The Self-Insurer April 2024

Value-Based Care:

An Elusive Equation

How and why tying healthcare pricing to value is still a conundrum but expected to drive more purchasing decisions

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4 VALUE-BASED CARE: AN ELUSIVE EQUATION HOW AND WHY TYING HEALTHCARE PRICING TO VALUE IS STILL A CONUNDRUM BUT EXPECTED TO DRIVE MORE PURCHASING DECISIONS

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The Self-Insurer (ISSN 10913815) is published monthly by Self-Insurers’ Publishing Corp. (SIPC). Postmaster: Send address changes to The Self-Insurer Editorial and Advertising Office, P.O. Box 1237, Simpsonville, SC 29681, (888) 394-5688

PUBLISHING DIRECTOR Bryan Irland, SENIOR WRITER Bruce Shutan, CONTRIBUTING EDITORS Mike Ferguson, and Jennifer Ivy, PRESIDENT/CEO Erica M. Massey, CFO Grace Chen

Value-Based Care: An Elusive Equation

How and why tying healthcare pricing to value is still a conundrum but expected to drive more purchasing decisions

VValue-based care (VBC), rooted in the 1960s and coined as a term in 2006, has made inroads with Medicare in recent years. However, the concept, which focuses on quality provider performance and patient experience, has long struggled to gain traction in the commercial insurance space amid resistance or inertia from payors, providers and self-insured employers.

Providers are understandably concerned about embracing an unknown payment model that they fear will undercut their compensation while begrudgingly accepting traditional fee-forservice medicine, warts and all. However, the push for price transparency and more aggressive steerage to high-quality providers in an increasingly data-driven marketplace has

industry observers hoping for greater adoption. The writing is on the wall, and pressure to rethink healthcare purchasing is mounting.

Robert Gelb, CEO of Vālenz, compares the plight of VBC to reference-based pricing, which has long sought a fair market rate for services provided that was something other than 3,000% of Medicare. How it relates is that VBC is perceived as an Accountable Care Organization (ACO)-driven upside-downside risk wherein providers agree to take on risk as they seek to achieve the best possible outcomes.

FACING MULTIPLE OBSTACLES

However, he cautions that this isn’t the only way to look at the VBC model, noting that it’s about ensuring appropriate cost and quality, as well as utilization of proper care. While that may involve securing a fixed rate from a provider with a high-quality rating as part of, say, a bundled surgical solution, he says the challenge is actually measuring quality when it can be a bit subjective.

There’s also a steep uphill climb when demand for healthcare services exceeds supply because people are willing to pay more. “You’re seeing more physicians leave and retire, and fewer come in,” he notes. “You’re seeing health systems fail.”

Another area for improvement is marketplace clutter. VBC is showing that allowing multiple suppliers in the member’s chain of custody creates inefficiency and a lag in the ability to make smarter, better, and faster healthcare decisions. “And so, I think point-solution fatigue is setting in with employers,” he says, predicting the emergence of a fully integrated model with one supplier that leverages a full spectrum of data at every junction of care for each member.

“It doesn’t have to be a traditional ACO-style approach to just get that for value-based care suppliers that have enabled world-class solutions in the seven to 10 different points you’re buying from multiple suppliers,” Gelb explains.

“You can buy it in one place and have it be seamless to the member journey and allow the plan to actively be involved in what’s happening real-time with their members – something they’re unable to do consistently today.”

An inherent problem with forprofit medicine, of course, is that it’s missing many of the anti-competitive guardrails found in other industries, says Julie Selesnick, senior counsel for Berger Montague. Also, the monopolistic and duopolistic markets that have emerged with the help of small but powerful groups with a vested interest in preserving the status quo make it exceedingly difficult to try anything new, “never mind an entirely new way of paying,” she adds.

INFLUENCING PATIENT BEHAVIOR

Whenever Amanda Volner, sales director for Medefy Health, talks with consultants and executives about VBC, there’s always hesitation rooted in concerns about member education and appropriate plan engagement. “Members don’t know how to interact with this model,” she says, adding that employers often don’t see the arrangement starting to pay off until year two and possibly three.

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Indeed, the one element providers cannot effectively control that places them at higher risk is patient behavior, explains Jeff Greene, CEO of MedEncentive. As a result, he says their missioncritical task is learning

“how to master the science and art of nudging people’s behavior in a fashion that bends the overall cost curve as a result of improved population health.”

Poor health is largely confined to individuals who engage in risky health behaviors for various reasons. Studies suggest that the single strongest determinant of a person’s health status, life expectancy and cost is their health literacy score, not their health habits or genetics, he says. Given this backdrop, Green references a psychology called KIMA response, which stands for knowledge, impairment, motivation and adherence. “It teaches when people become knowledgeable, they become empowered, and when they become empowered, they’re more motivated to be adherent,” he notes.

He says providers must have confidence that their patients will do their part in order to comfortably take on risk and be open to VBC models. His message to providers who want to hop off the fee-forservice merry-go-round and take some risk or full capitation is to “look into reward-induced information therapy as a means to nudge your patients to a state of better health through self-care.”

EXPERIMENTING WITH INCREMENTAL CHANGE

Convincing more providers to try VBC starts with education and a willingness to experiment with implemental change.

“It might not be realistic to expect plans to go from a fully fee-forservice model into some aspirational fully value-based model without any transition,”Selesnick suggests, noting that there could even be a mix of payment models to avoid massive disruption.

One approach could be to guarantee certain upfront payments to introduce an element of stability with additional amounts that increase or decrease depending on health outcomes. They also could dip their toe in the water with bundled payments for hip or knee surgery, study the results, and re-evaluate the next steps.

She senses that most providers would be willing to risk some profits for greater satisfaction with their profession in the face of physician shortages and burnout, as well as strike a better work-life balance. That could involve securing a predictable patient load. So instead of rushing through visits with 50 patients a day, for example, Selesnick says the upside is that they could get to know their patients on a deeper level, much like a subscription-based concierge medicine model featuring direct primary care.

