Episode 43 – Pharmacy Benefits Legislation

Mike Stull (0:09)

Hey everyone, and welcome. Thanks for joining us on HR Benecast, your source for expert commentary and insights on current health benefits related news and strategies. This is your host, Mike Stull.

Last month was our annual benefits forum. If you weren’t able to attend, you can still join us virtually. Many of the sessions were recorded and our speakers have some excellent content to share with you.

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Alright, let’s get started. Today’s guest is my colleague, Madison Connor.

Madison is our Senior Vice President of Regulatory Compliance and External Affairs here at Employers Health and is responsible for monitoring and updating employers and consultants on state and federal legislative and regulatory developments that may impact employer-sponsored health plans. So, I know we get a lot of questions from clients and consultants about everything that’s happening in the legislative and regulatory realm. So, hopefully this is a very timely podcast, and I hope you enjoy our conversation.

Hello Madison. To get us started, can you tell the audience a little bit about yourself?

Madison Connor (1:27)

Hi, Mike. My name is Madison Connor. I’m Senior Vice President, Regulatory Compliance and External Affairs.

I joined the organization five years ago. For undergrad, I went to the University of Toledo and then for law school, I went to the University of Akron. I work out of our Canton office and when I started five years ago, it was really perfect timing from a legislative and regulatory perspective because if you think about it, it was right before a pandemic and during the pandemic, we had lots of different health care spending bills, lots of immediate changes that plan sponsors had to make in response to the COVID pandemic, transparency initiatives and then continued effort at the state level that we’ll get into on the podcast today.

Mike Stull (2:14)

Yeah. So, good segue. Obviously, a lot of state and federal legislation that’s out in the marketplace making headlines and this goes back a few years.

I know there’s a lot out there to go through, but maybe we start at a high level. Think of some of the key initiatives that employers should be focused on today.

Madison Connor (2:36)

Yes, certainly. So, I always recall back one of the first projects that I worked on at Employers Health was actually something that you asked me to do, Mike, and you said, can you research different state level initiatives as they relate to PBM and what’s going on there? And really, we went from back in 2019 when you made that request, we were looking at anti-gag clause bills, anti-clawback bills and some just general PBM licensure bills where PBMs had to register to be a licensed operator in a given state.

And now, we’ve seen these really sophisticated pieces of legislation that impact plan design and a lot of tools that plan sponsors are able to use to regulate the cost of drugs and their healthcare spending. So, I would say that anti-steering legislation is probably the most impactful from a plan sponsor perspective. So, affecting a plan’s ability to direct participants to preferred pharmacy networks in exchange for better pricing.

Some state laws, they prohibit incentivizing mail-order pharmacies via a lower copayment or lower cost sharing. I think also we see copay accumulator bans continue to be introduced at the state level and these are especially disruptive for employers because it’s directly impacting the plan design of employers by requiring that manufacturer and third-party assistant has to apply to an employer’s deductible. Another trend that we see at the state level, especially in the last two years, is the extraterritorial enforcement of some of these state laws.

So, traditionally, we think about a state law only applying to plan sponsors licensed and domiciled within that state and we don’t think about having to worry about laws that are outside of the state that a plan operates in. But increasingly, we are seeing states that seek to enforce laws against out-of-state plans that have participants within that state.

Mike Stull (4:44)

And part of all of this is, you know, what is actually enforceable by the state as a regulator of the insurance industry within the state versus where are some of these laws encroaching into the ERISA preemption that is afforded to self-funded employers. We also know that this is the 50th anniversary of ERISA. So, maybe talk a little bit about, you know, how we see these laws continue to evolve into what many would consider plan design and what the role of ERISA is and why it’s significant.

Madison Connor (5:30)

Absolutely. I’m so glad you asked. So, employers have been especially concerned about the erosion of ERISA preemption, especially this all stems from the 2020 Supreme Court case, what’s called Rutledge versus PCMA.

And that was the first case that we saw the Supreme Court narrow ERISA preemption. The court had a long history of always finding that state laws were preempted by ERISA. And this was a departure from that history of reasoning.

