News
November 23, 2021

Biden Administration Issues Rules Requiring Insurer Transparency on Drug Spending, Rebates and Fees: What Manufacturers Need to Know

Advisory

On November 17, 2021, the Department of Health and Human Services (HHS), the Department of Labor (DOL), and the Department of the Treasury (collectively, the departments), as well as the Office of Personnel Management (OPM), released parallel interim final rules with request for comments (IFCs), entitled “Prescription Drug and Health Care Spending.” The regulations implement section 204 of Title II (Transparency) of Division BB of the Consolidated Appropriations Act of 2021 (CAA)1and provide new requirements for commercial health plans and health insurance issuers in the group and individual markets2 to submit to the departments certain information about prescription drug and health care spending, including prescription drug rebates, fees, and any other remuneration. The same information will be submitted by the Federal Employees Health Benefits (FEHB) Program carriers in coordination with OPM.

The departments will issue biennial public reports on prescription drug pricing trends and the impact of prescription drug costs on premiums and out-of-pocket costs starting in 2023.

The CAA requires plans and issuers to begin submitting the required information to the departments by December 27, 2021, and to submit this information by June 1 of each year thereafter. However, the departments and OPM have announced that they will temporarily defer enforcement regarding the December 27, 2021 and June 1, 2022 deadlines. Specifically, the departments will not initiate an enforcement action against a plan, issuer, or FEHB carrier that submits the required information for 2020 and 2021 by December 27, 2022.

Notably, in April 20, 2021 subregulatory guidance,3 the departments indicated that, because of these transparency provisions in the CAA, they will defer enforcement of the requirement in the Transparency in Coverage Final Rules4 that plans and issuers must publish a machine-readable file related to prescription drugs while they consider—through notice-and-comment rulemaking—whether the prescription drug machine-readable file requirement remains appropriate given the potentially duplicative and overlapping reporting requirements in the CAA. The IFCs, however, do not address this issue.

Comments on the IFCs are due at 5:00 PM on Monday, January 24, 2022.

Background

Transparency Provisions in the CAA

Under the CAA, among other general information on the plan or coverage, issuers must report to the Secretaries of DOL, Treasury and HHS annually:

  • The 50 brand prescription drugs most frequently dispensed by pharmacies for claims paid by the plan or coverage and the total number of such paid claims;
  • The 50 most costly prescription drugs with respect to the plan or coverage by total annual spending, and the annual amount spent by plan or coverage for each such drug;
  • The 50 prescription drugs with the greatest increase in plan expenditures over the previous plan year and the change in the amount expended by each plan or coverage;
  • Total healthcare spending by plan or coverage broken down by type of service, including “spending on prescription drugs by the health plan/coverage and participants and beneficiaries;”
  • Any impact on premiums by rebates, fees, and any other remuneration paid by drug manufacturers to the plan/coverage (or its pharmacy benefit manager (PBM)), including:
    • The amounts so paid for each therapeutic class of drugs; and
    • The amounts so paid for each of the 25 drugs that yielded the highest rebates and other remuneration under the plan or coverage from drug manufacturers during the plan year.
  • Any reduction in premiums and out-of-pocket costs associated with rebates, fees or other remuneration.

Additionally, the departments are required to issue biannual public reports on prescription drug reimbursements under group health plans and group and individual health insurance coverage; prescription drug pricing trends; and the role of prescription drug costs in contributing to premium increases or decreases. This information must be aggregated so no drug- or plan-specific information is made public. The law further specifies that no confidential or trade secret information submitted to the Secretaries by plans may be included in these reports.

Executive Order 14036, “Promoting Competition in the American Economy”

On July 9, 2021, President Biden issued Executive Order (EO) 14036, entitled “Promoting Competition in the American Economy.” The EO directed the federal government to “enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony.” According to the departments, the data collection required by the IFCs will provide valuable information about competition and market concentration in the pharmaceutical and health care industries. Policymakers can use the prescription drug and health care spending data to make informed decisions in support of the goals of the EO, including identifying any excessive pricing of prescription drugs driven by industry concentration and monopolistic behaviors, promoting the use of lower-cost generic drugs, and addressing the impact of pharmaceutical manufacturer rebates, fees and other remuneration on prescription drug prices and on plan, issuer and consumer costs.

