Lawsuit Challenges Federal Copay Accumulator Policy

On August 30, 2022, a coalition led by the HIV and Hepatitis Policy Institute filed a new lawsuit in federal district court in DC to challenge a Trump-era policy that allows insurers and pharmacy benefit managers (PBMs) to not apply financial support from a drug manufacturer towards a patient’s deductible or annual out-of-pocket maximum. If an insurer or PBM adopts such a policy, the enrollee cannot “count” a copay or other drug manufacturer coupon—typically used to help reduce patient costs at the pharmacy counter—towards a patient’s overall annual out-of-pocket costs.

This policy was adopted in May 2020 in the final 2021 notice of benefit and payment parameters and has not been altered since. More than two years later, the plaintiffs argue that this policy is unlawful because it conflicts with the Affordable Care Act (ACA), is inconsistent with other agency regulations, and is arbitrary and capricious under the Administrative Procedure Act. They ask the court to set aside this policy. The timing of the lawsuit may be designed to influence the forthcoming proposed 2024 notice of benefit and payment parameters, which is expected later this year.

Background

Some drug manufacturers provide copay assistance programs, copay coupons, and copay cards to patients to help reduce their out-of-pocket costs at the pharmacy counter. Lower out-of-pocket spending can help patients adhere to their drug regimens, which can be particularly important for the treatment or management of chronic conditions such as diabetes and HIV. But coupons and other sorts of copay assistance for branded drugs also encourage patients to use expensive medications over less costly treatments or generic options. Critics note that these incentives contribute to higher drug and health care spending and thus higher premiums. 

In response, some insurers and pharmacy benefit managers (PBMs) adopted accumulator adjustment programs, also known as copay accumulator programs. Under these programs, an insurer or PBM will not apply a copay or other manufacturer coupon to an enrollee’s deductible or annual out-of-pocket maximum, meaning the enrollee cannot “count” any of the coupon’s amount towards their overall out-of-pocket costs.

This enables a patient to, for instance, use a $250 copay card from the drug manufacturer to cover their $250 monthly copay, but this $250 in aid will not count towards meeting the patient’s deductible. Because some drug manufacturers cap the overall annual benefit of their coupon or other assistance (to, say, $10,000 for the year), some patients—especially those in policies with higher deductibles—may eventually be subject to their full deductible for their drug costs. Some states have banned copay accumulator programs, meaning insurers in those states are required to count coupons and copay assistance towards a plan’s deductible or out-of-pocket limit.

2020 Payment Rule

Concerned that coupons were incentivizing more expensive brand-name drugs and increasing overall drug costs and premiums, CMS clarified its policy on accumulator adjustment programs. Although the ACA did not address drug manufacturer coupons, CMS believes the overall intent of the law was to establish annual cost-sharing limits that reflect actual costs paid by the enrollee (rather than the costs of coupons or other discounts). Even so, the 2020 payment rule banned the use of accumulator adjustment programs except under some circumstances.. Beginning with the 2020 plan year, insurers and plans could exclude a drug manufacturer coupon from counting towards the plan’s annual cost-sharing limit—in other words, could implement accumulator adjustment programs—only when the coupon was for a brand-name drug for which a generic equivalent was available. Under that rule, amounts paid toward cost sharing by drug manufacturers (where no generic is available) had to be counted towards the patient’s annual cost-sharing limits. States could continue to fully prohibit accumulator adjustment programs if they wanted to.

New Guidance And A Delay

Four months after the final 2020 payment rule, federal officials issued new guidance to delay enforcement of that policy. The Department of Health and Human Services, alongside the Departments of Labor and the Treasury, raised concerns about conflicting guidance from the Internal Revenue Service (IRS) and stakeholder confusion, especially for insurers in the large group market and self-insured group health plans.

