By charging higher prices for generic drugs that treat certain illness, health insurers may be violating the spirit of the Affordable Care Act, which bans discrimination against those with pre-existing conditions
This story was co-published with The New York Times' The Upshot.
Health insurance companies are no longer allowed to turn away patients because of their pre-existing conditions or charge them more because of those conditions. But some health policy experts say insurers may be doing so in a more subtle way: by forcing people with a variety of illnesses — including Parkinson's disease, diabetes and epilepsy — to pay more for their drugs.
Insurers have long tried to steer their members away from more expensive brand name drugs, labeling them as "non-preferred" and charging higher co-payments. But according to an editorial published Wednesday in the American Journal of Managed Care, several prominent health plans have taken it a step further, applying that same concept even to generic drugs.
The Affordable Care Act bans insurance companies from discriminating against patients with health problems, but that hasn't stopped them from seeking new and creative ways to shift costs to consumers. In the process, the plans effectively may be rendering a variety of ailments "non-preferred," according to the editorial.
"It is sometimes argued that patients should have 'skin in the game' to motivate them to become more prudent consumers," the editorial says. "One must ask, however, what sort of consumer behavior is encouraged when all generic medicines for particular diseases are 'non-preferred' and subject to higher co-pays."
I recently wrote about the confusion I faced with my infant son's generic asthma and allergy medication, which switched cost tiers from one month to the next. Until then, I hadn't known that my plan charged two different prices for generic drugs. If your health insurer does not use such a structure, odds are that it will before long.
The editorial comes several months after two advocacy groups filed a complaint with the Office of Civil Rights of the United States Department of Health and Human Services claiming that several Florida health plans sold in the Affordable Care Act marketplace discriminated against H.I.V. patients by charging them more for drugs.
Specifically, the complaint contended that the plans placed all of their H.I.V.
medications, including generics, in their highest of five cost tiers, meaning that patients had to pay 40 percent of the cost after paying a deductible. The complaint is pending.
"It seems that the plans are trying to find this wiggle room to design their benefits to prevent people who have high health needs from enrolling," said Wayne Turner, a staff lawyer at the National Health Law Program, which filed the complaint alongside the AIDS Institute of Tampa, Fla.
Turner said he feared a "race to the bottom," in which plans don't want to be seen as the most attractive for sick patients. "Plans do not want that reputation."
In July, more than 300 patient groups, covering a range of diseases, wrote to Sylvia Mathews Burwell, the secretary of health and human services, saying they were worried that health plans were trying to skirt the spirit of the law, including how they handled co-pays for drugs.
Generics, which come to the market after a name-brand drug loses its patent protection, used to have one low price in many insurance plans, typically $5 or $10. But as their prices have increased, sometimes sharply, many insurers have split the drugs into two cost groupings, as they have long done with name-brand drugs. "Non-preferred" generic drugs have higher co-pays, though they are still cheaper than brand-name drugs.
With brand names, there's usually at least one preferred option in each disease category.
Not so for generics, the authors of the editorial found.
One of the authors, Gerry Oster, a vice president at the consulting firm Policy Analysis, said he stumbled upon the issue much as I did. He went to his pharmacy to pick up a medication he had been taking for a couple of years. The prior month it cost him $5, but this time it was $20.
As he looked into it, he came to the conclusion that this phenomenon was unknown even to health policy experts. "It's completely stealth," he said.
In some cases, the difference in price between a preferred and non-preferred generic drug is a few dollars per prescription. In others, the difference in co-pay is $10, $15 or more.
Even small differences in price can make a difference, though, the authors said. Previous research has found that consumers are less likely to take drugs that cost more out of pocket. "There's very strong evidence for quite some time that even a $1 difference in out-of-pocket expenditures changes Americans' behavior" regarding their use of medical services, said the other co-author, Dr. A. Mark Fendrick, a physician and director of the University of Michigan Center for Value-Based Insurance Design.
