HHS Finalizes Regulation on Cost-Sharing Limitations and Drug Manufacturer Coupons

26 June 2019       Authors: Harrison Taylor, Emily D. Zimmer

The Department of Health and Human Services (“HHS”) recently finalized a regulation (the “Regulation”) that informs employers how group health plans may account for drug manufacturer coupons for purposes of the Affordable Care Act’s annual limitation on cost sharing. As finalized, the Regulation applies to all non-grandfathered group health plans to which the out-of-pocket limitation applies. The Regulation becomes effective for plan years beginning on and after January 1, 2020.

For many prescription drugs, drug manufacturers offer coupons to reduce a patient’s prescription drug costs. Drug manufacturers’ purpose in offering the coupons is generally to make their prescription drugs more price competitive with generic equivalents, compete with prescription drugs offered by rival drug manufacturers, and to assist patients to pay for costly prescription drugs. In the Regulation, HHS recognizes that the availability of a coupon may distort the price of a prescription drug, making it artificially low for patients, thus increasing demand for the prescription drug and the prescription drug costs for group health plans.

Here’s how it works — in group health plans that recognize manufacturer coupons towards a participant’s out-of-pocket limitation, the participant is able to obtain brand-name prescription drugs at a reduced price. When the participant reaches his or her out-of-pocket limitation (including the coupon), the group health plan is responsible for the remaining costs of the prescription drug. Consequently, participants in need of expensive prescription drugs reap a benefit from the coupons, but group health plans are often left on the hook for the substantial cost difference between brand-name and generic drugs when the participant may have chosen the generic drug if not for the coupon.

To reduce the prescription drug prices incurred by group health plans, the Regulation permits group health plans to disregard drug manufacturer coupons in determining the annual limitation on cost sharing for specific prescription brand drugs that have a medically appropriate generic equivalent. This permissive exclusion applies to any form of direct support offered by drug manufacturers to insured patients to reduce or eliminate immediate out-of-pocket costs. For purposes of the Regulation, “generic equivalent” is defined by reference to the Federal Food, Drug, and Cosmetic Act, which is the same definition used by the Medicare Prescription Drug Benefit.

With the Regulation, HHS hopes to promote prudent prescribing and purchasing choices by physicians and patients based on the true costs of drugs and price competition in the pharmaceutical market. Notably, the preamble to the Regulation makes clear that the ability to exclude drug manufacturer coupons from the annual cost-sharing limitation is subject to state law, meaning that states can require coupons to be counted toward the annual cost-sharing limitation.


This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm’s clients.

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HHS Finalizes Regulation on Cost-Sharing Limitations and Drug Manufacturer Coupons

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