The agencies pointed to IRS guidance from 2004 (IRS Notice 2004-50, Q&A 9) that concluded that high-deductible health plans must disregard discounts, including drug coupons, in determining whether an individual has satisfied their minimum deductible. Because the final 2020 payment rule required drug coupons to be counted towards annual out-of-pocket costs in certain circumstances—when no generic alternative was available—plans might not be able to comply with both the IRS rule and the 2020 payment rule at the same time. Given this, the agencies opted not to enforce the 2020 payment rule’s requirement and allowed states to adopt a similar nonenforcement stance. CMS noted its intent to further clarify this policy in the 2021 payment rule.

2021 Payment Rule

CMS made good on that promise in the 2021 payment notice. Under that final rule, insurers were no longer required to count any coupons from drug manufacturers towards a consumer’s out-of-pocket limits. While the 2020 payment notice had allowed copay accumulators for branded drugs only when a generic is available, the 2021 payment notice eliminated that limitation (thereby allowing copay accumulators in all circumstances).

CMS did so over the objection of some commenters who asserted that the 2019 guidance erred in concluding that there was a conflict with rules on high-deductible health plans. Others suggested that the change was inconsistent with the Trump administration’s stated commitment to lower drug prices and would result in higher out-of-pocket costs for some patients. This, in turn, would lead to reduced drug adherence and worse health outcomes.

Under the 2021 payment notice, insurers can, but are not required to, count coupons and other forms of direct support from drug manufacturers towards an enrollee’s annual limit on out-of-pocket costs. Insurers can count or not count coupons toward cost-sharing limits regardless of whether the coupon is for a brand drug and, if so, regardless of whether the brand-name drug does or does not have a generic equivalent. Insurers thus have full discretion to count coupons towards an enrollee’s out-of-pocket costs—or not. States still have the flexibility to prohibit accumulator adjustment programs. Despite the urging of commenters, CMS declined to require insurers to disclose the use of accumulator adjustment programs on websites, brochures, plan documents, and other collateral materials.

Relevant to the litigation here, CMS opted against finalizing a proposal to redefine “cost-sharing.” Under the proposed 2021 payment notice, “cost-sharing” would have been defined not to include expenditures from drug manufacturer coupons. This would ensure that a coupon’s value is not required to count towards an enrollee’s annual limit on cost-sharing. CMS reasoned that the value of the coupon (or other direct support) is not a cost incurred by, or charged to, the enrollee and therefore its value should not be required to count towards the out-of-pocket limit.

But CMS ultimately decided against finalizing this definition, noting that it wants to preserve flexibility for insurers. “Cost-sharing,” it notes, is “subject to interpretation” and the value of a drug manufacturer coupon could be viewed as cost-sharing. Insurers that want to interpret cost-sharing to include the value of drug coupons can do so—or not.

Commenters had argued that the proposed change singled out direct drug manufacturer support and not other forms of patient assistance (such as crowdfunding amounts, durable medical equipment, and waived medical debt). CMS responded that its focus on direct drug manufacturer support was due to concerns about market distortion. The other forms of patient assistance have not raised the same concerns, although CMS cited guidance from 2013 to note prior concerns about cost-sharing support from hospitals, health care providers, and other commercial entities. CMS also suggested that it may look at indirect drug manufacturer support of specific drugs in the future and is monitoring the impact of that support.

Other Lawsuits Related To Copay Accumulators

Drug manufacturers have challenged other CMS rules regarding copay accumulators. In May 2022, a federal district court in DC vacated a Medicaid drug rebate program rule that would have required drug manufacturers to revise their policies to ensure that the full value of their assistance is passed on to patients. The lawsuit was filed by the Pharmaceutical Research and Manufacturers of America (PhRMA) which argued that the rule was inconsistent with the Medicaid Act and violated the Administrative Procedure Act (APA). Interpreting the Medicaid Act, Judge Carl J. Nichols, a Trump appointee, agreed with PhRMA and vacated the rule.

