PBM Reform Act a Critical First Step in Ending PBM Abuses, Key Fiduciary Requirement Missing
May 11th, 2023
The bipartisan Pharmacy Benefit Manager (PBM) Reform Act advanced out of a key congressional committee this week, paving the way for eventual floor debate of the landmark legislation. The bill has major implications for large employers’ ability to control rising drug costs and preserve employer-sponsored health benefits, a vital lifeline for nearly half of all Americans.
The marked-up bill, which was passed by the Senate Health, Education, Labor and Pensions (HELP) Committee, contains three broad provisions that employers believe are critical to PBM reform. These include:
- Comprehensive transparency requirements that will enable employers to finally understand how PBMs are spending employer-and-employee dollars
- Key limitations on spread pricing that will prevent PBMs from charging patients more for a drug than the PBM paid a pharmacy for the same medication
- A mandate that PBMs pass-through 100% of manufacturer rebates, discounts and fees to employers and employees
Employers have broadly supported these reforms and view them as a critical baseline for fixing the dysfunctional prescription drug market and ensuring employee access to affordable medications.
However, a fourth requirement that is arguably the most essential for compelling changes in PBM behavior – that PBMs be held accountable as fiduciaries – was not included in the legislation. Without being legally held to the same standard as employers to act in the best interest of employees and ensure only reasonable fees are expended, PBMs will be free to continue exploiting their market power to maximize profits and drive up drug costs.
Employers and reform advocates committed to lowering prescription drug prices and increasing PBM accountability will therefore continue to demand that the fiduciary standard be included in any final legislation.
The importance of a PBM fiduciary requirement
Due to new pricing transparency laws and regulations, employers now have enhanced fiduciary obligations and more data available to help them serve as good stewards of their health care benefits and act in employees’ best interests by minimizing costs. To fulfill this obligation, employers believe the ultimate backstop to end present and future PBM industry abusive practices is to hold PBMs to the exact standard that employers face.
Without requiring PBMs to function as fiduciaries, the large companies that control much of the prescription drug market will likely continue to develop revenue-driven strategies that enable them to thwart the spirit and letter of the law.
One only needs to look at PBMs’ past behavior in drawing this conclusion. In the face of growing pressure to pass through drug rebates, PBM business models have evolved in recent years to significantly boost revenue from other sources. Chief among these are new and higher fees paid by drug manufacturers (over and above rebates), pharmacies and other supply chain entities.
PBMs also have created new middlemen – quasi-independent rebate aggregators or group purchasing organizations (GPOs) – that help enhance the opacity surrounding rebates and fee structures. This makes it more difficult for employers and manufacturers to monitor performance. Significantly, two of the three GPOs controlled by the three largest PBMs were established outside the U.S., a fact which will likely make regulatory and employer oversight even more challenging.
For too long, employers, employees and even drug manufacturers have been in the untenable position of essentially operating in the dark when it comes to drug pricing. Strong bipartisan support exists in Congress to shine a bright light on PBM behavior and end the tricks that have allowed PBMs to enrich themselves at the expense of all other stakeholders.
PBMs must not be allowed to escape fiduciary responsibility in order to continue leveraging their market dominance to perpetuate inflated drug costs. That’s why it is essential that Congress codify PBM’s fiduciary role.
The Hidden Cost of PBMs in the Health Care Industry
April 25th, 2023
Pharmacy benefit managers (PBMs) play an essential role in managing prescription drug benefit plans for employers and health insurers. But too often, these corporate middlemen are using tactics that drive up drug prices, limit patient access to needed medicines and contribute to health risks. PBM profiteering is hurting patients, and Congress needs to enact measurable reforms now.
The Role of PBMs
PBMs are organizations that manage prescription drug programs for employers who provide health benefits for their workers. They are supposed to use their purchasing power to negotiate discounts from pharmacies and pharmaceutical companies on behalf of employers, and this should bring down the costs for employers and patients. However, PBMs do not always pass along to their customers all the savings they negotiate.
How PBMs Game the System
PBMs employ a variety of tactics designed to increase profits at the expense of patients and often profit more when higher cost medications are used. One example is when PBMs charge a co-pay or deductible amount higher than what they paid for a medication. They then keep the difference as profit instead of passing it along to their customer or patient. Another tactic is “spread pricing,” or paying pharmacies less than what they’ve charged the health plan, employer or patient. The intentional complexity and lack of transparency in the current system allows PBMs to benefit from high-cost drugs and results in employers, and ultimately patients, paying more.
Impact on Patients and Employers
These tactics have serious implications for both patients and employers. Patients may be forced into costly treatments or have to switch medication because a higher-cost drug offers a PBM a higher rebate, and PBMs determine which prescription drugs patients have access to. In addition, employers are left footing the bill and are most times prohibited from even auditing the PBM to see if they are getting a fair deal and paying a reasonable price. All this can lead to higher risks for patients and increased out-of-pocket costs leading some people to have to make the choice not take necessary medications.
What’s Needed
The nation’s employers are purchasing life-saving health benefits for American workers in a market that is not functioning as intended. The result is that employees and their families are being denied access to affordable prescription drugs. Federal action is essential to curb PBMs’ anti-competitive practices and to require accountability for the industry.
