Hundred dollar bills rolled up in a pill bottle

New Rule Might Increase Out-of-Pocket Drug Costs for Patients

This blog post is adapted from a commentary published in the American Journal of Managed Care.

By Bryan Walsh andAaron S. Kesselheim

Patients may face increased out-of-pocket drug costs as a result of a new rule finalized by the Centers for Medicare & Medicaid Services (CMS) in July 2020 that would permit wide use of co-pay accumulator adjustment programs (CAAPs).

These increased costs may have effects on medication adherence, and in turn may affect health outcomes. In a recent commentary published in the American Journal of Managed Care, we explain the background to this rule and suggest ways CMS could narrow it to avoid these potential negative effects.

Drug manufacturers often have temporary assistance programs that cover all or a portion of a patients’ out-of-pocket costs when filling a prescription for a brand-name drug. While this reduces financial barriers to filling prescriptions, it creates economic waste when lower cost generic versions exist, yet are overlooked because the assistance programs make it cheaper for the patient to fill the brand-name drug.

Commercial insurers use CAAPs to respond to this concern. CAAPs incentivize use of lower cost generics over brand-name drugs by ignoring payments made by drug manufacturer assistance programs when determining whether a plan beneficiary’s out-of-pocket costs have reached the annual limit imposed by the Affordable Care Act.

But the success of CAAPs requires three things:

(1) Lower-cost alternatives must exist, such as in the form of generic versions of the brand-name drug, or generic versions of drugs in the same class that have similar clinical benefits;

(2) beneficiaries must know that these restrictions on manufacturer assistance exist, and therefore be able to choose the lower-cost alternative; and

(3) beneficiaries would have met their yearly out-of-pocket limits, and thus would have been excused from coinsurance and co-payments for a portion of the year, only if these restrictions did not exist.

In July 2020, CMS finalized a rule that ignores the first two requirements. The finalized rule permits CAAPs even in situations where no lower cost generic exists, and it fails to mandate disclosures to beneficiaries informing them of the existence of such programs. This allows insurers to ignore all payments made by drug manufacturer assistance programs while potentially surprising beneficiaries with unexpected out-of-pocket costs. This is particularly detrimental to beneficiaries with high yearly out-of-pocket expenditures for prescription drugs who expect to meet their yearly maximum and be excused from such expenses for a portion of the calendar year.

The new administration should therefore seek to narrow this rule to permit CAAPs only in situations where a lower cost generic alternative exists and is medically available, and mandate disclosures informing beneficiaries of the existence of CAAPs in their plan to assist in making informed decisions concerning the acceptance of drug manufacturer assistance.

Bryan Walsh is a postdoctoral research fellow studying prescription drug competition and pricing with the Program On Regulation, Therapeutics, And Law (PORTAL) at Brigham and Women’s Hospital and Harvard Medical School. 

Aaron S. Kesselheim, MD, JD, MPH is a Professor of Medicine at Harvard Medical School and a faculty member in the Division of Pharmacoepidemiology and Pharmacoeconomics in the Department of Medicine at Brigham and Women’s Hospital. 

The Petrie-Flom Center Staff

The Petrie-Flom Center staff often posts updates, announcements, and guests posts on behalf of others.

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