How can self-funding give employers more control health benefits?

More and more employers are discontinuing their fully insured health coverage and switching to self-funded models so they can gain control over the increasing cost of employee health insurance. This is an unbundled approach that separately hires all of the required functions—medical provider networks, carrier or third-party administrator, pharmacy benefit manager, stop-loss insurer, and consultants—subject to competitive bidding. With this approach, there can be significant costs reductions, usually in the range of 5% to 10%.

Employers are also concerned about quality and administrative efficiency. In many cases, quality remains unchanged because self-funded programs are able to retain the exact same medical networks and coverages previously offered. The transition happens behind the scenes, and employees are often not even aware of it. All the moving parts can be coordinated through a broker or an outside consultant, who handles the administrative burden, and in many cases, can provide data and reports that give employers added insight into employees’ healthcare “experience.”

In this article, Milliman’s Jennifer Janvrin examines the key benefits that employers can derive from transitioning to a self-funded program and provides an overview of the actuarial parts of the program.

Clearing hurdles for biosimilars may reduce prescription drug costs

There are many expensive and innovative drugs in the pipeline and there is pressure from payers, legislators, and the Trump administration to lower drug prices. Biosimilars are one option to contain increasing pharmacy costs. Biosimilars have been in the global market since 2006, but they have been slow to enter the U.S. market. As of July 2018, the U.S. has seen only four biosimilars launched under the regulatory approval pathway for biosimilars.

In this article, Milliman’s Jennifer Carioto and Harsha Mirchandani list several barriers hindering the entry of biosimilars in the U.S. marketplace. They also provide perspective on potential paths that may remove or reduce some of the barriers.

Primary provisions of latest pharmacy policy blueprint

On November 26, 2018, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule (CMS-4180-P) that targets the key strategies in President Trump’s “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” released in May 2018. The primary provisions include:

Pharmacy price concessions to drug prices at the point of sale (POS): This provision would redefine the negotiated price of a drug and require incentive-based pharmacy price concessions paid from pharmacies to plans to be reflected at the POS beginning as early as 2020.

  • The negotiated price would reflect the “lowest amount a pharmacy could receive as reimbursement for a covered Part D drug under its contract with the Part D plan sponsor or the sponsor’s intermediary” (p. 7).
  • This arrangement allows for one-directional post-POS incentive-based pharmacy price concessions from plan sponsors to pharmacies (p. 94).
  • Reported 10-year (2020-2029) estimated impacts (p. 10):
    • Beneficiaries: Savings of $7.1 billion to $9.2 billion
    • Federal government: Cost of $13.6 billion to $16.6 billion
    • Pharmaceutical manufacturers: Savings of $4.9 billion to $5.8 billion

Providing plan flexibility to manage protected classes: This provision outlines three exceptions to the protected class policy. In the current Medicare Part D program, plan sponsors are required to include all drugs in six protected classes on their formularies. The three proposed exceptions to this mandate include (p. 13):

  1. Implement broader use of prior authorization (PA) and step therapy (ST) for protected class drugs, including to determine use for protected class indications.
  2. Exclude a protected class drug from a formulary if the drug represents only a new formulation of an existing single-source drug or biological product, regardless of whether the older formulation remains on the market.
  3. Exclude a protected class drug from a formulary if the price of the drug increased beyond a certain threshold over a specified look-back period.

E-prescribing and the Part D Prescription Drug Program: This provision would require plan sponsors to make one or more electronic real-time benefit tools (RTBTs) available to prescribers by January 1, 2020 (p. 8). RTBTs interact with prescribers’ e-prescribing (eRx) and electronic medical record (EMR) systems. Through this tool, prescribers would be able to see beneficiary-specific drug coverage and cost information at the point of prescribing, and suggest “clinically appropriate formulary alternatives, including any utilization management requirements, such as step therapy, quantity limits and prior authorization, and indications-based restrictions, for each specific alternative presented” (p. 52).

Medicare Advantage and step therapy for Part B drugs: This provision would allow Medicare Advantage (MA) plans to implement step therapy for Part B drugs with designated safeguards in place, consistent with the August 7, 2018, Health Plan Management System (HPMS) memo “Prior Authorization and Step Therapy for Part B Drugs in Medicare Advantage” (p. 62).

Additional Proposed Provisions:

  • Require Part D plan sponsors to include information on price changes and lower-cost therapeutic alternatives for drugs the member is taking in the Explanation of Benefits (EOB) (p. 59).
  • Prohibit “gag clauses” from pharmacy contracts for consistency with the “Know the Lowest Price Act of 2018” passed in October (p. 46).

More information on the proposed rule is available in CMS’s fact sheet “Contract Year (CY) 2020 Medicare Advantage and Part D Drug Pricing Proposed Rule (CMS-4180-P).” If implemented, many of these provisions could have a large impact on the 2020 Part D market. Part D plan sponsors that currently receive post-POS incentive-based pharmacy price concessions could see increases to their filed bids if these price concessions are reflected at the POS. Flexibility around protected classes could reduce filed bids if plan sponsors take a proactive approach to managing utilization in these classes. Comments on these provisions are due to CMS by January 25, 2019.

