Americans are demanding lower healthcare and prescription drug costs, along with enhanced visibility into those costs in order to make informed decisions about available healthcare services. The House of Representatives recently voted to pass a bill intended to deliver on those demands.
The bill, entitled The Lower Costs, More Transparency Act (the “Act”), is the product of a bipartisan effort to require commercial and federally funded healthcare providers and payors to publicly disclose the costs of services provided. The bill also seeks to lower the cost of prescription drugs by making it easier for generic drugs to penetrate the market. In addition, the bill funds expiring programs critical to many who otherwise could not afford the cost of their medications, empowering patients and providing healthcare workers more funds to better serve their patients. Moreover, the bill strengthens requirements imposed upon Pharmacy Benefit Managers (“PBMs”) to disclose compensation to plan fiduciaries to help plans negotiate the best deal possible for employees. Frier Levitt provides a summary discussing these objectives and their implication on the healthcare market in more detail below.
I. Transparency
Patients should know the cost of healthcare services to determine which provider offers the most cost-effective services. To that end, the Act requires that hospitals publicly disclose their standard charges for services offered. Not only that, hospitals must also disclose the cash price paid by self-paying patients and the payer-specific negotiated charges for services provided. To allow consumers the ability to compare services provided, hospitals must ensure that their disclosure conforms to the uniform format established by the Secretary of Health and Human services (the “Secretary”). Failure to comply with these requirements may result in civil penalties. Labs, providers of imaging services, and ambulatory surgical centers must also provide the same degree of visibility into the costs for services they provide.
In addition, the Act, if enacted, will require group health plans and payors offering group or individual coverage to disclose their in-network and out-of-network rates for covered services and the applicable cost-sharing amounts that a beneficiary would be responsible for paying if they received such services. All of this information must be available through a self-service tool or other electronic disclosure at no cost to the beneficiary. For prescription drugs, as distinct from other items or services, group health plans must disclose the average amount paid by the plan net of rebates, discounts and other price concessions, broken down by provider.
Under the Act, group health plans and their PBMs must report to plan sponsors detailed information related to the drugs processed through their networks including, but not limited to, the types of pharmacies that dispensed those drugs (mail, retail or specialty), total number of dispenses, and the total costs to the plan for dispensing the drug. The report must detail the total amount paid by third parties in the form of rebates or other remuneration. More importantly, PBMs must disclose whether their plan benefit design encourages or influences patients to use pharmacies owned and/or affiliated with the PBM. If so, the PBM must disclose:
- The total percentage of prescriptions dispensed by the affiliated pharmacies;
- The drugs dispensed;
- The amounts charged to the plan and beneficiaries for each drug;
- The median amount charged to the plan and beneficiaries for each drug when not filled at an affiliated pharmacy;
- The lowest cost for each drug that is available from any pharmacy in the network; and
- The net acquisition costs for certain drugs.
By requiring PBMs to provide plans with this information, the bill, if enacted, would allow plans to determine whether they are paying too much for prescription drugs dispensed in a particular PBM network and, relatedly, whether continuing to contract with certain PBMs is in the plan’s best interest. This, in turn, may encourage PBMs to consider offering more competitive plan benefit designs. The hope is that increased transparency and competition in the healthcare marketplace may deliver to the consumer lower costs and better outcomes. Notwithstanding, it is often the case that PBMs do not share the drug spend-related data with plan sponsors including, without limitation, employers and health plans. Hence, plan sponsors must monitor and audit their contracted PBMs as well as demand prescription drug claims-level data and drug spend data from the PBMs.
II. Lowering Healthcare Costs
Increased access to generic medications helps to reduce total healthcare expenditures because generic drugs are less expensive than brand name drugs. In apparent recognition of this, the Act amends the Federal Food, Drug and Cosmetic Act by including provisions designed to increase transparency in the generic drug application process. In particular, the Act requires the Secretary to assist those who have submitted (or intend to submit) an abbreviated application for review and approval of a generic drug product to determine whether the drug at issue is qualitatively and quantitatively similar to the listed brand name drug. This provision appears to be intended to streamline the process for getting generic drugs to market and, in turn, reducing the cost of prescription drug costs.
