Co-Pay Offset Programs and Health Insurance Marketplaces: Causes for Concern

As the health insurance marketplaces begin enrollment next week and go-live on January 1, 2014, several issues continue to be a source of significant confusion to manufacturers, payers and millions of consumers who will be purchasing health insurance for the first time through an exchange.  Many of these issues, such as the cost of premiums, formulary coverage and cost sharing amounts, will be clarified as the insurers begin promoting their product offerings and disseminate more complete information about coverage and pricing.  

Other issues, however, may remain unresolved absent further guidance from CMS or HHS.  Nowhere is this ambiguity more apparent than in assessing whether individuals purchasing health insurance through the exchanges will be able to utilize drug co-pay cards and coupons to offset the cost of co-payments for drugs covered by a particular plan.  Historically a source of tension between manufacturers and payers, we expect the conversation around the issue to reach a new intensity as enrollment efforts progress toward the January 1st start date.

From a legal perspective, the general consensus for many years now among plans, PBMs and manufacturers alike is that the use of drug co-pay cards and coupons by individuals with government funded health care and prescription drug benefits, such as Medicare and Medicaid, is prohibited by the federal anti-kickback statute, 42 U.S.C. § 1320a-7b(b).

The basic premise is that the manufacturers’ subsidization of a beneficiary’s copayment amounts to a prohibited inducement for the beneficiary to use that manufacturer’s product, with the remaining cost of the product being borne by the government health care program.  This type of arrangement is viewed as triggering the basic elements for a violation of the anti-kickback statute, in that the item or service that is the subject of the inducement is one “for which payment may be made in whole or in part under a Federal health care program” which is defined by statute at 42 U.S.C. § 1320a-7b(f).

So while industry participants generally agree that programs like Medicare and Medicaid are federal health care programs to which the anti-kickback statute applies, the more important question here is this:  do health exchanges and the plans offered under them constitute a “Federal health care program” such that the anti-kickback statute would preclude the use of drug co-pay cards or coupons?

While neither CMS nor HHS has issued formal guidance on this precise issue, a number of considerations suggest that the answer to that question is NO.  If that is indeed the case, the anti-kickback statute, and its general prohibition against the use of drug co-pay cards and coupons, will not be triggered.

While it is possible for additional rules or guidance to be issued, at this time the overall structure of the health exchanges and the plans offered through them support this conclusion.  In particular, based upon the premium structure to be employed by the health exchanges and the insurers offering private health insurance plans, it appears that many of the plans available for purchase on the exchanges will not be funded with federal dollars.  As such, it seems unlikely that many of these plans will be characterized as “Federal health care programs” subject to the anti-kickback statute.

It is important to note that two general categories of plans will be available for purchase through health exchange marketplaces:  (i) Qualified Health Plans, or QHPs; and (ii) Alternative Benefit Plans, or ABPs.

QHPs should make up the bulk of the plans available for purchase through the health exchanges, and are analogous to commercial health insurance plans.  Generally speaking, and subject to certain tax credits, premiums for QHPs are to be paid by the consumers purchasing them.  Coverage under a QHP also may be purchased by certain individuals otherwise eligible for Medicaid with “premium assistance” from state Medicaid programs.  Under the structure of the program as described in HHS’ regulations, it appears that no payment of federal funds will be made, in whole or in part, for prescription drug products covered by the QHPs in connection with these premium structures.

If that is the case, the anti-kickback statute would be inapplicable to a consumer’s purchase of a covered drug product that may have an accompanying co-pay card or coupon opportunity.

Alternative Benefit Plans, however, lead to a different result.  ABPs will be available for purchase by certain Medicaid-eligible individuals through health exchanges in states that have elected to expand their Medicaid programs. As ABPs are required to be approved through Medicaid State Plan Amendments, ABPs would constitute “federal health care programs,” thereby triggering application of the anti-kickback statute.  As a result, the use of drug co-pay cards and coupons by populations covered by those plans would be prohibited, just like the general Medicaid population.

As we all know, however, efforts to implement the overall health exchange program have been marked with many twists and turns, so it is entirely possible that CMS, HHS or another agency will issue future guidance bearing on these issues.  Equally unclear is whether (and how) manufacturers would plan to incorporate drug co-pay card and coupon strategies, when many exchanges and plans have a tremendous amount of implementation work remaining, including finalization of plan formulary structures.

One thing is certain though:  the use of drug co-pay cards and coupons will continue to be a contentious issue, particularly as millions of price-sensitive consumers enter the health insurance markets.

Mark McAndrew is a Partner in the Health & Life Sciences and Business & Finance practices at Taft Stettinius & Hollister in Cincinnati, Ohio.  This post is an abridged version of a longer article on his blog, www.managedmarketaccess.com. He can be reached at mcandrew@taftlaw.com.