Health Care Reform Act - An Explanation

This article is not my work. This was written by Ned Milenkovich, PharmD, JD. I am simply re-posting it here so that (hopefully) more people may read it. I read it on www.powerpak.com as a CE article. It is highly informative. Please share it with others.

Health Care Reform:
Legal Impact on the Drug & Pharmacy Disciplines

March 21, 2010 marked a historic day as Congress passed a proposed legislation entitled The Patient Protection and Affordable Care Act (the Act).1 Only a few days later, on March 23, 2010, President Barack Obama signed the bill into law, providing millions of Americans with greater access to health care. The Act, consisting of thousands of pages, contains important changes that affect the drug and pharmacy industry, among other things. This continuing education (CE) article will begin with a review of some of the global changes that have been predicted for the overall health care industry and continue with the presentation of information specific to the drug and pharmaceutical industry.

Many of the provisions in the new Act will go through a rule making process at an administrative agency level and this will provide a better sense of how the Act will be administered. State and national associations will be tracking the implementation of these regulations. This also represents an excellent opportunity for the pharmacist to get involved and impact the outcome of the regulations in an effort to keep the results favorable in regard to the drug and pharmaceutical industry.

This historic Act will result in the implementation of many sweeping and far-reaching changes for the health care system over the next few years. Changes may include new consumer protections, coverage for millions of uninsured people, penalties for individuals and businesses who do not buy insurance, attempts to control rising costs (including medication costs), and Medicare savings, as well as new taxes to pay for it all.

A YEAR-BY-YEAR LOOK
Although this is not an exhaustive list, the following is a year-by-year look at what will be coming:

2010
Adults who are currently unable to obtain coverage because of a preexisting medical condition will be able to join a high-risk insurance pool as an interim step, pending the launch of competitive health insurance marketplaces and premium subsidies, in 2014. Additionally, insurance companies will issue policies for children with preexisting conditions and will not be permitted to revoke existing policies when people get sick. Lifetime limits on coverage will be banned and new coverage and annual limits will be restricted. Preventive services will be fully covered, without co-pays or deductibles.

Coverage will be available for dependent children until they are aged 26 years. Certain small businesses will start getting tax credits to offset up to 35% of the cost of insuring their employees; that amount will rise to 50% in 2014. Health plans will be required to have, what has been termed, an effective appeals process for decisions and claims. States will be eligible to obtain grants for the initiation of programs that help consumers with complaints or questions about health insurance. The federal government will also set up a Web site to help people in different states comprehend the full extent of their insurance options. Notably, a 10% tax on indoor tanning services will be levied.

New physician-owned hospitals are barred from participating in Medicare. Medicare coverage is also expanded to individuals who have developed certain health conditions as a result of exposure to environmental health hazards. The United States (U.S.) Food and Drug Administration (FDA) is authorized to approve generic versions of biologic drugs. The Secretary of Health and Human Services (HHS) is authorized to issue grants to create or expand primary-care residency programs. Nonprofit hospitals will also be subject to a tax of $50,000 per year if they fail to meet certain requirements.

2011
Medicare will now support free annual wellness visits. There will be little or no cost sharing for preventive care, which include, immunizations and cancer screenings. Bonuses will be paid to primary-care doctors and general surgeons under certain circumstances and a new Center for Medicare and Medicaid Innovation (CMI) will be unveiled as a forum to test additional methods of providing better, more efficient care. Overpayments to private Medicare Advantage insurance plans will be slowly phased-out and Medicare Part B physician premiums and Part D drug premiums will increase for some people, based on incomes.

Pharmaceutical manufacturers will provide a 50% discount for brand-name drugs purchased through Medicare Part D. In addition, federal subsidies will add financial support for generic drugs, while the patient is caught in the Part D donut hole. Over-the-counter (OTC) medications that are not prescribed by a physician cannot be purchased any longer using tax advantaged set-asides such as Health Savings Accounts, Flexible Spending Accounts, and Archer Medical Savings Accounts.

