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The new insurance exchanges are bound to impact industry rebates - and therefore the ability to manage financial reporting, says PwC Health Research Institute
In addition to these ‘core functions,’ plan managers are also charged with formulating risk pools; setting up reinsurance;and enabling data communications between plans, states and the federal government
The Affordable Care Act—“Obamacare”—primarily affects how health insurance is organized and funded; a secondary, less-controversial element at this point are the taxes to be paid by pharma companies and medical device manufacturers. And while the current election season continues to affect the shape of how the ACA is implemented across the country, with some states moving aggressively forward to set up state-run exchanges, and others leaving the process in federal hands, there are enough data points to characterize what will be appearing a year from now, according to a report from PwC Health Research Institute. Somewhat lost in all the noise about the ACA is that a core concept—health exchanges that bring together either a variety of insurance carriers to one marketplace, or a single insurer offering a diverse range of coverage options—is already occurring as a private-industry initiative in parts of the country.
The PwC report, “Health Insurance Exchanges: Long on Options, Short on Time,” summarizes some key points of how the ACA is shaping up:
Public exchanges (see Figure) come in three forms: state-run; state/federal partnership; and “federally facilitated exchange” (FFE). These exchanges will be linked electronically to a federal data hub, and to existing state Medicaid/CHIP programs. Private exchanges come in three forms as well: insurer-managed; third party; or retail. Some of these will be designed primarily for individuals; some will be targeted at employers; in turn, employers will be opting for either defined-contribution or defined-benefit structures.
Surprisingly, while most critics of ACA, especially on the right, look on it as an intrusion into patient-physician relations, and a worrisome centralization of healthcare policy in Washington, the PwC report finds that one outcome could be a much more diverse insurance market, and more consumer choices. “With the law and its subsidies, exchanges have the potential to revolutionize the health insurance market by shifting the focus to the individual and prompting the sellers of insurance to think in a more retail-oriented manner,” says PwC. “There will be a push for clarity in products and their value, convenience for buyers, and competitive prices.”
“As newly-insured consumers gain access to healthcare services and products, pharmaceutical and life sciences companies will gain new customers,” says PwC. “However, manufacturers will have to expand and diversify market access strategies as health exchanges are implemented and evolve, in order to gain financial rewards from the expansion in health coverage.”
A key factor will be formulary design. At a minimum, plans must offer at least one drug per class, but it can be expected that a “spectrum” of pharmacy benefits, “ranging from restrictive formularies to a comprehensive benefit similar to that offered through the Federal Employee Health Benefits Program.”
PwC suggests that “drug companies can initially draw upon their experience and resources devoted to other managed markets, such as Medicaid,” but that “over time, qualified health plan participation rules may impose additional requirements, such as evidence that demonstrates superiority to medications and devices already covered in a therapeutic category.”
Plan design is one unpredictable variable, says Todd Evans, a director in PwC Health Industry Advisory’s pharma practice, but another is how covered lives will be moving between employer-sponsored plans, state-run plans, and the federal plans. Under both current and new ACA rules, pharma companies need to calculate market prices of their drugs, and the volume and price of drugs sold to publicly funded plans, and rebate the difference back to CMS. The addition of millions of new covered lives will change this calculation, but there is also the likelihood that consumers will be moving between different types of plans.
One clear effect of this variability will be an increased difficulty in gross-to-net calculations—and that, in turn, will make life harder for company managers to report reliable and predictable forecasts to Wall Street. “Finance departments will be front and center on handling this issue, but it’s going to carry over to sales, marketing and other administrative functions,” says Evans.
There’s a sense (and maybe a wishful thinking) that the ACA is a single event—an expansion and overhaul of healthcare that can be adjusted to. But the reality is that the US is entered in a seemingly permanent era of healthcare reform, regardless of how the election turns out.
The PwC report is available at www.pwc.com/us/healthexchanges.