With open enrollment in health exchanges beginning October 1, 2013 for a go-live date of January 1, 2014, manufacturers continue to assess how regulations governing the operation of the new exchanges impact their current business practices.  While a variety of questions remain unanswered around matters like the structure and composition of formularies and rebate contracting and reporting, the issue arguably attracting the most attention is whether individuals purchasing health insurance through the exchanges will be able to utilize drug co-pay cards and coupons to offset the cost of co-payments for drugs covered by a particular plan.  

For some time now, the battle lines have been drawn on the issue of the legitimacy, intent and impact of drug co-pay cards.   We don’t need to repeat the history here, but interested readers can follow the action at these links (see here, here, here, here and here (subscription required)).

But given the potential enrollment of tens of millions of new insureds over the next several years through the new health exchange marketplaces, the issue of drug co-pay card use has taken on added significance.  In short, manufacturers see these millions of new insured lives as potential consumers for their products, whereas insurers, plans and their prescription benefit management partners view manufacturers’ targeting of consumers with co-pay cards and coupons as a means to distort and skew formulary controls that ultimately lead to higher overall costs for the entire healthcare system.

From a legal perspective, the general consensus for many years now among plans, PBMs and manufacturers alike is that the use of drug co-pay cards and coupons by individuals with government funded health care and prescription drug benefits, such as Medicare and Medicaid, is prohibited by the federal anti-kickback statute, 42 U.S.C. § 1320a-7b(b).

The basic premise is that the manufacturers’ subsidization of a beneficiary’s cost sharing amount – the copayment or co-insurance – amounts to a prohibited inducement for the beneficiary to use that manufacturer’s product, with the remaining cost of the product being borne by the government health care program.  This type of arrangement is viewed as triggering the basic elements for a violation of the anti-kickback statute, in that the item or service that is the subject of the inducement is one “for which payment may be made in whole or in part under a Federal health care program” which is defined by statute at 42 U.S.C. § 1320a-7b(f).

That said, a few circumstances do exist where drug coupons reportedly are used by beneficiaries having government funded health benefits, such as where the beneficiary presents as a cash paying customer and does not rely upon his or her government benefits to pay for any share of the drug.  Examples would include where the beneficiary simply pays cash for a prescription because the cash price may be cheaper than the price negotiated under his or her government benefit, or where a Medicare beneficiary may be in the doughnut hole and is required to pay the full cost of a drug out of pocket.  

So knowing that manufacturers generally believe drug co-pay cards and coupons to be effective marketing and adherence tools, and PBMs and plans generally believe such cards and coupons lead to higher health care costs, what does this mean in connection with health coverage purchased on the health exchanges?  

The short answer is this:   based upon the framework of the exchanges and guidance from HHS, it appears that the use of drug co-pay cards and coupons will be permissible for a large majority of those purchasing a health insurance from plans offered under a health exchange marketplace.  

Let’s dig in to this a bit…

The fundamental issue is whether the health exchanges and the plans offered under them constitute a “Federal health care program” that will make payment, in whole or in part, for covered prescription drug products that may have an accompanying co-pay card or coupon opportunity.   A number of considerations come into play.  

Based upon the premium structure to be employed by the health exchanges and the private insurers offering plans (all of which of course, is subject to change), it appears that many of the plans available for purchase on the exchange will not be funded with federal dollars, and as such, it seems unlikely that these plans will be characterized as “Federal health care programs” subject to the anti-kickback statute.  If that is indeed the case, the statute, and its general prohibition against the use of drug co-pay cards and coupons, will not be triggered.  

To understand the legal landscape and kickback implications, it is important to look at the types of insurance plans to be offered for sale through the exchanges and how those plans will be purchased by eligible consumers.  There will be two general categories of plans that will be available for purchase through health exchange marketplaces:  (i) Qualified Health Plans, or QHPs; and (ii) Alternative Benefit Plans, or ABPs.

Qualified Health Plans

QHPs should make up the bulk of the plans available for purchase through the health exchanges. Generally speaking, premiums for QHPs are to be paid by the consumers purchasing them, with certain eligible enrollees being entitled to receive a refundable premium tax credit that can be taken when the individual files his or her taxes or in advance (as a reductions in the amount of a monthly premiums, subject to later reconciliation).

It’s always possible that HHS or other government agencies involved in implementing health care reform measures may issue additional guidance on this issue, but we’re not aware of any current authority on this issue that indicates that the payment by individuals of the full cost of their plan premiums would transform that plan into a Federal health care program.  Nor are we aware of anything that confirms that the extension of premium tax credits to eligible enrollees would constitute federal government “funding” of a particular plan.  