When assessing whether to roll the dice on VBC, Gelb believes projected savings of 15% or greater is needed, “or CFOs just don’t see value in making a change. That seems to be the low watermark.” He adds that result would be meaningful with a healthcare spend that exceeds $1 million and enough for C-suite buy-in.

VBC features several components, including performance-based and shared-savings programs, bundled payments, and capitation models. Selesnick says the best models emphasize preventative care in managing chronic conditions and behavioral change, but they need to be fully embraced and implemented. While upfront costs are involved, evidence shows the investment pays off.

“Some self-contained valuebased type systems are extremely successful and have cut costs in half,” she reports. One example is the Southcentral Foundation’s Nuka System of Care in Alaska, which describes itself as “a relationship-based, customerowned approach to transforming healthcare, improving outcomes and reducing costs.”

With health outcomes increasingly tied to costly specialty drugs that treat a myriad of serious and chronic conditions, the Rx space is expected to play a more significant role in shaping VBC. Two of the biggest opportunities for self-insured prescription drug plans will be in the diabetes and cardiometabolic space, opines

Justin Jasniewski, CEO of Serve You Rx, a PBM.

“These disease states are common enough that almost every plan has some exposure, and the increasing popularity of GLP-1s like Ozempic and Wegovy highlight the need for tying payment to outcomes or value received,” he says.

When ensuring proper use, adherence and monitoring of prescription drugs, Jasniewski notes that pharmacy benefit managers can tie value to outcomes by placing fees at risk contingent on measurable endpoints being met. The strategy is “an effective way for selffunded plans to minimize their risk while enhancing the benefits they offer,” he adds.

FACTORING IN GREATER OVERSIGHT

Even if these increasingly bigticket items aren’t tied to value purchasing just yet, compliance with growing government oversight may finally force the issue. Gelb notes that intensifying pressure on the healthcare market to offer transparent pricing will drive more self-insured health plans to embrace VBC. The No Surprises Act has nudged more providers to get contracted and move certain members in-network from services that were going out-of-network.

“You’re seeing it with some of the large BUCAHs who are now talking about 8% to 9% of charges flowing out of network where it used to be 12% to 15%,” he reports. When transparency from the Consolidated Appropriations Act is layered on top, he explains that an effort is made to ensure that in-network, the best quality providers at a green level of cost are being identified.

Although the U.S. healthcare system has long been complex, Greene offers a simple solution. “If I were king for a day,” he says, “the two things I would do is capitate in a way that makes providers whole. Then, I would educate, motivate, and empower patients to practice better self-care. You do those two things, and it will solve our healthcare crisis.”

Bruce Shutan is a Portland, Oregon-based freelance writer who has closely covered the employee benefits industry for more than 35 years.

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EYEING EFFORTS TO SEED MORE VALUE-BASED INCENTIVES

Two key developments to watch along the legislative and regulatory landscape on this topic involve the Value in Health Care Act (VHCA) and Medicare’s advanced alternative payment model. Known as the APM, the latter is designed to reward good clinical outcomes with a 5% incentive for boosting quality and reducing costs. Both efforts have rare bipartisan support.

Provisions of the VHCA, which was introduced in the U.S. Senate in December and House last July, have passed, according to Jamie Miller, senior director of government relations for the American Medical Group Association and

member of the Alliance for Value-Based Patient Care. “The main one we’re paying attention to the most is the extension of the APM model,” he adds, noting that it was about to expire soon.

More than 630 national healthcare organizations have urged Congress to extend the APM for another two years. A decision on the fate of this risk-bearing model, created by the 2015 Medicare Access and CHIP Reauthorization Act, was pending as this issue went to press. A possible sticking point, he suggests, is that extending the APM will cost an estimated $1.5 billion to $2 billion per year at a time when there’s little to no appetite for increased spending.

Preserving APM incentives, which were previously extended two years ago, is largely seen as a bellwether for the commercial insurance market. “Medicare obviously is a huge payer,” Miller explains.

“So commercial insurers tend to follow what Medicare is doing in payment rates and models. There have been multiple commercial payors that have expressed interest in going to valuebased care.”

He acknowledges that a cultural shift in payment processes doesn’t happen overnight and will take time to germinate. However, evidence is mounting about the value of this approach. One example is Accountable Care Organizations, a popular form of value-based arrangement that produced about $1.8 billion in savings to Medicare in 2022.

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The J&J Fiduciary Lawsuit:

A Canary in the Coal Mine?

IIn a potentially industry-changing lawsuit, an employeeparticipant of a health plan filed a complaint against the plan sponsor and the plan’s fiduciaries in their individual capacity for breach of their fiduciary duties for failing to prevent the plan from overpaying for covered benefits. In this particular case, an employee of Johnson & Johnson (J&J) claimed that over a period of years, J&J’s health plan paid the plan’s Pharmacy Benefit Manager (PBM) service provider for covered prescription drugs in excess of 200% – and in some cases 500% – times the cash-price for the covered drugs.

The employee-participant’s complaint alleges that J&J and the plan’s fiduciaries:

• Failed to exercise prudence before selecting its PBM (Express Scripts).

• Failed to exercise prudence in agreeing to contract terms with Express Scripts, which allowed the PBM to enrich itself at the expense of J&J’s plan.

• Failed to exercise prudence in agreeing to make J&J’s plan and the plan’s participants pay unreasonable prices for prescription drugs.

• Failed to actively manage and oversee key aspects of the plan’s prescription drug program.

• Failed to take available steps to rein in Express Scripts’ profiteering and to protect plan assets and participants’ interests.

The breadth of these complaints against a plan sponsor and the plan’s fiduciaries is sending shockwaves through the employer-sponsored health plan and service provider communities. Consensus is growing that this J&J lawsuit is just the beginning of a series of lawsuits that will be filed against the plan sponsor and the plan’s fiduciaries

for fiduciary breaches, but also lawsuits filed directly against plan service providers (e.g., PBMs, TPAs, brokers/consultants) by the plan sponsor and/or plan participants.

HISTORY IN RETIREMENT PLANS

Beginning in the early 2000s and continuing to this day, hundreds of lawsuits have been filed by retirement plan participants against employer plan sponsors and the retirement plan’s fiduciaries, claiming fiduciary breach due to excessive fees paid to the retirement plan’s investment managers and for investment losses on account of investment decisions made by the plan’s fiduciaries.

