Contributing Voices

John S. "Jack" Linehan of Epstein Becker Green on Copay Accumulators

Interview by Peter Wehrwein

Managed Care editor Peter Wehrwein interviews Epstein Becker Green's Jack Linehan on copay accumulators, copay coupons, and copay maximizers. 

Transcript

Peter Wehrwein:
Hello, we are on the phone with Jack Linehan at Epstein Becker and Green. Jack has written several pieces for Managed Care about copay accumulators. He's generously agreed to join us on the phone this afternoon to talk about them a little bit. First off Jack, how is it that you have developed this expertise in copay accumulators?

Jack Linehan:
Thank you Peter. Thank you for having me. My practice really focuses on drug distribution and reimbursement issues. Drug copay coupons have been a very big issue, a very controversial issue for many years now. I've been advising clients with respect to coupons but more recently in the past few years these accumulators have really started to develop. This is a very quickly evolving issue; the laws are still in flux and so we have several clients who seek our advice on the landscape and where the law may be going in this area.

Peter Wehrwein:
From coupons to accumulators, that makes sense. For those of us who are just beginning to understand copay accumulators, could you maybe give us a one on one on how they work?

Jack Linehan:
Sure, again, it's important to step back and first look at coupons themselves. Drug manufacturers have long used copay coupons as a means to facilitate access to branded drugs that are reimbursed under commercial plans, not under the federal healthcare programs where they're actually prohibited. Beneficiaries have used these coupons to pay down their cost sharing obligations and reduce their out-of-pocket cost at the pharmacy point of sale when they pick up their drugs. However, insurers, PBMs, and employer sponsors have really opposed coupons because they undercut their formulary tools which they use to try to promote cost-effective prescribing from doctors and often utilization by beneficiaries. There's a lot of money at stake here, by some estimates manufacturers provide over 10 billion dollars annually in coupon payments to patients and beneficiaries.

Jack Linehan:
In recent years, I'm talking about the last two or three years, due to technological advances, plans and PBMs have been better able to identify coupons from being applied at the pharmacy point of sale. They've used this information to develop accumulators, which are mechanisms that prevent coupons from counting against the beneficiary's deductible and/or maximum out of pocket cost. Once the coupon is exhausted, the beneficiary must then cover the entire amount of his or her deductible before plan benefits kick in. While these are of recent origin, accumulators are very much in widespread use today. A recent report found that more than 90 million commercial lives are covered by payers with accumulator programs.

Peter Wehrwein:
What is the purpose behind them? Is it to restore the PBM and health plan's authority over the formulary that the coupon undercut?

Jack Linehan:
Yes. To a large extent. It truly is a countermeasure to coupons. By using an accumulator the plan is able to gain from the coupon itself and from the beneficiary's direct out-of-pocket payments. Both of these serve to reduce the plan's total financial liability for the prescribed drug. Also, accumulators may incentivize beneficiaries to make more prudent drug selections. This is particularly the case when you have a branded drug with a generic equivalent or a therapeutically similar drug. That is where there are other options that could be suitable but they're cheaper than the branded drug. The idea is that would hopefully make beneficiaries think twice about taking that more expensive drug that might not be necessary depending on the circumstances. Finally, a lot of plans are hoping that accumulators will serve to deter manufacturers from providing coupons in the first place. Like I said it's a countermeasure, so it's really helpful to look at this as a war between manufacturers on the one hand, plans and PBMs on the other hand, where manufacturers are trying to give these coupons out and into the pocket of the beneficiary, but plans and PBMs are trying to neutralize or counteract those sort of coupon payments.

Peter Wehrwein:
Is the beneficiary then something of a casualty in this war because the accumulator exposes them to more out-of-pocket costs?

Jack Linehan:
This is certainly one of the objections that have been leveled at copay accumulators and these have been very controversial. Many beneficiaries have been shocked to find that they suddenly have to pay these often steep cost-sharing obligations once their coupons run out. These sort of shocks can be exacerbated when patients lack adequate notice or fail to really understand how the accumulators work. The concern is that in these situations many beneficiaries can abandon their treatments in a year and thereby adversely affect adherence. On the other hand, plans and PBMs would say “look we have cost sharing obligations for a reason. It's our job to manage these costs” and from their perspective these coupons are really leading to overutilization and unnecessary utilization that's overly costly. They're saying that these accumulators help us protect and reinforce our formulary pools and promote the use of generic and cheaper therapeutic alternatives. It's very controversial, there are strong arguments to be made on both sides.

Peter Wehrwein:
Now for Managed Care, you've also written about something called the copay maximizer. Can you explain how they work and how they differ from the accumulators?

Jack Linehan:
Yes, the copay maximizer is very similar to an accumulator but it is different in certain important aspects. For the maximizer, the plan increases the copay amount it assigns to a drug so that it approximates the copay coupon’s monthly value. Then the value of the coupon is applied evenly throughout the benefit year. It is not applied against the beneficiary's cost sharing obligations. On the whole, maximizers are considered to be more flexible designs, and plans and employer sponsors can structure them to better apportion costs between the beneficiary, the plan, and the manufacturer.

