SUPREME COURT TO WEIGH IN ON PBM REIMBURSEMENT RATES REGULATION

Recently, the Supreme Court announced that it would review the verdict from Rutledge v. PCMA, a case from Arkansas dealing with the state's legal right to regulate reimbursements from pharmacy benefit managers (PBMs). Their decision could significantly affect pharmaceutical drug costs and PBM business models. The initial briefing and oral arguments should occur between March and April.

The case under review is from the 8th U.S. Circuit Court of Appeals where the court ruled in favor of PBMs and denied Arkansas the regulatory authority (Arkansas Act 900) to raise reimbursement rates for prescription drugs. According to the Court of Appeals, the Employee Retirement Income Security Act of 1974 (ERISA) prevents states' from regulating PBM's reimbursement rates.

The Supreme Court's decision to review the case comes at a time when soaring health care costs are a major issue for states and PBMs have been criticized for adding to the problem. Critics argue that PBMs are benefiting from spread pricing by keeping the difference between what they charge plans for medications and what they reimburse to pharmacies. According to the petition to the Supreme Court, below-cost reimbursement rates have "driven more than 16% of independent rural pharmacies from the healthcare marketplace, and in many communities, nothing has replaced them".

The National Community Pharmacists Association's (NCPA) vice president, Mustafa Hersi is hopeful about the judgment. He stated, "We feel that this matter has national implications. PBMs have been relying on ERISA preemption to avoid meaningful oversight by states, and states like Arkansas have taken it upon themselves to draft well-tailored legislation-- that does not implicate or involve ERISA-- to regulate PBMs that operate within their state. The implications are that, if the court were to not only grant the request but rule in the favor of Arkansas, that states would be empowered to make more decisions to regulate PBMs and the role that they have in our health care system so that their citizens can make informed decisions with the respect to the choices that they have in health care."

The Pharmaceutical Care Management Association (PCMA) opposes the petition. In response to the Supreme Court's decision, the lobbying group stated, "The Employee Retirement Income Security Act (ERISA) has long enabled employers to provide consistent, nationwide health care benefits due to its preemption of state laws. We are committed to federal preemption, which is a vitally important issue to ensuring high quality health care for patients. Unique state laws governing the administration of pharmacy benefits are proliferating across the country, establishing vastly different standards. These inconsistent and often conflicting state policies eliminate flexibility for plan sponsors and create significant administrative inefficiencies. These inefficiencies divert funds from where they should be spent: providing access to the health care services on which employees of plans across the country rely. We are confident in the merits of our arguments in this case and look forward to presenting them before the U.S. Supreme Court."

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MI MEDICAID PBM PHARMACY CARVE-OUT

To reduce costs in its Medicaid Health Plan (MHP), Michigan is carving out pharmacy benefit managers (PBMs) and transitioning to a fee for service (FFS) model for the delivery of prescription drugs. In October, the state's Department of Health and Human Services (MDHHS) revealed that outpatient prescription drug coverage will no longer be a MHP benefit. Beginning December 1, 2019, prescription drugs will be provided through a FFS model and the state will contract with a single PBM to bill its health department.

Michigan hopes to save about $10 million in general funds each year under the FFS model. According to MDHHS, these savings will be achieved "through a combination of increased pharmaceutical rebates and elimination of related MHP administrative capitation costs. The transition to a single formulary will also result in significantly streamlined administration for Michigan's health care providers and coverage consistency for program beneficiaries."

To allow for a smooth shift for recipients, "MDHHS will partner with MHPs and its PBM contractor by utilizing recent MHP PAs and paid claims data to create system edits. The intent of these edits is to continue the beneficiary's medication coverage that was provided by their MHP and to minimize and/or eliminate PA obstacles during the first three-months of the coverage transition."

In addition, the transition will apply coverage limitations and prior authorizations to all program beneficiaries. Members over the age of 21 will incur co-pays beginning the first of December. For Rx services, copays will be $1 for preferred and $3 for non-preferred medications.