And in that case, it was an Arkansas pharmacy reimbursement statute that really didn’t have much to do with plan design, although it would have indirect increase in costs for plan sponsors. So, we’ve seen states have interpreted that decision as saying, as long as we are regulating the PBM, we can escape ERISA preemption. And now what we see is a lot of these state proposals that they’re under the guise of this is just regulating PBM operations and PBM behavior.

But really, it is fundamentally having an impact on the underlying plan design and the plan sponsor’s health plan based on those plan design pieces that are elected by the plan sponsor and then are facilitated and administered by the PBM. So, we have seen several federal challenges in the wake of the Rutledge decision. One of the most notable right now is PCMA versus Mull Ready.

That was an appeal of the Oklahoma Patients’ Right to Pharmacy Choice Act. And interestingly enough, today, right now, that’s April 10th, is the deadline for the Oklahoma Insurance Commissioner to file a petition for Supreme Court review. So, it is very likely that the Supreme Court will take up this case and will be able to, if they decide to hear it, get another ruling on ERISA preemption.

So, there’s some background there. It’s especially also important because, as you said, this is ERISA’s 50th anniversary. It was passed in 1974.

A congressional committee, Chairwoman Virginia Fox of the House Committee on Labor and the Workforce, has put out a request for information asking about ERISA preemption, asking for feedback on how it works, and is especially concerned at what’s going on at the state level. And she even calls out in her request for information, asks about what is concerning about the Rutledge decision and whether or not we need congressional intervention in this space. So, I think it’s very important.

I think it’s very timely. Employers Health actually filed a response to that request for information, and we advocated for strong protection of ERISA’s preemption principles. We advocated for clarification that even when a state is regulating a plan vendor or service provider or a PBM that actually has an impact on the underlying plan design, that preemption still needs to be recognized in that case.

So, I think that we’ll continue to see that, and hopefully something good comes out of that RFI.

Mike Stull (8:53)

Yeah, I certainly hope so. I know, you know, we see it with our existing clients today that have employees in different states and trying to set up plan designs that are networks that are in different states based on that state’s requirements. I mean, it creates really a patchwork of benefit plan design, and from an administrative perspective, it’s quite challenging.

I am curious your thought on, you know, a lot of the activity on drug pricing is happening at the state level, and when I think of drug pricing experts, I don’t immediately think of state legislators. So, I’m curious why so many of them are so interested in drug pricing at the state level.

Madison Connor (9:45)

It’s a great question, Mike, and I think a lot of it ties back to political dynamics, a lot of warped incentives, and quite frankly, a huge lobbying budget of pharma companies. So, mostly these initiatives are driven by a variety of players and market competitors, PBMs. Pharma companies took a huge hit last year with the passage of the Inflation Reduction Act. So, as you see regulations increase in the government payer space, you see a concerted effort to protect profit margins on the commercial side, and then I have this stat, which I think is really interesting.

So, in 2023, pharma spent a record-setting $378 million, and that made up over half of all healthcare sector lobbying efforts. Also, you know, we have two other players there. With vertical integration, you have independent pharmacists who are seeking to protect their market share.

So, what are they doing? They’re advocating for measures that drive more volume to their pharmacies, and they want to keep reimbursement rates high, and we see that with, you know, lots of states passing statutorily mandated dispensing fees as high as $10 to $13, and then you also have patient advocacy groups that are advocating to protect access to specific drugs and specific sites of care, and a lot of times, you know, if you follow the money, millions of dollars are funneled from pharma companies directly to those patient advocacy groups that are advocating to protect access to the drugs that are made by those specific drug makers. So, nearly all of these measures are increasing access, increasing reimbursements, but also increasing costs to employer-sponsored health plans, and then I always laugh whenever I see a new bill introduced at the state level, and it seems kind of funny, like, why is this person introducing this bill, and what connection does this person have to the healthcare sector?