Under either of these scenarios, it certainly appears that no payment of federal funds will be made, in whole or in part, for prescription drug products covered by the QHPs in connection with these premium structures.  If that is the case, the anti-kickback statute therefore would be inapplicable.  

Coverage under a QHP also may be purchased by certain individuals otherwise eligible for Medicaid with “premium assistance” from state Medicaid programs.  Under this approach, eligible individuals can receive Medicaid funding that the individual can then use to purchase coverage through a QHP offered on a health exchange.  These subsidies present an interesting issue.

On the surface, the subsidies appear to constitute federal funding that could justify the QHP receiving the funds to be deemed a “Federal health care program” to which the anti-kickback statute is applicable.   If that were the case, the general prohibition against co-pay cards and coupons being used in connection with the purchase drugs paid for by the federal health care program would be implicated, at least with respect to the individuals receiving premium assistance.  

Guidance issued by CMS, however, leads to a different conclusion.

In commentary to a final rulemaking issued in July 2013 to implement certain parts of the Affordable Care Act, CMS emphasized a clear distinction between a federal health care program (like Medicaid) actually making payment for a covered drug, and the situation where Medicaid simply provides “premium assistance” for a beneficiary to purchase coverage under a QHP:

Manufacturers are not required under section 1927 of the Act to pay rebates absent a Medicaid payment for the drugs, which would not be present in the case of drugs dispensed to Medicaid beneficiaries that are enrolled in qualified health plans where the only Medicaid payment was premium assistance for the beneficiary.


78 Fed. Reg. 42160, 42224 (July 15, 2013) (emphasis is mine).

The impact of this statement seems clear enough:  even if the premium assistance subsidies made available to Medicaid eligibles to purchase coverage under a QHP were to qualify as federal funding, CMS believes that the payment of the premium assistance alone by a state Medicaid program would not constitute a payment by Medicaid for a covered drug.  And manufacturers would not be required to pay a Medicaid drug rebate on that utilization either.

In other words, since neither Medicaid nor any other federal health care program is actually paying all or even a portion of the cost of a particular drug covered by a QHP, there can be no violation of the anti-kickback statute even if a drug co-pay card or coupon was used in conjunction with an insured’s purchase of a covered drug.

So in a sense, it appears the QHPs may be subject to treatment very similar to that of commercial plans, which is consistent with CMS’ views.   As the industry is well aware, although other legal challenges have been raised, it is widely understood that the anti-kickback statute is not implicated when drug co-pay cards and coupons are used by commercially insured populations.

Alternative Benefit Plans

Alternative Benefit Plans, however, lead to a different result.

ABPs will be available for purchase by certain Medicaid-eligible individuals through health exchanges in states that have elected to expand their Medicaid programs.  Under this approach, states may seek to expand coverage to people with incomes up to 138% of the federal poverty level.

As states adopting the ABP approach are required to submit a Medicaid state plan amendment for federal approval to implement ABPs (and therefore receive federal matching funds), these plans appear analogous to other Medicaid plans, and accordingly there should be no dispute that these plans are federally funded, that federal dollars will be used to purchase covered drugs, and that the anti-kickback statute (see 42 U.S.C. 1320a-7(h)) would be implicated by the use of drug co-pay cards and coupons.

As a result, the use of drug co-pay cards and coupons by populations covered by ABPs would be prohibited, just like the general Medicaid population.

At this time, however, it is unclear how many states will elect to participate in expanding their Medicaid programs and make ABPs available through their respective health exchange marketplaces.  While some have already taken steps to implement expansion, others remain on the fence.  See here for a state by state map.  So at this time, while it is difficult to project how many lives will be covered under the ABPs, it seems clear that those populations should be excluded from using drug co-pay cards and coupons.

To recap:  it appears the use of drug co-pay cards and coupons may be permissible for individuals purchasing coverage under a QHP, but will be impermissible by individuals purchasing coverage under an ABP.

As we all know, however, efforts to implement the overall health exchange program have been marked with many twists and turns, so it is entirely possible that CMS, HHS or another agency will issue future guidance bearing on these issues.  Equally unclear is whether (and how) manufacturers would plan to incorporate drug co-pay card and coupon strategies, when many exchanges and plans have a tremendous amount of implementation work remaining, including finalization of plan formulary structures.

One thing is certain though, the use of drug co-pay cards and coupons will continue to be a contentious issue, particularly as millions of price-sensitive consumers enter the health insurance markets.