These actions must include:
- Require full and complete transparency and reporting: PBMs and their parent companies should be required to provide strong reporting to employers on costs, fees and total manufacturer revenue, and ensure employers have the right to audit their PBM with an auditor of their choosing. PBMs should not be allowed to engage in workarounds or legal games that skirt these laws.
- Ban spread pricing: PBMs should not be allowed to charge employers, health plans or patients more for a drug than the PBM paid the pharmacy for that drug.
- Require PBMs to pass-through 100% of all rebates, discounts and fees: PBMs should be required to pass on 100% of all rebates and volume or access-based administrative fees to employers and plan sponsors.
- Hold PBMs accountable the same way employers are held accountable: Employers are required as plan fiduciaries to be good managers of the health care benefits they provide employees and act in a manner that minimizes costs. PBMs should be held to the same level of accountability as employers and health insurance plans.
Read more about how PBMs are failing American workers.
No Surprises Act Facing Continued Pressure from Providers
December 15th, 2022
In the courtroom and in the field, provider interests are continuing their full-court press to undermine elements of the No Surprises Act, the landmark federal legislation enacted earlier this year to shield patients, payers and purchasers from exorbitant and unexpected out-of-network medical bills.
On Sept. 22, the Texas Medical Association filed a new lawsuit to block portions of the act’s final rule. The action followed an earlier legal challenge by the association that resulted in substantial modifications to the arbitration process at the core of the No Surprises Act.
Separately, provider organizations nationwide continue to submit arbitration requests related to the No Surprises Act with new payment disputes in numbers that could conceivably overwhelm the nascent system.
These actions underscore the determination of some hospitals and physician groups — particularly those backed by private-equity firms that rely on the outsized margins produced by out-of-network charges — to preserve the status quo by favorably influencing and/or destabilizing the way charge disagreements are settled.
Early success in protecting patients
The No Surprises Act, which took effect January 1, 2022, shifted the burden of covering out-of-network bills from patient to health insurer. Out-of-network providers are now prohibited from billing patients covered by private insurance an amount greater than the in-network rate for the same service. Instead, they must work with the patient’s insurer to arrive at an agreeable price.
The law was designed to end the egregious practice of subjecting patients to unexpected and often financially devastating charges for out-of-network care, most frequently related to emergency care.
Early evidence suggests the act is having an impact. A recent survey by the national health insurer association, AHIP, and the Blue Cross Blue Shield Association estimated more than nine million potential surprise bills were prevented since January 2022 due to the implementation of the No Surprises Act. Should the trend hold, more than 12 million surprise bills will be avoided this year alone.
Legal challenges
The recent lawsuit by the Texas Medical Association, like its initial complaint filed late last year, seeks to alter the process by which arbitrators calculate payments to resolve disagreements between health care providers and insurers. Specifically, the lawsuit aims to reduce reliance on a region’s median inpatient rate currently used to determine a fair price for services under dispute. Known as the qualified payment amount, or QPA, providers have criticized these rates as deflated, opaque and determined solely by health plans.
In February, a federal judge in the Eastern District of Texas agreed with the
medical association that the federal agencies responsible for implementing the No Surprises Act — the departments of Health and Human Services, Labor and Treasury — had erred in instructing arbitrators to give extra weight to the QPA. Consequently, the act’s final rule released August 19 contained significant modifications, most notably a downgrade of the QPA’s role in determining renumeration. The QPA is no longer the central, presumptive amount for achieving an equitable price, but merely a starting point that can be further influenced by other factors.
The most recent Texas Medical Association suit essentially argues that the agency didn’t go far enough in diluting the role of the QPA and that the median rate continues to represent an “unmistakable thumb on the scale” when it comes to resolving disputed charges.
Flooding the zone
PBGH and others have argued that downgrading the role of the QPA will likely result in wide variation in arbitration outcomes since it will force individual arbitrators to exercise their own judgment when considering factors as disparate as market rates, clinician training and experience, facility teaching status and whether participants engaged in good faith efforts to resolve disputes.
Supporters of the original legislation’s language contend that a lack of arbitration predictability will lead to a greater use of the dispute resolution process as parties “shop” for arbitrators most likely to rule in their favor. While it’s too early to know the extent of settlement variability, it is clear that the volume of disputed cases is rising rapidly.
Since the April 15 go-live of the act’s independent dispute resolution process, more than 275,000 disputes were initiated. That’s substantially more than the 17,000 the government had previously estimated would be filed in an entire year, and anecdotal evidence suggests the number of new disputes continues to grow.
In recent letters to the heads of the agencies responsible for implementing No Surprises Act, the Coalition Against Surprise Medical Billing noted that the independent dispute resolution process was designed to “be used sparingly as a backstop in unique cases where the plan and provider cannot reach an agreement on what constitutes a fair reimbursement.”
That is clearly not what is happening.
The letters also urge the agencies to stay the course and closely monitor both the volume of arbitration cases and their outcomes to ensure the No Surprises Act lowers costs as intended.
Ongoing vigilance
Going forward, PBGH, its allies at the Coalition Against Surprise Billing and others will continue to closely monitor the implementation of the No Surprises Act with an eye toward the possibility of further influencing future rulemaking to ensure the act achieves its objectives of ending surprise billing and holding down health care costs for patients and purchasers.
