Self-Funded Health Plans May Have a New Ally in the Fight Against Specialty Drug Prices
By Brady Bizarro, Esq.

Throughout the bitter and seemingly endless presidential election cycle, Donald Trump and Hillary Clinton vehemently disagreed on almost every issue, especially those involving health policy. Yet, there was at least one health policy issue on which both candidates agreed: prescription drugs are too expensive. For self-funded health plans, this is old news. The industry continues to face increasing costs overall, and prescription drugs make up a significant portion of those costs. Specialty drugs are particularly culpable. Specialty drugs accounted for 32 percent of all drug expenditures in 2014 despite making up less than one percent of all written prescriptions, according to research conducted by Express Scripts.

Self-funded health plans employ a variety of cost-containment strategies in an effort to ameliorate the fiscal burden of prescription drugs. These include increased cost-sharing (through copayments, coinsurance, and deductibles) and utilizing manufacturer copay cards and tiered benefit programs. Now, the self-funded industry may be given new tools by the President-elect to fight the pharmaceutical companies.

Chief among President-elect Trump’s health policy priorities is his campaign promise to “repeal and replace” the Affordable Care Act. In addition, he has announced at least two priorities which depart from conventional conservative thinking and have important implications for the future of self-funding: requiring price transparency from all healthcare providers and permitting consumers to import drugs from overseas.

As part of Trump’s plan for “Healthcare Reform to Make America Great Again,” the President-elect proposed that Congress must:

Remove barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products. Congress will need the courage to step away from the special interests and do what is right for America. Though the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.

It is hard to overestimate the savings a self-funded health plan can realize if permitted to import drugs from overseas. One of the main reasons why prices for brand-name drugs are typically lower in most developed countries than in the U.S. is because of increased negotiating power. In the U.S., the government has forfeited its negotiating power. Medicare, the largest single purchaser of prescription drugs in the U.S., is prohibited by law from negotiating prices with pharmaceutical companies. By contrast, in the United Kingdom, brand-name drug prices are generally much lower because the government and the industry negotiate agreements which contain set spending caps and require drug companies to reimburse the government any amount which exceeds the cap. While some of these agreements do contain opt-out provisions for the reimbursement requirement, most pharmaceutical companies agree to these contracts as-is in order to gain access to a much larger market.

Also consider the case of Canada, which is often touted as a prime example of a source of low-cost prescription drugs. The Canadian government negotiates with pharmaceutical companies on behalf of the public. As a result, brand-name and even generic drugs are less expensive in Canada than they are in the United States. In 2004, the median prescription drug prices in Canada were nearly 79 percent lower than those in the U.S., according to the Patent Medicine Prices Review Board Annual Report. The 2013 report revealed that Canadian consumers still paid less than half of what U.S. consumers paid for patented-drug products. If the President-elect succeeds in pushing through legislation which ends the ban on foreign drug imports, U.S. consumers could realize similar savings.

This would not be the first time that a politician has attempted to lift the ban on importing foreign drugs. The Safe and Affordable Drugs from Canada Act of 2015 was sponsored by Senator John McCain (R-AZ) and had bi-partisan support, including from Senator Bernie Sanders (D-VT). The bill remains stalled in the Senate Committee on Health, Education, Labor, and Pensions. There was also an attempt to permit importation in 2009 while the Affordable Care Act was being pushed by Democrats, but that effort also failed. Despite past failed attempts, there are many reasons to think that the importation of prescription drugs from overseas may actually become legal (at least in some form) under a Trump Administration.

First, public support for change and increased price transparency is at an all-time high, especially in light of recent, high-profile price-gouging controversies. In August 2015, Turing Pharmaceuticals acquired the exclusive rights to distribute Daraprim, a drug used to treat AIDS-related symptoms. A month later, the company raised the price of Daraprim from $13.50 per pill to $750 per pill overnight, an increase of over 5,500 percent (before 2010, the drug cost $1 per pill). A joint study by the Infectious Disease Society of America and the HIV Medicine Association found that the increase in price would result in an average bill of $634,500 per year for most patients. In response to the public outcry, the CEO of Turing Pharmaceuticals defended his company’s actions, citing the need to modernize the drug and create new alternatives with fewer side effects. A year later, the price of the drug is $375 in the U.S., and between $1 and $2 per pill internationally.