And then, if you go and you look at the campaign finance history and donations, you’ll see the players pretty quickly of where they’re getting money and, you know, who’s telling them different stories, and I really think there’s a misconception there, because I don’t want to say that it’s necessarily crooked politicians. I think that some of this legislation is introduced, and it’s well-intentioned. It’s really hard to understand all that goes into this industry, and so sometimes, whenever you hear a bill being heard for its initial hearing, the same day that legislators are learning about what does a PBM do, they’re beginning to understand how do drug pharmacy benefits actually work, and they’re trying to understand all of this in a 30-minute hearing, and that’s all the thought and process that goes into this bill before they decide, yay or nay, on passing it, and sometimes it is a really compelling patient story that tells a better story than going back to the roots of what does self-funding mean, how do plan sponsors make choices, and what is underwritten into the deal to make a benefits plan successful, financially feasible, and narrowly tailored to a plan sponsor’s unique population?

Mike Stull (13:15)

Yeah, absolutely. I think we know that a lot of public policies built on either really feel-good anecdotes or really scary anecdotes, and so very, very few times is it based on a large swath of data that supports common-sense policy, so we totally get that. I also like what you said about, you know, there’s well-intentioned behind a lot of it, and there are a lot of forces out in the marketplace at play, and I’ve said it before on different things.

I mean, I would not want to try to operate an independent pharmacy right now. They’re suffering from the same types of inflationary pressures that all businesses are really facing, and at the same time their reimbursements are compressing, and it’s employers like all of our clients that are looking for cost savings in their health benefits plan, and so I think it is. It’s a very difficult spot to be in, and we just want to make sure that as we search for an answer, we don’t create a new problem, and I think that some of the states, you know, you mentioned the dispensing fees.

I mean, that was Kentucky, what, just last week or the week before that introduced a bill that, you know, it’s, what is it, $10 or $13 on every single prescription.

Madison Connor (14:44)

$10.46

Mike Stull (14:46)

Yeah, $10.46 on every single prescription, and you can bet that that is going to be a huge hit for all employers that have claims being dispensed in the state of Kentucky. So, I’m not sure that that’s necessarily going to fix what they’re looking for in terms of drug pricing affordability.

So, with all of this happening at the state level, what are the PBMs doing? How are they responding? You know, when a law is passed, yes, it can work its way through the legal system in terms of challenges or appeals, but in the meantime, PBMs have to comply, and plain sponsors have to comply, and so what are PBMs doing?

Madison Connor (15:31)

Yeah, absolutely, and especially in the ERISA preemption arena. So, ERISA preemption only kicks in if a federal court challenge is made. So, we have to have someone willing to do that, and then it has to make its way through our federal court system and potentially to the Supreme Court then.

So, your point is well taken. In the meantime, PBMs do have to comply, and also, even if it’s something that they have a hunch is most likely or most definitely preempted by ERISA, PBMs are putting their state licensure at risk by not complying. So, a lot of times we’ll have a client that will say, you know, I don’t know that this law applies to me in this state.

I don’t think that it does. Can I continue to move forward with this program that is potentially questioned by this ruling? And PBMs are not willing to take on that risk because it’s also their business and their state licensure that they’re putting at risk.

So, some of the innovative solutions that we’ve seen PBMs put in place is kind of counterintuitive to the entire concept of self-funding and national employers operating in a multitude of states with one national plan design. So, you’ll see what I mean as I move forward here. But we’ve seen broadening of networks so that there’s not an exclusive provider.

So, especially for exclusive specialty, PBMs will partner with a large regional pharmacy to make a specialty plus network. So, no longer exclusive. We’ve also seen, especially CVS with the Maintenance Choice Program, they have partnered to add Kroger and Costco pharmacies to the Maintenance Choice Program.

And in certain states that’s sufficient to overcome any questions about whether or not that program is a viable option there because they’re not just steering to CVS pharmacies, we’re steering to other pharmacies as well. Certain states have opened up their networks to any willing pharmacy within that state. So, Tennessee has their own specific network where any Tennessee pharmacy locations are able to accept standard terms and conditions to then become a part of that network.

I think an interesting thing that is also happening is that certain state laws ban any incentivization via co-pays or cost-sharing amounts. So, you have to make sure that your co-pays are offered in parity at retail and mail. Okay.