Midterms 2022: 6 Health Care Public Policies Employers Should Watch
November 8th, 2022
Whatever the political landscape looks like on Wednesday morning in the aftermath of today’s midterm elections, there will be implications for policies impacting health care quality and costs.
Outlined here are six possible outcomes of the election that large employers and purchasers – who provide health benefits for more than half the country – should watch.
1. A Focus on Transparency
Both Democrats and Republicans have signaled a desire to aggressively pursue greater transparency requirements among health industry players, with an emphasis on pharmacy benefit manager (PBM) reform and more effective hospital and provider price transparency.
As an example of possible action if Republicans win congressional control is a hospital pricing transparency reform plan released by Rep. Jim Banks (R-Ind.), who, according to a recent article in Stat, is jockeying for a leadership position if Republicans take the House. The hospital pricing reform plan “would regulate what hospitals charge commercial insurers, beef up the Federal Trade Commission’s scrutiny of hospital mergers and reduce financial incentives for hospitals to buy up physician practices,” according to Stat.
Watch for PBM reform to receive a lot of attention regardless of whether the election outcome is a divided government, as it has garnered bipartisan support in recent years. The upcoming publication of a Federal Trade Commission (FTC) report on PBM business practices may serve as both a catalyst and roadmap for strengthening PBM regulations. It’s likely the FTC will also step-up oversight of proposed health care mergers and acquisitions, which could put the brakes on continued industry consolidation.
Other potential regulatory or administrative actions could encourage alternative payment models for both primary and specialty care.
2. Brewing Battle over Medicare Drug Prices
Should Republicans gain a majority in one or both houses of Congress, as expected, the Biden administration will likely turn to increased regulatory action to further its health care agenda. One of the biggest battles may develop around the implementation of the Medicare drug price limits, which were included in the administration’s Inflation Reduction Act passed last summer. Drug manufacturers will push to weaken the regulations, while consumer and purchaser advocates, including PBGH, will try to ensure the regulations are consistent with congressional intent. Employers and employees were at the last minute excluded from this important legislation – but the implementation of the law will have far-reaching consequences for future reforms. It will be important to monitor the regulatory efforts as this new law is made operational.
3. Federal/State Partnerships
Although 36 governorships are up for grabs, only a handful are expected to result in changes in political party control. Why does it matter? Look for the Biden administration to seek new partnerships with states in pursuit of reform initiatives if Congress is gridlocked. This scenario could create opportunities for scaling work related to advanced primary care, price transparency, drug pricing and the measurement of performance by industry players, such as health plans. Additionally, it may create occasions for new health equity initiatives.
4. State Action to Curb Costs
Regardless of what happens at the national level, several states are expected to pursue their own health care cost containment policies. These may include prohibitions on anti-competitive contracting practices, stronger oversight of proposed mergers and acquisitions and limits on the growth of health care costs including drug pricing reforms. While Democratic governors and legislators traditionally have taken the lead with these kinds of initiatives, the potential exists for growing bipartisan support around cost containment and market reform policies.
5. Telehealth Flexibility
The regulatory waivers for greater telehealth access during the COVID-19 public health emergency were largely for Medicare and Medicaid services; however, optional telehealth expansions for employers to provide pre-deductible coverage of these services for workers with high deductible health plans (HDPDs) was allowed.
Bipartisan, bicameral legislation was introduced in Congress, which would provide additional flexibility to extend pre-deductible coverage to services that manage chronic conditions, as well as legislation to make permanent telehealth coverage pre-deductible. More flexible and smarter value-based plan designs like these pre-deductible coverage options have been popular among employers and purchasers because rising health care spending has created serious fiscal challenges. Although telehealth is broadly bipartisan, Republicans have been more vocal in their support of telehealth flexibility.
6. Reproductive Rights on the Ballot
Reproductive rights are top-of-mind for many voters, and consequently are on the ballot in five states. The abortion issue has been central in many key races nationwide and whether it motivates larger-than-usual turnouts in today’s election will be closely monitored. Ballot measures in California, Michigan and Vermont would codify abortion rights in state law, while measures in Kentucky and Montana would create severe new abortion restrictions. These are sensitive issues for employees and the employers who provide their health care benefits. Employers will need to face head on this changing patchwork of state laws.
PBGH will continue tracking legislative proposals and policies at both the state and federal levels in the weeks and months ahead, and work to ensure the voice of large employers and purchasers is heard when it comes to shaping a financially sustainable, high-quality health care system.
Historic Drug Legislation Passed: What It Means for Employers and American Workers
August 18th, 2022
The landmark drug pricing reforms passed by Congress and signed into law by President Biden on August 16 will provide needed relief from the burden of prescription medication costs for many Americans by enabling Medicare to negotiate prices for certain high-cost drugs and limit further price increases.
This was an historic step in curbing what most Americans agree is an issue that Congress has long needed to address. Unfortunately, based on arcane Senate rules, the drug price provisions in the Inflation Reduction Act will not extend protections to the 180 million Americans with commercial health coverage.
Here, a look at what the law will and won’t do, and the steps large private employers and public purchasers of health care can take to help mitigate rising drug costs in the wake of legislation, that at least for now left them behind.
