Pharmacy Benefits and Drug Costs Disclosure Due December 27, 2022

The 2021 Consolidated Appropriations Act (CAA) introduced a wide set of new requirements for group health plans. The CAA contains several provisions designed to enhance transparency and competition in the healthcare marketplace – for employers as well as patients.

A common question about the CAA requirements is: “Who do they apply to?” In general, the CAA applies to “group health plans,” which includes both fully insured and self-funded health plans. As a reminder, “level-funded,” “graded funded,” and other brands of hybrid funding are, indeed, self-funded plans.

In this article, we’re going to focus specifically on an incoming disclosure that all group health plans must provide by December 27, 2022: Their pharmacy benefits and drug costs information.

Background

Escalating prescription drug expenses for employer group health plans has been a recurrent issue that has worsened in recent years. A 2021 report by America’s Health Insurance Plans (AHIP), a national advocacy and trade association, found that for the first time prescription drug spending as a category exceeded all other singular areas of healthcare spending:

dollar bill breaking down the % allocation of how health insurance dollars are spent throughout the healthcare system
Source: “Where Does Your Health Care Dollar Go?” by AHIP, using insurer financial statements (10K filings) and health claims data averages from 2016-2018 in private health plans. Data from IBM® MarketScan® Commercial Database.

Employers, and specifically the designated plan sponsors who exercise discretionary authority over the health plan, have a fiduciary obligation of loyalty and prudence to plan members under the Employee Retirement Income Security Act (ERISA) of 1974. Foremost among these fiduciary obligations is to pay “only reasonable [health] plan expenses.” That certainly encompasses the plan’s pharmacy expenses.

Thus, Congress designed the pharmacy benefits and drug costs CAA disclosure provision to:

  1. Give health plan members valuable information about what their plan is paying for its prescription drugs, and
  2. Permit the Department of Labor (DOL) and Department of Health and Human Services (DHS) a look into whether a health plan’s prescription drug expenses are, in fact, reasonable.

What Do Employers Need To Do?

If you’re fully insured, the requirements to disclose information and historical spending on prescription drugs will fall on your health insurer as they are considered “the plan.” As with the Transparency in Coverage (TiC) disclosure requirements, which we provided guidance on in a previous blog, a fully insured group health plan may transfer all its compliance liability to its health insurance carrier via written agreement. So, an employer who is fully insured only needs to confirm with its insurance carrier that the insurer is complying with the CAA’s pharmacy benefits and drug costs disclosure requirement.

If you’re self-funded, you will likely outsource the disclosure of this information to your insurance carrier, your third-party administrator (TPA), or another outside service provider. Even so, the DOL lacks the statutory authority to regulate third parties and so the responsibility to comply with the CAA pharmacy benefits and drug costs disclosure requirement ultimately rests with you. You must confirm in writing with your chosen vendor that they have properly complied with the CAA on your company’s behalf.

Self-funded employers will need more information from their Pharmacy Benefit Manager (PBM) and TPA than they have had traditionally to comply with the new disclosure requirements, whether or not they comply by themselves or delegate the responsibility to a third-party vendor. As a result, the health plan’s agreements with its PBM and TPA will need to be revised to allow full access to prescription drug claim information as well as all data on drug rebates, fees, and remuneration* associated with the health plan.

* Congress did not define “remuneration” in the CAA’s disclosure requirements, but it should be taken to mean all sources of compensation that drug manufacturers, pharmacies, PBMs, and vendors receive in affiliation with the prescription drugs on your health plan. Specific examples include (but aren’t limited to) rebates, dispensing fees, drug manufacturer fees paid to PBMs, administration fees (flat, per member, per transaction, per claim, or otherwise), consulting fees, program fees, and the “spread” that the PBM keeps on generic drugs in your health plan.

Information That Must Be Disclosed

All group health plans are required to provide to the DOL, DHS, and the Treasury:

  1. The beginning and end dates of the plan year;
  2. The number of enrollees;
  3. Each state in which the plan or coverage is offered;
  4. The 50 brand prescription drugs most frequently dispensed by pharmacies for claims paid by the plan or coverage, and the total number of paid claims for each such drug;
  5. The 50 most costly prescription drugs with respect to the plan or coverage by total annual spending, and the annual amount spent by the plan or coverage for each such drug;
  6. The 50 prescription drugs with the greatest increase in plan expenditures over the preceding plan year, and the amount of those increases;
  7. The total spending on healthcare services by plan, broken down into specific categories, including hospital costs, primary care costs, specialty care costs, prescription drug costs, and other medical costs including wellness services;
  8. The average monthly premium paid by the employer and by plan enrollees;
  9. The financial impact of rebates, fees, and any other manufacturer payments on the health plan, including amounts specifically for each therapeutic class of drugs and the net amounts corresponding to each of the 25 drugs on the plan with the highest associated rebates, fees, and/or other manufacturer payments; and
  10. Information on the reduction in premiums and out-of-pocket costs associated with rebates, fees, or any other manufacturer payments described in #9 above.

Disclosure Deadlines

Group health plans must provide their first pharmacy benefits and drug costs reporting no later than December 27, 2022. In years thereafter, they will need to submit the information by June 1st. So, the next deadline would be June 1, 2023.

Originally, the initial pharmacy benefits and drug costs reporting was due on December 27, 2021 (exactly one year after the passage of the CAA). However, in recognition that the compliance requirements were complex and burdensome, DOL, DHS, and the Treasury extended the initial deadline another year.

Note: Group health plans will need to provide reporting on 2020 and 2021 plan years on the December 27, 2022 deadline. In explaining the logic behind the Departments’ deadline extension, this is what they said specifically:

“In recognition of concerns about the feasibility of meeting the first two deadlines of December 27, 2021 and June 1, 2022, the Departments are exercising discretion to not initiate enforcement actions against plans and [insurers] that submit the [pharmacy benefits and drug costs] data for the 2020 and 2021 years by December 27. 2022.” (Emphasis added)

– DOL, DHS, and the Treasury in “Prescription Drug and Health Care Spending” Interim Final Rules, at p. 66681 in the Federal Register

Penalties for NonCompliance

If a group health plan does not comply with the pharmacy benefits and drug costs reporting requirements, the health plan and plan administrators could face penalties along multiple avenues. Law firm Ballard Spahr gives a concise overview of potential enforcement actions:

“For health plans that are subject to ERISA, the Department of Labor and plan participants and beneficiaries may enforce compliance with these rules. Plans not subject to ERISA may be subject to enforcement by the U.S. Department of Health and Human Services (HHS). HHS shares responsibility for enforcement against insurers with state agencies. In addition, the Internal Revenue Service may impose an excise tax of $100 per day per affected individual under section 4980D of the Code for any failure to comply.”

– Leeds, E. and Haughton, P. (February 9. 2022) “The CAA Prescription Drug Benefit Reporting Requirement

As a reminder, self-funded plans are subject to ERISA while fully insured plans are not. As further context, when Ballard Spahr suggests above that DOL and plan participants/beneficiaries “may enforce compliance with these rules,” they are referring to DOL audits on the one hand and class action lawsuits on the other, which have open-ended risk based on the facts and circumstances of the particular case.


This compliance overview is just that – an overview. It does not claim to be exhaustive nor should it be misconstrued as legal advice. Great effort has been put forth in ensuring the accuracy of all content, but this is no guarantee of infallibility. For official clarification or final authority, readers should solicit legal counsel.