The Litigation

The HIV and Hepatitis Policy Institute, joined by the Diabetes Patient Advocacy Coalition and the Diabetes Leadership Council, challenged the parts of the final 2021 payment notice related to copay accumulator programs. The lawsuit was filed in federal district court in DC and assigned to Judge John D. Bates, who was appointed by President George W. Bush. (Regular readers might recall that Judge Bates set aside major parts of a Trump-era rule on association health plans.)

The plaintiffs argue that the copay accumulator policy included in the final 2021 payment notice is unlawful because it conflicts with the ACA, is inconsistent with other agency regulations, and is arbitrary and capricious under the APA. In their view, CMS “sided” with insurers and PBMs by allowing these companies to disregard copay assistance programs from drug manufacturers in patient deductibles and out-of-pocket maximums.

Contrary To Statutory And Regulatory Definitions Of “Cost-Sharing”

Much of the plaintiffs’ argument hinges on the definition of “cost-sharing.” The plaintiffs argue that CMS’s decision to allow copay accumulator programs is inconsistent with how the ACA and federal rules define “cost-sharing.” Under 42 U.S.C. § 18022, “cost-sharing” includes 1) deductibles, coinsurance, copayments, or similar charges; and 2) any other expenditure required of an insured individual which is a qualified medical expense with respect to covered essential health benefits. This definition is important because the ACA caps overall cost-sharing through the annual out-of-pocket maximum, a provision that applies broadly to all non-grandfathered health plans. CMS further clarified the definition of “cost-sharing” in federal regulations to include “any expenditure required by or on behalf of an enrollee.”

CMS, the plaintiffs assert, impermissibly limited the definition of “cost-sharing” by leaving it to insurers’ discretion as to whether they will count copay assistance from drug manufacturers towards a patient’s annual deductible and out-of-pocket maximum. “Cost-sharing,” they argue, is defined solely on whether an enrollee owes for a medical expense—rather than the source of the payment. Thus, CMS cannot limit the sources or types of support that enrollees use to fund their cost-sharing requirements. On this point, the plaintiffs try to compare support from drug manufacturers to other types of copay assistance (e.g., support from a family member or contributions from a GoFundMe page). The plaintiffs also raise concerns about the fact that many plans do not clearly disclose whether the insurer has an accumulator program.

(CMS’s policy does not limit the use of a coupon or assistance program towards a patient’s copays or coinsurance for the drug itself. But it does prevent the drug manufacturer’s contribution from counting towards the patient’s annual deductible and out-of-pocket maximum. Drug manufacturers likely want their contribution to count towards a patient’s annual costs because the insurer becomes fully responsible for paying the costs of a drug once a patient has met their deductible and out-of-pocket maximum. This allows drug manufacturers to reduce their financial support for cost sharing (in the form of a coupon) while still ensuring patient access to the drug. It is also worth noting that other types of support from, say, a GoFundMe page or a friend do not present the same risks of market distortion and higher overall drug prices that are raised by support from a drug manufacturer. These latter concerns are among the reasons why direct copay assistance from drug manufacturers is barred under the Medicare program and has been labeled as a prohibited kickback under the Anti-Kickback Statute.)

Arbitrary And Capricious  

The plaintiffs also argue that CMS’s rule is arbitrary and capricious because it does not create a uniform policy and instead allows insurers to decide whether to exclude copay assistance from annual accumulators (or not). The decision to defer this issue to insurers completely, the plaintiffs believe, is arbitrary because it allows a regulated entity to interpret a core term such as “cost-sharing.”

The plaintiffs additionally take issue with CMS’s reasoning in pulling back the prior policy, asserting that federal officials should have provided further explanation when withdrawing the policy. The plaintiffs believe CMS did not sufficiently respond to commenters who suggested that there was no conflict with federal tax requirements, a conclusion they characterize as a “straightforward legal error.” In any event, the IRS guidance cited by the agencies should not supersede the definition of “cost-sharing” under the ACA.

The plaintiffs also believe that the agency should have, but failed to, consider other policy alternatives beyond allowing copay accumulators in all circumstances. CMS also should have better addressed commenter concerns about higher costs for patients as a result of the revised policy.