Turing Pharmaceuticals is not the only company to drastically increase the price of its brand-name drugs and face near-universal criticism. Mylan, a global generic and specialty pharmaceuticals company, faced an even bigger political firestorm in the summer of 2016 when it raised the price of a two-pack supply of its popular EpiPen to $608 (the same two-pack EpiPen is available in the United Kingdom for $69). The EpiPen, which sold for $100 as recently as 2009, is an epinephrine auto injector device used to control allergic reactions to food and environmental allergens. What made this case more contentious was a media report revealing that over the past eight years, while the price of EpiPens increased 461 percent, the salary of Mylan’s CEO rose 671 percent, up to $18.9 million a year.

Although many experts agree that these examples are egregious, it is important to note that there are enormous costs associated with pharmaceutical research and development. Furthermore, there is a very real need to encourage drug development as a matter of good public health and public policy. This is why the U.S. government provides regulatory protections to assist pharmaceutical firms in the development of life-saving drugs. Nonetheless, recent polling confirms that Americans are fed up with the price of brand-name drugs. Nearly eight in ten Americans agree that drugs are too expensive, and almost 86 percent agree that pharmaceutical companies should be required to reveal how drug prices are set, according to a survey released by the Kaiser Family Foundation in September 2016.

In addition to the public outcry over specific pricing controversies, the Food and Drug Administration (FDA) has sent mixed signals regarding the agency’s willingness to enforce the ban on foreign drug imports. The FDA’s website explains that the agency has a policy “that it typically does not object to personal imports of drugs that FDA has not approved under certain circumstances . . .” Those circumstances include when less than a three-month supply is imported, and when the consumer importing the drug verifies in writing that it is for her own use and provides contact information for the doctor providing her treatment.

Perhaps most importantly, President-elect Trump will enjoy the benefits of a Republican-controlled House and Senate. While in recent weeks he has shown signs of scaling back some of his campaign promises, this particular health policy initiative enjoys bi-partisan support. As such, there may be no better opportunity to push through legislation lifting the ban on safe, dependable imported drugs.

Appealing to Reason
By Jon A. Jablon, Esq.

The language is exceedingly common within benefit plans. We’ve all seen it; in order to appeal a denial, a medical provider must be specifically appointed by the patient as the patient’s “authorized representative.” Only members may appeal their own claims, unless they appoint someone to do so. Some third-party administrators and plan administrators even have a form that a member must fill out. These are long-held maxims by many – but are they truly compliant?

In what it has deemed a frequently asked question, the Department of Labor, in its Benefit Claims Procedure Regulation FAQs , has asked itself “Does an assignment of benefits by a claimant to a health care provider constitute the designation of an authorized representative?” The Department of Labor simply, and helpfully, led its answer with the word “no.” To elaborate on this “no,” the DOL wrote that “Typically, assignments are not a grant of authority to act on a claimant's behalf in pursuing and appealing a benefit determination under a plan.”

But how much does that truly clarify? Without some context, it is fairly unhelpful – and in context, it is revealed that this guidance from the DOL is somewhat inaccurate.

An authorized representative is one who is authorized to act as the representative of another – a description that could scarcely be any clearer. In our sense, an authorized representative is generally used in the context of the right to appeal. To illustrate the utility of this concept, consider three scenarios; in all three, a plan member has received services from a non-contracted medical provider, and in all three the Plan’s available benefits are not quite enough to cover the provider’s full billed charges. Appeals will occur – but the difference in the scenarios hinges on exactly who is appealing, and on whose behalf.

In scenario number one, the health plan systemically prohibits all assignments of benefits, and pays benefits directly to the member. The member endorses the Plan’s payment to the provider to compensate the provider for its services – but the provider is dissatisfied with the payment amount. In this scenario number one, the provider may not appeal to the health plan unless the provider appeals on the patient’s behalf, since the provider itself was due benefits from the patient, rather than from the health plan, since there was no assignment of benefits – and in such case the provider would need to be appointed by the member as the member’s authorized representative, since the provider has no independent right to benefits from the health plan in this scenario. In other words, the provider would need to appeal on the member’s behalf, and would therefore need to be the member’s authorized representative to do so.