Fendrick said the strategy also ran counter to efforts by insurance companies to tie physicians' pay to their patients' outcomes. "I am benchmarked on what my diabetic patients' blood sugar control is," he said. "I am benchmarked on whether my patients' hypertension or angina" is under control, he said. Charging more for generic drugs to treat these conditions "flies directly in the face of a national movement to move from volume to value."
If there are no cheaper drugs offered, patients might just skip taking their pills, Fendrick said.
The authors reviewed the drug lists, called formularies, of six prescription drugs plans: Harvard Pilgrim Health Care in Massachusetts; Blue Cross Blue Shield of Michigan; Blue Cross and Blue Shield of Illinois; Geisinger Health Plan in Pennsylvania; Aetna; and Premera Blue Cross Blue Shield of Alaska. They wanted to see how each plan handled expert-recommended generic drugs for 10 conditions.
The conditions are not all high cost like H.I.V. and Parkinson's. They also include migraine headaches, community acquired pneumonia and high blood pressure.
Premera and Aetna had preferred generic drugs for each of the 10 conditions the authors examined. Harvard Pilgrim, a nonprofit often considered among the nation's best, did not have a lower-cost generic in any of the 10 categories.
Four of the six plans had no preferred generic antiretroviral medication for patients with H.I.V.
In a statement to ProPublica, Harvard Pilgrim said it charges more for some generics because they are more expensive. The cheapest generics carry a $5 co-payment for a 30-day supply. More expensive generics range from $10 to $25, or 20 percent of the cost for a 30-day supply. The health plan said its members pay less for their medications than the industry average.
Blue Cross and Blue Shield of Illinois said that its preferred generics had no co-payment at all, and that non-preferred generics cost $10. "We historically only had one tier of generic drugs at a $10 co-pay," the spokeswoman Mary Ann Schultz said in an email.
The Blue Cross Blue Shield of Michigan spokeswoman Helen Stojic said the editorial looked only at its drug plan for Medicare patients, which the government closely regulates. Under Medicare, patients can appeal a drug's tier and seek to pay a lower co-payment, she said.
Geisinger did not respond to questions.
Health plans that participate in Medicare's prescription drug program, known as Part D, have been moving rapidly to create two tiers of generic drugs. This year, about three-quarters of plans had them, according to an article co-written by Jack Hoadley, a health policy analyst at Georgetown University's Health Policy Institute. The practical effect of such arrangements probably varies based on the difference in cost, he said.
Dan Mendelson, chief executive of Avalere Health, a consulting firm, has studied the way in which health insurers structure their benefits. He said the increasing number of drug tiers in some plans was confusing for patients.
"Consumers often don't understand which drugs are where," he said. "They don't understand the purpose of tiering. They just get to the pharmacy counter and it gets done to them."
At least five banks are headless, the FM has little time to spare for the banking industry, but the finance ministry is only focussed on the PM’s pet project JanDhan Yojana
The entire banking industry, led by the finance secretary, is so focussed on enrolling people into the JanDhan Yojana that there is no time for appointments to several top nationalised banks, say agitated senior bankers. While as many as four nationalised banks remain headless and two more will join their numbers, all we have is talk of more accountability and better appraisal from the Reserve Bank of India.
At a seminar earlier this week, RBI Governor Raghuram Rajan said that there will be stricter evaluation of the role of senior bankers before appointing them to the post of chairman and managing (CMD) after Syndicate Bank chairman S K Jain was arrested for corruption.
A committee headed by the RBI governor, which includes finance ministry bureaucrats, has been set up to select candidates. But senior bankers complain that that there is no hurry at any level to act even though non-performing assets (NPAs) are sky-high and there is a need for dynamic leadership and tough action at each of the many government banks.
