The measure would prohibit PBMs from engaging in “spread pricing” — when they charge a health plan more for a drug than they reimburse to pharmacies and keep the difference — in state Medicaid plans. PBMs contract with health plans to negotiate discounts and formulary placement with drugmakers, and negotiate drug distribution and reimbursement with pharmacies.
Read More: BGOV OnPoint: Congress Eyes Changes to Drug Middlemen Practices
Community health centers and other programs would be extended for several years, while scheduled Medicaid cuts would be delayed for disproportionate share hospitals (DSH) that serve large numbers of low-income and uninsured patients.
The health-care package, which has drawn some bipartisan support and incorporates several bills approved by three House committees with jurisdiction over health issues, aims to boost transparency for patients and crack down on practices that lawmakers say drive up prescription drug costs.
“Our bipartisan legislation meets this moment by giving patients what they are rightfully demanding: the ability to get the right care, at the right time, at a price they know and can afford,” House Energy and Commerce Chair Cathy McMorris Rodgers (R-Wash.) said in a Sept. 8 news release.
Extensions
Community Health Centers: The bill would provide $4.4 billion per year in mandatory funding to the Community Health Center Fund for fiscal 2024 and 2025, and another $1.1 billion through the final three months of calendar year 2025.
The fund, which is set to expire Sept. 30, accounts for 70% of federal funding to community health centers, according to the National Association of Community Health Centers. Health centers also receive separate discretionary funding through annual appropriations.
Medicaid Hospital Payments: The bill would eliminate $8 billion in annual cuts to DSH payments for fiscal 2024 and 2025. The payments are intended to offset the cost of uncompensated care for hospitals that serve large numbers of low-income and uninsured patients.
The cuts, which were included in the Affordable Care Act (Public Law 111-148) in anticipation of falling uninsured rates, have been continuously delayed and are now set to take effect Oct. 1 for fiscal 2024 and run through fiscal 2027.
Other Programs: The bill would also:
- Extend funding for the National Health Service Corps, which provides scholarships and loans to medical students, through calendar year 2025, including $350 million each for fiscal 2024 and 2025 and another $88.2 million through December 2025.
- Extend funding for the Teaching Health Center Graduate Medical Education Program through fiscal 2030, including $175 million each in fiscal 2024 and 2025, $225 million each in fiscal 2026 and 2027, and $300 million each in fiscal 2028 through 2030.
- Extend funding for the Special Diabetes Program and the Special Diabetes Program for Indians through 2025 at $170 million per year in fiscal 2024 and 2025 for each program, plus $42.8 million for the remainder of calendar year 2025 for each program.
Pharmacy Benefit Manager Changes
Spread Pricing Ban: The measure would require any contract between a state Medicaid program and PBM would have to require that payment for drugs and administrative services be based on a “pharmacy price reimbursement model.”
That would include requiring any payment made by a PBM to be limited to the ingredient cost and a professional dispensing fee. Payment would have to be passed through entirely to the pharmacy and couldn’t be retroactively denied or reduced unless it’s the result of an audit.
States would compensate PBMs through an administrative fee “that reflects the fair market value of providing such services.” PBMs would have to make available to the state, and the Health and Human Services Department when requested, all costs and payments related to covered drugs and administrative services.
Any form of spread pricing by the PBM wouldn’t be allowed for purposes for claiming federal Medicaid matching payments.
The spread pricing ban would apply to Medicaid contracts with an effective date beginning 18 months after the bill’s enactment.
Under the measure, HHS would have to conduct a survey of pharmacies to determine the national average drug acquisition cost and make the information publicly available. States would have to require pharmacies participating in Medicaid to respond to the surveys. HHS could enforce noncompliance with the survey requirements by imposing penalties on pharmacies.
PBM Transparency: Beginning two years after the bill’s enactment, PBMs would have to report information to plan sponsors at least twice a year, including:
- Their drug selections and acquisition costs.
- Rebates, fees and other compensation.
- Out-of-pocket drug spending by plan participants.
- The rationale behind formulary placement for drugs.
- Explanation behind plans that direct enrollees to fill prescriptions with a pharmacy that is owned by the same parent company as the PBM.