Critical Point podcast: A primer on telehealth in the U.S.

NASA developed the first form of telemedicine to monitor astronauts in space over 50 years ago. Today, telehealth is being used to deliver healthcare in the U.S. to a population that might otherwise have difficulty accessing care. In this episode of Critical Point, Milliman’s Susan Philip provides a primer on telehealth including its uses, regulatory landscape, and efficacy. She also discusses some of the ground-breaking new devices using telehealth to deliver care.

To listen to this episode of Critical Point, click here.

NADAC as a cost-plus pricing option

With the increase in consumer and regulatory scrutiny on drug prices, stakeholders in the pharmacy supply chain are exploring drug pricing alternatives. The cost-plus pricing method establishes drug prices based on acquisition costs plus an explicit spread or fee. National average drug acquisition costs (NADAC)-plus pricing is a form of cost-plus pricing that relies on NADAC as a reference.

NADAC estimates the national average drug invoice price paid by independent and retail chain pharmacies. It excludes specialty and mail order pharmacies and does not reflect rebates, price concessions, or off-invoice discounts.

In traditional pharmacy contracting, drug manufacturers set list prices, which affect benchmarks like Average Wholesale Price (AWP) or Wholesale Acquisition Cost. Pharmacies purchase drugs from manufacturers and wholesalers at or below the list price and are typically reimbursed at a negotiated discount off AWP. Pharmacies and pharmacy benefit managers retain the difference between their acquisition cost and reimbursement amount as “spread income.”

Alternatively, pharmacy contracting can rely on NADAC-plus pricing. NADAC-plus pricing establishes drug prices based on the drug-specific NADAC unit cost plus some fixed dollar spread or dispensing fee. This pricing approach aligns drug prices with average pharmacy drug costs rather than manufacturer list prices. Manufacturers may not have the same degree of drug pricing control with the NADAC-plus approach compared to discount off AWP pricing.

To learn more about NADAC-plus, how it could affect pharmacy pricing, and what limitations and opportunities it presents, read this article by Kevin Pierce and Andrea Sheldon.

Risky business, the sequel: Actuarial risk management and the MSSP proposed rule

As I read the Centers for Medicare and Medicaid Services (CMS) proposed rule for the revision of the Medicare Shared Savings Program (MSSP), and particularly the strong focus by CMS on accelerating the movement to downside risk, my mind wandered back to an article titled “Risky Business” that I coauthored several years ago for the British publication Healthcare Leader. That article focused on why physicians in England might need to engage the services of an actuary. At that time, the Department of Health in England had published a white paper in which it set out proposals hinting at incentives to encourage and reward groups of primary care physicians who successfully manage financial risk, along with penalties likely for those who failed to do so, particularly if they also failed to control service risk, e.g., quality and outcome risk. Notice any parallels with the MSSP?

With this familiar push for providers to assume greater responsibility for downside financial risk, I wondered if my original article might now have particular relevance in the United States. This article addresses actuarial principles of financial risk management viewed through the lens of a U.S. provider. While there are some clear fundamental differences between the financing of healthcare in England and the United States, when it comes to providers bearing financial risk, many of these principles are the same.

All ACOs will need to consider taking downside risk within the next two years

Of course, taking downside risk is not new for U.S. healthcare providers. Two-sided risk tracks have been available in the Medicare value-based payment world since day one, for example with the Pioneer program. Some providers are also currently engaged in two-sided risk-sharing agreements with many commercial and Medicare Advantage plans. And back in the 1990s, many physicians were reimbursed via full capitation arrangements. However, CMS’s proposed rule substantially changes the playing field for the majority of accountable care organizations (ACOs) and their participating providers, and fairly rapidly too. The scale and potential consequence of the proposed rule is significant. To stay in the program, all ACOs (new and existing) will need to make a decision within the next two years as to whether they are comfortable and ready to take downside risk.

Downside risk doesn’t need to keep you awake at night

To quote from my original article: “To manage financial risk you first need to understand it. To understand it, you need to model it. And to model it, you need good quality, credible data.”

Actuaries are well-positioned to advise providers on the management of financial risk in two-sided value-based payment models. We are experts in using data to model and quantify financial risk and uncertainty in healthcare utilization and cost. We develop scenarios that model the uncertainty, helping providers understand the potential range of outcomes under different MSSP tracks and other payer risk-sharing arrangements. We provide estimates of adverse scenarios and the probability of financial loss, and we quantify the impact that high claimants may have on the variation in results. Using actuarial modeling, an ACO or other provider entity can gain a robust understanding of the financial risk taken when engaging in a two-sided payment model, which in turn informs decisions on how best to fund any downside risk.

A common worry among providers taking risk is being held to an average cost target but receiving a disproportionate share of “sick” patients. Risk adjusters use claim experience, diagnosis data, and other information to modify the average premium to more accurately reflect the morbidity of the population for which the provider is taking risk. Risk-adjusted payments can be based on past (i.e., retrospective) or projected (i.e., prospective) experience. Actuaries understand risk adjusters and can ensure that providers are receiving a fair payment through their use.

Continue reading