Now consider this. If the arrest of the Syndicate Bank chairman was a trigger for better selection, why is the post of CMD at United Bank of India (UBI) lying vacant, even after Mrs Archana Bhargava's extremely controversial exit in February, which is seven months ago. That she was allowed to leave without any action against her only hints at dubious appointment considerations. Bank of Baroda (BOB) is headless after Mr S S Mundra moved to the RBI. Syndicate Bank remains headless at a time when it needs a clean and dynamic chairman. Indian Overseas Bank has no chairman either.
At the end of September, R K Dubey of Canara Bank and S L Bansal of Oriental Bank of Commerce will also complete their terms while the Punjab National Bank (PNB) chairman completes his term on 31st October and the Vijaya Bank chairman’s post falls vacant a little later.
While the top posts are vacant, things are no better at the Executive Director (EDs) level.
At least four or five positions are already vacant and every one of the current crop of EDs across all 20 nationalised banks are full engaged in doing only one thing – lobbying for the post of CMD by meeting every politician or politically-connected person who they think will carry clout with this government. And those a level below are lobbying hectically to become EDs or to get transfers to better banks. It is such lobbying that ends in quid-pro-quo deals, later leading to bad loans.
A senior banker says that the JanDhan Yojana is seen as the fastest way to attract the attention of the Finance Secretary and hopefully the Prime Minister (PM) and Finance Minister (FM). So the entire industry is focussed on furious enrolments rather than sensible deployment of funds or effective recovery of bad loans.
It is well known that industry houses have always lobbied for appointments to banks and regulatory bodies in exchange for big favours in the form of fresh loans or write offs. This has been going on for at least three decades. Nothing much seems to have changed.
A disgusted senior banker says, “this government has no time for appointments or banking reforms or for implementing the P J Nayak committee report on making the appointment process more transparent. The only focus of government JanDhan”. All bankers have been told that they will not be permitted to go on foreign tours until JanDhan targets are met.
Even proposals to raise capital are in a suspended animation. Finance Minister Arun Jaitley is already overburdened with three major ministries (finance, defence and corporate affairs) and has also been out of action when he underwent a bariatric surgery.
Meanwhile, the RBI officials are more concerned with the internal re-organisation and lateral appointments (hugely resented by all senior central bankers at the RBI) to worry about vacancies at nationalised banks.
Bankers also say that despite Mr Narendra Modi’s promise of being a chowkidar of public funds, it is business as usual when it comes to shady practices. Interestingly, this paralysis in RBI’s and MoF’s decision-making does not seem to affect private banks. The government has acted swiftly to allow private bank CEOs to continue in office until the age of 70, almost as a birthday gift to for two powerful CEOs who are soon to hit the previous limit of 65.
So what will it take for the new government to give focussed attention to the finance ministry? Another big scandal?
These are fast-tracking investment approvals, lowering stressed assets, expenditure control, improving productivity of rural employment and controlling inflation
Morgan Stanley said, the Narendra Modi-led Indian government is very keen on working to fix the macro problems that have been at the heart of deceleration in GDP growth and high inflation. "As the government continues to deliver on the right policy measures and returns on investment improve, it will reinvigorate animal spirits and the corporate sector will have incentive to lift capex. Indeed, we expect that GDP growth on a quarterly basis will accelerate to 7.2% in the quarter ending March 2017 from 5.7% for the June 2014 quarter, and CPI inflation will head towards the Reserve Bank of India (RBI)’s comfort zone of 6% by December 2015. This would mean that inflation would have come closer to the RBI’s comfort zone after eight years," Morgan Stanley said.
Last week Morgan Stanley said it held a four-day macro due diligence trip and met several key policy makers, business leaders, rating agencies and independent consultants. "We learnt that while policymakers are focused on fixing four key macro problems with traditional measures as well as innovative use of technology, the path to sustained transition to high growth and moderate but stable inflation is dotted with challenges," it said in a note.
Morgan Stanley said it believes that the sharp deterioration in India's productivity growth was the result of a series of poor policy choices, including, maintaining a high fiscal deficit, pushing for high rural wage growth, maintaining negative real rates, and deterioration in the business environment amid general policy uncertainty and a slow pace of decision making in the executive branch.