Jack Linehan:
On the other hand accumulators often shift a greater amount of cost to the beneficiary, and sometimes in a more abrupt fashion. Comparing these two side by side, many would say that accumulators are slightly more controversial or potentially problematic than maximizers.

Peter Wehrwein:
It sounds like maximizers are a milder form of the accumulators.

Jack Linehan:
Yes.

Peter Wehrwein:
…with respect to the beneficiary.

Jack Linehan:
They can be and they are, like I said, there's more flexibility on how a plan can use the maximizer and how they can set it up. The thing about accumulators though, is that they're a little bit easier and more straightforward from an operational perspective for plans to use. I can see that maximizers are getting more popular but still accumulators are on the whole, they're more advanced than maximizers.

Peter Wehrwein:
I believe CMS have recently come up with some rules about copay accumulators. I'm sure it's a complicated set of rules, but could you explain the most salient aspects of those rules and how they might change the use of copay accumulators?

Jack Linehan:
Last week CMS issued a final rule under the Affordable Care Act, which would allow plans to exclude coupons for branded drugs with medically appropriate generics from counting against the beneficiary's annual out of pocket limits for cost sharing. Those annual out of pocket limits were initially set, of course, by the Affordable Care Act. The agency said it's taking this measure in order to give plans more room to counteract the cost sharing coupons for drugs with generics which can lead to higher plan costs. However, it can also be inferred from the rule making that plans are expected to count coupons to the annual out of pocket limits when a branded drug lacks a generic or where a brand has a generic but the beneficiary obtained access to the brand after undergoing an exception or appeals process. Looking at this on the whole, it seems that plans will generally use accumulators when a brand has a generic equivalent, but will otherwise ensure that accumulators do not serve to prevent the coupon from counting against out of pocket limits. I will say that the CMS's rulemaking is somewhat perplexing because on the one hand the agency is claiming that the Affordable Care Act does not speak to the counting of coupons to the annual out of pocket limits, and the intent of the law, they say, was to establish limits that reflect “the actual costs that are paid by the enrollee.” On the other hand CMS says plans are generally supposed to count coupons to the annual out of pocket limits unless a generic exists. So there is some sort of tension or possibly a contradiction there.

Peter Wehrwein:
Do you think that the CMS rule is flawed in terms of what it intends to accomplish? Or do you think it's legally flawed and maybe open to challenge on those grounds?

Jack Linehan:
I can say this at the moment, that I do believe that there is a good deal of uncertainty out the industry about what CMS is really trying to do here and how they hope for this new policy to be rolled out. I would expect that CMS may in fact issue some further guidance to explain this situation. In the meantime I believe a lot of folks in the industry are just trying to get their heads around this new rulemaking. It will be an interesting issue to track.

Peter Wehrwein:
One point of clarification. This CMS rule, is it a proposed rule and we have a comment period? Or was this a final rule?

Jack Linehan:
There was a proposed rule issued back in January and then there was a comment period and then the final rule was last week, I believe it's last Thursday when that was issued.

Peter Wehrwein:
You recently wrote a piece that we posted on our website about states moving ahead with regulation of copay accumulators. Could you sketch in broad strokes the various approaches states are taking? Will this new, final, federal rule from CMS affect what states are doing? Is the CMS rule in some ways compatible or addressing a different issue than what states are doing?

Jack Linehan:
Bills have been introduced in approximately 10 states so far that would regulate the use of copay accumulators. All these bills have been issued since the beginning of this year, so they are very recent origin. Many of these bills, including those that were passed in Virginia, West Virginia, would flatly prohibit accumulators. A third state, Arizona, passed a law which would prohibit accumulators unless generic exists or where a generic exists but the beneficiary of obtained a brand after utilization review or an exceptions process.

Jack Linehan:
The state laws are very much in a state of flux ... they are again a very recent origin; three states have passed them and they are several other bills that are pending at the moment. This is a very quickly evolving situation at the state level. The recent CMS regulation, it is designed to broadly apply and it does apply to individuals, small group, large group, and self-insured plans. However, the regulation does not preempt state law. This is an issue that came up during the rulemaking process. Certain stakeholders asked that it would preempt state law. But at the end of the day CMS concluded it would not. Therefore states may issue laws that impose greater restrictions on coupon use. As a result the recent laws in Arizona, Virginia, West Virginia are not affected. We may see additional legislative development at the state level in the future.

Jack Linehan:
Those laws in Virginia and West Virginia are stricter and more restrictive, much more restrictive than in the recent CMS rule making. It's still going to be very important for stakeholders to very closely track what's going on at the state level.

Peter Wehrwein:
I think this has been a great conversation for Managed Care readers and listeners who are struggling to figure out what copay accumulators are and how they work, and how the CMS regulations may affect them and how the state laws are affecting them. This conversation will shed new light and give people understanding of a complicated business.

Peter Wehrwein:
Thanks, Jack, and we look forward to more contributions to Managed Care from you about copay accumulators.

Jack Linehan:
Thanks so much, Peter.