Federal authorities have issued an interim final regulation addressing requirements, imposed under last year’s Consolidated Appropriations Act, for health plans and insurers to submit information about prescription drug and other healthcare plan spending.
The reports are expected to enhance transparency and shed light on how prescription drugs, particularly, contribute to the growth of healthcare spending and the cost of health coverage.
The reporting required for 2020 and 2021 will not be enforced until Dec. 27, 2022 (despite CAA-imposed deadlines of Dec. 27, 2021, and June 1, 2022, respectively).
The information gathered as a result of the reporting will be used to issue periodic public reports on prescription drug pricing trends and the impact of prescription drugs on premiums and out-of-pocket costs starting in 2023.
With the aroma of sweet potato casserole still lingering in the air and the polarized issue of whether to top with marshmallows or not resolved, the recently provided interim final regulations addressing a Consolidated Appropriation’s Act (CAA) requirement that healthcare plans provide to federal regulators a wealth of information on plan costs, particularly prescription drug costs, may seem, unfortunately, far from stale. The new rules were probably not the sort of reading to catch up on while driving to grandma’s but perhaps, just perhaps, they provided perfect ammo at the Thanksgiving table when crazy uncle Ned’s hunting stories started to get out of hand. It’s a sure conversation killer.
Part of last year’s CAA represents a broad effort by Congress (and now regulators) to promote greater transparency in healthcare spending as a means to promote competition and bring down overall healthcare costs. The CAA requires, among other things, the removal of gag clauses on price and quality information, compels disclosure of broker compensation (direct or indirect), strengthens parity in mental health and substance abuse disorder benefits, and imposes a new reporting obligation on healthcare plans, particularly with respect to their prescription drug spend. Regulators recently issued a set of interim final rules on the cost reporting requirements, addressing, in particular, prescription benefits and drug costs.
Lockton comment: The rules require reporting based on the “reference year,” which is the calendar year (not plan year) preceding the reporting deadline. According to regulators, this will help ensure uniformity of data across plans and increase the usability of the public report regulators are required to publish in response to their data collection (“Section 204 public report”).
Application of cost reporting provisions
The cost reporting rules apply to health insurers and ERISA group health plans, whether fully insured or self-funded (including grandfathered plans), governmental plans not offered by the federal government, and church plans. They do not apply to account-based plans (like health reimbursement arrangements), “excepted benefits” such as typical flexible spending accounts, dental, vision, and appropriately structured fixed indemnity plans.
Key annual reporting provisions
The required data that must be submitted under the cost reporting regulations is referred to by regulators as a “Section 204 data submission,” a reference to where the requirement is found in the CAA. The Section 204 data submission requires plans and insurers to submit certain information on prescription drug and other healthcare spending annually, including:
General information regarding the plan or coverage, such as the beginning and end dates of the plan year, the number of participants, beneficiaries or enrollees, and each state in which the plan or coverage is offered
Enrollment and premium information, including average monthly premiums paid by employees versus employers
Total healthcare spending, broken down by type of cost (hospital care; primary care; specialty care; prescription drugs; and other medical costs, including wellness services), including prescription drug spending by enrollees versus employers and insurers
The 50 most frequently dispensed brand prescription drugs
The 50 costliest prescription drugs by total annual spending
The 50 prescription drugs with the greatest increase in plan or coverage expenditures from the previous year
Prescription drug rebates, fees and other remuneration paid by drug manufacturers to the plan or insurer in each therapeutic class of drugs, as well as for each of the 25 drugs that yielded the highest amount of rebates
The impact of prescription drug rebates, fees and other remuneration on premiums and out-of-pocket costs
The rules further provide uniform standards and definitions including for identifying prescription drugs regardless of the dosage strength, package size or mode of delivery. Regulators will provide greater detail on each required data element of the Section 204 data submission in the submission instructions. Regulators also intend to provide an internet portal where the required data can be submitted.