Healthcare payers and PBMs oppose the move. They claim that such a move does not align with MHP's objective to provide whole-person integrated care. The decision will increase out of pocket costs and members will not have the necessary overview of their prescriptions.

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CONCERNS RELATING TO CA's PHARMACY CARVE OUT

California's Governor, Gavin Newsom, signed an order at the beginning of 2019 to transition all pharmacy services for Medi-Cal from managed care to a FFS model. The consolidated purchasing power would make use of the state's population size to negotiate drug prices with pharmaceutical manufacturing companies. Private payers and insurance providers would also be allowed to participate in the public health system and negotiate prices.

The state's plan to take control of the pharmacy benefits for all of Medi-Cal's recipients has been controversial. There are concerns over its likely impact on MCOs, PBMs, pharmacies and the coordination of care. Currently, California's pharmacy benefit for Medicaid managed care is administered by ten separate PBMs. They are responsible for 90 percent of the state's Medicaid beneficiaries.

L.A. Care CEO, John Baackes, believes that the carve out will make coordinating care more challenging. He stated, "I think one of the advantages of a managed Medi-Cal plan like ours is that for people who are in very difficult circumstances health-wise, we do provide an element of care management that's important and if there's an element of the benefit that we don't control, then it's awkward."

In addition, critics are concerned about the impact that the pharmacy benefit carve out could have on pharmacies. While purchasing in bulk directly from manufacturers could drive down costs, it's unclear as to how drugs will be dispensed and how local pharmacies will maintain a profit.

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CVS-HEALTH MEGA-MERGER CREATES HEALTHCARE INNOVATION COMPANY

2018 experienced a wave of healthcare mega-mergers. One of the most noteworthy acquisitions was between CVS Health and Aetna for $69 billion dollars. The PBM announced its deal to merge with one of the nation's largest health insurance providers in December of 2017. After the announcement, the merger underwent an intense review from the DOJ and was completed on November 28, 2018.

"Today marks the start of a new day in health care and a transformative moment for our company and our industry," stated CVS Health President and Chief Executive Officer Larry J. Merlo. "By delivering the combined capabilities of our two leading organizations, we will transform the consumer health experience and build healthier communities through a new innovative health care model that is local, easier to use, less expensive and puts consumers at the center of their care. We are also leading change in healthcare by challenging the status quo with new technologies, business models and partnerships. In doing so, we will continue to deliver on our purpose of helping people on their path to better health."

Leading up to its finalization, industry groups like the American Medical Association(AMA) opposed the deal and pushed for regulators to prevent it. They were concerned as to how the merger would affect competition within existing care models.

Before a hearing with the California Department of Insurance, the AMA's President, Dr. Barbara McAneny, explained, "After very careful consideration over the past months, the AMA has come to the conclusion that this merger would likely substantially lessen competition in many health care markets, to the detriment of patients. The AMA is now convinced that the proposed CVS-Aetna merger should be blocked."

Marilyn Singleton, MD, the President of Association of American Physicians and Surgeons(AAPS) expressed her concerns saying, "CVS is in the position to steer patients covered by Aetna to receive their care from CVS-run clinics, instead of from their own trusted physician. Moreover, the patients in the name of convenience or coerced by a limited network would get their prescriptions from CVS." 

CVS-Health considers its merger with Aetna as a significant step to emerging as a "healthcare innovation company" in 2019. The new model will surely impact the industry and engagement between patients and providers.

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HEALTHCARE MEGA-MERGERS

Over the last year, there has been a wave of PBM and health care provider mega-mergers. The acquisitions have been under rigorous evaluation and the approvals indicate that government regulators are more comfortable with vertical integration rather than horizontal. Here is an overview of these mergers.

CVS HEALTH ACQUIRES AETNA FOR $69 BILLION

CVS Health revealed that it would merge with Aetna on December 17, 2017. The decision would add a PBM to one of the nation's leading health insurance companies.

