment when they hit the donut hole. And better adherence to prescribed therapy is key to driving drug utilization and sales, provided that marketers can document value and benefits for payers.

ESSENTIAL COVERAGE

The cornerstone for expanding coverage for the uninsured is the formation of state-based insurance exchanges by 2014 that will offer a selection of health plans to small businesses and individuals who don't get health benefits from employers or public health programs. Plans sold through exchanges will have to meet a host of quality criteria defined by the ACA, including coverage of "essential benefits" for consumers. Prescription drugs are on the list of 10 basic benefits that all plans have to cover, but reimbursement specifics remain unclear. Instead of establishing a common set of essential benefits for all exchanges across the country, HHS announced in December that it is leaving it up to each state to set coverage benchmarks that fit local needs and preferences. Some states mandate broad benefits, requiring coverage of contraceptives, for example, or specifically authorize reimbursement for off-label drug uses; others are much less specific and discourage generous benefits.

HHS opted for the "flexibility" route largely to deflect charges from health reform critics that Washington is formulating a one-size-fits-all national healthcare system. However, there is strong opposition to this approach. Consumer advocates warn that some states will scale back coverage requirements too much, while employers and insurers fear state mandates will make plans too costly. Pharmacy benefit managers are gearing up to oppose state anti-mail-order laws, and step-therapy requirements are expected to emerge. Everyone will be looking at new policies governing deductibles and copayments, which traditionally have a significant impact on utilization of services and medication adherence.