In the wake of court rulings and settlements over the past two decades, most ERISA practitioners expected similar types of lawsuits to be filed against the sponsor of a health benefits plan by health plan participants. However, no employee-participant-driven lawsuits against health plan sponsors claiming fiduciary breach were filed…until recently.

With this J&J lawsuit, as well as similar lawsuits filed against MetLife and a union-sponsored health plan, it appears that this void is finally being filled by a Plaintiffs Bar that sees an opportunity to repeat the legal challenges that have been advanced in the retirement space.

ERISA’S FIDUCIARY DUTIES

ERISA imposes specific fiduciary duties on sponsors of an ERISAcovered health plan, as well as individuals and entities that have discretionary authority to manage the plan and the plan’s assets (collectively referred to as “ERISA fiduciaries”).

For one, ERISA fiduciaries must act for the exclusive purpose of providing benefits to plan participants, which means, among other things, the fiduciaries must protect plan assets from being misused either intentionally or mistakenly. ERISA fiduciaries must also undertake actions to defray the reasonable expense of administering the plan, which includes, among other things, ensuring that the plan does not pay excessive fees to service providers. In addition, fiduciaries must also act prudently when making decisions relating to the management and operation of the plan, and within each of these fiduciary duties is the duty to monitor the plan’s service providers to ensure that they are properly performing their administrative responsibilities and not wasting plan assets.

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J&J CLAIMS OF FIDUCIARY BREACH

Prudence

The J&J employee-participant’s complaint argues that the duty to act prudently was breached because no prudent fiduciary would agree to make the plan and its participants pay a price for a covered prescription drug that is 200% to 500% higher than the price available to any individual who walks into a pharmacy and pays outof-pocket.

The complaint also asserts that prudent fiduciaries must select among different PBM providers with different PBM payment models (e.g., Traditional vs. Pass Through PBM Models) carefully analyzing which PBM offering and payment model will be most beneficial and costeffective for the plan and its participants.

The complaint further contends that prudent fiduciaries must negotiate favorable terms with PBMs and continually monitor their PBM’s actions to ensure that the plan is minimizing costs and maximizing outcomes for plan participants. And prudent fiduciaries must periodically attempt to renegotiate their PBM contracts and/or conduct an open RFP process to solicit proposals from other PBMs

and ensure that they have the best possible deal for the plan and its participants.

Failure to Act in the Best Interest of Plan Participants and Failure to Monitor the Service Provider

The lawsuit goes on to contend that J&J and the plan’s fiduciaries failed to act in the best interest of plan participants when they failed to recognize that the prices charged by Express Scripts were much higher than prices charged by other PBMs operating in the market, and in many cases, higher than the cash price of the drug.

In addition, J&J and the plan’s fiduciaries failed to actively manage and oversee key

aspects of the prescription drug program and failed to properly monitor Express Scripts by allowing Express Scripts to steer participants to the PBM’s own mail-order pharmacy, forcing participants to pay higher prices for drugs than other reasonable and accessible alternatives that charge lower prices for the same drugs.

The complaint further argues that if J&J and the plan’s fiduciaries had engaged in a prudent and reasoned decision-making process, J&J and the plan’s fiduciaries would have known –or should have known – of the availability of other reasonable and accessible alternatives that

charge lower prices, which would have saved millions of dollars for the plan and its participants.

FORESHADOWING THE EXAMINATION OF BROKER AND CONSULTANT COMPENSATION DISCLOSURES

Teeing Up the Issue

Although this J&J lawsuit focused primarily on ERISA’s fiduciary duties, the complaint did raise another issue that could show up in future litigation. And that issue is the failure to receive the proper disclosure of compensation paid to a broker or consultant providing services to the plan, along with the plan fiduciaries’ failure to properly consider this disclosure before entering into or renewing any contract with the broker or consultant.

This new compensation disclosure requirement was added to the law at the end of 2020 through the Consolidated Appropriations Act, 2021 (“CAA 2021”). Modeled after requirements for compensation disclosures for retirement plans (a theme already discussed above), compliance with this new health plan disclosure requirement has yet to be tested in a court of law (or actively enforced by the DOL).

Prudence and Conflicts of Interest

While the J&J employee-participant’s lawsuit does not specifically allege non-compliance with this new compensation disclosure requirement, the specter of non-compliance is implied. And such implication is tied back into the fiduciary duty to act prudently.

More specifically, the complaint devotes eight paragraphs asserting that plan fiduciaries must act prudently when hiring brokers and consultants to, for example, assist the plan in selecting and negotiating contract terms with a PBM. These paragraphs go on to explain that in many cases, brokers and consultants have a conflict of interest when recommending a particular PBM due to indirect compensation and “kick-backs” (as the complaint puts it) paid to the brokers/consultants by the PBM.

Based on these points, the complaint asserts that plan fiduciaries must ensure that any broker/consultant they hire to help them select and negotiate with a PBM does not have a conflict of interest that would prevent the broker/consultant from offering objective advice. The exclamation point to these assertions is that a plan fiduciary’s failure to obtain the required disclosures from a broker/consultant makes the contract with the broker/consultant a prohibited transaction under ERISA.

FUTURE LITIGATION

Fiduciary Breach Based on Broker/Consultant Compensation Disclosures

Following on the points raised above, the Plaintiffs Bar may very well pursue a claim of fiduciary breach if and when they uncover that the required compensation disclosures were never furnished to the plan’s fiduciaries and/or that the plan’s fiduciaries did not give due consideration to the compensation disclosures prior to entering or renewing a contract with a broker/consultant.

Lawsuits Involving Other Plan Service Providers

Any future lawsuits involving employee-participants’ claims of fiduciary breach may also involve other plan service providers beyond PBMs. Why? Because the J&J lawsuit focused exclusively on prescription drugs, thereby bringing PBMs into the picture. But future lawsuits will likely focus on overpayments made to medical providers for medical and surgical benefits covered under the plan, and quite possibly underpayments to mental and behavioral health providers for covered mental health and substance use disorder benefits. Claims

of fiduciary breach advanced by employees can go both ways.

