Stewardship and Accountability of the Government Health Insurance Plan (GHIP) of Puerto Rico: A Case Study of the Outpatient Prescription Drug Program

Abstract

Puerto Rico’s Government Health Insurance Plan (GHIP) covers 1.3 million or 39% of the total population, mostly low-income and medically indigent individuals and families. The GHIP’s main sources of funding are Medicaid, the Children’s Health Insurance Plan, the Patient Protection and Affordable Care Act, mandatory municipal and general fund contributions. In 2014, the GHIP spent $2.5 billion in healthcare services; 19% or $487 million of this total went to outpatient prescription drugs. By 2016, outpatient drug spending increased 28% to a total of $626 million. Although these medications are used by only one third of the total membership, growing utilization and spending trends are threatening the plan’s financial sustainability. The Puerto Rico Health Insurance Administration (ASES, for its acronym in Spanish) is the steward of the GHIP, responsible for managing and overseeing its operations. Concerned about the need to identify the factors driving these spending trends and determining which changes, both structurally and programmatically, could be implemented to control spending, ASES’ leadership agreed to bring the author on board to conduct a problem and solution analysis. This analysis employed an embedded case study design that combined quantitative and qualitative data using multiple subunits of analysis to: (a) map key stakeholders, their interests, level of power or authority, and incentives that influence outpatient drug utilization and spending; (b) unpack the local context by examining relevant institutional arrangements, such as contracting and payment mechanisms, regulations, and the implementation of drug management controls; and (c) identify promising practices from State Medicaid Programs and other healthcare plans in P.R. to maximize the resources available for outpatient drug services, and (d) present concrete recommendations for action that ASES could use to control drug spending while strengthening its stewardship and accountability functions. Seven key findings emerged from this analysis. First, inadequacies in the operational structure of the GHIP allowed the prioritization of less cost-effective drugs in exchange for higher drug rebates. Second, although rebate revenue increased 33% between 2013 and 2016, these funds were not strictly used to offset the cost of retail drugs; instead, they were used to maintain the GHIP’s entire service delivery operations. This, in turn, contributed to the artificial inflation of the capitated rates for pharmacy services. Third, payment schemes that incentivized higher claims volume resulted in financial inefficiencies and increased drug outlays. Fourth, although the GHIP has an exception policy to handle the approval of non-preferred drugs, yet significant loopholes thwarted these policies and their enforcement. Fifth, high-priced, specialty medications used by small groups of patients accounted for 41% of the total drug outlays in 2016. This trend is likely to grow in the coming years as new orphan and specialty drugs enter the market and demand is generated through patients’ medical needs. Sixth, the passage of local laws to expand the GHIP’s drug coverage without appropriating additional funds and federal rules that limit the use of larger copays for those who could afford them are also important drivers of higher spending. Lastly, the political pressure placed by interest groups such as pharmaceutical companies often times paralyzes the changes ASES tries to implement to increase the cost-efficiency of its pharmacy services. There is no silver bullet to address this complex situation. The GHIP is already operating on a tight budget and the capitated rates are the lowest compared to any Medicaid Program across the U.S. As resources become scarcer, ASES will be forced to implement stricter cost-control measures that will inevitably affect all stakeholders involved in the provision and consumption of outpatient prescription drugs. The Puerto Rico Health Insurance Administration (ASES, for its acronym in Spanish) is the steward of the GHIP, responsible for managing and overseeing its operations. Concerned about the need to identify the factors driving these spending trends and determining which changes, both structurally and programmatically, could be implemented to control spending, ASES’ leadership agreed to bring the author on board to conduct a problem and solution analysis. This analysis employed an embedded case study design that combined quantitative and qualitative data using multiple subunits of analysis to: (a) map key stakeholders, their interests, level of power or authority, and incentives that influence outpatient drug utilization and spending; (b) unpack the local context by examining relevant institutional arrangements, such as contracting and payment mechanisms, regulations, and the implementation of drug management controls; and (c) identify promising practices from State Medicaid Programs and other healthcare plans in P.R. to maximize the resources available for outpatient drug services, and (d) present concrete recommendations for action that ASES could use to control drug spending while strengthening its stewardship and accountability functions. Seven key findings emerged from this analysis. First, inadequacies in the operational structure of the GHIP allowed the prioritization of less cost-effective drugs in exchange for higher drug rebates. Second, although rebate revenue increased 33% between 2013 and 2016, these funds were not strictly used to offset the cost of retail drugs; instead, they were used to maintain the GHIP’s entire service delivery operations. This, in turn, contributed to the artificial inflation of the capitated rates for pharmacy services. Third, payment schemes that incentivized higher claims volume resulted in financial inefficiencies and increased drug outlays. Fourth, although the GHIP has an exception policy to handle the approval of non-preferred drugs, yet significant loopholes thwarted these policies and their enforcement. Fifth, high-priced, specialty medications used by small groups of patients accounted for 41% of the total drug outlays in 2016. This trend is likely to grow in the coming years as new orphan and specialty drugs enter the market and demand is generated through patients’ medical needs. Sixth, the passage of local laws to expand the GHIP’s drug coverage without appropriating additional funds and federal rules that limit the use of larger copays for those who could afford them are also important drivers of higher spending. Lastly, the political pressure placed by interest groups such as pharmaceutical companies often times paralyzes the changes ASES tries to implement to increase the cost-efficiency of its pharmacy services. There is no silver bullet to address this complex situation. The GHIP is already operating on a tight budget and the capitated rates are the lowest compared to any Medicaid Program across the U.S. As resources become scarcer, ASES will be forced to implement stricter cost-control measures that will inevitably affect all stakeholders involved in the provision and consumption of outpatient prescription drugs.