What the Law Accomplishes
The new law includes a provision that will enable the Centers for Medicare and Medicaid Services (CMS) to begin negotiating prices in Medicare starting in 2026 for a limited number of high-cost drugs that lack generic or biosimilar competition.
This marks a significant break from the existing prohibition on negotiation, which was a condition for drug manufacturers’ support for the creation of Medicare Part D nearly 20 years ago. That prohibition, combined with the market exclusivity for new drugs granted under the Hatch-Waxman framework, has allowed drug companies to set prices without competition or negotiation. This law begins to pierce the monopolies drug companies have long enjoyed, an important first step in pursuing further legislative action. CMS previously estimated that an earlier version of the negotiation proposal could reduce Medicare enrollee cost-sharing expenses by more than $102 billion by 2029.
Two other key provisions of the law include a $2,000 cap on out-of-pocket spending for Part D enrollees and a reduction in Medicare beneficiaries’ portion of total drug costs below the $2,000 out-of-pocket cost threshold from 25% to 23%.
Further, the bill requires manufacturers to pay rebates to CMS if drug prices charged to Medicare increase faster than the rate of inflation. This will apply to all drugs over $100 covered by Medicare Part D and single-source drugs and biologics covered by Part B. The penalty is expected to discourage drug makers from raising prices in Medicare, thereby reducing out-of-pocket costs for Medicare beneficiaries and constraining Part D premium increases.
What the Law Does Not Do
While this legislation is step in the right direction toward controlling prescription drug prices, it does not protect the 180 million Americans who get their health insurance coverage either through their employer or on the private market. Therefore, large employers and public purchasers that provide coverage to working Americans must remain vigilant and be ready to call attention to any adverse effects of this new law once it is implemented, including the potential of dramatic increases in the launch prices of new drugs and for existing medications, which would indicate manufacturers are charging high prices to make up for lost Medicare revenue.
We have seen this kind of cost-shifting before in the hospital sector, with ample evidence demonstrating that large private employers and public purchasers pay an average 224% more than Medicare for the same services. PBGH and its members will be watching prescription drug prices for evidence of cost-shifting to make up for lost Medicare revenue. This could lead to future opportunities for additional policy changes.
6 Steps Large Health Care Purchasers Can Take to Mitigate Cost Increases
In the absence of further policy changes, PBGH recommends six steps employers and purchasers can take to address the exceedingly high-cost burden of prescription drugs:
- Engage in a detailed negotiations with pharmacy benefit managers (PBMs) related to rebates and insist that all earned rebate dollars are passed back to you as the employer/purchaser.
- Take your PBM out to bid at the end of every contract cycle and consider working with new market entrants that have adopted a more innovative, transparent approach aligned with the needs of employers and American workers.
- Scrutinize your PBM contract and ensure you have access to the data ownership and audit rights you need to evaluate and optimize your pharmacy benefit.
- Look at total manufacturer revenue, not just rebates, and push for a guarantee of a major percentage of all manufacturer revenues, or the higher of, the guaranteed rebate amount or actual manufacturer rebates earned.
- Ensure your PBM contract has contractual terms clearly defined in an all-inclusive Definitions section, using the readily accessible industry standards as the source, and include a clause dictating that the terms and their definitions are only available once.
- Use your purchasing power to ensure your PBM is consistently working in you and your employees’ best interests.
You can learn more about how to evaluate the drug supply chain and your PBM performance here.
5 Policies to Create a Fair Health Care Market
March 30th, 2022
This week, actuaries with the Centers for Medicare and Medicaid projected health care spending will grow to reach almost $6.8 trillion by the year 2030 and consume nearly 20% of the country’s gross domestic product, or one in every five dollars spent. A significant portion of that spending is paid by private and public employers, which in turn, acts as a drag on both business growth and household incomes.
As innovative employers seek market solutions to wrangle health care costs while improving the quality of care they offer working Americans, they also recognize that the government has a role to play in ensuring they have a functional marketplace in which to purchase health care on behalf of their companies and employees. They have been eager to see action on the part of the Centers for Medicare and Medicaid Services (CMS) Innovation Center and Health and Human Services to help tamp down the ever-climbing health care costs that come out of their budgets – action they have yet to see.
Here are five policy areas employers want to see implemented.
1. Addressing Market Consolidation and Anti-Competitive Practices
Health care system consolidation is not a new problem, but it has gained attention over the past several years, particularly in light of a slew of megamergers proposed during the COVID-19 pandemic. In an executive order signed in July 2021, President Biden directs the Department of Health and Human Services to move forward with price transparency requirements, and directs the Department of Justice and Federal Trade Commission (FTC) to review and revise guidelines for challenging future consolidation by health systems. New guidelines would make it more likely that the FTC will intervene to stop anti-competitive mergers among health systems, improving the competitive landscape and combating rising health care costs that land on employers and other large purchasers, as well as consumers.
In addition, Congress should prohibit anti-competitive practices that have enabled some health systems to gain market power and raise prices. These practices have included anti-tiering and other contract terms that were the target of a successful lawsuit against Sutter Health System in California. The Healthy Competition for Better Care Act (S 3139), a bipartisan bill introduced by Senators Braun and Baldwin, would take on these practices. Federal legislation is also needed to prohibit drug manufacturers’ practices such as “patent evergreening” and other “patent thickets” to ensure that branded products will face healthy price competition from generic drugs and biosimilars in line with the intent of current laws.