2012
There will be new incentives to encourage health care providers to join together and facilitate Accountable Care Organizations (ACOs). The government will also track readmission rates at hospitals, which may prompt them to impose penalty fees on hospitals with the highest rates of readmission.

2013
This is when higher income taxes will begin for households with income above $250,000 and individuals above $200,000. The Medicare payroll tax on earnings above those amounts will rise from 1.45% to 2.35%. Unearned income above those amounts (e.g., dividends) will now be subject to a 3.8% tax. In addition, maximum contributions to pretax Flexible Savings Account contributions will be limited to $2500 a year. There will also be a new 2.9% excise tax on medical devices. Medicare will also sponsor a national pilot program on payment bundling—i.e., paying hospitals, doctors, and other providers based on patient outcomes, not services provided.

2014
Insurance companies will no longer be able to deny policies to anyone based on their health status; nor will they be permitted to refuse coverage for a treatment based on preexisting health conditions. The ability to charge higher rates to people based on age, geography, family size, or tobacco use will also be limited; annual limits on coverage will be abolished. Each state will open a health insurance exchange, or marketplace, for individuals and small businesses without coverage. There will be a multistate private plan available nationwide, supervised by the U.S. Office of Personnel Management. Tax credits will be available to make insurance and care affordable for people who earn too much money to qualify for Medicaid, but have incomes below 400% of the poverty level. Most people will be required to buy insurance coverage or they will pay penalties that will start at $95 in 2014 and rise to $695, or 2.5% of their income, in 2016. Employers with 50 or more workers who do not offer coverage will have to pay annual fees. Medicaid eligibility will increase to include individuals living at or below 133% of the poverty level ($14,404 for individuals) for everyone under 65 (when they qualify for Medicare).

2015
In 2015, a new Independent Payment Advisory Board will be formed to come up with ways to lower Medicare costs and promote better care. The recommendations will go to both Congress and private insurers.

2018
In 2018, the most controversial new tax will begin, a 40% excise tax on insurance companies and plan administrators for any family plan that costs more than $27,500. The tax applies to the cost above that threshold; higher thresholds will be applied for retirees over 55 and plans that cover workers in high-risk jobs.

The new health care system will have reduced the number of uninsured people by 32 million, according to the federal government’s Congressional Budget Office (CBO). That will still leave an estimated 23 million people uninsured, one-third of them illegal immigrants according to the CBO. However, coverage of legal residents too young for Medicare (those aged 65 years or less) will be 94%, an increase from the current 83%.2

LAWS DIRECTLY IMPACTING DRUG AND PHARMACY
The following sections will describe how health care reform legislation will affect the drug and pharmacy industry. These sections are entitled, Medicaid Generic Drug Reimbursement, Pharmacy Benefit Manager Transparency, DME Accreditation Exemption, Pharmacist MTM Services, The Medicare Part D Donut Hole, Long-Term Care Pharmacy Requirements, 340B Provisions, Small Business Reforms, and a miscellaneous section with information that may indirectly impact the drug and pharmacy industry or that is of general interest.

Medicaid Generic Drug Pharmacy Reimbursement (AMP Fix)
Background: The Deficit Reduction Act of 2005 (DRA) would have reimbursed pharmacies below their acquisition cost for Medicaid generic drugs. Since 2007, these cuts have been delayed because of a December 2007 court injunction. The Act improves the definition of Average Manufacturer Price (AMP) so that it includes only manufacturers’ sales to retail pharmacies. The Center for Medicare and Medicaid Services (CMS) had been directed to set a Medicaid Federal Upper Limit (FUL) for reimbursement of generics at a rate of “no less than 175% of average weighted AMP.” This increase in the FUL is particularly important because the health care reform Act also expands Medicaid coverage – which will take effect in 2014 – for individuals living at or below 133% of the federal poverty level. This is expected to add 16 million more individuals to the Medicaid program.3

Impact on the Pharmacy

The new health care reform Act requires the Secretary of HHS to implement the new Medicaid generic rates as early as October 2010. This new law serves to mitigate the impact of the dramatic generic drug reimbursement cuts that would have gone into effect had these changes not been made, in turn saving pharmacies money.