Participant-Driven Excessive Fee Lawsuits

Excessive fees charged by TPAs – including both independent TPAs and insurance carrierowned TPAs – have been and will continue to be a major focus. To date, lawsuits claiming the payment of excessive fees have been advanced by plan sponsors and even the Department of Labor, not plan participants. But this J&J employee-participant lawsuit will likely open the door to participants going directly after their plan sponsor for the payment of excessive fees, consistent with what we see here.

Plan Sponsors Suing Plan Service Providers

This J&J lawsuit begs the following questions: Isn’t the plan sponsor the ultimate victim here, and not necessarily the plan participants? Stated differently, is it not the plan’s service providers who are the bad actors here, not necessarily the plan sponsor? After all, what appears evident in this J&J case is that Express Scripts engaged in practices that resulted in the overpayments for the covered prescription drugs, with arguably the most egregious practice of steering plan participants to Express Scripts’ own mail-order pharmacy so the pharmacy (and ultimately Express Scripts) could

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charge prices that are routinely higher than retail pharmacies charge for the same prescription drugs.

This point leads to a logical conclusion that future litigation stemming from this J&J employee-participant’s complaint will likely involve the plan sponsor filing lawsuits against the plan’s service providers through a proactive lawsuit in advance of any employee-driven class-action filed against the plan sponsor or through a reactive crossclaim motion against the plan’s service provider to reimburse the plan sponsor for any monetary damages that may be awarded through the class-action suit.

POSSIBLE LEGISLATIVE AND REGULATORY ACTIONS

Access to Pricing and Claims Information Is Needed to Monitor Plan Service Providers

For decades, plan sponsors have been clamoring for access to negotiated prices and the plan’s health claims data to no avail. Only recently has the Federal government promulgated regulations requiring the public disclosure of pricing information, and Congress passed legislation intended to allow plan sponsors to access the plan’s claims data. However, plan sponsors still cannot get accurate pricing data and owners of the provider networks continue to refuse to share the plan’s claims data.

Access to pricing and claims information is needed if plan sponsors and plan fiduciaries are expected to adequately monitor the plan’s service provider to ensure, for example, excessive fees are not being paid and/or overpayments are not being made. Put more plainly, if a plan sponsor and plan fiduciaries do not have access to meaningful and accurate pricing and claims data, the plan sponsor and plan fiduciaries are exposed to potential fiduciary liability and claims of fiduciary breach due to the inability to adequately monitor the prices charged by, and any overpayments made to, the plan’s service providers.

Will this J&J lawsuit convince Congress and the Administration to improve and strengthen the existing requirements to publicly disclose pricing information? Will Congress and the Administration finally require owners of the provider networks to share a complete and accurate set of claims data with plan sponsors or face monetary penalties? Only time will tell.

PBMs Considered Fiduciaries?

Because plan service providers – such as PBMs – typically do not have discretionary authority over plan assets, a PBM is not considered an ERISA fiduciary. However, if a PBM is subject to the same fiduciary duties applicable to, for example, a plan sponsor, arguments can be made that many of the practices highlighted in this J&J lawsuit would be mitigated if not eliminated entirely.

For example, as an ERISA fiduciary, a PBM would be subject to liability if the PBM took steps to steer plan participants to pharmacies owned by the PBM and ultimately force the plan to pay higher prices to the PBM-owned pharmacies than pharmacies not owned by the PBM.

In addition, as an ERISA fiduciary, the PBM could not charge unreasonable or excessive fees. And, as an ERISA fiduciary, a PBM would not be considered to be acting in the best interest of plan participants if the fiduciary (here, the PBM) is profiting off of the plan by, for example, charging hidden fees or retaining savings for prescription drugs paid for with plan assets that should otherwise be returned to the plan and/or plan participants.

Congress is currently considering PBM reforms. Will this J&J lawsuit convince Congress that ERISA should be amended to specifically make PBMs an ERISA fiduciary? Again, only time will tell.

Chris Condeluci serves as SIIA’s Washington Counsel. He can be reached at ccondeluci@siia.org

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CAPTIVE USE FOR EMPLOYEE BENEFITS

INCREASES

AAchanging workforce and a more competitive hiring environment have led many companies to look for more creative ways to enhance medical benefits for both new and existing employees. More and more, these conditions are leading organizations and human resources experts to consider captive insurance.

“Traditionally, captives have been used for medical stop-loss. Increasingly, we’re talking to human resources managers, who are looking at the war for talent—how they can retain people and attract talent to their organizations,” said Michael Matthews, commercial director, international at Artex. “A lot of them are using their benefit packages as a way of doing that, and for providing non-standard coverages – voluntary benefits such as weight control initiatives.”

STUMBLING BLOCKS

The challenge for many HR managers, however, “is getting the budget to be able to afford these forward-looking benefit plans,” he said.

An advantage of a captive in this scenario “is to not only use the captive to capture the profits in life, disability, and medical programs, but then use those retained funds to create more innovative well-being, or wellness programs,” Matthews said.

More organizations, he noted, are moving to wellness programs, financing unfunded liability linked to deferred compensation plans, and using captives to promote diversity and inclusion within the organization. “They are then expanding to include a range of involuntary benefits. That is geared toward the recognition of a more agile workforce. We’re seeing benefits like career support and emergency funds,” Matthews said.

Much of this has been driven by the changing work landscape for employees – including working from home and how those changes impact benefits plans. “Captives are playing a bigger role in that funding process for different types of benefits for people working from home,” he said.

HR managers, Matthews added, are striving for consistency for all employees, no matter where they are working. “The idea would be

a more agile workforce because you have some people working from home. It also gives the company the ability to transfer some people to other countries on a short-term or long-term basis. It’s effectively using a captive that allows them to bring their home-grown benefits with them,” no matter where they work.

Captives are being used to “level the playing field in terms of the benefits that people get,” he said.

“That encourages them to be more mobile and more flexible in terms of where they can be used in an organization. The funding for all of that comes back to their employee benefit programs.”

