CAA #12: Interim Final Rule on Rx Drug and Healthcare Spending

The Department of Health and Human Services (HHS), the Department of Labor (DOL), and the Department of the Treasury (collectively, the Departments) have published an Interim Final Regulation (IFR) implementing the Prescription Drug and Health Care Spending provisions of the Consolidated Appropriations Act of 2020 (CAA).

Those provisions generally call for group health plans and health insurance issuers offering group or individual health insurance coverage to annually submit to the Departments certain information about prescription drug and health care spending.

The reporting requirements are broad, deep, and detailed.

Even a mere summary of those requirements – faithfully copied below (bulleted to assist your eyes) from the preamble to the rule – is notable for its density.

  • Data submission includes general information on the plan or coverage, such as the beginning and end dates of the plan year, the number of participants, beneficiaries or enrollees, as applicable, and each state in which the plan or coverage is offered.
  • Plans and issuers must also report the 50 most frequently dispensed brand prescription drugs, and the total number of paid claims for each such drug; the 50 most costly prescription drugs by total annual spending, and the annual amount spent by the plan or coverage for each such drug; and the 50 prescription drugs with the greatest increase in plan or coverage expenditures from the plan year preceding the plan year that is the subject of the report, and, for each such drug, the change in amounts expended by the plan or coverage in each such plan year (top 50 lists).
  • Additionally, plans and issuers must report total spending on health care services by the plan or coverage broken down by the type of costs (including hospital costs; health care provider and clinical service costs, for primary care and specialty care separately; costs for prescription drugs; and other medical costs, including wellness services); spending on prescription drugs by the plan or coverage as well as by participants, beneficiaries, and enrollees, as applicable; and the average monthly premiums paid by participants, beneficiaries, and enrollees and paid by employers on behalf of participants, beneficiaries, and enrollees, as applicable.
  • Plans and issuers must report any impact on premiums by rebates, fees, and any other remuneration paid by drug manufacturers to the plan or coverage or its administrators or service providers, including the amount paid with respect to each therapeutic class of drugs and for each of the 25 drugs that yielded the highest amounts of rebates and other remuneration under the plan or coverage from drug manufacturers during the plan year (top 25 list).
  • Finally, plans and issuers must report any reduction in premiums and out-of-pocket costs associated with these rebates, fees, or other remuneration.

The IFR expands on this summary.  Those with an unquenchable desire for numbing detail can find it here:

The Departments expect that most reporting obligations will be fulfilled by issuers, TPAs, PBMs, and other third parties rather than by employers sponsoring group health plans.  With that in mind, this blog will focus on actions employers must complete to ensure that those various third parties are taking appropriate steps to ensure compliance with the IFR.

Plans Affected

As with most of the group health plan provisions in the CAA, the plans that must comply with these reporting requirements are:

  • group health plans and health insurance issuers, including fully insured and self-insured plans.
  • Plans offered by private employers, government plans, and church plans are affected.
  • There is no exception for grandfathered plans.
  • The rules do not apply to (1) HRAs and other account-based plans (i.e., plans that reimburse expenses subject to a fixed dollar maximum in a given period.); (2) excepted benefits such as stand-alone dental and vision coverage, nor (3) short-term, limited-duration coverage.

Data must be sorted by market segment.

Relevant market segments for employer-sponsored plans are:

  • small employer, self-insured plans;
  • small employer fully insured plans;
  • large employer fully insured plans; and
  • large employer self-insured plans.
  • Minimum premium plans are considered fully insured.
  • Many plans will fit into a single market segment. However, some plans may be hybrid arrangements; for example, a self-insured health plan may incorporate a fully insured pharmacy benefit.  These plans will need to attribute their benefits separately to the appropriate market segment.

Unusually, the reporting period for plans is a so-called “reference year” which is the calendar year immediately preceding the year that a report is due.  In other words, plans that normally tie their activities to a plan year that does not coincide with the calendar year will have to adjust to calendar year reporting.

Plans and issuers must submit the following:

  • calendar year 2020 information by December 27, 2021;
  • calendar year 2021 information by June 1, 2022,
  • calendar year 2022 information by June 1, 2023, and so forth.
  • However, given the anticipated difficulty in building the complex reporting mechanisms necessary to meet these deadlines, the Departments will allow plans to delay reports due for reference years 2020 and 2021 to December 27, 2022.

Third-Party Reporting

While the CAA imposes the reporting duty on plans and issuers, the Departments acknowledge that most group health plans will not attempt to file these reports on their own.   Fully insured plans can avoid liability by having a written agreement with their insurers obligating the latter to file information on behalf of the plan as required by the IFR.

Self-insured plans will need to have agreements with one or more third-party vendors to file the required reports.  However, if the vendors fail to comply with the IFR, the plan will be liable for the failure.

Penalties for Non-Compliance

The IFR does not address the penalty for non-compliance.  However, the reporting requirements appear in a portion of the Internal Revenue Code which imposes an excise tax of $100 per day with respect to each individual to whom a compliance failure relates. The tax is assessed to the employer.  It’s unclear how this would be calculated in the context of a reporting obligation that doesn’t necessarily relate to any individual.  Further guidance on this question would be useful.

Action Items for Employers

Employers with fully insured health plans will need to enter into written agreements with their insurers.  The IFR does not impose any obligation on insurers to secure these agreements…therefore, employers, be proactive in requesting written assurances.

Employers with self-insured plans will likewise need agreements with relevant third-party vendors.  An employer may need multiple agreements if it uses more than one vendor to pay claims.

  • For example, an employer that uses a TPA for medical claims but has a separate PBM for prescription drugs will need agreements with both.

In some cases, compliance may require employer coordination among multiple vendors:

  • Work with vendors to understand their capacities and needs for such coordination.
  • Request robust indemnification from vendors. Any failure to comply could result in assessment of a penalty against the employer.

Employers that receive coverage through a multiple employer welfare arrangement (MEWA)

  • Learn whether the MEWA qualifies as a health plan under ERISA.
  • If it does, the MEWA must file the report; if it does not, the employer remains responsible and the same rules that otherwise apply to fully insured versus self-insured plans will be applicable.

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