Overview of the IFCs

Timing and Form of Data Reporting

The departments are requiring that plans and issuers submit information based on the “reference year,” defined as the calendar year immediately preceding the calendar year in which the data submissions are due. Accordingly, plans and issuers are required to submit 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. As noted above, the departments are deferring enforcement with regard to the December 27, 2021 and June 1, 2022 deadlines, and they will not initiate an enforcement action against a plan, issuer, or FEHB carrier that submits the required information for 2020 and 2021 by December 27, 2022.

The departments are allowing plans and issuers to satisfy their reporting obligations by having third parties, such as issuers, third party administrators (TPAs), or PBMs, submit some or all of the required information on plans’ behalf. The departments intend to provide greater technical details regarding each data element in the data submission in the forthcoming instruction for the information collection instrument. The departments also intend to provide an internet portal where reporting entities can submit required data.

Aside from general plan information, the IFCs require data in the data submissions to be aggregated at the state5 and market segment level.6 Within each state and market segment, the data may be aggregated by reporting entity.7 The departments are of the view that aggregation at the reporting entity, state, and market segment level will capture statistics based on sufficiently large pools of underlying data while also providing a sufficient level of detail for the analysis and reporting required under the CAA, and is therefore the optimal aggregation level to enable the departments to draw meaningful conclusions from the data. After the departments begin to receive data submissions and have the opportunity to evaluate the efficacy and adequacy of the aggregate data approach, the departments will review and analyze the merits of this approach and may modify the approach in future rulemaking. Additionally, the departments are considering permitting through additional guidance, data submitted by PMBs to be aggregated at the PBM level rather than the issuer/TPA level.

A.            Required Information

1.            General Plan Information

Plans and issuers must submit certain general information at the plan or coverage level, including identifying information; number of participants, beneficiaries; and enrollees; and each state in which the plan or coverage is offered.

2.            Health Care Spending

Consistent with the CAA, the IFCs require plans and issuers to report the total annual spending on health care services, broken down by the type of cost, including: (i) hospital costs; (ii) health care provider and clinical services costs, for primary care and specialty care separately; (iii) costs for prescription drugs; and (iv) other medical costs, including wellness services.8

Under the IFCs, the term “prescription drug” or “drug” means a set of pharmaceutical products, including biologics, that have been assigned a National Drug Code (NDC) by the Food and Drug Administration (FDA), and are grouped by name and ingredient in the manner specified by the departments. The departments anticipate specifying in future guidance that pharmaceutical products must be grouped and reported by name and active ingredient, separately for brand products and generic products or certain biosimilar products. Products with the same name and active ingredient will thus be considered, for the purpose of these IFCs, to be the same prescription drug even if they have a different dosage strength, package size, mode of delivery, or, for generic products, different manufacturers.

For prescription drug spending, plans and issuers must report separately the costs incurred by the plan or coverage and the costs incurred by participants, beneficiaries, and enrollees, as applicable. Further, the IFCs require plans and issuers to report the total annual spending on prescription drugs administered in a hospital, clinic, provider’s office, or other provider setting and covered under the hospital or medical benefit of a plan or coverage (which may be a subset of, and already reported with, the total spending on hospital or other medical costs)9 separately from the total annual spending on drugs covered under the pharmacy benefit of a plan or coverage. While the IFCs limit the data reported on drugs covered under the hospital or medical benefit to total annual spending, the departments indicate that they may modify this approach and seek additional data elements in future rulemaking.