Well, that’s a plan design election that’s made on a nationwide basis for a lot of our employers. So, what happens when that’s no longer allowed in Oklahoma or Tennessee or Florida, but you operate in 50 states? Are you going to make a plan design change just based on what’s going on in potentially one of those states that you have a population in?

So, CVS is able to do a state-specific plan election where you elect to a specific state’s network that offers the retail and mail co-pay to be aligned without making any national plan design changes, which I think is really beneficial. And it’s really helped employers not have to make these drastic changes at a national level and helps facilitate operation. But I think that there’s a limit to how long we can continue to do this.

You know, can you keep broadening these networks without an impact of pricing? And I think that that might be the next thing that we see.

Mike Stull (19:10)

You mentioned earlier about co-pay accumulator bills at the level. I want to switch over to federal guidance on this question. And it has to do with guidance that was given, I guess, a couple years ago on accumulator programs. And that was challenged. And now there was a recent ruling on whether employers and plan sponsors can apply the value of a coupon that a participant uses to his or her deductible or max out-of-pocket. So, I wonder if you could just maybe give us a little bit better explanation of what the ruling was and then what should plan sponsors be doing about it?

Madison Connor (19:56)

Yes. So, last September, a D.C. federal district court invalidated this 2021 HHS rule that allowed co-pay accumulator usage. But the rule didn’t just allow it.

It said, hey, you can take manufacturer assistance, and you can apply it to the deductible if you want, or you can exclude it from the deductible. It’s up to you, plan sponsor. This district court invalidated that rule because it said it was arbitrary.

And no federal agency, you have to be specific about what plans can and cannot do. You cannot just give them a choice or afford them that discretion to define what cost sharing actually is. So, what happens in invalidating the 2021 rule?

Arguably, you revert back to the 2020 rule, which said you can’t do this. You have to count manufacturer assistance toward a participant’s deductible unless there’s a generic alternative or equivalent available. This sent plans into limbo in the meantime because this rule has been invalidated.

We don’t know whether or not the 2020 rule then springs to life. So, what does that mean for co-pay accumulator plans in the interim? So, HHS, the federal government, the Biden administration asked the court to clarify what they actually meant by this ruling.

And they said that in the meantime, they were going to enter a period of non-enforcement where they wouldn’t take any corrective actions or enforcement actions against plans that decided to continue to use a co-pay accumulator program. So, no changes necessarily need to happen right now. I always hate and cringe saying this, but the classic lawyer answer, additional guidance is forthcoming.

And HHS said that they will address this issue in future rulemaking. Something interesting though, the court hasn’t clarified and said what it meant. And HHS had originally filed an appeal on this decision.

But after lots of congressional pressure, there was a letter written by several senators and then also pressure from patient advocacy groups, they dropped the appeal. So, no longer being appealed, but additional guidance is still forthcoming, and the court has not further clarified what it meant in its initial ruling.

Mike Stull (22:23)

Great. Speaking of regulation, the other thing I wanted to touch on before we go is the transparency reporting requirements. Maybe talk a little bit about what employers need to be doing as it relates to those.

Madison Connor (22:37)

When we think of transparency as it relates to pharmacy benefits, there are two main pharmacy components. So, here we’re thinking about the transparency and coverage rules and the RxDC filing, which is prescription drug data collection. That’s what we say for that.

The RxDC process requires annual submissions to CMS by June 1st of every year. This is a heavy PBM reporting obligation. The PBMs take care of most of this reporting, but there are some plan sponsor-specific items required.

And I think that that process is pretty well set in stone at this point. There have been some updates on the transparency and coverage front though that I do want to mention. So, the transparency and coverage rule requires monthly posting of machine-readable files.

There are three machine-readable files required by this rule. One of them was delayed for the last two years that this rule has been effective. So, as it stands today, your medical carrier is probably reporting monthly on a website for you the two medical files.