He added that potential employees are often less focused on the salary side of their benefits package. “Rather, they are focused on benefits packages that are not only what is best for them but also for their family and extended families. It’s the recognition that it’s all those components that make an employer of choice.”

While this has been done with large companies and multinational pooling arrangements, “where you actively share in the underwriting profits,” Matthews said, “We’re looking into the economics of a singlecountry structure backing into an employee benefit captive to release some of the benefits that multinational pooling programs have seen.”

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BUILDING A NEW BENEFITS MODEL

These are the dilemmas that Kirk Watkins, founder and chief executive officer of Promethean Risk Solutions, also faced. Organizations were putting life and disability coverages into a captive, “But nobody ever thought of putting the voluntary benefits in a captive for one main reason: they are 100 percent employee paid, and they don’t show up on anybody’s P&L statements,” he said. “It happens within the four walls of HR, and nobody from financial risk is involved.”

Voluntary benefits “are typically chosen by selecting box A, B or C and prior there wasn’t much

customization,” Watkins said. “You couldn’t tailor each line item of coverage, there was either the low plan or the high plan.”

Another consideration, Watkins noted, is a younger generation of employees, “and they want a smorgasbord of selections. This significantly helps in attracting and retaining talent.”

Because voluntary benefits have a low loss ratio of 25 to 30 percent, making them profitable for carriers, “it makes sense to give the employees better coverage, lower premium and to put these benefits in a captive,” he said.

Doing this, however, needs to be done in a specific way because of Department of Labor requirements, Watkins said, “But it benefits everybody. Employees get better coverage, lower premiums, and enhanced programs that their employers now have additional funding for, or potentially new programs that are funded through their source. So, it is a win for everyone.”

Using the idea of distributing the profits typically retained by the carrier between the employees and the employer was the foundation for a captive he formed named FairShare. The program allows employers to share the risk without having to form a captive.

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This example is illustrative only and not indicative of actual past or future results. Stop Loss is underwritten by Berkley Life and Health Insurance Company, a member company of W. R. Berkley Corporation and rated A+ (Superior) by A.M. Best, and involves the formation of a group captive insurance program that involves other employers and requires other legal entities. Berkley and its affiliates do not provide tax, legal, or regulatory advice concerning EmCap. You should seek appropriate tax, legal, regulatory, or other counsel regarding the EmCap program, including, but not limited to, counsel in the areas of ERISA, multiple employer welfare arrangements (MEWAs), taxation, and captives. EmCap is not available to all employers or in all states.

“What we do is reinsure the coverage from the carrier,” Watkins said. “When we reinsure it, it is underwritten at a higher loss ratio, so it provides better coverage and less premium.”

With this model, he said, “The client gets the profit, so we do a profitsharing program. The dollars that are left over, that would typically be retained by the carrier, are given to the employer.”

Also important is that the plan works for both large and small companies, providing the same pricing for both, he said. The plan also works for organizations including associations, tenants and franchisees, Watkins said.

Types of coverage include accidental injury, critical illness, hospital indemnity, legal insurance, ID theft coverage, renter’s liability, deposit waiver insurance, group auto & home, electronic device, cell phone coverage, home warranty – even pet insurance. Natalie McCulley, senior vice president at McGriff, noted, “The idea of putting benefits into captives is not new. My experience with captives and benefits dates back more than 20 years when larger employers started putting things like employee life into their captive. However, the idea of having the ancillary benefits included is relatively new.”

This is important, she said, because “it allows HR departments to have money to reinvest into ongoing benefits, because the employers are taking some risk.”

Another advantage is that the plan helps employers create benefits that might be more attractive to their employees. An example, she said, is pet insurance. “One demographic might not feel this is valuable, while another demographic might see this as a great thing, to have coverage for expensive vet bills.”

There are values from an overall investment point as well, McCulley said. “The employer can recoup some of the dollars and reinvest in future ERISA plans. Planned

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There is a long-term retention strategy. Employers see these benefits as an additional way to help recruit and retain top employees.”

Overall, she said, “There is a financial incentive – a pot of money that is currently going to insurance carriers for products and services –that historically has a very profitable loss ratio. So, it’s the ability to share in some of that and then reinvest for employees.”

While organizations are taking on some risk, “The models say that this should be a profitable venture for them. The idea is to attract new employees to the company,” McCulley said. “There is a value proposition with having better benefits than their competitors.”

CUSTOMIZATION

A benefit of the FairShare plan, Watkins said, is the ability for organizations to tailor their programs to employees, new hires, association members and even students.

“We had a university that was looking to have the program added when students registered for classes,” he said. “They could check a box for student medical, and the university added accidental damage to electronic devices.”

Another example, he said, is a large association “that contacted us about working with their employees. They have a captive and millions of members. We told them that they could also offer benefits to their membership. If you’re able to give members good coverage at a good price, that’s a value-add to attract and maintain employees and members,” Watkins said.

TPA SUMMIT ‘24

JUST A SIP: CAN CANADA QUENCH U.S. THIRST FOR IMPORTED PRESCRIPTION DRUGS?

InIlate 2020, the Food and Drug Administration (“FDA”) issued a final rule announcing a “Safe Importation Action Plan” (“SIP”) for states (and tribes) to legally import prescription drugs from Canada. Florida became the first state to have its importation plan approved by federal regulators in early 2024. This FDA approval does not mean that Florida can now begin to import drugs from Canada immediately, and Florida still has additional steps to complete before importation can begin.

It is still illegal for self-insured plans to import drugs from Canada or other countries. Self-insured plans and their plan sponsors are not able to apply for a drug importation program

on their own behalf, and it remains to be seen whether the FDA would approve an SIP designed to benefit private-payer employee benefit plans. Florida’s SIP application limited the beneficiaries to state programs such as Medicaid and patients served through other state government entities. To date, no states other than Florida have received federal approval. In the meantime, resistance from other industry stakeholders is likely, and Canada is under no obligation to meet U.S. demand.