In scenario number two, there is again no assignment of benefits, but the provider decides to balance-bill the member instead of getting involved in the appeals process. The member, rather than the provider, appeals directly to the Plan. Members, of course, are always claimants and are always entitled to appeal to the health plan if the member feels that a greater amount of benefits should be paid. In this scenario two, there is no need for the member to appoint the provider as the member’s authorized representative, since the member needs no representative if she appeals on her own behalf.

Now, consider scenario number three, where there is a valid assignment of benefits from the member to the provider (as is almost universally the case in self-funded health care). Through the assignment of benefits, the provider is invited to submit its claims directly to the health plan, and receives only partial payment of its billed charges in return. In this scenario three, the provider desires to appeal the denial. The provider submits an appeal to the health plan – in accordance with all of the plan’s written and established procedures – and the third-party administrator answers the provider with a letter stating that only members may appeal, unless the member fills out a specific form to authorize the provider to appeal on the member’s behalf. How compliant is that, though? Might the health plan be at risk of noncompliance if it denies providers the right to appeal their own claims?

An authorized representative, as described above, is one who is authorized to be the representative of another. In a case such as this, a medical provider might be authorized to act as the representative of the member, therefore becoming the member’s personal representative. Consider, however, federal regulations that afford all claimants the right to appeal; claimant is a term of art that explicitly includes participants and beneficiaries . A beneficiary is defined as “a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.”

Forget the legalese; the important thing is to note that medical providers, if benefits are assigned to them, are beneficiaries, as that term is defined by the regulations – and beneficiaries become claimants when they submit claims to the health plan. If you remember, all claimants are empowered to submit claims to the health plan, appeal a denial of those claims, and even ultimately sue for redress under ERISA. (As one court put it, “there is now a broad consensus that when a patient assigns payment of insurance benefits to a healthcare provider, that provider gains standing to sue for that payment under ERISA § 502(a). ”)

The same regulation that defines “claimant” also provides that:

Every employee benefit plan shall establish and maintain a procedure by which a claimant shall have a reasonable opportunity to appeal an adverse benefit determination to an appropriate named fiduciary of the plan, and under which there will be a full and fair review of the claim and the adverse benefit determination.

According to these regulations, not only are claimants afforded the right to file claims, but they are also guaranteed the right to appeal, by imposing this responsibility upon the health plan to afford claimants the right to appeal. The relevant regulations unambiguously explain that a claimant may appeal an adverse benefit determination. Moreover, the text of ERISA itself provides that “A civil action may be brought…by a participant or beneficiary…to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan. ” To simplify, again, claimants can sue for benefits. Since medical providers are claimants if they are assigned plan benefits, then providers can appeal and ultimately sue if necessary.

As another court wrote, somewhat more bluntly, “the assignment is only as good as payment if the provider can enforce it. ” This is a matter of public policy, and seems fairly intuitive; if a provider has the right to submit a claim, and the health plan has the right to tender a denial of that claim, practically speaking, why should the provider not also have the right to appeal the denial of its claim? According to courts and the regulations, the provider does in fact have this right.

We now know that medical providers who have been assigned benefits can submit claims, appeal denials of those claims, and sue for redress pursuant to ERIA. It should be noted, however, that although the law on the topic may be established, not everyone is on the same page, as is so often the case in our industry.

The DOL’s answer to its own question (“Does an assignment of benefits by a claimant to a health care provider constitute the designation of an authorized representative?”) continues by specifying that “An assignment of benefits by a claimant is generally limited to assignment of the claimant's right to receive a benefit payment under the terms of the plan.”

But how can that be the case? Claimants have the right to appeal, and claimants include anyone “designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder.” The regulations say one thing, but the DOL’s FAQ seems to say the opposite.

