An Update on Specialty Tier Legislation
Date: October 7, 2011
By Kris McFalls
According to reports published by Medco Health Solutions and Express Scripts, the number of specialty drugs is expected to grow more than 25 percent per year, both in increased utilization and increased unit cost. In response to these rapidly increasing costs, payers are shifting some of the costs of specialty drugs from the medical benefit to the prescription benefit under specialty tiers. In fact, 41 percent of plans have already taken this step, says a 2010 report titled Leading Trends in Rx Management by Medco.
Medicare Leads by Example
Specialty drugs are used to treat complex and chronic diseases. In many cases, there are no generic or bioequivalent alternatives. Specialty tier pricing was first introduced with Medicare Part D plans. And as is common, private payer plans tend to follow the lead set by Medicare. One big difference between Medicare and private insurance, however, is that Medicare Part D plans have a catastrophic level that when met, out-of-pocket expenses (OOP) then are minimal. While some private plans do have a maximum OOP or maximum dollar limit per prescription, many do not. Thus, patients can be left with unlimited and, in many cases, an unmanageable liability.
Switching from Copay to Coinsurance
As currently defined by Medicare, specialty drugs are classified as those that cost more than $600 per month. Traditionally, specialty drugs were covered under a prescription plan that placed them in one of three tiers with a fixed-dollar copay. Now, however, these drugs fall into specialty tiers that impose a cost-sharing formula known as coinsurance. Because coinsurance means patients typically are charged 25 percent to 33 percent of the total cost, many patients are unable to afford their medications using this formula.
Patients with diseases such as multiple sclerosis, cancer and rheumatoid arthritis already are impacted by specialty tier coinsurance. In addition, many immune globulin (IG) patients utilizing their Medicare Part D benefit to treat neurological and autoimmune diseases also have been impacted. And patient advocacy groups fear that all payers will eventually move all IG products, regardless of what they are used to treat, to the specialty tier formulary.
According to one major insurance prescription calculator, the average price of a monthly, 40 gram dose of intravenous IG (IVIG) at the member-discounted price is $4,835. Therefore, a specialty tier coinsurance of 30 percent would cost the patient $1,450 per month (see Specialty Drug Formulary Examples). The U.S. Census Bureau lists the annual median household income at $50,221. So, if an average-income IG patient were forced to pay a 30 percent coinsurance with no OOP maximum, the yearly total would equal 35 percent of their annual income for a total of $17,400.
In response to constituent complaints, several states are considering legislation that will regulate specialty tiers to ensure patient access to needed medication. Advocates for legislation argue that insurance is supposed to spread the risk in an equitable fashion among all insured. Yet, specialty tiers don’t do this; instead, they unfairly target those with chronic illness, forcing many to choose between basic necessities and their medications.
Insurance industry advocates argue that the use of specialty drugs has risen dramatically and having a tiered system helps them control the costs of premiums for all. In a statement to ABC News in San Francisco, Patrick Johnston, CEO of the California Association of Health Plans, placed part of the responsibility on the drug manufacturers. ”What the cost is of a given drug starts with the manufacturer,” says Johnston. “We ought to look there, and then both the health plan and the individual have roles to play in contributing to the cost of the drug.”
Pharmacy benefit managers such as CVS/Caremark, Medco Health Solutions and Express Scripts also oppose specialty tier legislation. According to a statement in the analysis of the California bill to regulate specialty tiers: “CVS/Caremark and Express Scripts Inc., oppose this bill because their clients, including employers, labor trusts, health plans, and government entities, utilize copayments and coinsurance as important tools to encourage enrollees to select cost-effective alternatives and to control the overall cost of prescription coverage.”
New York was the first state to pass legislation that bans specialty tiers. Lawmakers cited research that showed cost-sharing policies create negative health outcomes due to decreased utilization of drugs and subsequent increased hospitalizations.
Several other states also are considering similar legislation that will ban specialty tiers and/or cap the patient’s OOP liability. California, Connecticut, Delaware, Hawaii, Maryland, Massachusetts, New Mexico, Rhode Island, Vermont and Washington all have introduced legislation. Illinois, Indiana, Nebraska, Pennsylvania, Virginia and Wisconsin are considering introducing legislation.
The Affordable Care Act will eventually assist Medicare patients using Part D plans by eliminating the doughnut hole by the year 2014. It does not, however, specifically address the issue of specialty tier OOP expenses for other insurance plans. Additionally, state legislation, even if passed in all 50 states, will not apply to self-funded plans that are governed by the Employment Retirement Income Security Act (ERISA). Federal legislation will be needed to address ERISA-governed plans.
The Impact of Specialty Drugs
With hundreds of specialty drugs in the pipeline holding the hopes and future for patients and industry alike, the impact of these drugs will no doubt continue to shape the political and medical landscape for years to come.
Specialty Drug Formulary Examples
|Medication||Disease||Monthly Cost*||25% Coinsurance||33% Coinsurance|
|Humira||Rheumatoid Arthritis / Crohn’s||$1,906||$476.05||$629.00|
|Enbrel||Psoriasis / Rheumatoid Arthritis||$2,043||$510.75||$674.19|
*Based on recommended monthly doses
Kris Mcfalls is the patient advocate and a staff writer for IG Living magazine, published by FFF Enterprises Inc.