BACKGROUND

Although the FDA generally prohibits importation for commercial use of unapproved drugs manufactured in other countries, the agency issued a final rule in 2020 that provides a pathway for states to legally import drugs from Canada. The pathway requires states to submit an SIP proposal that shows, among other things, that the program will result in a significant reduction in the cost of prescription drugs for consumers without posing any additional public health and safety risk. Although several states have passed laws to allow prescription drug importation, only a handful have submitted SIP applications. Colorado’s application is pending, New Hampshire’s application was denied, Vermont’s application was deemed incomplete, and only Florida’s application has been approved. It has been reported that Texas is working on its SIP proposal and hopes to submit it this year. Florida still has some additional steps to complete before importation can begin, and other states are sure to be watching carefully.

WHAT ARE SOME LIMITATIONS TO A STATE DRUG IMPORTATION PROGRAM?

The application process is onerous, requiring sponsors to identify drug manufacturers and importers, obtain Canadian inspection reports, detail how the sponsor will maintain compliance with FDA rules, and address how the SIP sponsor will ensure the security of the supply chain. Supply chain security could become a challenging issue, especially as more states seek to import drugs from the same sources.

States cannot choose to import any drug from Canada. The FDA excludes certain types of drugs from importation, including biological products, infused drugs (including insulin), drugs that are injected into a vein, spine, or eyes, and drugs that are subject to a risk evaluation and mitigation strategy (REMS). Florida, for example, initially intends to import medications to treat HIV/AIDS, mental health conditions, and prostate cancer.

Drugs cannot be immediately imported from Canada upon approval of the SIP. Even after the FDA grants approval, there are additional steps that a state needs to take before imported drugs can reach consumers. The state needs to contract with importers, who in turn need to submit a pre-import request to the FDA. Once imported, the drugs need to be examined by a government agency and tested for authenticity and compliance with FDA rules. After testing, the drugs need to be relabeled to the FDA’s specifications. A state will also have ongoing compliance requirements, including quarterly reporting to the FDA. SIPs are authorized for two years, with the opportunity to renew and propose modifications. The FDA can suspend or revoke a SIP at any time. The specific requirements for SIP proposals are set forth in the Final Rule at 85 Fed. Reg. 62094, and the FDA website includes links to additional materials.

Not everyone in the state will necessarily be able to benefit from a state’s drug importation program. Although a state will need to explain in its proposal how drug importation will lower costs for consumers, there is no requirement that the SIP benefits all residents of the state. Florida’s SIP will benefit patients receiving services through certain state agencies and government programs, with a particular focus on the state’s 4.5 million Medicaid recipients.

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CAN SELF-INSURED PLANS BENEFIT FROM A STATE DRUG IMPORTATION PROGRAM?

There is nothing in the FDA final rule that would prevent a state from expanding the prospective beneficiaries of the SIP to include private payers like selfinsured plans. Colorado’s pending proposed SIP, for example, contemplates distribution of the imported drugs to participating Colorado pharmacies. If the FDA authorizes Colorado’s SIP as proposed, the SIP could benefit self-insured plans that participate in the Colorado SIP pharmacy network, although the details of any proposal are subject to change during the application process. Colorado’s proposed

SIP targets commonly prescribed drugs, such as blood thinners and drugs for women’s health, and a variety of drugs to treat Type 2 diabetes, asthma, cancer, HIV and other conditions. In response to the application process and its discussions with the FDA, Colorado intends to update its proposed SIP early this year, and it is not yet known if the updated SIP will alter this possible gain for private payer plans.

WHAT OTHER CHALLENGES ARE DRUG IMPORTATION PROGRAMS FACING?

Shortly after the FDA issued the final rule in 2020 to open the drug importation pathway to states, a group of industry stakeholders challenged the rule, but that challenge was dismissed because at the time the FDA had yet to approve a SIP. Now that Florida’s SIP has been authorized, there is likely to be increased activity in this area that could jeopardize state importation programs, especially if state programs are expanded to include private as well as public payers, which could threaten other stakeholders.

Another potential challenge to drug importation from Canada is Canada’s interest in prioritizing its own citizens, especially in the event of a drug shortage. The SIP proposal requires states to explain the steps they will take to ensure the security of the supply chain. Canadian law prohibits exporting drugs intended for the Canadian market if exportation would cause or worsen a drug shortage. The total population of Canada is roughly 39 million, while Florida’s population is about 22 million. Texas, which is also working on an SIP proposal, has a population of close to 30 million. Whether Canadian drug manufacturers could increase production to meet U.S. demand is another challenge to the stability of a state drug importation program.

CAN INDIVIDUALS IMPORT DRUGS FROM OTHER COUNTRIES FOR PERSONAL MEDICAL USE?

Although the same statute that authorized the FDA to issue regulations for a state drug importation program also authorized the FDA to issue regulations for a personal drug importation program, the FDA has yet to release any such regulations. Consequently,

the importation of prescription drugs from another country for personal use, even personal medical use, is illegal. However, a nonenforcement personal importation policy (“PIP”) does exist for limited situations. After approval of the Florida SIP, the Congressional Research Service (CRS) updated its background report on drug importation, noting that the enforcement discretion “is not intended as a way for consumers to bring lower-priced prescription drugs into the United States; rather, FDA intended this enforcement discretion to allow individuals to access treatments not otherwise available in the United States.” Maintenance

medications available for sale in the U.S. would not be within the limited scope of the nonenforcement policy.

Although the FDA’s PIP may allow individuals to import certain drugs into the U.S. for personal use, the policy is entirely discretionary. Individuals hoping to benefit from the PIP are technically still in violation of FDA rules, which treat such violations as a misdemeanor punishable by up to a year in prison or a fine up to $1,000, or both. More serious violations may result in up to three years in prison and/or fines of up to $10,000.

May self-insured plans reimburse individuals who import drugs from other countries for personal medical use or import drugs from Canada or other countries?

It is important to emphasize that although this nonenforcement PIP makes it possible for individuals to import certain drugs from other countries for personal use, it does not make the importation legal. This distinction between being possible versus being legal is what bars a self-insured ERISA plan from reimbursing a participant for a drug illegally imported from another country, regardless of the nonenforcement policy. Consequently, the nonenforcement PIP is of no use to self-insured ERISA plans. Also, because importation would be illegal, any reimbursement would be taxable to the participant. Similarly, it would be illegal for a self-insured plan to engage in the importation of drugs from another country to be provided to participants and beneficiaries.