PBM Transparency in the Medicare Part D Plans and New State-Based Health Exchanges
Background: Pharmacy benefit managers (PBMs) are responsible for managing prescription drug benefits for health care plan payers. They are able to manage prescription drugs in a variety of ways; for example, they can control prescription costs and clinical interventions. With the passage of the Act, PBMs are required to confidentially disclose important financial information to the Secretary of HHS for health care plans operating in new health insurance exchanges and in Medicare Part D plans. These new state-based exchanges are set to begin in 2014. Notably, this is the first federal requirement for oversight and accountability in the PBM marketplace. These provisions also establish an important initial federal framework for the regulation of PBMs, which have otherwise been largely unregulated.

Pharmacists and Pharmacies Are Exempted From Medicare DME Accreditation Requirements
Background: The Act provides a new exemption, for most pharmacies, from the accreditation requirements to provide Medicare Durable Medical Equipment (DME). It also changes current law so that pharmacy accreditation requirements, for those pharmacies that must still obtain accreditation, are not effective until January 2011. Those pharmacies that want to engage in competitive bidding for DME would still be required to be accredited regardless.

A pharmacy can be exempt from the Medicare DME accreditation requirements if the following apply:

Has total Medicare DME billings that are 5% or less of the total prescription sales
Has not had adverse fraud or abuse determination against their business within the last 5 years
Additionally, the pharmacy must provide an attestation that DME billings are less than 5% of its pharmacy sales, according to a rolling 3-year average, and they must submit documentation that verifies such information.

Impact on the Pharmacy:
If the pharmacy is already accredited under current CMS guidelines and meets the criteria stated above, it is exempt from any re-accreditation requirements.
If a pharmacy is not currently accredited, it would be required to be accredited after January 2011, but only if the pharmacy does not meet the above criteria.

Pharmacist-Delivered Medication Therapy Management Services
Background: The health care reform Act calls for an expanded patient care role for pharmacists in new health care system models. Although pharmacists have been expanding their roles beyond the dispensing function for years, the Act intends that these new responsibilities will help ensure more appropriate use of prescription medications, especially for those patients suffering from chronic illnesses. The provisions are designed to offer incentives for medication therapy intervention that results in an increase in the appropriate medication use by patients. The bill also includes a medication therapy management (MTM) grant program that will help test new and innovative methods to provide MTM. The criteria that will define eligibility for such grants are currently unclear, but it is anticipated that these will be more defined over time by the federal government.

Impact on the Pharmacy:
Community pharmacies may be eligible for grant funding to help provide MTM services.

The Act Closes the Medicare Part D Donut Hole
Background: Medicare Part D enrollees pay a co-payment amount for their prescription drugs, which is determined by their specific plan. For standard plans, enrollees pay their co-payment until their total drug cost reaches a specified amount. In the initial coverage phase, the enrollee pays a co-pay amount and the drug plan pays the rest of the discounted drug price. The total drug cost is the co-pay amount paid by the enrollee plus the amount paid by the Medicare Part D drug plan. After the predefined total drug cost has been reached, there is a gap in coverage (this is commonly referred to as the donut hole) and the enrollee must pay the full cost for their prescription drugs until they have paid the required out-of-pocket expense. After this stage of coverage, enrollees will reach the catastrophic coverage stage and their cost for each medication decreases to a small co-pay (usually $2 to $5 each) or a 5% co-insurance, whichever is greater. During the period enrollees are in the coverage gap, or donut hole, they must still pay their monthly premium.