2. Universal “Site Neutral” Payment
Medicare, along with other payers, often pay substantially more for the same care if it is delivered in a hospital outpatient department, rather than in a physician’s office, even when the service is identical. The higher payment rates put independent physician practices at a disadvantage and encourage more industry consolidation. What’s more, the higher prices charged by practices owned by a hospital system tend to be hidden from patients, causing unexpected – and often excessively elevated — out-of-pocket costs.
Universal site-neutral payments – the same pay for the same service — would save the health care system more than $350 billion (and as much as twice that) if adopted by all payers. It would also balance the playing field for independent physician practices.
3. Support for Physician-Led Accountable Care Organizations and Alternative Payment Models
All the evidence suggests that physician-led Accountable Care Organizations and alternative payment models, including those that pay clinicians prospectively to manage patient care, are more successful than hospital or payer-led models. Large employers and purchasers are interested in seeing CMS take an active hand in promoting these efforts. Policymakers can support the success of physician-led ACOs by helping them create the infrastructure needed to take on financial risk, invest in high-value care and develop partnerships with other organizations to provide comprehensive care. This includes providing financial incentives for quality performance to encourage providers to redesign care to improve health outcomes. CMS and leading payers need to communicate clear outcomes objectives and attach significant rewards and penalties providers’ performance.
In addition, a recent PBGH survey of large employers found that nearly six in 10 see low investment in primary care as a barrier to better employee health. Roughly 90% said they would be in favor of reallocating funds to primary and preventative care. One way to finance this effort, which employers would like to see CMS support, is to redirect money paid to health plans for care coordination to physician practices engaged in advanced primary care.
4. Renewed Push for Build Back Better – Including Prescription Drug Price Relief
President Biden’s nearly $2 trillion Build Back Better (BBB) proposal included provisions on drug pricing, but the effort was stymied. On Jan. 19, 2022, President Biden suggested in a press conference that the Senate would break the BBB bill into pieces, attempting to pass provisions that have support of all 50 Democratic Senators.
The current legislation would allow Medicare to negotiate on the price of certain high-cost sole-source drugs after their patent and market exclusivity periods have expired. It would also impose strict inflation caps on all high-cost sole-source drugs. Importantly, those inflation caps would apply to all purchasers, not just Medicare. If enacted, this provision would save employers, other health care purchasers and consumers tens of billions of dollars over the next decade.
5. Holding Drug Makers and Third-Party Organizations Accountable for Drug Prices
Policymakers have been looking at opportunities to increase transparency and accountability of pharmacy benefit managers (PBMs) and others in the drug supply chain. The Trump Administration’s Transparency in Coverage rule, which is being implemented by the Biden administration, albeit on a somewhat delayed timeframe, includes significant new drug price transparency requirements of health plans and PBMs. Not surprisingly, the Pharmacy Care Management Association (which represents PBMs) has sued the administration to stop implementation of certain sections of the rule. If implemented, the rule would require PBMs to report on negotiated rates and historical net prices for covered prescription drugs. Combined with the Consolidated Appropriations Act (CAA), which ultimately requires PBMs to provide the information employers need on prescription drug spending to meet their obligations under the law, would be impactful.
Importantly, no explicit statutory authority exists for policymakers to regulate PBMs directly. What is needed is for policymakers to establish direct oversight authority for PBMs in all markets. AND we need PBMs to be held to the same fiduciary standards that self-funded employers are held to. Only then will we get the accountability we need.
What the Texas Ruling on the No Surprises Act Means for Employers
March 2nd, 2022
Health care providers have sued the Biden Administration over implementation guidance for the No Surprises Act in at least six district courts around the country. Last week, a federal district judge in Tyler, TX was the first to rule on one of the cases and sided with plaintiffs – the Texas Medical Association– effectively upending a vital portion of the rule implementing the decision.
At issue are two questions:
- First, did the administration make a mistake by finalizing a rule using an abbreviated process, known as an interim final rule, rather than the longer traditional rulemaking process?
- Second, did the administration go wrong in how it crafted its instructions to arbitrators when settling payment disputes between providers and health plans? Georgetown University health law professor Katie Keith provides a detailed legal analysis in Health Affairs.
What does this all mean for employers and purchasers? Here, the short, medium and long-term consequences.
Short-Term Consequences
The law’s rules implementing the independent dispute resolution (“arbitration”) process went into effect March 1, 2022. The Texas Medical Association ruling goes into effect immediately and has nationwide impact. Even if other district courts rule in favor of the Administration, this decision will remain in place until overturned on appeal or until the Administration produces a new implementing rule under the formal rulemaking process.
The most notable short-term impact of the rule will likely be wide variation in arbitration outcomes. The rule provided detailed and specific guidance to arbitrators on how to weigh various factors in resolving payment disputes. That guidance sought both to anchor arbitration decisions around the market rate for services (known in the rule as the “median contracted rate”) and to provide all parties with predictability, minimizing variation in arbitration outcomes. With that section of the rule vacated, each individual arbitrator will have to exercise their own judgment in weighing factors as disparate as the market payment rate, training and experience of the clinician, teaching status of the facility and whether the participants engaged in good faith efforts in resolving a payment dispute.