- The percentage of prescriptions dispensed by pharmacies under common ownership with the PBM.
PBMs would be barred from entering into a contract with drugmakers or other entities that limits disclosure of the required information.
HHS could impose fines totaling $10,000 each day for entities that don’t comply with the reporting rules, or $100,000 per each item of false information provided.
Fiduciary Rules: The measure would prohibit contracts between health plans, PBMs, provider networks or other entities that prevent plan fiduciaries from reviewing or auditing claims information to determine the “reasonableness” of compensation that the entity receives.
The Labor Department could assess civil penalties of as much as $10,000 per day against any entity that violates price transparency requirements. Plan fiduciaries would have to annually attest to the department that the plan meets those requirements.
PBMs and third-party administrators would also have to annually disclose information to fiduciaries on their total compensation, including all fees, rebates and pharmacy clawbacks, and drug spending. The disclosures would apply to contracts signed after Jan. 1, 2025.
‘Gag Clause’ Ban: The measure would bar health plans from restricting pharmacies from informing patients of the difference they pay out-of-pocket for drugs under their insurance plan compared to the amount they could pay without using insurance.
Plans would be required to ensure that PBMs they work with don’t restrict pharmacies from informing patients of the out-of-pocket difference.
Other Transparency Requirements
Provider Pricing: Starting Jan. 1, 2026, hospitals and ambulatory surgical centers would have to disclose prices for at least 300 common services to patients, including the gross charge, discounted cash price, and insurer-negotiated costs for each service.
HHS would have to establish a uniform method for providers to compile prices and make them public in a machine-readable format. HHS could impose civil penalties on providers that don’t comply with the rules and would be required to maintain a website detailing each hospital’s compliance.
The measure would also require laboratories to disclose prices for clinical diagnostic lab tests starting in 2026. Imaging services providers would have to disclose prices starting in 2028. Both would have to disclose the discounted cash price, or gross charge if there is none, and insurer-negotiated prices in a machine-readable format, and would be subject to civil penalties for noncompliance.
Health Coverage: Starting in 2026, group health plans would have to disclose the amount of money a participant or beneficiary would have to spend out-of-pocket on a specific item or service when requested. The information would have to include in-network rates; the maximum coverage amount for out-of-network services and any additional charges for which the patient may be liable; cost-sharing amounts from deductibles, copayments, or coinsurance; and any coverage limitations or requirements under the plan.
Health plans would be required to maintain a self-service tool online to provide the requested information in real time.
Group health plans would also have to make rate and payment information public each month, including in-network rates for services and drugs, the average amount paid for drugs dispensed to in-network providers, and amounts billed by out-of-network providers.
Medicare Organizations: Starting in 2025, Medicare Advantage organizations would have to report information to HHS on incentive-based payments made to health-care providers with an ownership or control interest in the organization, as well as shared losses recouped from them.
Medicare Part D drug plan sponsors would have to report to HHS on each pharmacy in which the sponsor, or a pharmacy benefit manager offering services under the plan, has an ownership or control interest.
Starting in 2029, the Medicare Payment Advisory Commission would have to release a report on the state of vertical integration in Medicare every three years.
Funding & Offsets
Funding: The measure would provide HHS and the Treasury Department with $25 million to implement the transparency and PBM provisions. The Labor Department would receive $12 million to implement the bill’s changes under its purview.
The bill would also cut $7 billion from the Medicaid Improvement Fund.
Generic Drug Development: The measure would direct HHS to inform generic drug applicants of whether their ingredients are “qualitatively and quantitatively” different from those in the brand-name drug.
HHS would be required to disclose the ingredients that would enable the generic drugmaker to establish “sameness,” a requirement to receive FDA approval.
The department couldn’t change or rescind a sameness determination after a generic drug application is submitted unless the formulation of the brand-name drug has changed because of safety or effectiveness, or unless an error was identified in the determination.
Within one year of the bill’s enactment, HHS would have to issue guidance on how it would determine whether a generic drug is qualitatively and quantitatively the same as the brand-name drug.
Off-Campus Outpatient Departments: Under the measure, Medicare and its beneficiaries would pay the same rate for physician-administered drugs in off-campus hospital outpatient departments as they do in physician offices, which typically have lower payment rates, according to the American Medical Association.