The departments intend to collect separately data on drug manufacturer cost-sharing assistance to the extent these amounts impact total annual spending by health plans or issuers, or by participants, beneficiaries, and enrollees, and to the extent information regarding the amount of these reductions is available to plans, issuers, their administrators, or their service providers such as PBMs, e.g., when the cost-sharing assistance is excluded from the annual limitation on cost-sharing through an accumulator program. The departments intend to incorporate this cost-sharing assistance data into its analysis for their public report.

3. Premium Amounts

Consistent with the CAA, the IFCs require plans and issuers to report premium amounts including:

  • The average monthly premium paid by employers or other plan sponsors on behalf of participants, beneficiaries, and enrollees, as well as the average monthly premium paid directly by participants, beneficiaries, and enrollees; and
  • Total annual premium amount and total number of life-years.10

4.Top 50 Drug Lists

With respect to prescription drugs covered under the pharmacy benefit, the IFCs require plans and issuers to report:

  • The 50 brand prescription drugs11 most frequently dispensed by pharmacies for claims paid by the plan or coverage;
  • The 50 most costly prescription drugs with respect to the plan or coverage by total annual spending (net of rebates, fees, and other remuneration from third parties); and
  • The 50 prescription drugs with the greatest increase in total annual spending over the preceding year.12

The top 50 drugs, as applicable, must be reported separately at the state and market segment level and based on the combined experience of all plans or policies include in the relevant aggregation.

  • For each drug in a top 50 list, plans and issuers must report:
  • Total annual spending by the plan or coverage;
  • Total annual spending by participants, beneficiaries, and enrollees enrolled in the plan or coverage, as applicable;
  • The number of participants, beneficiaries, and enrollees, as applicable, with a paid prescription drug claim;
  • Total dosage units dispensed; and
  • The number of paid claims.

5. Prescription Drug Rebates, Fees, and Other Remuneration

For each therapeutic class of drugs, as well as for each of the 25 drugs that yielded the highest amount of rebates and other remuneration under the plan or coverage from drug manufacturers during the reference year, the IFCs require plans and issuers to report the following regarding prescription drug rebates, fees and any other remuneration:

  • Total prescription drug rebates, fees, and other remuneration, and the difference between total amounts that the plan or issuer pays the entity providing PBM services to the plan or issuer and total amounts that such entity pays to pharmacies;
  • Prescription drug rebates, fees and other remuneration, excluding bona fide service fees,13 broken down by:
    • The amounts passed through to the plan or issuer;
    • The amounts passed through to participants, beneficiaries, and enrollees as applicable; and
    • The amounts retained by the entity providing PBM services to the plan or issuer; and
  • The following data elements:
    • Total annual spending by the plan or coverage;
    • Total annual spending by participants, beneficiaries, and enrollees enrolled in the plan or coverage, as applicable;
    • The number of participants, beneficiaries, and enrollees, as applicable, with a paid prescription drug claim;
    • Total dosage units dispensed; and
    • The number of paid claims.

Plans and issuers must also provide qualitative and quantitative information regarding the impact of prescription drugs rebates, fees, and other remuneration on premium and cost-sharing amounts. The departments intend to provide sub-regulatory instruction regarding what information must be included on this topic.

The IFCs define “prescription drug rebates, fees, and other remuneration” to mean all remuneration received by or on behalf of a plan or issuer, its administrator or service provider (including PBMs). Prescription drug rebates, fees, and other remuneration also include, for example, discounts, chargebacks or rebates, cash discounts, free goods contingent on a purchase agreement, up-front payments, coupons, goods in kind, free or reduced-price services, grants, or other price concessions or similar benefits. The definition of “prescription drug rebates, fees, and other remuneration” excludes drug manufacturer-sponsored cost-sharing assistance, such as copay cards, provided to participants, beneficiaries, or enrollees.

The definition of “prescription drug rebates, fees, and other remuneration” includes bona fide service fees; however, the departments will require plans and issuers to report only the total amount of bona fide service fees rather than separately by therapeutic class or drug.

