February 22, 2021

During the waning days of the Trump Administration, the Centers for Medicare & Medicaid Services (CMS) finalized rules on payment and delivery reform, prior authorization and curbing Rx rebates in Medicare Part D. The Biden Administration is reviewing these rules, but recently delayed the effective date of a provision of the Rx rebate rule until at least 1/1/2023. Meanwhile, under a 2019 final rule, price transparency requirements for hospitals became effective in 2021 and hospitals are beginning to disclose prices to the public for shoppable services.

Generally, these rules do not apply directly to employers or require that employers comply. Instead, they could have the following impacts:

• Disclosing hospital prices for shoppable services, boosting transparency for public and private payors.
• Requiring Medicaid, CHIP and exchange plans participating in federally led exchanges to digitize prior authorizations for medical/surgical benefits; if successful, this approach could be implemented by employer plans.
• Transitioning Medicare toward alternative payment models (APMs) and away from fee-for-service (FFS), dovetailing with employer plan efforts.
• Replacing Part D Rx rebates provided to pharmacy benefit managers (PBMs) with rebates to beneficiaries at the point of sale (POS), testing whether transitioning from a rebate-driven model will reduce premiums or prices for prescription drugs.

The key details of the proposed rules are summarized below.

Price Transparency

On February 11, 2021, the Wall Street Journal released an article detailing the wide price variances of C-sections based on an analysis of data released from a large California health system complying with a 2019 final rule. The article underscores the wide price variances charged by the same facility for the same procedure depending on who is paying. It also confirms that private payers pay substantially more than the public sector.

Under the 2019 rule, beginning in 2021, hospitals must publish a consumer-centric list of prices for the 300 most shoppable services, defined as those that can be scheduled in advance, with CMS choosing 70 services and hospitals choosing 230. In disclosing prices, hospitals must include:

• Gross charges;
• Discounted cash prices;
• Payer-specific negotiated charges; and
• Deidentified minimum and maximum negotiated rates.

The rule also requires hospitals to submit more price information directly to CMS. Unfortunately, due to the statutory language of the ACA, CMS indicated that it does not have authority to require this information from ambulatory surgical centers (ASCs) and physicians not directly employed by a hospital. Some commenters noted that this could lead to hospitals increasing financial relationships with ASCs and shifting care.

The rule is separate from the requirements for employer-sponsored plans detailed here and here, which will provide prices and associated out-of-pocket (OOP) costs for services and items covered by the plan. CMS may look to combine the different datasets and release information in a consumer-friendly manner to further boost transparency.

Studies have indicated that so far, there has been inconsistent compliance with the final rule. Hospitals are mounting a campaign to urge the Biden Administration to rescind them. The Business Group strongly supports transparency of price and quality information and supports expansion to all providers. See our position statement for more information.

Prior Authorization

In Mid-January of 2021, CMS issued final rules stating that by 2023, it will require Medicaid, CHIP and exchange plans participating in federally led exchanges to digitize prior authorization (PA) processes and establish deadlines for responding to PA requests. The rules apply only to medical/surgical benefits and not Part D drugs and covered outpatient drugs, although CMS is considering extending the rules to those drugs. It is notable that CMS’ link to the resources on the final rule are currently broken.

By 2023, the rules require insurers to build the digital infrastructure [application programming interfaces (APIs)] that will include information on claims/encounters, clinical data, requirements for PAs, and pending/active PAs. By 2024, providers will be able to facilitate PA requests electronically and learn the rationale for any denials. The rules also establish time periods for Medicaid and CHIP insurers to respond to PA requests by providers, specifically 72 hours/7 days (urgent/nonurgent) requests. The rules also require plans to establish payer- to- payer APIs in an effort to establish portable digital health records.

The rules do not directly apply to self-insured employer-sponsored coverage. However, if more broadly adopted, they could become the standard for insured coverage with broader spillover impacts. Employers and their partners utilize PAs as an important tool to ensure appropriate utilization. The Business Group supports efforts to modernize PA processes to improve patient satisfaction and transparency and to reduce the administrative burden for providers. If effective, employers may encourage health plans and third-party administrators (TPAs) to adopt these procedures for their coverage.

Insurers strongly opposed the rules, citing the “failure to establish comparable requirements for providers or their IT vendors to use the technologies” and alleging that CMS may have violated federal law with its abbreviated timeline for finalizing the rules. Providers indicated they want standardization in payer data exchanges, broadening of the rule to include Medicare Advantage plans, financial incentives to participate and shortening of PA timelines. The Biden Administration is likely reviewing the rules and determining next steps.

Payment and Delivery Reform

In December of 2020, CMS finalized rules for 2021 payments to Hospitals, ASCs and Physicians that will promote efforts to drive delivery transformation away from a dysfunctional FFS system and toward APMs, which could reduce overall costs and improve health outcomes, an effort the Business Group strongly supports. In the interim, the rules also modify fee-for-service payments to improve quality and reduce costs. The Business Group sent comments (Hospital/ASC and Physician) supporting CMS efforts, but also expressing concerns about certain proposals. For example, the Business Group applauded the CMS decision to hold Accountable Care Organizations (ACOs) to higher quality reporting standards but did not support reducing the quality measures that ACOs are required to report, noting that consumers need better, more reliable information on clinical quality, not less.

Outside of improvements in quality, care coordination and reduced costs for beneficiaries, these actions could also improve Medicare’s overall fiscal problems, reducing the likelihood of payroll tax increases for employers and employees. It is unclear but likely that the Biden Administration will support these initiatives.

Curbing Rx Rebates in Medicare Part D

On January 30, 2021, the Biden Administration announced that, in response to a lawsuit, it is delaying the effective date until 1/1/2023 of a provision in a final rule that will eliminate Rx rebates paid to PBMs in the Part D program. According to a notice issued on February 18, 2021, only this provision would be delayed ; other provisions, including passing forward Part D Rx rebates directly to patients at the point of sale (POS), are effective as of January 29, 2021. The Trump Administration’s goal was to phase out Part D Rx rebates to PBMs and replace them with rebates provided to patients at POS. Former HHS Secretary Alex Azar argued that Rx rebates to PBMs create perverse incentives for higher list prices, benefitting the entire supply chain and discouraging use of lower-priced generics/biosimilars.

Outside of lawsuits, the Biden Administration is facing multifaceted pressure to modify or rescind the final rule. More details on the Biden Administration’s approach are forthcoming. The Business Group is supportive of alternatives to the rebate-driven contracting model, but it is unclear if eliminating or modifying rebates in Part D will have a potential spillover effect for private sector plans. For more information on prescription drug rebates and employer considerations, see here.

We provide this material for informational purposes only; it is not a substitute for legal advice.

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