The DOL’s answer to its own question yields an absurd conclusion: that a provider that has accepted an assignment of benefits and submitted claims to a health plan is not a claimant. According to applicable law, however, either the provider accepts assignment of benefits and submits claims, and therefore earns the right to appeal and sue – or the provider does none of those things. These rights are not discrete; they are a package deal, inseparable from one another. Each right – the right to submit claims, the right to appeal a denial, and the right to sue under ERISA – has “not for individual sale” marked on its label.

The confusion doesn’t stop there, though. Coming back to the Department of Labor’s answer to its own frequently asked question, the Department has stated that “[t]ypically, assignments are not a grant of authority to act on a claimant's behalf in pursuing and appealing a benefit determination under a plan.” This is a correct statement, although very misleading in context. It is true that an assignment of benefits does not grant a provider authority to act on a claimant’s behalf – because a provider who has received an assignment of benefits is a claimant unto itself, and is not acting on anyone else’s behalf. The provider therefore needs no authority to act on anyone’s behalf.

Where do we go from here? There is conflicting guidance; FAQs are suggestive rather than binding, but most take them as gospel nonetheless, since they are explicitly designed to be written in plain English rather than the legalese of the regulations.

The rules surrounding who has what rights and under what circumstances are undoubtedly confusing at times; guidance provided by our regulators is sometimes confusing, vague, and – at times – even contradictory. This is one of those times, and affording all relevant rights to medical providers is an important topic now more than ever in the face of incoming bouts of regulatory scrutiny of the self-funded industry and the fiduciaries who act within this space.

As health plans struggle to contain costs, health plan administrators, third-party administrators, and brokers should be careful not to handicap themselves by employing the same thinking as prior decades simply because that’s what has always been done. Performing an in-depth review of claims and appeal processes – and the rest of the health plan to boot – is the best way of staying ahead of the curve and ensuring compliance and viability.

Held Captive by Appeals
By: Tim Callender, Esq.

Prior to the passage of the Affordable Care Act, self-funding was already healthy and growing.  Since the passage of the Affordable Care Act (and predominantly due to the ironic increase in healthcare insurance costs through the fully-insured, carrier model) we have seen self-funding grow even more.

Although this growth has been significant, there are some employer groups – primarily small and mid-sized groups – that have struggled to find a sustainable path into self-funding nonetheless.  For purposes of this article I will refer to these employers as “Small-Mids.”  Obviously, opinions differ as to what a “small” or “mid-sized” employer group is, but for today’s discussion, we are looking at employer groups ranging from 50 employees up to approximately 200 employees.  

One of the primary barriers to entry for Small-Mids is the financial risk inherent to the self-funded model.  Even with a stop-loss policy in place (assuming the employer is domiciled in a state that has not regulated stop-loss to the point of making it prohibitive to gain a policy for a small to mid-sized employer), many Small-Mids do not have the cash reserves necessary to make it through a high health spend year before stop-loss reimbursement might kick in. There are programs in the market such as “level-funding” whereby an employer’s risk is effectively capped at a certain figure in exchange for a set monthly expense, but such programs are still in their infancy and not very widely-used.

 In the traditional market, however, figure in a handful of dialysis claims, one or two air ambulance claims, and one plan member on a growth hormone prescription, and the Small-Mid is running for the hills.  Lest we forget that Small-Mids are often terrified of financial ruin on many fronts to begin with, let alone bearing the risk of high claims exposure.  For them, it is unquestionably easier to sign up for that prototypical fully-insured option and trade financial risk for predictable premiums. The problem, though, is that predictable premiums are generally high premiums.

Another barrier to entry for the Small-Mids is the appeals experience.  “What do you mean, ‘appeals experience,’ Tim?” you might ask.  In short, as those of us working in the self-funded health plan space know, a health claim’s denial triggers appeals rights.  These appeals may be pursued by the plan member, a plan beneficiary, or even the medical provider through an assignment of benefits or appeals authorization.  The typical claims and appeals cycle tends to look something like this:

