Locke Lord QuickStudy: HHS Issues Final Regulation Of Drug Co-Pay Accumulator Programs:

In April, 2019, the U.S. Department of Health and Human Services (HHS) finalized a proposal which is intended to further the Trump Administration’s priority of reducing the cost of prescription drug coverage, and to encourage enrollee use of lower cost generic drugs.¹ The Final Rule adds a new subsection (h)² to 45 C.F.R. § 156.130 which expressly permits private health insurance plans to use accumulator adjustment programs³ that exclude from the computation of maximum out-of-pocket limits for enrollee cost sharing the value of drug manufacturer coupons the enrollee uses for prescription drugs that have an available and medically appropriate generic equivalent.  HHS also clarifies in the Final Rule’s comments that private plans are prohibited from using accumulator programs if a generic equivalent is not available or appropriate. The new rule is effective beginning 2020.

The Final Rule is raising two types questions from stakeholders which we will briefly address: 

• Which health plans are subject to the Final Rule?
• Are higher-cost biologics covered by the Final Rule; and are biosimilars considered generic drugs?

What Health Plans Are Subject to the Final Rule?

The short answer is that all health plans offered by private health insurers or self-funded plan sponsors are subject to the Final Rule.

Although the Affordable Care Act does not address accounting and use of drug manufacturer coupons, HHS’ takes the position in the comments to the Final Rule that the drug coupon provisions would apply to all non-grandfathered group plans to which the annual out-of-pocket maximum applies under Public Health Service (PHS) Act section 2707(b), as added by the Affordable Care Act.⁴ Section 2707(b) provides that a non-grandfathered group health plan shall ensure that any annual cost-sharing imposed under the plan does not exceed the limitations provided for under section 1302(c)(1) of the Affordable Care Act. Section 1302(c)(1) limits an enrollee’s out-of-pocket costs. This annual limitation is also applied to non-grandfathered individual market coverage through the essential health benefits requirements of section 2707(a) of the PHS Act.

For those following the Affordable Care Act closely, HHS does make a distinction with respect to the deductible limit described in PHS Act section 1302(c)(2).  It is still the government’s view that only plans and issuers in the small group market are required to comply with such deductible limit.⁵ However, the annual cost sharing limitations apply to all plans and issuers offering non-grandfathered plans after January 1, 2014⁶ - i.e.,  small group plans and large group plans offered by issuers (i.e., health insurers and HMOs) and self-funded plan sponsors.

What are Biologics, and Are They Covered by the Final Rule?

Biological products include a wide range of products such as vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins.  Biologics can be composed of sugars, proteins or nucleic acids or complex combinations of these substances, or may be living entities such as cells and tissues. Biologics are isolated from a variety of natural sources - human, animal, or microorganism - and may be produced by biotechnology methods and other cutting-edge technologies. Gene-based and cellular biologics, for example, often are at the forefront of biomedical research, and may be used to treat a variety of medical conditions for which no other treatments are available.

In contrast to most drugs, biologics are chemically synthesized and their structure is known.  Most biologics are complex mixtures that are not easily identified or characterized. Biological products, including those manufactured by biotechnology, tend to be heat sensitive and susceptible to microbial contamination. Therefore, it is necessary to use aseptic principles from initial manufacturing steps, which is also in contrast to most conventional drugs. So while biologics are drugs in a technical sense, they are not the same. Reinforcing this distinction, pharmaceuticals are evaluated by the FDA’s Center for Drug Evaluation and Research (CDER), while biologics are reviewed by the Center for Biologics Evaluation and Research (CBER).

Although HHS does not specifically address the application of the Final Rule’s new drug coupon provisions to biologics, we understand that, if asked, HHS and FDA will confirm to stakeholders that the Final Rule does not apply to biologics, taking the position that pharmaceuticals and biologics are different, as described above.  In view of this, it is not necessary to address the impact of biosimilars under the Final Rule.  However, the FDA also confirms that biosimilars, even though less expensive, are not the same as generic equivalents of biologics. 

In conclusion, the Final Rule prohibits individual market, small group, large group and self-insured group health plans from using accumulator adjustment programs only when there is no generic for a branded pharmaceutical.  However, under federal law, all such health plans may continue pharmacy benefit designs which do not count manufacturer coupons toward an enrollee’s maximum out-of-pocket cost sharing (a) when there exists a generic equivalent for a branded drug, and (b) under any circumstances, for more expensive biologics.