CVS Health's President and Chief Executive Officer, Larry J. Merlo, said, "This combination brings together the expertise of two great companies to remake the consumer health care experience. With the analytics of Aetna and CVS Health's human touch, we will create a health care platform built around individuals. We look forward to working with the talented people at Aetna to position the combined company as America's front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers."

The decision to merge went under review by the DOJ and has been met with criticism from industry groups. In June, the American Medical Association objected the deal and started pushing for regulatory authorities to block it.

In a hearing held by the California Department of Insurance, the AMA's President, Dr. Barbara McAneny, stated, "After very careful consideration over the past months, the AMA has come to the conclusion that this merger would likely substantially lessen competition in many health care markets, to the detriment of patients. The AMA is now convinced that the proposed CVS-Aetna merger should be blocked."

In August, California's Insurance Commissioner, Dave Jones, asked the DOJ to block the merger over Part D concerns. He contended that lowering competition for drug plans would lead to higher premiums. Currently, CVS Health possesses 24% market share and Aetna has 9% of Part D plans.

On October 10th, the merger was authorized by the DOJ under the condition that Aetna would sell its private Medicare drug plans. Despite criticism from industry specialists, Larry J. Merlo, stated that this, "is an important step toward bringing together the strengths and capabilities of our two companies to improve the consumer health care experience."

CENTENE PURCHASES FIDELIS CARE 

On September 12, 2017, the Centene Corporation announced that it agreed to merge with the healthcare provider, Fidelis Care. According to the terms of the deal, Fidelis Care will become Centene's health plan in New York and Centene will take ownership of Fidelis Care's assets.

In July 2018, the procurement was finalized. The deal was worth $3.75 billion and it increased Centene's position in government-sponsored healthcare significantly. As a result of the merger, Centene's national membership rose to 14 million members and the corporation assumed a leadership position in the four largest managed care membership states: New York, California, Florida and Texas.

"We are pleased to have completed our transaction with Fidelis Care on schedule and to enter the New York market by joining with a company with which we are closely aligned on many levels," said Michael F. Neidorff, Chairman and CEO of Centene. "By bringing together two leaders in high quality, affordable health care with a shared mission of promoting accessible care and services for all, this transaction creates opportunities for us to further transform the health of the communities we serve, one person at a time."

WELLCARE HEALTH PLANS ACQUIRES MERIDIAN

In May, WellCare Health Plans announced that it was looking to merge with Meridian Health Plan of Michigan, Meridian Health Plan of Illinois, and MeridianRx. Over the course of 4-months, the company obtained all the necessary regulatory approvals and on September 1st the acquisition was completed. The merger was worth an estimated $2.5 billion.

Because of the merger, WellCare will have the top Medicaid membership market share in Michigan and Illinois. Furthermore, the company will increase its leading market position from four to six states.

In addition to expanding in the Medicare Advantage market, the health care provider's Medicaid membership is projected to grow nearly 40%. WellCare's CEO, Ken Burdick, believes that the addition of a proprietary PBM platform will help support growth within government-sponsored programs.

CIGNA MERGES WITH EXPRESS SCRIPTS HOLDING COMPANY

In early March, Cigna announced that it would purchase Express Scripts Holding Company for $67 billion. Cigna is the fifth largest health insurer in the country and Express Scripts is the biggest stand-alone PBM.

Shortly thereafter, the DOJ Antitrust Division conducted a thorough six-month investigation. They investigated if the merger would significantly decrease competition among PBM services or increase the cost of these services for rival insurance providers. During that time the DOJ received more than two million documents, examined transaction data, and spoke with over 100 knowledgeable industry participants.

On September 17th, the DOJ cleared the pending merger. According to the DOJ's Assistant Attorney General of the Antitrust Division, Makan Delrahim, "After a thorough review of the proposed transaction, the Antitrust Division has determined that the combination of Cigna, a health insurance company, and ESI, a pharmacy benefit management company, is unlikely to result in harm to competition or consumers."

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