The upshot for employers: Expect wide and unpredictable variation in outcomes from surprise billing arbitration.
Medium-Term Consequences
The lack of predictability in arbitration decisions will likely lead to a greater use of arbitration as parties seek to identify which arbitrators are likely to rule in their favor and which factors most impact arbitration decisions. The proliferation of arbitration will increase administrative costs for all parties, most of which will be directly or indirectly passed onto employers and purchasers. The opposite would be true if a more predictable IDR process had remained in place. While its reasonable to expect some initial testing of arbitration by providers, once a pattern of decisions emerges, the incentive for both parties will be to settle payment disputes before arbitration rather than go forward with a costly and burdensome arbitration process.
The upshot for employers: Expect a significant number of surprise billing claims to go to arbitration, rather than be settled outside of arbitration.
Long-Term Consequences
Nearly half the states in the country implemented surprise billing protections before enactment of the federal No Surprises Act, though these state laws do not impact ERISA plans –the vast majority of large employer plans — which are regulated strictly at the federal level. The state-level experience shows the importance of the instructions provided to arbitrators and how those decisions impact long-term cost growth.
Laws enacted in New York, New Jersey and Texas direct arbitrators to consider the offer submitted by the party closest to the 80th percentile of billed charges (already a highly inflated figure). Not surprisingly, early data indicate that arbitration is leading to very high payments to out-of-network providers. In New Jersey, median arbitration decisions are more than five times the market rate for services in the state. In Texas, where state law was implemented more recently and data is less available, the Texas Medical Association reports that the use of arbitration was significantly higher in 2021 than in 2020, a likely indication that providers are finding that going to arbitration results in higher profits than settling payment disputes before arbitration, or going in-network. To entice physicians to go in-network, health plans will have to substantially increase the market rate for services by the types of providers most likely to engage in surprise billing – emergency physicians, anesthesiologists, and pathologists.
The upshot for employers: If arbitration decisions tend to favor providers, expect to pay significantly more for certain providers to go in-network.
The Bottom Line
While the ultimate impact will depend significantly on how arbitrators tend to decide arbitration claims, unless the Texas Medical Association ruling is overturned or removed by future rulemaking, the likely impact is higher costs for employers, employees and their families.
An arbitration system that fails to anchor decisions around the market rate will likely lead to more decisions being made in favor of providers with offers well above the market rate, and those decisions will lead to substantially enhanced leverage for providers in contract negotiations. Why go in-network at market rates, when you can stay out of network and achieve significantly higher prices through arbitration?
To cope with this dysfunctional system, self-insured employers will be forced to increase their own in-network payment rates for specialties capable of surprise billing, driving up costs and ultimately harming employees and their families.
What the Biden Administration’s Drug Pricing Reforms Mean for Employers
March 1st, 2022
The landmark drug-pricing reforms included in President Biden’s now-stalled Build Back Better initiative will likely reemerge later this year, either as stand-alone legislation or as part of a revised budget proposal, experts say.
Policy specialists taking part in a recent PBGH roundtable on drug costs noted the reforms continue to enjoy broad, bi-partisan support and will help address a top concern of the American people in an election year. Although employer advocates are disappointed the proposals don’t go further in helping non-government purchasers address drug costs, they agree the policies mark a significant first step.
“It changes the paradigm and equips the government with a whole new set of tools that can be altered over time to increase their reach and impact,” said roundtable participant Richard Frank, Ph.D., a senior fellow in economic studies at the Brookings Institution.
Added James Gelfand, executive vice president for public affairs with the ERISA Industry Committee: “This is the first time Congress has taken up policies that big pharma doesn’t like. Congress has its foot in the door now and is saying `we’re going to create a way of affecting drug prices.’”
Rebates for Excessive Price Hikes
The primary focus of the proposals is on reducing costs to the Medicare program. However, a key provision would require manufacturers to pay rebates if drug prices charged to both Medicare and private payers increase faster than the rate of inflation. The rebates would be paid to the Medicare trust fund and would total 100% of revenues earned from price hikes that exceed inflation.
The proposal targets virtually all drugs covered by Medicare Part D and single-source drugs and biologics covered by Part B. Observers believe the penalty will help reduce out-of-pocket spending for both commercial plan members and Medicare beneficiaries and also constrain premium increases.
Desiree Hoffman, assistant legislative director for the United Auto Workers, said escalating drug prices and the continually rising cost of employer-sponsored health insurance, are major concerns for America’s workers, both union and non-union.
“With waging declining over time, employees are really feeling the squeeze,” she said. “The high cost of employer-sponsored health care is an issue we frequently face at the bargaining table.”
Shawn Gremminger, PBGH’s director of health policy, said it will be essential in the months ahead for supporters to ensure the rebate is not watered down—either in the legislative or rule-making processes—and, critically, that it continues to apply to both government and private payer pricing.
In addition to the inflation rebate, privately insured people also will benefit from a provision requiring all insurers to limit patient cost-sharing for insulin products to no more than $35 per month. The move should lower costs for all insulin users. According to the Kaiser Family Foundation, average yearly out-of-pocket insulin spending for Medicare beneficiaries increased by 79% between 2007 and 2017, from $324 to $580.
