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States Seeking to Regulate Health Insurers’ Cost-Cutting Practices

April 06, 2023 (5 min read)

Spurred by health insurance companies’ increasing efforts to save money by dictating how providers deliver care, state lawmakers across the country have begun introducing legislation aimed at regulating the use of “utilization management policies.”

Insurers Embrace Prior Authorization and ‘White Bagging’

While a mouthful to say, utilization management policies are simply insurance company practices that limit spending by healthcare providers. Typically that entails requiring doctors to obtain approval from insurers before they will cover the cost of a particular procedure, medicine or medical device, a policy known as “prior authorization.” Both doctors and patients chafe at such policies because they’re perceived to create needless barriers and delays to care.

Another practice that is becoming more common is “white bagging,” where insurers or third-party administrators like pharmacy benefit managers (PBMs) mandate that medication for a specific patient be prepared by a particular pharmacy and then shipped to the patient’s provider to administer.

White bagging is controversial because it requires providers to administer drugs outside of their secure supply chain and inventory. In the event a patient needs more of a drug or a replacement, the provider is out of luck. If a patient ultimately doesn’t use or need the medicine, the drug goes to waste.

Utilization management policies like prior authorization and white bagging have been employed by insurance companies for a while now, but in recent years they’ve started applying such policies to an increasingly wider variety of medications and treatments. As Axios recently reported, clinicians say the use of utilization management practices has “worsened in recent years.”

That’s caused state lawmakers from Arkansas to Virginia to take notice.

Dozens of States Introducing Utilization Management Bills

According to the National Conference of State LegislaturesPrescription Drug State Bill Tracking Database, 100 bills in 28 states have been introduced from 2015 to the present to address dealing with utilization management practices involving just prescription drugs.

But since the first of this year, 126 bills have been introduced in 29 states addressing utilization management policies in general, according to data compiled by State Net. Axios predicted at least 40 states would look at bills to streamline the process doctors use to get insurance pre-approvals.

Two years ago Texas approved a law enabling doctors who get 90 percent of their prior authorization requests for a treatment or drug approved over a six-month period to obtain a “gold card” that exempts them from the prior authorization requirement for those specific treatments or drugs. Louisiana and Michigan passed their own gold-card bills last year and Mississippi is considering similar legislation.

Also in 2021, Arkansas, Louisiana and Virginia enacted laws regulating white bagging. Louisiana’s legislation banned the practice – an approach that’s also been looked at in Kentucky, Nebraska and West Virginia. New York, meanwhile, has considered policies to regulate the practice to protect patients.

A third approach, considered by Wisconsin, is to ban not only white bagging but also a practice known as “brown bagging,” in which patients are required to pick up their drugs from a specific pharmacy. This third legislative strategy is known as Koreen’s Law, named after a cancer patient.

Colleen Becker, a senior policy specialist in NCSL’s Health Program, said about a third of the more than 650 prescription drug-related bills NCSL is currently tracking are focused on PBM reform. Lawmakers across the country are looking at many different approaches to addressing this issue, including 12 states that have introduced bills that would require a patient’s cost-sharing to be determined at the point of sale and reduced by a percentage of rebates negotiated between PBMs and manufacturers.

Becker also noted that insulin affordability remains a big concern for state legislators (22 states limit the amount someone can pay for insulin and at least nine more are pursuing similar legislation). Likewise, restrictions on the use of copay accumulator policies restrict a manufacturer's assistance coupons from counting towards a patient's annual out-of-pocket maximum. Fifteen states have laws restricting these policies, and 15 more states are considering bills to implement such laws.

“This is, of course, just a few of some of the trends we are tracking,” Becker said in an email.

In other words, utilization management policies have definitely become a priority in state houses.

State Laws Present Compliance Challenges for Both Payers and Providers

Laws governing utilization management policies impact healthcare providers as well as insurers and PBMs.

One area of concern for providers revolves around the utilization management reviews some state laws require, according to Jason Brocks of the Practical Guidance Team. Insurers are supposed to employ people with the requisite medical knowledge to conduct those reviews, but that doesn’t always happen.

Attorney Karen C. Yotis, also of the Practical Guidance team, noted that the COVID-19 pandemic brought more attention to utilization management reviews because they were being done “more creatively” with fewer providers available.

Attorney Rodney Miller, a third member of the Practical Guidance team, said providers are often concerned that utilization management policies could delay a patient’s care. That can create liability issues for the provider, who can’t simply discontinue a patient’s care until he or she gets approval from an insurance company.

Yotis also said the National Association of Insurance Commissioners has drafted utilization management model legislation, but only a few states have fully adopted it, while others have enacted variations of it, creating a patchwork of laws.

Reporting and record-keeping requirements also present compliance issues for providers, insurers and PBMs. Legislation regulating utilization management policies often requires all three groups to update their electronic record-keeping systems so that they’re meeting the deadlines established by lawmakers. That can make compliance especially tricky for organizations that cross state lines, as one state may require an insurance company to give prior authorization within three days, while another requires it within one day.

As Brocks said, utilization management regulation boils down to overseeing the way financial and healthcare decisions are made and it becomes providers’, insurers’ and third-party administrators’ responsibility to make sure those decisions “are dealt with appropriately.”

In short, it’s a lot to manage, and juggle, for everyone involved.

 —By SNCJ Correspondent BRIAN JOSEPH

States Targeting Rx ‘White Bagging’ by Insurers, PBMs

According to the National Conference of State Legislatures, lawmakers in at least 17 states have considered bills this session addressing “white bagging, the practice by health insurers and pharmacy benefit managers of requiring prescription medication for an individual patient to be prepared by a specific pharmacy and then shipped to the patient’s provider to be administered. One of those states, Utah, has enacted such a measure (SB 193). Measures in another seven of the states also address “brown bagging,” requiring patients to obtain their prescription drugs from a specific pharmacy.


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