The Trump administration’s recently released Medicaid proposed regulation has been lauded for proposing new flexibilities for prescription drug manufacturers and health plans to engage in value-based arrangements that allow a drug’s price to vary based on patient outcomes. But this same regulation also includes an underreported proposal to change Medicaid drug pricing definitions in a way that would significantly increase drug costs for many patients in commercial plans.
What do Medicaid drug pricing definitions have to do with commercial plan patients’ out-of-pocket costs?
The connection stems from how Medicaid drug pricing definitions account for manufacturer-sponsored copay assistance, known as “copay coupons,” which are used by commercial plan patients to offset prescription drug out-of-pocket costs. Copay coupons are an important tool for the roughly 200 million Americans enrolled in commercial plans because plans have increasingly shifted costs to patients in the form of higher deductibles, premiums and coinsurance.
The Medicaid drug pricing definitions connected to copay coupons are “best price” and “average manufacturer price.” The best price is the lowest price available for a given drug, and the average manufacturer price is the average price paid by wholesalers and retail pharmacies. To ensure the Medicaid program gets the best deal, manufacturers must pay rebates of 23.1 percent of a brand drug’s average manufacturer price, or the difference between the average manufacturer price and best price, whichever is greater. Manufacturers must pay additional rebates if a drug’s average manufacturer price rises faster than inflation.
Historically, Medicaid drug pricing definitions have not considered copay coupons to be a discount, because the value of the coupon is provided to the patient and other entities do not receive a price concession. But the proposed regulation would change these definitions so that copay coupons would count as a discount on a drug’s best price and average manufacturer price. For many drugs, this change would cause the calculation of best price to plummet, resulting in dramatically higher rebate liability.
As proposed, if a drug manufacturer continues helping commercial plan patients with out-of-pocket costs by providing copay coupons, the manufacturer could be penalized with unsustainably lower net payments, potentially pennies, across the entire Medicaid program that covers 71 million people.
The Trump administration’s rationale for this proposal is that pharmacy benefit managers have begun using “Copay Accumulator” programs in recent years, which is a benefit design scheme that steers the value of a copay coupon away from patients and into the pockets of the pharmacy benefit manager and the plan. Rather than address this troubling benefit design trend that increases patient out-of-pocket costs, the proposed regulation would change Medicaid drug pricing definitions to specify that copay coupons would count as a discount. The exception would be when the manufacturer ensures the copay coupon is not utilized by a patient enrolled in a plan with a Copay Accumulator.
Manufacturers have no way of knowing when a patient is in a plan that uses a Copay Accumulator. Even patients are unaware of these programs until they are hit with a large, unexpected bill at the pharmacy counter. Pharmacy benefit managers and health plans house this information, and the proposed rule notably omits any new reporting requirements.
If this proposal is finalized, manufacturers may be forced to end their copay coupon programs altogether, jeopardizing patient access to needed medicines.
The public was able to comment on the Medicaid proposed regulation through July 20, 2020. Hopefully, strong pushback from patient groups articulating these out-of-pocket concerns will convince the administration to abandon this copay coupon proposal.
Lindsay Bealor Greenleaf is vice president of policy at ADVI, a health care consulting firm representing life science companies and health care provider organizations.
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