(1)    A claim for health benefits is submitted to the plan-sponsor’s third-party administrator by the Claimant (the Claimant might be the plan member, a plan beneficiary, or a medical provider);
(2)    The claim is adjudicated, by the TPA, pursuant to the terms of the governing plan document, as created and adopted by the plan-sponsor;
(3)    The claim is denied pursuant to the terms of the plan document;
(4)    The Claimant files a first-level appeal.
(5)    The first-level appeal is handled by the TPA.  Sometimes input from the plan-sponsor is solicited, sometimes not.  Every TPA / plan-sponsor relationship is different.
(6)    The denial of benefits is upheld by the TPA / plan-sponsor at the conclusion of the first-level appeal process.
(7)    The Claimant files a second-level appeal.  
(8)    The TPA will handle the second-level appeal in one of two ways: (i) it will review the second-level appeal, provide a recommendation to the plan-sponsor regarding the determination, and ask the plan-sponsor to make a final determination based on the TPA’s recommendation; or (ii) the TPA will submit the second-level appeal to the plan-sponsor, in its entirety, for the plan-sponsor to review and determine, on its own, whether the denial should be upheld or overturned.
It is step (8) where the wheels typically come off for an existing self-funded plan and it is step (8) that is a significant barrier for Small-Mids to get past when they analyze and consider self-funding.  Imagine a Small-Mid that is privately held and made up of hard-working, blue-collar employees and blue-collar leaders who have risen to positions such as Vice President of H.R., or Chief Operations Officer.  Suddenly, it is these leaders who are faced with a second-level appeal based on the medical necessity of cortisone injections for the treatment of migraines; suddenly it is these leaders who are faced with a second-level appeal based on the interpretation of a complex plan exclusion, such as the “hazardous activities exclusion” or the “illegal acts exclusion.”  We have all heard these stories and we are all familiar with the fallout that might occur when a Small-Mid is faced with this daunting task.  

Additionally, how many stories exist of the closely held Small-Mid’s leadership team suddenly faced with a second-level appeal that directly concerns their highest performing sales person?  Or, more generally, consider the heartache involved for any Small-Mid’s leadership team when they must decide an appeal on a health claim for a well-known and well-loved employee, regardless of his or her title! Many Small-Mids have close-knit employee populations, many of whom have been coworkers and friends for years.
 How many times have we heard, “we make motorcycle clutches and just wanted to provide our employees with good health benefits!  We never signed up to make these types of decisions!”  Another group leaves self-funding and then the horror stories trickle downstream, preventing other Small-Mids from moving toward self-funding.  Or, if the Small-Mid stays in the self-funded space, there is a very real chance that they unknowingly breach their fiduciary duty as a plan-sponsor, time and again, when they throw their hands in the air and pay claims that should not be paid pursuant to the governing plan document, simply because of the emotion, heartache, and the difficulty of handling complex appeals.

Solutions to the problems discussed above do exist, and these solutions are exploding across the industry and across the country.  The captive model is one such solution, primarily focused as a remedy to the Small-Mid’s concern over self-funding and financial devastation.  Captive risk-sharing is not a new idea – yet it is not as common in the self-funded health space as we all might think.  Time and again, my colleagues and I are surprised as we travel and speak on self-funding topics, all around the country, to learn that many employers, not to mention their brokers, have either never heard of captive risk sharing or have simply never invested the time to learn much beyond the basics.  

The proof is in the pudding. The numbers show that properly-run captive programs, filled with Small-Mids, are breaking down doors and bringing Small-Mids into self-funding through the assurance of responsible, managed risk-sharing.  Whether heterogeneous (made up of groups spanning multiple industries) or homogeneous (groups within the same industry) in makeup, a captive provides a common goal amongst its members to keep costs down and prop one another up through the safety net of a pool of funds that many might view as a “rainy day fund.”  

Regarding the second barrier to entry for Small-Mids, directly handling health claim appeals, there are solutions covering that problem as well.  Third-party, second-level appeals outsourcing is becoming more prominent in the self-funded industry.  Historically, the only option that might exist for a plan sponsor was to hope it landed with a TPA that might be willing to handle second-level appeals, usually for a fee.  But, most TPAs steer away from this administrative add-on for two reasons.  (1) it drastically blurs the line between who is acting as a fiduciary for the plan and (2) it can create a potential conflict of interest and call objectivity into question when the same entity has adjudicated the initial claim, handled the first appeal, and then went on to handle the second appeal.  