Lockton comment: The submission of information related to “prescription drug rebates” under the rules does not include drug manufacturer cost-sharing assistance such as coupons and copay cards because these amounts are not credited to the plan or service providers. However, to the extent these amounts impact total annual spending by health plans or insurers, the rules include drug manufacturer cost-sharing assistance.
Gathering the data
While not quite like the Mayflower crossing the Atlantic in 1620, getting IT systems in place and collecting the data may seem like a daunting task. The good news for plan sponsors is that regulators expect most of the data collection to be conducted by insurers and third parties. In addition (and even better news), much of the reporting information may be aggregated at the state and market level by third-party claims administrators (TPAs) and insurers rather than on a plan-by-plan basis. The idea being that the government will be able to conduct more meaningful data analysis if most of the information is already aggregated. The only plan-level information collected will be: (1) identifying information; (2) the beginning and end dates of the plan year that ended on or before the last day of the reference year; (3) the number of participants, beneficiaries or enrollees, as applicable, covered on the last day of the reference year; and (4) each state in which a plan or coverage is offered.
Lockton comment: For fully insured group health plans, these interim final rules provide that the plan may satisfy the Section 204 data submission requirements if the plan requires its insurer to report the required information “pursuant to a written agreement.” Under this provision, if the insurer fails to report the required information, then the insurer, not the plan, violates the reporting requirements. Therefore, this matter should be negotiated with the carrier, which may or may not agree to provide the information, and, if it agrees, may intend to charge for the effort.
Somewhat similarly, the rules provide that a self-funded plan may have a third party, such as a TPA or pharmacy benefit manager (PBM), submit some or all of the required information on its behalf, provided again that the plan enters into a written agreement with the third party. However, if the third-party entity fails to report the required information, the rules state the plan will be on the hook for the violation. Consequently, the service agreement between the plan (or plan sponsor) and the TPA or PBM should, ideally, address the liability of the TPA or PBM for the information reported as well as its accuracy and the ways in which the plan can review such reporting to confirm its accuracy. However, it is unlikely TPAs and PBMs will agree to indemnify the plan or plan sponsor.
The CAA requires plans and insurers to begin submitting the required information by Dec. 27, 2021, and to submit this information by June 1 of each year thereafter. For example, the Section 204 data submission for the 2020 reference year is due Dec. 27, 2021, and the submission for the 2021 reference year is due June 1, 2022. However, the regulators have announced that they will defer enforcement with regard to these deadlines, and not initiate any enforcement action against a plan or insurer that submits the required information for 2020 and 2021 by Dec. 27, 2022.
Lockton comment: Because the CAA’s compliance deadlines are hard-wired in the statute, regulators cannot simply change those deadlines. They can effectively do so, however, by announcing they won’t enforce the hard-wired dates. In this way, the announced non-enforcement policy operates as an effective deferral of the CAA’s compliance dates. Translation: Don’t worry about reporting this information by the end of the month; look ahead to Dec. 27, 2022.
Section 204 public report
Once the Section 204 data is collected, regulators are required to publish a report on prescription drug reimbursements for plans and coverage, prescription drug pricing trends and the role of prescription drug costs in contributing to premium increases or decreases with the information aggregated so that no drug or plan-specific information is made public. The initial report must be published no later than June 2023. The report will be published periodically thereafter.
Negotiating for help
These are “interim final rules,” meaning plans must comply but the federal agencies issuing the rules see them as merely interim and are, therefore, accepting comments on the rules for several weeks. The responsibility for cost reporting should be negotiated with insurers and TPAs at the next opportunity (but not necessarily before the mold can colonize leftover canned, gelatinous cranberry sauce), given the reporting deadlines of Dec. 27, 2021 and June 1, 2022, are effectively deferred to Dec. 27, 2022.
Not legal advice: Nothing in this alert should be construed as legal advice. Lockton may not be considered your legal counsel, and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.