The doctrine of federal preemption provides that federal law supersedes conflicting state laws pursuant to the Supremacy Clause of the U.S. Constitution. The U.S. Supreme Court has held that federal law can either expressly or impliedly preempt state laws, based on the legislative intent behind the federal law.

The Affordable Care Act (ACA) revised the FUL provisions, which were created to ensure that Medicaid is a prudent purchaser, to require the Secretary of HHS to set a reimbursement limit for some generic drugs, calculated as no less than 175% of the weighted average of the most recently reported AMP (see Average Manufacturer Price).

A traditional payment model for medical and related services where the provider is paid a fixed, separate amount for each service performed, such as office visits, blood work taken, and other tests administered.

A fiduciary is a person or entity that acts on behalf of another person and has a duty to operate in good faith, trust, and honesty, which typically requires putting that person’s interests ahead of the interests of a fiduciary. ERISA defines a fiduciary, in relevant part, as a person who “exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets,” or “has any discretionary authority or discretionary responsibility in the administration of such plan.” PBMs typically serve in administrative and advisory roles, and do not make decisions about whether the plan sponsor should offer pharmaceutical benefits or the scope or design of those benefits. Accordingly, PBMs are not considered plan fiduciaries.

Set up through an employer, a FSA allows employees to pay for many OOP medical expenses with tax-free payroll-deducted funds. The IRS sets a limit on the amount an employee can put in an FSA each year, and employees can use the funds on expenses like medical care and drug copayments, deductibles, and some non-prescription OTC items. Unlike health savings accounts (HSAs) attached to high-deductible plans (HDHPs), unused funds in FSAs expire at year’s end and cannot be rolled into the next year.

Formularies are preferred drug lists and include both brand-name and generic drugs. In most pharmacy benefit plans, members will have a tiered benefit whereby they pay a lower cost share for the formulary or preferred product versus that paid for a non-formulary or non-preferred product. Formulary tiering often plays a significant role in driving manufacturer price concessions. P&T committees help establish formularies based on clinical standards to encourage the use of safe, effective, and affordable medications. Plans can choose an open formulary, which includes most drugs, or a closed formulary whereby the list of preferred products is more limited. Non-formulary drugs are usually available at the higher cost share, although some plans may only allow coverage through an exception process.

 

FWA is a concern in the prescription drug distribution context, as it is in all health care service delivery contexts. While the three terms (fraud, waste, and abuse) are often intertwined, fraud occurs when someone knowingly and willfully uses or tries to use false information, statements, or misrepresentation to improperly obtain prescription drugs or payments. Waste is the overutilization of services caused by misuse of resources. Abuse is an inappropriate action that may directly or indirectly cause financial loss, such as requesting payment or filling prescriptions when there is no legal entitlement. The detection and elimination of FWA is a high priority for stakeholders in the prescription drug supply chain, including PBMs.

A fully insured policy may be offered directly for purchase to an individual or via an employer or other plan sponsor as a group health plan. Sometimes referred to as a “commercial plan,” an individual or group pays an insurer or carrier a monthly premium in order to have claims reimbursed under the terms of the coverage.