Peter Manoogian and Josh Lacey co-authored this blog post with Shreya Raghuraman.
The Department of Health and Human Services’ proposal to eliminate safe-harbor protection for drug discounts has prompted a fierce debate about how the healthcare value chain will weather a new world in which drug rebates are distributed at the point of sale. Now that the proposal’s comment period has closed, we’re left waiting with bated breath for the final ruling. As health plan leaders prepare for a potentially major transition, a key question arises: What should organizations do now to avoid unintended consequences to the member experience?
ZS recently conducted a series of discussions with national and regional health plan leaders to learn how they’re preparing for this change amid the uncertainty. While expectations around timing, scope and process to launch varied, there was broad consensus on the likely impact if the ruling takes effect.
Many of the leaders we interviewed believe that the proposal will simply shift—rather than reduce—aggregate drug costs. In fact, the Congressional Budget Office estimates that the federal government will foot nearly $190 billion in costs over the next 10 years as a result of this change. An immediate outcome: Health plans will see an increase to average premiums, and costs may be disproportionately higher for members receiving specialty medications.
It’s also expected that plans’ drug formularies will need to be restructured to comply with the safe harbor ruling and CMS’s approval of indication-based formulary design in Medicare Part D. Health plans will evaluate coverage models and drug tiers through a new rebate lens, which may result in substantial formulary changes. Because these changes will vary by plan, it’s difficult to pinpoint the specific impact at a member level.
Beyond prices, health plan executives are acutely aware of the potential for change in operations. Organizations are in various stages of planning for different bidding mechanics for Medicare Part D coverage, alternate rebate systems and processes that enable them to manage portfolios of drug benefit designs in a bifurcated rebate structure. This is where most health plan leaders are currently focusing their energy, partly because Part D bid deadlines are on the horizon. If the proposal goes into effect in 2020, health plans must be ready for the change. However, the rule’s application timeline is still murky, further complicating these operational elements. In lieu of this uncertainty, some plans are even applying game theory approaches to model scenarios and possible impact to their businesses.
What’s clear is that the combined impact on premiums, formularies and internal operations creates a perfect storm for member disruption and confusion. Seniors have tremendous choice in Medicare Advantage plan selection—24 plans were available to the average beneficiary this year—and we expect an uptick in member churn as price-conscious shoppers seek lower-premium plans. What’s more, formulary changes for members sticking with their original plans could cause unexpected surprises at the pharmacy counter. These disruptions can have perilous multi-year impacts to revenue through declining access and customer experience measures in CMS’s Star Rating program for Medicare.
The plans that are taking a “wait and see” approach to safe harbor changes are likely pleased that CMS is offering downside protection in a two-year voluntary demonstration program. While losses will be muted during this period, health plans must take a more long-range view to address potential gaps across multiple member touchpoints in lieu of these changes. Despite a possible silver lining in the near term, plans need to do more now to prepare for the member-facing elements that enable them to weather this change effectively.
Three key areas will be critical to a health plan’s success if the ruling takes effect:
1. Crafting a value proposition to capture and retain members: As changes to premiums, out-of-pocket costs and formularies reach members, health plans should brace for member churn rates that differ from historical trends. The key is to leverage a strong understanding of consumer needs, including how they want to be engaged and what resources they require. This information can be used to improve a plan’s position in the local market by designing and executing better value stories that will promote consumer trust, loyalty and, ultimately, enrollment.
2. Identifying and supporting members who will experience disruption: Mitigating point-of-sale disruptions will be imperative to maintaining member satisfaction post-safe harbor. Health plans must proactively identify and engage members who are most affected, including those who are near the doughnut hole, require specialty medications and will experience formulary changes. Proactive education of possible therapeutic substitutes and support through medication management programs can help ease potential disruptions.
3. Designing customer service processes that mitigate frustration: Ultimately, no amount of proactive identification will fully eliminate the possibility of member frustration. If an issue arises, members will need dedicated support structures and resources to acclimate themselves to the change. To deliver peace of mind to members, health plan leaders need to design data-driven customer service protocols that feel personal and are aided by the right triggers for escalated support. Establishing a feedback loop based on members’ key concerns is critical to building a successful customer service process.
While it’s important to maintain an operational focus, the true “winners” in this proposal will invest as much time and effort in member-facing activities to prepare for the changes as those who are internally and operationally focused. Understanding consumers and designing thoughtful experiences around their needs is the foundation for a successful health plan, one built to capture and retain members in a post-safe harbor world.