The pharmacy file was delayed for a few years and the department’s announced last September that now plans will need to report a pharmacy file as well. So, this will need to be supplied by your PBM and the department’s undergo more guidance and timeline writing in order to implement this provision. But I think in the meantime, plans just need to know to expect that, that there will be a third file, the machine-readable file for prescription drugs that will need to be included on that website as well.

And then the last thing I’ll say as it relates to transparency is that we still have yet to see actionable results and information as a result of having to report for these transparency initiatives. As part of the RxDC submission requirements, HHS was going to release an annual report that summarized its findings and the findings there were supposed to summarize what is the impact of drug rebates on participant premiums. And they have yet to release that report, and they’ve had reporting for two years now.

So, that’ll be interesting to see what that data looks like and if any meaningful insights can come from that information.

Mike Stull (25:01)

I just got my crystal ball out and I’m going to make a prediction right now. So, get ready listeners. Here it comes.

They won’t do anything with the data. Nothing meaningful, at least.

Madison Connor (25:15)

Well, certainly, Mike, because all this data is reported, and it’s aggregated at the state and level. So, every large self-funded employer in Ohio has the same information being reported for each plan sponsor. So, you really ask, like, what is the point of every plan sponsor having to report that information?

And what the answer is, the departments don’t have enforcement authority over the PBM vendors. So, they’re putting plan sponsors on the hook for the information to get it out to the vendors.

Mike Stull (25:46)

Yeah. Yeah. I mean, if you look across the globe, our healthcare system has the highest administrative costs.

So, here’s a great idea. Let’s add to that. So, if we’re going to bring down the cost of healthcare, let’s make it more administratively complex on top of already the most administratively complex system in the world.

So, what did I say about prudent policymaking earlier? I forget. So much for my rant.

Okay. So, it’s a presidential election year, 2024. Last question.

What should employers be watching for this year and beyond?

Madison Connor (26:29)

Well, I would say that reiterating what we’ve already talked about, transparency guidance is forthcoming. You’ve got to look for the copay accumulator ruling guidance, the impending appeal of the PCMA versus Mulready decision. Will the Supreme Court undertake consideration of that case?

I hesitate to say I hope so because I really don’t know what the Supreme Court would decide in this case. And also, Mike, as you mentioned, because it is a presidential election year, the time for any meaningful congressional action in the PBM space will really come during lame duck sessions at the end of the year. During the summer, most of the Congress representatives and senators will go home to do local campaigning and Capitol Hill will empty out.

But then after the election, when legislators return to do official business during the lame duck session, that is really the chance that we could see any type of PBM congressional proposals come across the table. Lots of times there is a to pass any type of meaningful PBM regulation at a standalone, like on its own as its own bill. But these are always proposals that are fair game for an end of the year appropriations package.

So sometimes that’s how some of these pieces make it into bills as a policy rider at the end of the year. Overall, I’d also say the 50th anniversary of ERISA, I want to keep that as relevant as we can. And I hope that that guides lots of discussions and consideration of the ERISA component as well.

And we’re going to continue to monitor the state and federal developments and always advocate for strong protection of employer sponsored health plans.

Mike Stull (28:23)

Excellent. Well, I know it’s a lot to keep track of. And we get questions all the time from consultants and clients around what we know about this state law or this bill or what’s going to happen with this regulation.

So a lot of it is trying to decipher what the intent is of the different states or of the different regulatory bodies. And that’s not always that’s not always an easy thing to do. So, we appreciate all the work that you do for our team to keep us up to date and for our clients and their consultants to help keep them on track as well.

So, thanks for being with us.

Madison Connor (29:06)

Thanks, Mike.

Mike Stull (29:08)

Thank you, Madison.

We appreciate it. If you want to learn more, please reach out to your client executive at Employers Health. And if you have a question for Madison, we can certainly direct that to her.

Also, if you want to hear more from Madison, you can register to watch her recorded webinar, An Employer’s Guide to Health Care Price Transparency at employershealthco.com/events.

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That’s it for this month’s episode. If you have suggestions for a future episode or a question that you’d like answered, please let us know. And thank you for taking the time to listen and for your continued support, participation, and interest in Employers Health.

Be well, and we’ll see you soon.