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States step in to regulate drug copays

Insurers may need to find new ways to control costs for specialty drugs, as more states add limits to cost-sharing and utilization continues to grow.

At least five states have enacted laws limiting copays and two -- New York and Alaska -- have expressly prohibited the use of tiered formularies for specialty medications. Another 11 states, including California, Illinois and Virginia, have legislation up for consideration that would limit copays.

That state governments are stepping in to place limits on cost-sharing for specialty drugs suggests that public angst over rising out-of-pocket costs is reaching an inflection point--monthly drug costs that were once affordable for patients with conditions like arthritis or multiple sclerosis are becoming harder to cover as part of a family budget. Consumers are seeking relief and lawmakers are turning to insurers to limit what they can charge their members.

"The trend towards increased reliance on specialty pharmaceuticals would not raise such an important concern if specialty drugs did not represent the most expensive segment of pharmaceuticals not only for insurers, but also for consumers through cost-sharing measures," as Chad Brooker, a health policy analyst at Connecticut's insurance exchange, Access Health, wrote in Health Law and Policy Brief last year.

By some estimates, specialty medications account for only one percent of all U.S. prescriptions but 25 percent of national drug spending.

Not only is that set to grow to as much as 45 percent by 2017, but the assumption that prices for existing will fall over time may not always be the norm. Teva Pharmaceuticals' Copaxone, an injection-based multiple sclerosis drug, debuted in 1996 at a price of about $1,000 per month, by 2008 was priced at $2,000 per month, and nowadays is hovering around $5,000.

Those trends leave insurers facing high costs for pharmaceuticals on one side and limits to what can be passed on to members, either through market pressure or increasingly regulation.

Among states that have enacted restrictions on drug copays, Vermont has set the lowest amount, at $100 per month. Delaware, Maryland and Louisiana has limited copays to $150 per month, and Maine has limited copays to less than $300 per month, or $3,500 per year.

In 2010, New York became the first state to enact an outright ban on specialty tiers and associated cost-sharing, even though no insurer in the state had introduced a plan with a specialty tier, according to Brooker. Alaska later followed suit.

While specialty drugs are fairly new in terms of comprising many new drug approvals and driving drug spending growth, the idea of drug tiers where consumers pay different amounts for different types of prescription drugs is not new.

The prevalence of plans with four-tiers of drugs does vary, however, Brooker found. They're more likely to be offered by cost-conscious small employer plans, and more prominently offered by Aetna and WellPoint; as of 2013, Cigna wasn't offering four-tier pharmacy benefits in fully-insured products, only upon request to self-insured employers.

Whether or not four-tier drug benefits continue, insurers may to craft new strategies to control specialty drug costs. While state-level regulations like those enacted in Vermont, New York and elsewhere will only apply to individual and small group plans, members covered in large group policies may be no less displeased with high cost-sharing. And they could end up having a choice of insurers in the not too distant future, either through private exchanges, if they leave their company or if the Affordable Care Act's employer mandate is repealed.

Insurers need to think about their specialty medication strategies in the context of their value-based strategies, argues Mark Fendrick, MD, the director of the University of Michigan's Center for Value-Based Insurance Design.

That can mean linking cost-sharing, not just coverage, to evidence of efficacy, and reducing cost sharing for patients who can most benefit from certain treatments, such as using genetic and molecular biomarkers to guide the availability of cancer or arthritis drugs.

"Such an approach may require creating new provider/plan information-sharing arrangements, which may have up-front costs, but the merit of clinically nuanced cost-sharing could make these expenses worthwhile," Fendrick wrote in a recent paper.

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