Negotiating Medicare Drug Prices
Beyond the inflation rebate, among the legislation’s most significant reforms is a provision that would enable the Centers for Medicare and Medicaid Services (CMS) to begin negotiating prices for a limited number of high-cost drugs that lack generic or biosimilar competition.
Drugs targeted for negotiation would be selected from 50 with the highest total Medicare spending. The number of drugs impacted would gradually increase from 10 in 2025 to 20 in 2028. CMS has previously estimated that an earlier version of the negotiation proposal could reduce Medicare enrollee cost-sharing expenses by more than $102 billion by 2029.
Two other key provisions in the administration’s Build Back Better proposal include a $2,000 cap on out-of-pocket spending for Part D enrollees and a reduction in beneficiaries’ portion of total drug costs below the cap from 25% to 23%.
PBM Transparency Key to Reducing Employer Drug Costs Today
In lieu of new government policies that could bring down drug costs, roundtable participants offered suggestions on how employers can begin taking greater control of their prescription drug spending today.
Marianna Socal, M.D., an associate scientist at Johns Hopkins University, said central to reduced drug prices is greater transparency relating to the actions of the pharmacy benefit manager (PBM). As it stands now, she said, PBMs are often incentivized to cover more expensive drugs if they’re likely to receive a greater rebate from the manufacturer.
“We need solutions to disentangle these misaligned incentives, not only at the top when the price is set but also when we negotiate (through PBMs).”
Gelfand of the ERISA Industry Committee agreed, noting that employers often don’t know what prices they’re paying for drugs beyond a single, aggregate amount.
“If I’m paying $8 million for cancer drugs, I need to know if it was the same price each time the same drug was used,” he said. “Did the price differ when it was given in the hospital versus when it was filled by a retail pharmacy or a by a mail order pharmacy? It becomes very difficult to fix the problem if you can’t identify it.”
Waste-Free Formularies
He and others said it was essential for employers to more closely scrutinize their formularies to determine if they’re promoting biosimilars and other appropriate drug substitutions. Gelfand said PBGH’s efforts to assist purchasers in developing and implementing waste-free formularies can be enormously beneficial when it comes to rationalizing drug purchases and spending. According to Socal, purchasers can save 10-15% of total per-member-per-month costs by implementing waste-free formularies.
Frank of the Brooking Institution said employers must overcome their traditional reluctance to leveraging their bargaining power with PBMs and intervene more directly in both formulary design and PBM-manufacturer negotiations.
“On the face of it, PBMs and manufacturers dislike each other because each is constantly pushing for a better deal. But in the end, they’re both playing the same game,” Gremminger said. “So the challenge will be to shift PBM incentives so they align with the needs of the purchasers and workers.”
5 Federal Policies for Employers to Watch in 2022
January 28th, 2022
Federal policymakers, like the general public, are desperately searching for an end to the COVID-19 pandemic and a return to normality. However, with the country in its fifth wave of coronavirus cases and hospitals full to the point of breaking, the ongoing pandemic clouds and shapes the health policy landscape. Here are the five federal policy areas employers and purchasers should watch in 2022:
1. COVID Regulations and Legislation Affecting Employers
In 2020, Congress required health plans to cover the cost of COVID diagnostic testing when administered by a clinician, but the law did not set a maximum price for COVID testing, leading to sporadic price gouging. More recently, the Biden Administration finalized guidance requiring health plans to cover up to eight at-home tests per person per month. The guidance allows health plans to set a maximum reimbursement of $12 per test for tests bought over-the-counter if the plans also provide free tests to enrollees. Employers, health plans and vendors have acted quickly to implement the rule, but some employers have expressed concerns about implementation, price gouging and the overall cost to employers, which would exceed $4,000 for a family of four over 12 months. We are urging the administration will continue to revise the guidelines based on feedback from employers.
It has now been more than ten months since enactment of the American Rescue Plan Act – the last major COVID relief legislation. Congressional leaders have floated the possibility of another COVID relief bill. Specific provisions have not yet been identified, but it seems likely that it would provide economic relief to struggling businesses, including health care providers. PBGH has recommended that any further health care provider relief be tied to a moratorium or limits on mergers and acquisitions, which have historically increased costs without a corresponding increase in quality. Large employers and their employees have been forced to pick up the tab for an increasingly consolidated market.
2. A Renewed Push for Build Back Better – Including Prescription Drug Price Relief
President Biden’s nearly $2 trillion Build Back Better (BBB) proposal included provisions on drug pricing, but the effort was stymied by concerns from Sen. Joe Manchin (D-WV), who announced in late December 2021 that he would not vote for the bill as currently constructed. Senate Democratic leaders have left open the possibility of coming back to BBB later this year.
On Jan. 19, 2022, President Biden suggested in a press conference that the Senate would break the BBB bill into pieces, attempting to pass provisions that have support of all 50 Democratic Senators. The timing of this effort is unknown, but likely in the next several months.
Happily, for employers and purchasers, Sen. Manchin’s opposition to the bill is unrelated to the provisions on drug pricing. Not only has Sen. Manchin expressed continued support for meaningful drug pricing reform, but he has also suggested he would prefer the provisions be strengthened to encompass more high-cost drugs. The current legislation would allow Medicare to negotiate on the price of certain high-cost sole-source drugs after their patent and market exclusivity periods have expired. It would also impose strict inflation caps on all high-cost sole-source drugs. Importantly, those inflation caps would apply to all purchasers, not just Medicare. If enacted, this provision would save employers, other health care purchasers and consumers tens of billions of dollars over the next decade.
