August 1, 2023

What Employers Need to Know About Removing Gag Clauses from Health Care Contracts


Darren Fogarty
Associate Director, Purchaser Value


Self-insured employers retain the liability of attesting all gag clauses have been removed from their service agreements, even if a third-party submits the attestation on their behalf.
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Here’s how employers and purchasers can improve their contracts to demonstrate prudence and good-faith compliance with the CAA’s requirements.
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Before the clock strikes midnight on December 31, 2023, private employers and other public health care purchasers will have been required to attest to their benefit plan contracts being free of gag clauses. There is more than meets the eye to this requirement.

Service agreements with third-party administrators (TPA), pharmacy benefit managers (PBM) and other vendors have long included “gag clauses,” which are contractual restrictions that prevent employers from accessing and sharing their own health care price and quality data. The presence of these gag clauses has restricted the data and information employers need to monitor their vendor partners and assess the value of the health care services they are buying for employees.

Section 201 of the Consolidated Appropriations Act (CAA) made it impermissible for employers to have gag clauses in their service agreements. In this way, the CAA significantly highlighted the need and opportunity for employers to access and use their health care data, which is reflected in the surge of headline-grabbing lawsuits over the past 12 months.

The burden of ensuring contracts are free of gag clauses rests entirely on employers, not their vendors. Access to previously confidential information also binds employers to use that data to drive improvements and make informed decisions for the plan as a core part of their fiduciary obligations.

The Attestation Requirement

In February, the tri-agencies responsible for enforcement issued an FAQ that clarified many uncertainties around the CAA’s gag clause provision. This provided confirmation that:

  • The first upcoming December 31, 2023 attestation deadline covers the entire three-year period dating back to the CAA’s passage on December 27, 2020.
  • PBM agreements are covered under the purview of the requirements.
  • Contract phrases that indirectly function as gag clauses are also impermissible.
  • Self-insured employers completely retain the liability of attesting, no matter if a third-party submits it on their behalf.

Four Emerging Obstacles for Employers

Gag clauses have been prevalent in most service provider agreements to date. These contract phrases serve the interests of vendors, such as health plans, PBMs, TPAs and consultants, who benefit from not having to provide employers with strategically important information on health care price and quality. As a result, employers have unsurprisingly found it difficult to comply with their requirement to remove all gag clauses.

Here are four examples of such obstacles:

  1. Service providers are taking the position that they have removed all gag clauses from their service agreements with little or no context on what has changed.
  2. Service providers are offering to attest compliance on behalf of their self-insured clients without any accompanying discussion of whether all gag clauses have been removed.
  3. Service providers are removing gag clauses from their service agreements only to then include them in their confidentiality agreements and/or NDAs.
  4. Service providers are providing incomplete or partial data to employers, which gives the appearance of cooperation without the substance needed to properly attest.

These challenges complicate the ability of employers and purchasers to attest by the end of this year. Those who have encountered one or more of these obstacles are in an awkward position. They currently have no other option but to consider submitting a false attestation or none at all.

However, a recently introduced House bill called the Health DATA Act provides necessary improvements to the gag clause removal portion of the CAA. Specifically, it would elaborate purchasers’ right to fully access their data, introduce service provider accountability through civil penalties for noncompliance and, perhaps most importantly, let employers submit a reasoned explanation of their circumstances in lieu of attesting.

How Employers Can Take Charge of their Attestations

In the meantime, employers can take several concrete steps to tackle their requirement to strip gag clauses out of their service agreements:

  1. Gather all service agreements and vendor contracts that concern health care price and quality, including your PBM contract.
  2. Enlist the help of a trusted, independent third-party that is well-versed in reviewing benefit plan service provider contracts for gag clauses.
  3. Identify impermissible gag clauses in service contracts (two illustrative examples are set out in departmental guidance).
  4. Negotiate the removal of gag clauses from all service provider contracts, confidentiality agreements and NDAs.
  5. Negotiate contract amendments to ensure vendor cooperation in meeting your fiduciary obligations, especially those related to the CAA’s gag clause provisions.

Taking these steps and documenting them appropriately will not only improve employers’ contracts but will go a long way toward demonstrating prudence and good-faith compliance with the CAA’s requirements. Additionally, if vendors still prove uncooperative in removing gag clauses from existing service agreements, these steps will be an important component of employers explaining why they were unable to attest.

Navigating the gag clause removal and attestation process will most likely result in uncomfortable conversations between employers and the vendors they’ve long relied on to provide quality health care benefits to their employees, and will call into question long-standing assumptions about health care data ownership, or lack thereof. Through it all, employers will gain clear line-of-sight into whether their vendors are a help or a hindrance in fulfilling their clarified fiduciary obligations under the CAA.

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