The CRS background report noted that the importation of prescription drugs for commercial use is prohibited except as approved by the Secretary of Health and Human Services (HHS) pursuant to a drug shortage or pursuant to an SIP. One question that is somewhat unclear is whether a self-insured plan (e.g., a flexible spending account or health reimbursement arrangement) would be permitted

to reimburse a participant’s cost share or out-of-pocket expenses for a drug legally obtained under a state SIP where, like Florida’s SIP, the state SIP is limited to a governmental program (e.g., Medicaid). We believe such instances will be rare, but this is an issue that should be addressed as such limited SIPs get up and running.

WHAT’S NEXT FOR DRUG IMPORTATION FROM CANADA?

States that have passed laws to allow drug importation, which so far include Colorado, Florida, Maine, New Hampshire, New Mexico, North Dakota, Texas and Vermont, will no doubt be watching as Florida completes the final steps necessary for drug importation to actually begin.

If Florida realizes its anticipated savings from the program—projected to be as much as $180 million in its first full year of importation— other states will be eager to follow in Florida’s path. The progress of Colorado’s SIP application, and possibly even Texas’s forthcoming application, will be of interest to self-insured plans that may be able to realize some of these savings themselves. Challenges from other stakeholders are also likely to arise, and Canada may take additional protective measures to safeguard its country’s drug supply.

Attorneys John R. Hickman, Ashley Gillihan, Steven Mindy, Ken Johnson, Amy Heppner, and Laurie Kirkwood provide the answers in this column. John is partner in charge of the Health Benefits Practice with Alston & Bird, LLP, an Atlanta, New York, Los Angeles, Charlotte, Dallas and Washington, D.C. law firm. Ashley and Steven are partners in the practice, and Ken, Amy, and Laurie are senior members in the Health Benefits Practice. Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner’s situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation. Readers are encouraged to send questions by E-MAIL to John at john.hickman@alston.com.

NEWS FROM SIIA MEMBERS

SIIA Diamond, Gold, and Silver member companies are leaders in the self-insurance/captive insurance marketplace. Provided below are news highlights from these upgraded members. News items should be submitted to membernews@siia.org.

All submissions are subject to editing for brevity. Information about upgraded memberships can be accessed online at www.siia.org.

If you would like to learn more about the benefits of SIIA’s premium memberships, please contact Jennifer Ivy at jivy@siia.org.

Strong

More solutions.

M3 ANNOUNCES TWO PROMOTIONS

Brianne Gauder has recently been named vice president of employee benefits operations at M3. In this role, she partners with executive leadership to set the strategy for the agency’s employee benefits operations. Her responsibilities include leadership of client services for employee benefits, M3 Financial, business operations, and the administrative team.

Gauder joined M3 in 2015 as a client services manager and quickly moved to a director of client services position. In 2023, she was promoted to senior

director of client services before being named vice president of employee benefits operations in 2024. Gauder’s growth has been a function of her leadership skills, operational knowledge, and ability to effectively train M3’s service teams for nearly ten years.

Separately, Kelsey Stacks has been promoted to director of employee benefits – Milwaukee at M3. In this role, she works closely with other members of the M3 Milwaukee team to identify and acquire new business, implement go-to-market strategies, and build strong partnerships with key business leaders, insurance companies, and community organizations throughout Southeast WI.

Stacks will work alongside Matt Boray as a co-lead to support the expansion within the region. Additionally, she will continue to manage and grow her book of business.

Since joining M3 in 2016, Stacks has been instrumental in leading peer groups and engagement initiatives for M3 sales leaders-intraining.

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VALENZ EXPANDS EXECUTIVE TEAM WITH HR ADDITION

Vālenz® Health announced that Madeline Cashdollar, MBA, has joined the executive leadership team as Chief People Officer.

With a 25-year career that has touched on all aspects of human resources, Cashdollar most recently led her own consulting firm, advising clients on global HR strategy and talent management. She brings deep expertise in compensation and benefits, client and employee relations, organizational development, diversity and inclusion, performance measurement, and workforce solutions for all people-related challenges.

“Madeline is a tremendous fit for this position because she truly is all about people and the power of customer love,” said Rob Gelb, Chief Executive Officer of Valenz. “She thrives at the intersection of business and people strategies – quickly building relationships, diagnosing the problem, designing practical solutions, and moving the team in the right direction to improve business

outcomes. We’re thrilled to have Madeline join us.”

“It’s exciting to see the team doing great things every day and really living the Valenz culture that elevates our company and keeps customers coming back,” Cashdollar said. “I’m looking forward to rolling up my sleeves as we continue to grow and build for the future with people as our greatest asset.”

ERIC BERG PROMOTED TO COO FOR HM INSURANCE GROUP

Eric Berg has been appointed as chief operating officer for HM Insurance Group (HM) and is now responsible for the executive

oversight of all operational areas, the direction of strategic initiatives, as well as HM’s reinsurance and partner relationships.

Eric joined HM in 2021 from Everest Reinsurance Company where he had worked since 2012 as vice president of A&H Operations and Claims. Prior to his time at Everest Re, he was an associate at Riker Danzig, a law firm in Morristown, New Jersey, where he worked with a number of insurance and reinsurance companies advising on a wide variety of transactions, issues and disputes.

With more than 20 years of industry experience, Eric’s areas of expertise include operations management, healthcare, client development, profitable product development, product diversification, compliance, privacy, premium collection, litigation management, claims and cost containment.

He is a graduate of the University of Notre Dame and has a JD from Rutgers University Law School – Newark.

The power to get it done

Benefitfocus announced that Tom Klonecki has joined the company as chief operating officer. He will report to company President, Andrew Frend.

In this role, Klonecki will oversee the teams that deliver implementation, client management, contact center support, data exchanges and administrative services for clients. Klonecki will also work closely with the product and engineering teams to further advance the company’s objectives.