3. New focus on PBMs and Drug Supply Chain
Policymakers have been looking at opportunities to increase transparency and accountability of pharmacy benefit managers (PBMs) and others in the drug supply chain. The Trump Administration’s Transparency in Coverage rule, which is being implemented by the Biden administration, albeit on a somewhat delayed timeframe, includes significant new drug price transparency requirements of health plans and PBMs. Not surprisingly, the Pharmacy Care Management Association (which represents PBMs) has sued the administration to stop implementation of certain sections of the rule. If implemented, the rule would require PBMs to report on negotiated rates and historical net prices for covered prescription drugs.
Separately, the Consolidated Appropriations Act (CAA), enacted in December 2020, requires self-insured employers to report on drug costs. Specifically, the CAA requires them to report the 50 most frequently dispensed prescription drugs, the 50 most costly prescription drugs to the employer’s plan and the 50 drugs leading to the greatest increase in cost for the plan during the previous year. Further, they must submit information regarding the impact on premiums of rebates, fees and other renumeration to drug manufacturers. While the CAA’s new requirements don’t directly call out PBMs, ultimately PBMs will be required to provide the information employers need to meet their obligations under the law.
Lawmakers are now discussing whether to directly require PBMs to report on drug price information to federal authorities. Even more aggressively, some lawmakers are considering legislation that would extend fiduciary responsibilities to PBMs and other contractors of group health plans. This would go a long way to holding drug supply chain “middlemen” accountable for ensuring drug discounts are passed on to employers, other health care purchasers and consumers.
4. Addressing Market Consolidation and Anti-Competitive Practices
Health care system consolidation is not a new problem, but it has gained attention over the past several years, particularly in light of a slew of megamergers proposed during the COVID-19 pandemic. In an executive order signed in July 2021, President Biden directs the Department of Health and Human Services to move forward with the price transparency requirements noted above, and directs the Department of Justice and Federal Trade Commission (FTC) to review and revise guidelines for challenging future consolidation by health systems. New guidelines will make it more likely that the FTC will intervene to stop anti-competitive mergers among health systems, improving the competitive landscape and combating rising health care costs that land on employers and other large purchasers, as well as consumers.
Congress has also taken notice of the problem. Last fall, Sens. Mike Braun (R-IN) and Tammy Baldwin (D-WI) introduced legislation to ban anti-competitive contracting practices between hospitals and health plans. Their bill, the Healthy Competition for Better Care Act, would bar health plans from entering into contracts that include anti-competitive provisions, including “anti-tiering / anti-steering” and “all-or-nothing” requirements.
5. Post-COVID Telehealth Policy
Many policymakers and other stakeholders are actively considering overdue changes to telehealth policy. Responding to the closure of in-person settings early in the pandemic, Congress and the Administration reacted swiftly by waiving many telehealth restrictions, which are now beginning to expire.
Many bills have been introduced in Congress on telehealth over the last year, and there appears to be a growing consensus around addressing several key issues. Importantly for employers, lawmakers are considering options to allow telehealth services to be delivered across state lines. Currently, state licensing requirements limit the ability of clinicians to deliver telehealth to people outside of the state in which they are licensed. Revising licensing requirements could significantly increase the number of telehealth providers available to employees and their ability to shop around for the services they need.
Price Transparency Offers Opportunity to Employers and Purchasers
November 10th, 2021
What is hospital price transparency?
A landmark federal rule requires the nation’s 6,000 hospitals to make pricing data available publicly. This requirement includes plan-specific negotiated prices, not just the “chargemaster” prices, for every item or service.
The rule was supposed to help consumers and purchasers shop more intelligently for health care services. However, due to variable compliance and huge discrepancies in how the data is presented by reporting hospitals, it has been difficult to benchmark or compare data across hospitals.
Why haven’t hospitals complied?
Hospitals that have been slow to comply with the transparency rule have faced a penalty of only $300 per day. This is a very small financial hit to hospitals – large or small.
In early November, the administration finalized a rule to increase to the penalty that takes hospital size into account, raising penalties as high as $2 million a year for large hospitals that fail to make prices public. This increase in penalties will go into effect in January 2022.
What does this mean for employers?
Employers can use this information to drive value-based purchasing.
Employer Opportunities:
- As data becomes more complete over time, price information can be used to structure requirements in the procurement process and negotiate better contracts.
- Better price information will give employers and other health care purchasers more insight into how their contracted hospitals compare on price with other hospitals, both overall and on an item-specific basis.
- The availability of specific price information allows for better consumer decision support tools, more member engagement and better member education.
Health Plan Opportunities:
- Health plans will be able to use the data to negotiate better contracts with providers.
- Price data can also be used in conjunction with quality and patient safety ratings to design benefits that support the use of high-performing, lower-cost providers.
- Networks can be designed based on value, and variation that does exist will be easier to identify.
Bottom Line: Price transparency means health care purchasers have access to more information to determine value and improve affordability for their employees and members.