In May, the Trump administration announced a new, comprehensive plan to lower prescription drug prices. Tackling this problem is no small feat, but the president made clear his intent to fight back against pharmaceutical companies that, as he frequently reminded his supporters on the campaign trail, are “getting away with murder.” Whether or not you take umbrage with his characterization, it is a fact that health plans continue to face increasing costs, and prescription drugs make up a significant portion of those costs. One of the less conspicuous postulations contained within the administration’s forty-four-page blueprint for executive action, entitled “American Patients First,” is that the use of patient assistance programs (“PAPs”) might be driving up list prices by limiting the transparency of the true cost of drugs to patients. For employer-sponsored health plans, especially those that are self-funded, this is not a new concern.
In 2017, total spending on prescription drugs in the U.S. reached $453 billion. Specialty drugs are particularly culpable, accounting for more than one third of all drug expenditures in 2016 despite making up less than one percent of all written prescriptions. Left at the mercy of drug manufacturers and oftentimes drastic price hikes, many plan sponsors have turned to increased cost-sharing in the form of higher copayments, coinsurance, and deductibles as a way to control costs. In an effort to mitigate the impact on patients, several pharmaceutical manufacturers have developed patient assistance programs (“PAPs”) to help offset patients’ out-of-pocket drug costs. More than 300 drugs are associated with PAPs, and manufacturers spend nearly $4 billion per year on these programs. Some of these programs are very generous. For example, a PAP run by Enbrel offers up to $660 per month toward the cost of a specialty drug for members who would not otherwise qualify for financial assistance.
Assistance programs are marketed as reducing the financial impact on patients, which has great public relations benefits. They also increase the demand for specialty drugs, even when generic alternatives are available. This results in a huge cost to the patient’s health plan. Consider the following scenario: a specialty drug’s list price is $10,000. A generic alternative is available that has a list price of $2,000. The health plan imposes a $500 copay for specialty drugs when generics are available and a $100 copay for generics. In this case, however, the specialty drug manufacturer offers the patient a $450 copay card. For the patient, the out-of-pocket cost for the specialty drug is $50 cheaper than the copay for the generic alternative. The patient chooses the specialty drug, and the health plan pays $9,500. Had the patient selected the generic alternative, the plan would have only paid $1,900.
As the scenario above reveals, PAPs incentivize patients to choose specialty drugs even when cheaper, generic alternatives are available. For most patients, the only price they are aware of is the amount they pay at the register. The cost to their health plan remains hidden to them, although they eventually feel the effects downstream. In other words, PAPs save patients money on the front end while driving up the cost to patients on the back end through increased premiums and cost-sharing. Adding to this problem is the progressively cozy relationship between drug manufacturers and pharmacy benefit managers (“PBMs”) in which both parties work together to push PAPs to health plans.
Over the past few years, as PAPs have proliferated and drug prices have continued to rise, health plans have become increasingly frustrated. A growing chorus of health policy analysts and industry experts have come to see PAPs as marketing schemes masquerading as altruism. Chief among plan sponsor concerns is that PBMs, when processing prescription drug claims on behalf of health plans, had been applying the entire patient assistance amount toward a patient’s out-of-pocket maximum (“OOPM”). In the example above, the patient’s copay card amount, valued at $450, would be applied toward the OOPM, and if you assume the patient needs this particular specialty drug once a month, that equates to $5,400 a year. Since the patient only actually paid $600, one can surmise why plan sponsors are upset.
It should come as no surprise then, as reported by The Washington Post and NPR, that a growing number of health plans (acting on advice from their PBMs and other pharmacy consultants) are not counting patient assistance amounts toward a patient’s OOPM. The results of this health benefit change can be disastrous for patients. As another example, consider a case in which a woman with a chronic illness is prescribed a drug that costs about $90,000 a year. Due to copay assistance, she would pay little to nothing out-of-pocket for the drug. Her health plan would be applying her copay assistance amount toward her OOPM, and when she hit the manufacturer’s cap on copay assistance, she would likely have already met her OOPM. Thereafter, her health plan would pay for the full cost of the drug.
If her health plan changed its policy and no longer applied her copay assistance amount toward her OOPM, she would have to pay the full cost of the drug after she hit the manufacturer’s copay assistance cap. Since the OOPM dollar limit for 2018 is $7,350 for an individual plan, that is the amount she could be expected to pay for her medication. From the perspective of the manufacturer and the PBM, this new policy placates plan sponsors and still leaves the patient better off than if no assistance had been provided in the first place. As described above, however, that may not always be the case. Given the manufacturer’s cap on copay assistance, the patient ended up paying the same as if no assistance had been provided. Worse still, if a generic alternative had been available with a lower copay, the patient may have paid more in the end if she had chosen the specialty drug. Chances are she would have chosen the specialty drug, having been lured in by the promise of patient assistance, and caught unaware as that assistance capped out.
There are health care lawyers who are of the opinion that this change in policy violates federal regulations. Surprisingly, none of the major news outlets that have reported this health benefit change have questioned its legality. As of yet, there have been no legal challenges brought against health plans that have stopped counting patient assistance amounts toward a patient’s OOPM. It is likely that will change, and if health plans are ordered to count patient assistance amounts toward the OOPM, drug manufacturers and PBMs will have to find another way to appease plan sponsors.
- According to research by Express Scripts.
- Visante, How Copay Coupons Could Raise Prescription Drug Costs by $32 Billion over the Next Decade, Nov. 2011
- NPR, Why Some Patients Getting Drugmakers’ Help Are Paying More, May 2018,