Figure in a solution that can handle the appeals concerns discussed above and we are looking at the pinnacle method to eliminate the two most prominent barriers to self-funding faced by Small-Mids: financial concerns over claims exposure, and managing appeals.  

As Employer-Sponsored Plans Multiply, Self-Funding Remains an Attractive Option
By Brady Bizarro, Esq.

As the new year begins, we can reflect on annual reports and surveys recently released by federal agencies and non-profit organizations which measure public and private healthcare spending and reveal trends in national health policy. One of the most prominent reports is the National Health Expenditure Accounts report, which was released in December by the Centers for Medicare and Medicaid Services. Some of CMS's findings forecast tough times ahead for employer-sponsored health insurance. Now, more than ever, employers will need to develop innovative approaches to continue offering affordable coverage to their employees.

Healthcare expenditures grew more than two percent faster than the overall economy in 2015. Spending was up overall by nearly six percent in 2015, up to $3.2 trillion, or $9,990 a person. Private health insurance spending increased by seven percent, with annual premiums for employer-sponsored family plans already topping $18,000 this year (up three percent from last year). Prescription drug spending, high-cost patients, and an increased use of services were cited as the primary cost drivers.

To the surprise of many health policy experts, many of whom had warned of a mass exodus from employer-sponsored plans to the exchanges, the CMS data also shows that enrollment in employer-sponsored plans rose slightly in 2015. As a result, an increasing number of small and mid-sized employers in particular will face the burden of soaring healthcare costs in 2017.

Self-funding an employee health plan remains one of the most effective cost-containment strategies for employers with a relatively healthy workforce and a willingness to customize a plan. From 2013 to 2015, the number of mid-sized firms that "self-insure" jumped nearly 20 percent, according to the Employee Benefit Research Institute. Among small companies, that share is now up seven percent. As the cost of maintaining fully-funded plans continues to rise, in large part spurred by the Affordable Care Act's coverage mandates, we can expect these numbers to rise.

Self-funding provides employers with flexibility and the opportunity for employee engagement when designing their health plans. Employers can avoid many state-based coverage mandates and administrative costs because of federal preemption of state health insurance regulations. They can work with third-party vendors to analyze claims data and implement unique risk controls such as wellness programs, smoking cessation initiatives, and tiered prescription drug benefits.

A more recent development in the self-funded industry has been the increased use of employer incentive programs. These programs reward employees with cash and other incentives if they create savings for the health plan by voluntarily obtaining care from lower-cost healthcare providers. Many resources exist that enable employees to determine what various providers of different medical services commonly charge for certain services, and what to expect in terms of the quality of their outcomes. For example, third-party organizations routinely provide objective analyses of medical billing by claim type and by facility, while others measure how many mistakes are made by providers. These resources provide quality metrics, a comparison of prices, and even letter grades based on factors such as quality outcomes and lack of provider error. In its Review of State Reports (2008-2015), Freedman Healthcare confirms that "high prices do not directly correlate with high quality of care -- in other words, the highest paid providers do not necessarily provide the highest quality of care." For some procedures, the price discrepancy can be substantial. For example, one employer reported a price difference of $18,000 for a gastric sleeve procedure between two facilities in Louisiana.

While these programs can help alleviate the financial burden, cost will not be the only concern for employer-sponsored care this year. Under a new administration, employers will also face legislative and regulatory uncertainty. President-elect Trump has vowed not only to repeal and replace the Affordable Care Act, but to reduce regulations overall at the federal level. This would be a welcome development for employers, but it remains to be seen which provisions of the Affordable Care Act will be left in place. For example, if the Trump Administration moves to repeal the employer mandate, employers would no longer be required to offer health insurance to their full-time employees. Also, employers would no longer need to report coverage to the IRS or determine the value and affordability of their plans.

Despite the uncertainty, Trump has promised to keep in place two of the most popular ACA provisions; the ban on denying coverage to individuals with pre-existing conditions and the extension of dependent coverage up until age 26. Health policy experts have warned that these two components of the ACA are only viable if accompanied by coverage mandates, which would diversify insurance risk pools. Whether or not the employer mandate is preserved, employers seeking affordable coverage options for their employees will continue to benefit from the flexibility of self-insuring.