“We already have evidence of revival in the productivity dynamic in the form of a pickup in GDP growth to 5.7% in June 2014 quarter from 4.7% in FY2014, while inflation has decelerated to 7.8% from a persistent 9-10% during April 2009 to December 2013 period,” Morgan Stanley added.
Here are the five key takeaways from Morgan Stanley's interaction...
1. Fast-tracking investment approval process (Project Monitoring Group) and improving investment
Investment approval process – A number of hurdles have led to a deterioration in capex over the past three years. The poor business environment since 2010, a weak political environment under a coalition government, the emergence of corruption scandals since 2010, and investigations related to such cases had meant that the governmental machinery had become risk-averse and had almost ground to a halt in its decision-making process. This led to existing projects getting stuck for want of clearances, and lack of transparency meant that businesses did not know at what stage or because of which issue the project was stuck.
2. Improving business environment leading to lower stressed assets
Morgan Stanley said, one of the factors that has held back investment in the economy has been weak corporate balance sheets and asset quality in the banking system. "Our conversations with banks and credit rating agencies indicate that corporate balance sheets remain weak and asset quality is still a concern. However, there are early signs of a reversal in credit quality thanks to the improvement in macro stability and economic growth outlook. Recent changes in the RBI’s regulations have helped banks’ efforts to make progress on asset quality," it added.
3. Implementation of Expenditure Management Commission’s recommendations and GST
“In our meetings,” Morgan Stanley said, “government officials recognized the importance of remaining on the path of fiscal consolidation.” It said, "Policy makers are optimistic that the FY2015 central government budget deficit target, set at 4.1% of GDP (we project 4.3%), will be achieved with help from lower oil subsidy burden (near zero subsidy on diesel) and upside from divestment receipts even though indirect tax revenue growth could be a bit lower than estimated. Indeed, the sharp declines in government expenditure growth over the past two months have increased the probability that the government’s target fiscal deficit of 4.1% will be met. Government officials also indicated that some saving on food subsidy can be expected in FY2015 (budget estimate of 0.9% of GDP, or Rs1,150 billion) via better management of food grain stocks. The government has offloaded more than 10 million tonnes of food grain in the open market, which will help reduce the storage cost and procurement has also been slightly lower because the centre did not allow states to provide a bonus over and above the minimum support prices (MSP)."
4. Rural employment program to be linked to productive assets
Policy makers recognized the need to maintain moderate growth in rural wages and the need to link the national rural employment guarantee scheme to creation of durable assets with linkages to rural or agri-economy. The Ministry of Rural Development has allowed states to change the wages to material ratio from 60:40 to 51:49, which will help the governments take up more asset-creating work under the National Rural Employment Guarantee Scheme (NREGS).
Moreover, over the last few months the rate of increase in rural wages has moderated to around 12-13% (coming closer to nominal GDP growth). The government has not intervened further with wage-setting under NREGS and the one-time catch-up effect of market wages to NREGS wages has started to fade.
Morgan Stanley, said, "We believe that government efforts to link the scheme to creation of productive assets will help to ensure that increase in rural wages is in line with the productivity growth, tempering the inflationary pressures arising out of increase in wage growth. In our view, moderating rural wages is key to improving the inflation outlook in a sustainable manner."
5. Government and RBI maintaining vigil on inflation trajectory
According to the note, government officials remained cognizant of the urgency to control inflation and were optimistic that the deceleration in inflation over the last few months should be sustained. Government officials indicated that recent steps to reduce the fiscal deficit and efforts to improve supply-side response, such as revival of stuck projects, should help in lowering non-food inflation. Food inflation pressures are something that the government officials are tracking very closely. Currently, with better management of food grain stock (open market sales) and lower hike in minimum support prices, encouraging states to delist vegetables from the APMC act, officials remained optimistic that food inflation should be largely contained, Morgan Stanley added.