HHS would phase in the provision over four years, with the site-neutral payments being fully applicable beginning in 2028, or 2029 for hospitals in rural areas or areas with a shortage of health-care workers.
The measure would also require providers’ off-campus outpatient departments to obtain their own standard unique health identifier when billing for services on or after Jan. 1, 2026. Providers would have to attest to HHS that their departments are compliant with federal regulations related to provider-based status.
Budget Effects
The measure would reduce the deficit by $833 million from fiscal 2023 through 2033, according to a Sept. 14 Congressional Budget Office cost estimate, with some of the biggest savings coming from reduced Medicare payments to off-campus outpatient departments.
CBO estimates that the total cost of the private sector mandates in the bill would exceed the threshold set in the Unfunded Mandates Reform Act (UMRA), which is $198 million in 2023. Such mandates would include information collection requirements for PBMs, health insurers, health plan fiduciaries; fee disclosures; and gag clauses on pharmacies.
The bill also would impose intergovernmental mandates on hospitals and other health-care facilities by expanding an existing requirement to publish prices of services. The cost of the mandates would fall below the UMRA threshold, which is $99 million for the year.
Previous Action
Rodgers introduced the measure, called the “Lower Costs, More Transparency Act,” on Sept. 8 with Reps. Frank Pallone Jr. (D-N.J.), ranking member on the Energy and Commerce Committee; Jason Smith (R-Mo.), chair of the Ways and Means Committee; and Virginia Foxx (R-N.C.), chair of the Education and the Workforce Committee. Rep. Richard Neal (D-Mass.), ranking member on the Ways and Means Committee, opposes the bill.
The bill contains provisions from multiple committee-approved bills, including:
- H.R. 3561, which the Energy and Commerce Committee approved 49-0 on May 24.
- H.R. 4507, which the Education and the Workforce Committee approved 38-1 on July 12.
- H.R. 4508, which the Education and the Workforce Committee approved 39-1 on July 12.
- H.R. 3284, which the Ways and Means Committee approved 23-17 on July 26.
Prospects
The House is scheduled to consider H.R. 5378 under suspension of the rules on Sept. 18. A two-thirds majority would be required for passage.
To contact the analyst: Karl Evers-Hillstrom in Washington at kevershillstrom@bloombergindustry.com
To contact the editors: Danielle Parnass at dparnass@bloombergindustry.com; Naoreen Chowdhury at nchowdhury@bgov.com
BGOV Bill Summary: H.R. 5378, Health-Care Pricing Package
By Karl Evers-Hillstrom / Bloomberg Government
September 18, 2023 3:30 pm
The measure would prohibit PBMs from engaging in “spread pricing” — when they charge a health plan more for a drug than they reimburse to pharmacies and keep the difference — in state Medicaid plans. PBMs contract with health plans to negotiate discounts and formulary placement with drugmakers, and negotiate drug distribution and reimbursement with pharmacies.
Read More: BGOV OnPoint: Congress Eyes Changes to Drug Middlemen Practices
Community health centers and other programs would be extended for several years, while scheduled Medicaid cuts would be delayed for disproportionate share hospitals (DSH) that serve large numbers of low-income and uninsured patients.
The health-care package, which has drawn some bipartisan support and incorporates several bills approved by three House committees with jurisdiction over health issues, aims to boost transparency for patients and crack down on practices that lawmakers say drive up prescription drug costs.
“Our bipartisan legislation meets this moment by giving patients what they are rightfully demanding: the ability to get the right care, at the right time, at a price they know and can afford,” House Energy and Commerce Chair Cathy McMorris Rodgers (R-Wash.) said in a Sept. 8 news release.
Extensions
Community Health Centers: The bill would provide $4.4 billion per year in mandatory funding to the Community Health Center Fund for fiscal 2024 and 2025, and another $1.1 billion through the final three months of calendar year 2025.
The fund, which is set to expire Sept. 30, accounts for 70% of federal funding to community health centers, according to the National Association of Community Health Centers. Health centers also receive separate discretionary funding through annual appropriations.