We hope this brief summary is helpful to you. If you have any questions, please do not hesitate to reach out to your Arnold & Porter Life Sciences &Healthcare Regulatory attorney.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. Pub. L. 116-260.

  2. The term “group health plan” includes both insured and self-funded group health plans, private employment-based group health plans subject to ERISA, non-federal governmental plans (such as plans sponsored by states and local governments) subject to the PHS Act, and church plans subject to the Code. Individual health insurance coverage includes coverage offered in the individual market, through or outside of an Exchange, and includes student health insurance coverage as defined at 45 CFR 147.145. The OPM interim final rules require FEHB carriers to comply with these interim final rules, with respect to prescription drug and health care spending data submission requirements, subject to OPM regulation and contract provisions. The IFCs do not apply to health reimbursement arrangements (HRAs) or other account-based group health plans or short-term, limited-duration insurance.

  3. Departments of Labor, Health and Human Services, and the Treasury, FAQs About Affordable Care Act and Consolidated Appropriations Act, 2021 Implementation Part 49, at 2 (August 20, 2021).

  4. 85 Fed. Reg. 72158 (Nov. 12, 2020).

  5. Specifically, the experience of fully-insured coverage must be attributed to the state where the contract was issued, while the experience of self-funded group health plans must be attributed to the state where the plan sponsor has its principal place of business (with certain exceptions).

  6. Market segments include the individual market (excluding the student market), the student market, the fully-insured small group market, the fully-insured large group market (excluding the FEHB line of business), self-funded plans offered by small employers, self-funded plans offered by large employers, and the FEHB line of business. Mixed-funded plans, which generally self-fund some health benefits and fully insure other health benefits, should attribute information reported to a market segment based on the source of funding for the benefits included in the report.

  7. For example, the data of fully-insured plans may be aggregated according to the issuer of the coverage provided to these plans or the FEHB carrier, as applicable, that acts as a reporting entity for these plans. The data of self-funded plans may be aggregated according to the TPA that acts as a reporting entity for these plans. However, if multiple reporting entities submit the required data related to one or more plans or issuers in a state and market segment, the data submitted by each of these reporting entities may not be aggregated at a less granular level than the aggregation level used by the reporting entity that submits the data on total annual spending on health care services on behalf of these plans or issuers.

  8. “Total annual spending” means incurred claims, excluding certain adjustments, including cost sharing, but net of prescription drug rebates, fees, and other remuneration from any sources. The departments posited that defining “total annual spending” to mean spending net of prescription drug rebates, fees, and other remuneration will enable the departments to undertake more meaningful and accurate comparisons of the costs of different prescription drugs, by capturing the actual costs for different plans and issuers, as well as for the participants, beneficiaries, and enrollees, as applicable, of different plans and issuers.

  9. Where the cost of the prescription drugs is included in a bundled payment arrangements or other alternative payment arrangements, the plan or issuer is required to separately report the total annual spending attributable to the prescription drugs included in the bundle or other alternative payment arrangement in good faith and to the best of its ability.

  10. “Life-years” means the total number of months of coverage for participants, beneficiaries, or enrollees divided by 12.

  11. Brand prescription drugs include (i) drugs approved under 505(c) of the Federal Food Drug and Cosmetic Act (FDCA) or 351 of the Public Health Services (PHS) Act; (ii) drugs marketed pursuant to an Emergency Use Authorization under section 564 of the FDCA; and (iii) interchangeable biosimilar products under sections 351(i)(3) and 351(k)(4) of the PHS Act.

  12. For this list, plans and issuers must report the required data elements for both the reporting year and the preceding year.

  13. Bona fide service fees mean fees paid by a drug manufacturer to an entity providing pharmacy benefit management services to the plan or issuer that represent fair market value for a bona fide, itemized service actually performed on behalf of the manufacturer that the manufacturer would otherwise perform (or contract for) in the absence of the service arrangement, and that are not passed on in whole or in part to a client or customer of the entity, whether or not the entity takes title to the drug.

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