In­surer’s Rx-plan penalty up­held

Judge: Medi­care rul­ing rea­son­able

Arkansas Democrat-Gazette - - ARKANSAS INSIDE - ANDY DAVIS

A judge on Thurs­day de­clined a re­quest from Arkansas Blue Cross and Blue Shield that he lift a fed­eral agency’s sanc­tion pre­vent­ing the com­pany from en­rolling new cus­tomers in its Medi­care pre­scrip­tion drug plans dur­ing the an­nual sign-up pe­riod that starts Sun­day.

In a law­suit filed Tues­day, the com­pany con­tended that the reg­u­la­tion trig­ger­ing the sanc­tion stemmed from a mis­in­ter­pre­ta­tion by the Cen­ters for Medi­care and Med­i­caid Ser­vices of an amend­ment to the 2010 Pa­tient Pro­tec­tion and Af­ford­able Care Act.

The agency cited the amend­ment in 2013 when it is­sued a reg­u­la­tion re­quir­ing in­sur­ers to spend at least 85 per­cent of the money they col­lect in drug plan sub­si­dies and pre­mi­ums on cus­tomers’ drug ex­penses, rather than ad­min­is­tra­tive ex­penses or prof­its.

Com­pa­nies that fail to meet the re­quired spend­ing ra­tio, known as a med­i­cal loss ra­tio, for three con­sec­u­tive years are barred from en­rolling new cus­tomers in drug plans for one year.

At a hear­ing Thurs­day, an at­tor­ney for Arkansas Blue Cross and Blue Shield ar­gued that the loss ra­tio re­quire­ment wasn’t in­tended to ap­ply to stand-alone pre­scrip­tion drug plans.

In­stead, said at­tor­ney Michael Kol­ber of the Los An­ge­les-based firm Manatt, Phelps and Phillips, Congress in­tended the re­quire­ment to only ap­ply to Medi­care Ad­van­tage plans, which cover med­i­cal ben­e­fits and also of­ten cover pre­scrip­tion drugs.

U.S. District Judge Leon Holmes ruled Thurs­day

that the 2010 law, the Health Care and Ed­u­ca­tion Rec­on­cil­i­a­tion Act, was un­clear on the is­sue, but that the fed­eral agency’s in­ter­pre­ta­tion was rea­son­able.

Quot­ing a 1984 U.S. Supreme Court rul­ing that es­tab­lished a stan­dard for when agency rules can be over­turned, Holmes wrote, “The court need not con­clude that the agency con­struc­tion was the only one that per­mis­si­bly could have [been] adopted to up­hold the con­struc­tion, or even the read­ing the court would have reached if the ques­tion ini­tially had arisen in a ju­di­cial pro­ceed­ing.”

Rather, the Supreme Court said in that case, the only ques­tion is whether the agency’s “in­ter­pre­ta­tion of the statute is a rea­son­able one,” Holmes wrote.

A spokesman for the Lit­tle Rock-based in­surer didn’t re­turn a call late Thurs­day seek­ing com­ment on Holmes’ rul­ing, in­clud­ing whether the com­pany plans to ap­peal.

The com­pany ap­pears to be the first and only in­surer in the coun­try to face a sus­pen­sion in its drug plan en­roll­ment over the med­i­cal loss ra­tio re­quire­ment, which first took ef­fect in 2014.

The sus­pen­sion won’t af­fect the 38,000 peo­ple now cov­ered by an Arkansas Blue Cross and Blue Shield drug plan, but it will pre­vent new cus­tomers from sign­ing up dur­ing the en­roll­ment pe­riod that starts Sun­day and runs through Dec. 7.

At Thurs­day’s hear­ing, Kol­ber said the sanc­tion means

the com­pany won’t be able to re­place cus­tomers who die or switch to other com­pa­nies’ plans.

And since some ad­min­is­tra­tive costs are fixed, the loss in en­roll­ment would make it more dif­fi­cult for Arkansas Blue Cross and Blue Shield to meet the loss ra­tio re­quire­ment in fu­ture years, he said.

He noted that the Health Care and Ed­u­ca­tion Rec­on­cil­i­a­tion Act calls for the ter­mi­na­tion of con­tracts with plans that fail to meet the tar­get for five years in a row, mean­ing the sus­pen­sion could be “po­ten­tially fatal” to the com­pany’s drug plan busi­ness.

Ar­gu­ing that the loss ra­tio re­quire­ment shouldn’t be ap­plied to drug plans, Kol­ber noted that it was con­tained in a sec­tion of the 2010 law, ti­tled “Sav­ings from lim­its on [Medi­care Ad­van­tage] Plan ad­min­is­tra­tive costs,” that doesn’t men­tion drug plans.

In ap­ply­ing the re­quire­ment to drug plans, the Cen­ters for Medi­care and Med­i­caid Ser­vices of­fi­cials cited a pro­vi­sion in the 2003 law that cre­ated the Medi­care drug ben­e­fit.

That law says that cer­tain re­quire­ments for Medi­care Ad­van­tage plans also ap­ply to stand-alone drug plans. The 2010 law added the min­i­mum loss ra­tio pro­vi­sion to the sec­tion of the law that con­tains those re­quire­ments.

Kol­ber said re­quire­ments to Medi­care Ad­van­tage plans added af­ter the 2003 law was passed shouldn’t au­to­mat­i­cally ap­ply to drug plans.

The 2010 law was passed amid “con­cerns about the ad­min­is­tra­tive costs and the prof­its of Medi­care Ad­van­tage plans,” he said. “There was no

dis­cus­sion of [drug] plans in that con­text.”

Charles Bai­ley Jr., an at­tor­ney with the U.S. De­part­ment of Health and Hu­man Ser­vices’ of­fice of gen­eral coun­sel, coun­tered that Congress would have in­cluded lan­guage in the 2010 law ex­empt­ing the drug plans from the med­i­cal loss ra­tio re­quire­ment if that’s what law­mak­ers had in­tended.

Of the 615,000 Arkansans cov­ered by the in­sur­ance pro­gram for the el­derly and dis­abled, about 308,000 are en­rolled in stand-alone drug plans and 120,000 are in Medi­care Ad­van­tage plans with drug cov­er­age, ac­cord­ing to the Cen­ters for Medi­care and Med­i­caid Ser­vices.

Al­though 11 com­pa­nies of­fer Medi­care drug plans in the state, Arkansas Blue Cross and Blue Shield is the only one based in Arkansas.

In 2014, the first year the loss ra­tio re­quire­ment took ef­fect, Arkansas Blue Cross and Blue Shield had a med­i­cal loss ra­tio of 79.8 per­cent and was forced to re­fund $2.9 mil­lion to the fed­eral gov­ern­ment, Bai­ley said dur­ing the hear­ing.

The com­pany re­funded $2.3 mil­lion of what it col­lected in 2015, when its loss ra­tio was 81.3 per­cent, and al­most $608,000 from last year, when its ra­tio was 84 per­cent.

Com­pany spokesman Max Green­wood said this week that the com­pany over­es­ti­mated what it would “pay out in pre­scrip­tion drug claims and un­der­es­ti­mated the amounts re­ceived from the var­i­ous pro­grams that are in place to de­fer the high cost of drugs.”

She noted that the com­pany has come closer each year to meet­ing the 85 per­cent tar­get.

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