The Act will facilitate the close of the Medicare Part D donut hole over the next 10 years (2010-2020) through an increase in federal funds and discounts from pharmaceutical manufacturers’ on brand-name medications. Beneficiaries that have reached the donut hole in 2010 will receive a one-time $250 rebate. Beginning January 1, 2011, beneficiaries will also automatically receive a 50% discount off the negotiated price for brand-name prescription drugs that are covered under Part D and by their plan‘s formulary, including those that are being treated as if they were on plan formularies through the exceptions and appeals process. These discounts would be provided by the pharmacy at the point of sale. This discount increases to 75% on brand-name and generic medications by 2020.

The Act also allows for 100% of the negotiated price of discounted drugs (excluding dispensing fees) to count toward the annual out-of-pocket threshold that is used to define the coverage gap annually. Beginning in 2020, the 25% co-pay applies until Medicare’s catastrophic coverage kicks in.

Impact on the Pharmacy:
Medicare patients who previously struggled financially when in the donut hole should be able to purchase their full medication regimen as prescribed – which will lead to increased compliance/adherence. The new law requires that these brand name manufacturer discounts be paid to the pharmacy by a third-party entity under contract with the Secretary of Health and Human Services. The new prompt pay provisions apply to the payments that these third-party entities would have to make to pharmacies; this means that pharmacies should be paid within 14 days of dispensing the brand-name medication.

New Requirements for Long-term Care Pharmacies
Background: The Act requires Medicare Part D plans to engage in dispensing techniques that will reduce pharmaceutical waste. Starting in 2012, the waste reducing form of dispensing medication on a daily, weekly, or automated basis will be required for Part D enrollees in long-term care facilities.

Impact on the Pharmacy:
The pharmacy may have to provide dispensing services to long-term care facilities more frequently and without statutory requirements providing for the corresponding increases in dispensing fees. This provision is troubling because each Medicare Part D plan appears to be able to set its own dispensing interval, making this challenging for the long-term care pharmacy that is trying to track all the different Medicare Part D plan requirements.

340B Provisions
Background: The 340B Program4 was established by the Veterans Health Care Act of 1992, which put Section 340B of the Public Health Service Act into place. The 340B Drug Pricing Program requires drug manufacturers to provide outpatient drugs to certain covered entities specified in the statute.

Covered entities are extensive and include, but are not limited to, Health Resources and Service Administration (HRSA) grantees, Federally Qualified Health Centers (FQHCs) and FQHC look-alikes, family planning clinics, HIV/Ryan White clinics, state-operated AIDS drug assistance programs, black lung clinics, hemophilia treatment centers, urban Indian organizations, Native Hawaiian health centers, sexually transmitted disease and tuberculosis clinics, and disproportionate share hospitals.

The 340B price defined in the statute is a ceiling price, meaning it is the highest price a covered entity would have to pay for a given outpatient drug. Covered entities can negotiate below ceiling prices with manufacturers. As a result, 340B prices have been found to be roughly 50% of the average wholesale price.

The Act substantially expands the number of entities covered and eligible to obtain pharmaceutical discounts according to the 340B program. These 340B entities were designed to provide discounted prescription medications to uninsured individuals. Separately, HRSA has rolled out new guidelines for the 340B program; these provide permission for covered entities to contract with multiple community pharmacies with respect to dispensing of 340B program pharmacy services.

Impact on the Pharmacy:
Expansion language means that an increasingly larger number of covered entities will be able to provide discounted 340B drugs. Therefore, more community pharmacies will also have an increased opportunity to participate in the 340B program because of a recently issued HRSA guidance that allows for entities covered by 340B to contract with multiple pharmacies and provide pharmacy services.

Small Business Reforms
Background: Under the Act, pharmacy employers are required to provide health insurance to employees unless the business has 50 employees or less. If there are more than 50 employees and there is no health insurance, the federal government may assess fines and penalties. Businesses with fewer than 25 employees may receive tax credits for employee health-insurance coverage. Those businesses that have more than 200 employees are required to enroll their employees automatically in a health plan, giving them the opportunity to opt-out.