In addition to the above, the Act prohibits spread pricing in Medicaid, limits PBM administrative fees to the fair market value of providing administrative services, prohibits plans from imposing gag clauses on pharmacies, and prohibits hospitals from charging more for services provided by physician practices owned and/or affiliated with the hospital – all of which is intended to reduce costs to the patient. Spread pricing has been one of the revenue sources of PBMs. “Spread pricing” refers to the practice of a PBM charging payers (like state Medicaid programs) more than they pay the pharmacy for a particular prescription medication. In other words, spread pricing results in costs to the plan sponsor (in many cases, a Medicaid “Managed Care Organization”) greater than the amounts the PBM pays the provider. By charging the plan sponsor more than it pays the pharmacy, the PBM can then retain the difference (i.e. the “spread”) as profit. For example, when a pharmacy fills a prescription for a Medicaid patient, the PBM will adjudicate the claim and inform the pharmacy that the PBM will pay the pharmacy $100 for dispensing the prescription. The PBM then charges the state Medicaid plan $150 for adjudicating the same prescription, creating a “spread” of $50. The PBM pockets this $50 spread as profit. In many cases, the “spread” is not disclosed to either the plan sponsor or the pharmacy provider.
III. Supporting Patients and Providers
If enacted, the Act will provide financial support to patients and providers by ensuring full coverage of payments for expiring programs, further strengthening health care systems. It will also delay Disproportionate Share Hospital payment reductions under Medicaid. The Medicaid Disproportionate Share Hospital (DSH) cuts for the upcoming year would be approximately $8 billion, intended to support high-need hospitals that provide care for high rates of Medicaid and uninsured patients. Community Health Centers, which are crucial for patients in rural and underserved areas, can now receive more financial support to adequately treat patients. In addition to the above, this Act helps fund and preserve Medicaid in hospitals treating mostly uninsured and low-income patients. With this Act, patients who would otherwise struggle to pay for their healthcare are now able to make informed decisions regarding their health. Finally, this Act helps fund training programs, ensuring healthcare workers, community health centers, and hospitals are funded and trained, in efforts to continue providing care services to underserved communities.
IV. Promoting Quality and Lowering Hidden Fees
The Act results in lowers costs for patients and employers by requiring health insurers and PBMs to disclose negotiated drug rebates and discounts, revealing the true costs of prescription drugs. As Frier Levitt has previously discussed, it is no secret that PBMs negotiate, directly or indirectly through Rebate Aggregators, Manufacturer Rebates with drug companies on brand-name drugs in exchange for placing a particular drug on a PBMs’ drug formulary. Rebate Aggregators negotiate rebates with drug manufacturers on behalf of PBMs or plan sponsors and hold the contracts governing these rebates. Rebates are supposed to be passed through to the plan sponsors, but instead contribute to fueling PBM profits. Rebate aggregators demand money (rebates) from drug manufacturers in exchange for the PBM’s promise to place the manufacturer’s product on the PBM’s drug formulary. Rebates are supposed to be used to reduce the expense of prescription drugs for PBM clients (i.e., plan sponsors) and patients. Rebate Aggregators retain unknown portions of rebates as profits, while patients and plan sponsors pay the price. This Act, however, strengthens requirements that PBMs and Third-Party Administrators disclose compensation to plan fiduciaries. As a result, employer health plans are now provided with the drug price information they need to get the best deal possible for their employees.
“In sum, this bill is a legislative opportunity: bipartisan, regular order, and fully paid for. It advances foundational health care reforms for patients, lowers health care costs, and reduces the deficit.” – Rep. Cathy McMorris Rodgers
How Frier Levitt Can Help
Frier Levitt is at the forefront of federal and state efforts to rein in healthcare costs and combat PBM abuses. Our experienced attorneys collaborate with legislators at state and federal levels to shape legislation in the healthcare space. In addition, Frier Levitt attorneys regularly litigate and arbitrate disputes against plans and PBMs on behalf of pharmacies and other providers to curb abusive practices, including patient steerage, gag clauses, spread pricing, PBM audits and network access/termination issues. Frier Levitt’s Plan Sponsor Practice Group has a proven track record of obtaining favorable results for health plans and plan sponsors in various areas, including, but not limited to, analyzing PBM contracts and initiating actions against PBMs to access Plan data to ensure PBM compliance or recover savings wrongfully withheld by the PBM. For more information, contact us to speak with an attorney.
