Blog 1/11/2022

Comments on the Interim Final Rule related to Prescription Drug and Healthcare Spending Transparency under the Consolidated Appropriations Act, 2021

For sixteen years, DirectPath, a CNO Financial Group company, has been an industry leader in employer-sponsored benefits plan management, advocacy, compliance, and communications, with a particular focus on helping employees—and their employers—make informed decisions to save money on healthcare costs. Based on this experience, we have met with the members of the Department of Labor, Treasury, and CMS in the past to offer recommendations and input on compliance communications materials and electronic distribution requirements (these have reflected our clients’ concerns and feedback, as well), and we are pleased again to offer our insights.

Section 9825(a)(7) of the Code, section 725(a)(7) of ERISA, and section 2799A-10(a)(7) of the PHS Act require plans and issuers to report the total annual spending on healthcare services, broken down by the types of cost, including: (1) hospital costs; (2) healthcare provider and clinical service costs, for primary care and specialty care separately; (3) costs for prescription drugs; and (4) other medical costs, including wellness services. 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.

Understanding that most plan sponsors and employers will not have access to this information, the Agencies have stated that the plan’s third-party administrator (TPA) may provide such data. Further, TPAs may aggregate such data for all plans for which they serve as administrator.

And while aggregated data may be useful to track larger trends over time, it will do little to help manage costs in the here and now.

More focus is needed to encourage plan sponsors to track and share this data with plan participants in a way that clearly demonstrates how thoughtful decisions about when and where to receive care can help them manage their out-of-pocket spending without compromising the quality of their health and health care. As such, we recommend that the final regulations be amended to require TPAs to share plan-specific data with plan sponsors (or designated representatives such as a broker or consultant) and require plan sponsors, in turn, to report relevant information in a meaningful way with their plan members—much as they will be doing under the upcoming Transparency in Coverage rules.

Cost Transparency
As noted above, we are concerned that the aggregated data reported to the Agencies will do little, if anything, in the short- or long-term to reduce healthcare cost trends unless and until disaggregated data is shared first with the applicable plans, and then with plan participants.

As the health insurance industry is currently structured, even self-insured plans are typically unaware of the specific discounts carriers have negotiated on their behalf with local providers—or how those discounts differ from similarly situated carriers and/or plan sponsors in their area. This makes it difficult, if not impossible, for them to exert pressure on either providers or the carriers themselves to reduce costs.

As a result, many employers have pushed some or all responsibility for managing costs onto plan participants through high deductible health plans. Theoretically, when individuals are forced to pay for more of the cost for goods and services upfront, they will shop for the best price.

Unfortunately, it is well established that most individuals are not aware that they can, and should, shop for health care. Nor were they ever shown precisely how to do so. So rather than shopping for care, too many consumers avoid or postpone care due to fear of high costs. As a recent issue of Managed Healthcare Executive notes, citing a study by the Commonwealth Fund, “Turning Americans into value-seeking, price-watching shoppers for healthcare remains an unfinished, patchy project at best. Success…will require integrating price data, quality information, and financial incentives so people can look for and select lower-cost, higher-quality providers and care.”

As you are well aware, the same product or service cost can vary dramatically within the same network and zip code and even from provider to provider within that network zip code. Until consumers understand this fact—which won’t happen until they can see the costs of such care before receiving it—we will not begin to see behavior change that will drive cost reduction. But merely making this information available will not have the desired impact. Consumers must be educated on:

  • The fact that costs for health care services depend on what the provider chooses to charge, the discount negotiated by the applicable insurance company, the cost-sharing provisions of the plan’s coverage (if applicable), and the individual’s cost-sharing status under that plan.
  • How to easily obtain cost information from multiple providers and compare costs in a meaningful way.
  • WHY they should do such a comparison, rather than merely taking their doctor’s recommendation.
  • How their decisions will affect their out-of-pocket costs, and how to weigh the information they obtain to make the right decision for them.
    Understanding the Drivers of Healthcare Costs

It is critical for employers, plan sponsors and administrators, and the public to understand the drivers of increasing health care costs to make better decisions about the plans they offer, choose and use. But there is much work to be done to dispel myths and misunderstandings about what, exactly, is driving rising healthcare costs, so we know where to focus our attention.

For example, a 2019 consumer opinion study found that the public believes that prescription drugs and hospital fees are far away from the most significant contributors to rising health care costs (62 percent and 48 percent, respectively), with physician fees, social determinants (inadequate access to healthy food and safe housing and/or exposure to violence) and chronic conditions effectively tied for a distant third (18 percent, 18 percent, and 17 percent).

Yet, while CMS’ research on actual 2020 health care spending shows the same top three areas of concern, there is clearly a disconnect between public perception of cost drivers and reality:

  • Hospital care (31%)
  • Physician services (20%)
  • Prescription drugs (8%)
  • Other personal healthcare costs (5%)

In both cases, the top three drivers—hospital care, prescription drugs, and physician services–are costs that can and should be “shopped” for. But it may be that consumers are focusing on the wrong “bucket” of expenses—prescription drugs—when they ought to be focused on their inpatient care. After all, the relative impact on the average consumer of a hospital stay versus annual prescription drug costs is substantial, as is the risk for costly billing errors (according to Becker’s Hospital Review, 80% of medical bills include errors).

Will Data Drive Results?
While the Agencies’ efforts to track the drivers of health care costs with the idea of managing such costs in the future is laudable, we feel that reporting two years after receiving data that is already months, if not years, out of date will not be particularly helpful. Data will be quickly outdated as workforce demographics shift, new and different health trends develop (e.g., a new pandemic), and new drugs and treatments enter the market (with accompanying high costs). And most employers/plan sponsors adjust their plan designs annually, based on claims experience and utilization over the past 12 months.

Until and unless plan sponsors can see real-time plan utilization and short-term trends, they will be unable to exert market pressure on the carriers and providers offering services to their participants. And until plan sponsors are held accountable for the ability of their participants to act as true health care consumers, we will not see the behavior change needed to truly drive cost reductions. Data is just one small part of the solution—acting on that data on a timely basis is what will truly drive change.

See all comments here.


The 2022 Broker Report: Helping Employers Attract & Retain Talent Amidst the “Great Resignation”
Download Report