MISCELLANEOUS LAWS
The following are miscellaneous provisions in the Act that may be of interest:

The Secretary of HHS is authorized to negotiate and enter into contracts with vaccine manufacturers for the purchase and delivery of vaccines for adults. The Act then allows a state to purchase additional quantities of adult vaccines from manufacturers at the applicable price negotiated by the Secretary of HHS. The Act also requires the Secretary of HHS, acting through the Director of the Centers for Disease Control and Prevention (CDC), to establish a demonstration program that awards grants to states for improvements in the recommended provisions and immunizations allotted for children and adults through the use of evidence-based, population-based interventions for high-risk populations.

The Act amends the Federal Food, Drug, and Cosmetic Act (FD&C Act) to impact retail food establishments that are a part of a chain with 20 or more locations. If these restaurants share the same name, they are required to enhance the labeling of a food item offered for sale to incorporate a menu and menu board which should include the following: (1) the number of calories contained in the standard menu item; (2) the suggested daily caloric intake; and (3) the availability on the premises, and upon request, of specified additional nutrient information. In addition, the Act requires self-service facilities to place a sign that lists calories within each food item, or according to serving, adjacent to each food item offered. The Act also requires vending machine operators who are assigned to operate 20 or more vending machines to design and display a sign disclosing the number of calories contained in each food item offered for sale.

The Act amends Social Security Act (SSA) Title XI to require drug, device, biological, and medical supply manufacturers to report to the Secretary of HHS transfers of value made to a physician, a physician’s medical practice, a physician’s group practice, and/or a teaching hospital. Information on any known physician ownership or investment interests relating to the manufacturer must also be disclosed. This part of the Act provides penalties for noncompliance and preempts duplicative state or local laws. The Act also amends SSA Title XI to require prescription drug manufacturers and authorized distributors of record to report to the Secretary of HHS specified information pertaining to drug samples.

The Act imposes an annual fee on branded prescription drug sales exceeding $5 million for manufacturers and importers of such drugs beginning in 2010. The Act requires HHS, Veterans Affairs (VA), and Department of Defense (DOD) Secretaries to report to the Secretary of the Treasury with the total branded prescription drug sales generated by the government programs within their departments.

Finally, the Act imposes an annual fee on the gross sales receipts exceeding $5 million from manufacturers and importers of certain medical devices, beginning in 2011.

LAWSUIT AGAINST FEDERAL GOVERNMENT BY STATE ATTORNEY GENERALS
Thirteen state attorney generals are suing to overturn the Act. The lawsuit, filed in federal court 7 minutes after President Barack Obama signed the Act, underscores the divisiveness of groups affected by the reforms. Florida Attorney General Bill McCollum led the effort to file the suit that claims Congress doesn't have the constitutional right to force people to get health coverage. It also says the federal government is violating the Constitution by forcing a mandate on the states without providing resources to pay for it. The lawsuit, filed in Pensacola, Florida, asks a judge to declare the bill unconstitutional because "the Constitution nowhere authorizes the United States to mandate, either directly or under threat of penalty, that all citizens and legal residents have qualifying health care coverage." The lawsuit claims the health care bill violates the 10th Amendment, which says the federal government has no authority beyond the powers granted to it under the Constitution, by forcing the states to carry out its provisions but not reimbursing them for the costs.5

The lawsuit also says the states cannot afford the new law. Using Florida as an example, it says the overhaul will add almost 1.3 million people to the state's Medicaid rolls and cost the state an additional $150 million in 2014, growing to $1 billion a year by 2019.5

In summary, the monumental Act will affect the drug and pharmacy industry, and although the overall scope of its impact is unclear at this time, one certainly can expect to see, during the next steps of implementation, regulations that will provide additional guidance on a multitude of issues.