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March 22, 2019

Andrew Stolfi By email: andrew.stolfi@oregon.gov

Insurance Commissioner
Administrator, Oregon Division of Financial Regulation
Department of Consumer and Business Services
350 Winter St. NE
Salem, OR 97309

Re: Definition of “Expenditure” as net costs for the purpose of OAR 836-053-0013

Mr. Stolfi:

Pursuant to ORS 743B.130, the Department of Consumer and Business Services (DCBS) must prescribe by
rule the form, level of coverage, and benefit design for Bronze and Silver health benefit plans. DCBS
recently issued a Temporary Administrative Order (ID 4-2019, Amendment to 2020 standard Bronze and
Silver health benefit plans) to amended OAR 836-053-0013. This Order updates the benefit design of ACA
metal plans but fails to specify the cost basis for the new cost sharing percentage amounts, thus leaving
undefined an operative element of the plans’ benefit design.

Neither the Oregon statute nor administrative rules define the cost basis for enrollees’ cost sharing. This
loophole has allowed health insurance carriers to overcharge enrollees and to launder manufacturer rebates
as general revenue through holding companies, thus artificially inflating plan expenditures and engineering
artificial losses in their state plans. This loophole must be closed.

The revised OAR 836-053-0013(10) mandates that deductibles for coverage required under ORS 743B.130
comply with the cost-sharing matrix as adopted in Exhibit 1 (Bronze plans) and Exhibit 2 (Silver plans) of
the Order. These documents provide a percentage cost-sharing amount (e.g. 30%) without clarifying the
expenditure basis these percentage values apply to. Without an unambiguous definition of “expenditure,”
as used in the statutory definition of “cost sharing,” this rule is vague and arbitrary. If each health
insurance carrier has the discretion to choose gross claims expense submitted by pharmacies or any other
expenditure basis as the cost basis for benefit calculations and premium rate valuation, then compliance
with the Patient Protection and Affordable Care Act and the requirements of CMS’s Essential Health
Benefits, Actuarial Value, and Accreditation final rule become illusory and unauditable.

Cost sharing is defined in 45 CFR § 155.20 as "any expenditure required by or on behalf of an enrollee with
respect to essential health benefits.” The definition of cost sharing stated in 45 CFR 155.20 is included by
reference in OAR 945-001-0002(10). Expenditure is neither defined in Title 45 of the Federal Regulations

Oregonians for Affordable Drug Prices Now is an Oregon nonprofit corporation (EIN 36-4903497, Reg. 145439493, DOJ No. 54174). IRS License
#C4-4005118, Form 8976, Notice of Intent to Operate Under Section 501(c)(4). Trademark (No. 1078690) and corporate name (No. 1078690)
reserved in Washington State.
 Definition of “Expenditure” as net costs for the purpose of OAR 836-053-0013 Page 2 of 3

nor in OAR 945-001-0002. “Expenditure,” as used in the Oregon insurance code, may thus have the
meaning given by its context.

Brand drugs in the US are heavily rebated. For analog insulin, health insurers receive discounts from
manufacturers that amount to over 70% of the gross ingredient costs (e.g. Oregon AAAC). The
manufacturer rebates offset the ingredient costs; these price offsets are contractually ascertainable
amounts received by health insurers on behalf of an enrollee. The health insurance carriers’ actual
expenditure for pharmacy benefits, after reconciliation with the manufacturer rebate receivables
contractually earned on behalf of enrollees, can thus be significantly lower than the gross claims
submission received from pharmacies.

While the general definition of expenditure may generically refer to a financial outlay, expenditure can
also be a ‘net’ outlay, depending on context. For example, the US Census Bureau defines expenditure as
"net of recoveries and other correcting transactions.” When DCBS implemented HB 4005, the amended
OAR 836-053-0473 (Required Materials for Rate Filing for Individual or Small Employer Health Benefit
Plans) defined drug expenditure as "including the net impact of any rebates or other price concessions if
applicable.” (To date, your department has not, to our knowledge, implemented any rebate audit process
nor adopted the price offset accounting rules required to assure compliance with this mandate.) Absent of
a contradictory indication, a drug cost is thus an expenditure for the purpose of Oregon insurance code,
OAR 945-001-0002(10) and OAR 836-053-0013 if it is net of any ascertainable rebates or other price
concessions negotiated on behalf of enrollees by health insurance carrier, directly or via their PBM agents.

The use of drugs’ net cost as the expenditure basis for real-time benefit adjudication at the point-of-sale,
including enrollees’ cost sharing calculations, has long been possible under the communication
standards of the National Council for Prescription Drug Programs (NCPDP), including the current D.0
version.1 As rebate pass-through is about to become the basis of Part D benefit design, it is time for
Oregon finally to address the discriminatory impact and accounting distortions created by health
insurance carriers’ rebate capture and the resulting inflation of plan expenditures.

Oregonians for Affordable Drug Pricing Now requests that the DCBS Insurance Division will now formally
address these matters and will issue regulatory guidance regarding the identified benefit design loopholes
(cost sharing basis, reconciliation of rebate receivables) left unresolved by Temporary Administrative Order
(ID 4-2019, Amendment to 2020 standard Bronze and Silver health benefit plans). More specifically:

1If necessary, we can provide your staff with more technical information regarding the specific fields available to health insurance
carriers in NCPDP Communication Standard D.0. I am a member of NCPDP Work Group 7 (Manufacturer and Associated Trading
Partner Transaction Standards) and Work Group 9 (Government Programs). I am also a member of the NCPDP WG9 NPRM Small
Group currently drafting NCPDP recommendations for the implementation of HHS OIG proposed rule amending the safe harbor
regulation concerning discounts under the federal anti-kickback statute, section 1128B(b) of the Social Security Act (the Act).

Oregonians for Affordable Drug Prices Now is an Oregon nonprofit corporation (EIN 36-4903497, Reg. 145439493, DOJ No. 54174). IRS License
#C4-4005118, Form 8976, Notice of Intent to Operate Under Section 501(c)(4). Trademark (No. 1078690) and corporate name (No. 1078690)
reserved in Washington State.
 Definition of “Expenditure” as net costs for the purpose of OAR 836-053-0013 Page 3 of 3

• Would you please confirm that “expenditure” for the purpose of cost sharing as defined by OAR
945-001-0002(10) and as applied to pharmacy benefits in Bronze and Silver plans means the net
cost of the drugs to health carriers, after deduction of all ascertainable price offsets, rebates and
discounts the health insurance carrier is contractually entitled to receive (at any state or national
level, via any PBMs, subsidiaries or holding companies) for drug purchases made on behalf of
enrollees?

• Would you please also explain whether DCBS Insurance Division has an audit process in place to
prevent under-reporting of rebate receivables and inflation of expenditure subject to cost sharing
under OAR 836-053-0013? As documented during the meetings of the HB 4005 Task Force and
related Rulemaking Advisory Committee, rebate receivables earned by Oregon enrollees on their
drug purchases in Bronze and Silver Plans may be received and accounted as general revenue by a
holding company or out-of-state subsidiary of the health insurance carrier.

Regards, 

Charles Fournier, J.D.

Director
Oregonians for Affordable Drug Prices Now
Charles.Fournier@or4ad.org 
(206) 643-1479

Oregonians for Affordable Drug Prices Now is an Oregon nonprofit corporation (EIN 36-4903497, Reg. 145439493, DOJ No. 54174). IRS License
#C4-4005118, Form 8976, Notice of Intent to Operate Under Section 501(c)(4). Trademark (No. 1078690) and corporate name (No. 1078690)
reserved in Washington State.