“I’m excited to welcome Tom to the Benefitfocus team,” said Frend. “He has extensive knowledge and experience across the benefits administration and retirement industries that will complement the already strong talent and diverse knowledge we have on our leadership team. Tom brings an accomplished, client-focused perspective that will help us further center ourselves around the growing needs of brokers, employers and health plan businesses.”

“Benefitfocus has been on a transformational journey that has us well positioned for continued growth,” said Klonecki. “I’m looking forward to working closely with my new colleagues as we continue to advance an industry-leading shared client experience across the workplace, including a focus on health and wealth solutions. Being part of Voya Financial will also provide us with expanded opportunities to do even more for our clients, and I have already been impressed with the work that the team has done to further advance and accelerate our strategy.”

PharmPix celebrates 15 years!

Since its inception in 2009, PharmPix has proven to be a leading provider of pharmacy benefit solutions with its innovative technology and care for people. PharmPix was founded by four successful healthcare veterans that shared a vision to revolutionize an industry often criticized for its lack of transparency and customer loyalty. Herminio Correa, CIO, remarks on their goal of developing PharmPix, “We wanted to create a system that was flexible and could adapt to client needs…to give our clients more functionality, while passing on savings, motivated all of us to succeed.”

PharmPix has grown to become a globally recognized brand in the pharmacy benefit management industry, serving more than 750,000 lives. PharmPix offers a variety of services for their clients, they refer to as “being powered by PharmPix.” PharmPix offers a full-service pharmacy benefit management, claims processing technology solution for health plans, TPA’s, government entities, and other PBMs.

“Our PPx specialty HUB is the most comprehensive solution to manage specialty drug costs. Clients have seen up to 40% savings,” remarks Ivan Lopez, CFO.

Continued savings coupled with a flexible adaptable technology platform, has led to PharmPix’s outstanding customer loyalty. Lopez continues, “We have had consistent compounded growth of 15-20% since 2009. With that growth, we are investing in our people.” PharmPix has a warm, familial-style culture called “Pharmily” that has led many employees to stay on board since the beginning.

At the heart of PharmPix is not only their people, but their state-of-the-art technology, OneArk™. The system plays a crucial role in addressing the inefficiencies of most PBM offerings by being triggered at the point-of-sale which improves member experience and clinical outcomes from the start.

The OneArk™ System is a proactive, preventive, and accurate platform designed to give clients the necessary flexibility to satisfy any plan design or clinical program. The reporting and analytical tools offer decision support for the management of quality and costs of any pharmacy benefit program.

Jaime Figueroa, CEO, states how success is achieved, “Bring on talented, dedicated people. We are very grateful for that. That is our key to success.”

Looking to the next milestone, specialty drug spend is a major hurdle. Dr. Martinez remembers when drug treatments were only around thousands of dollars per year. Now they can be over $1M per year. But he confidently states that “PharmPix has a solution.” And they do.

The PPx Specialty HUB is the most comprehensive solution to manage specialty drug costs and offers 30-40% savings. Through the PPx Specialty HUB, members are identified at the point-of-sale and are routed to a dedicated call center with a single point of contact to identify the best price and source for the member’s script, offering exceptional service and turnaround time.

PharmPix is a technology company that cares about the clients they serve, just as much as their own people.

Kelsey Stacks has been promoted to director of employee benefits – Milwaukee at M3. In this role, she works closely with other members of the M3 Milwaukee team to identify and acquire new business, implement go-to-market strategies, and build strong partnerships with key business leaders, insurance companies, and community organizations throughout Southeast WI. Stacks will work alongside Matt Boray as a co-lead to support the expansion within the region.

Additionally, she will continue to manage and grow her book of business.

Since joining M3 in 2016, Stacks has been instrumental in leading peer groups and engagement initiatives for M3 sales leaders-intraining.

2024 SELF-INSURANCE INSTITUTE OF AMERICA

BOARD OF DIRECTORS

CHAIRMAN OF THE BOARD*

John Capasso

President & CEO

Captive Planning Associates, LLC

CHAIRMAN ELECT*

Matt Kirk

President

The Benecon Group

TREASURER AND CORPORATE

SECRETARY*

Amy Gasbarro

DIRECTOR

Stacy Borans

Founder/Chief Medical Officer

Advanced Medical Strategies

DIRECTOR

Mark Combs

CEO/President

Self-Insured Reporting

DIRECTOR

Orlo “Spike” Dietrich

Operating Partner

Ansley Capital Group

DIRECTOR

Deborah Hodges

President & CEO Health Plans, Inc.

DIRECTOR

Mark Lawrence President HM Insurance Group

DIRECTOR

Adam Russo CEO

The Phia Group, LLC

DIRECTOR

Beth Turbitt

Managing Director Aon Re, Inc.

VOLUNTEER COMMITTEE

CHAIRS

Captive Insurance Committee

Jeffrey Fitzgerald

Managing Director, SRS Benefit Partners

Strategic Risk Solutions, Inc.

Future Leaders Committee

Erin Duffy

Director of Business Development

Imagine360

Price Transparency Committee

Christine Cooper CEO aequum LLC

Cell and Gene Task Force

Shaun Peterson

VP Head of Worksite Solution Pricing & Stop Loss Product

Voya Financial

* Also serves as Director

SIIA NEW MEMBERS

APRIL 2024

REGULAR CORPORATE MEMBERS

Douglas Classen

Senior Vice President

Dana Investment Advisors Waukesha, WI

James Knutson Executive Director Employers Coalition on Health Rockford, IL

Jeffery Gold, MD Gold Direct Care PC Salem, MA

Brodie Stone Co-Founder Helm Health Columbus, OH

Brian Strauss

EVP

Highlight Health Philadelphia, PA

Bill McCarron MHP

Senior Vice President, Client Strategy & Benefits Innovation Huntington Insurance South Euclid, OH

Hugh O’Toole CEO

Innovu Pittsburgh, PA

Andrew Ward Director of Sales QuadMed Sussex, WI

SILVER MEMBERS

Ari Rostowsky Partner IHPlans

Boca Raton, FL

Wei Wei VP Product Strategy

Prealize Health San Mateo, CA

Madison Kremer Admin Assistant Vitori Health

Leawood, KS

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