Medicaid Hospital Payments: The bill would eliminate $8 billion in annual cuts to DSH payments for fiscal 2024 and 2025. The payments are intended to offset the cost of uncompensated care for hospitals that serve large numbers of low-income and uninsured patients.
The cuts, which were included in the Affordable Care Act (Public Law 111-148) in anticipation of falling uninsured rates, have been continuously delayed and are now set to take effect Oct. 1 for fiscal 2024 and run through fiscal 2027.
Other Programs: The bill would also:
- Extend funding for the National Health Service Corps, which provides scholarships and loans to medical students, through calendar year 2025, including $350 million each for fiscal 2024 and 2025 and another $88.2 million through December 2025.
- Extend funding for the Teaching Health Center Graduate Medical Education Program through fiscal 2030, including $175 million each in fiscal 2024 and 2025, $225 million each in fiscal 2026 and 2027, and $300 million each in fiscal 2028 through 2030.
- Extend funding for the Special Diabetes Program and the Special Diabetes Program for Indians through 2025 at $170 million per year in fiscal 2024 and 2025 for each program, plus $42.8 million for the remainder of calendar year 2025 for each program.
Pharmacy Benefit Manager Changes
Spread Pricing Ban: The measure would require any contract between a state Medicaid program and PBM would have to require that payment for drugs and administrative services be based on a “pharmacy price reimbursement model.”
That would include requiring any payment made by a PBM to be limited to the ingredient cost and a professional dispensing fee. Payment would have to be passed through entirely to the pharmacy and couldn’t be retroactively denied or reduced unless it’s the result of an audit.
States would compensate PBMs through an administrative fee “that reflects the fair market value of providing such services.” PBMs would have to make available to the state, and the Health and Human Services Department when requested, all costs and payments related to covered drugs and administrative services.
Any form of spread pricing by the PBM wouldn’t be allowed for purposes for claiming federal Medicaid matching payments.
The spread pricing ban would apply to Medicaid contracts with an effective date beginning 18 months after the bill’s enactment.
Under the measure, HHS would have to conduct a survey of pharmacies to determine the national average drug acquisition cost and make the information publicly available. States would have to require pharmacies participating in Medicaid to respond to the surveys. HHS could enforce noncompliance with the survey requirements by imposing penalties on pharmacies.
PBM Transparency: Beginning two years after the bill’s enactment, PBMs would have to report information to plan sponsors at least twice a year, including:
- Their drug selections and acquisition costs.
- Rebates, fees and other compensation.
- Out-of-pocket drug spending by plan participants.
- The rationale behind formulary placement for drugs.
- Explanation behind plans that direct enrollees to fill prescriptions with a pharmacy that is owned by the same parent company as the PBM.
- The percentage of prescriptions dispensed by pharmacies under common ownership with the PBM.
PBMs would be barred from entering into a contract with drugmakers or other entities that limits disclosure of the required information.
HHS could impose fines totaling $10,000 each day for entities that don’t comply with the reporting rules, or $100,000 per each item of false information provided.
Fiduciary Rules: The measure would prohibit contracts between health plans, PBMs, provider networks or other entities that prevent plan fiduciaries from reviewing or auditing claims information to determine the “reasonableness” of compensation that the entity receives.
The Labor Department could assess civil penalties of as much as $10,000 per day against any entity that violates price transparency requirements. Plan fiduciaries would have to annually attest to the department that the plan meets those requirements.
PBMs and third-party administrators would also have to annually disclose information to fiduciaries on their total compensation, including all fees, rebates and pharmacy clawbacks, and drug spending. The disclosures would apply to contracts signed after Jan. 1, 2025.
‘Gag Clause’ Ban: The measure would bar health plans from restricting pharmacies from informing patients of the difference they pay out-of-pocket for drugs under their insurance plan compared to the amount they could pay without using insurance.
Plans would be required to ensure that PBMs they work with don’t restrict pharmacies from informing patients of the out-of-pocket difference.
Other Transparency Requirements
Provider Pricing: Starting Jan. 1, 2026, hospitals and ambulatory surgical centers would have to disclose prices for at least 300 common services to patients, including the gross charge, discounted cash price, and insurer-negotiated costs for each service.
HHS would have to establish a uniform method for providers to compile prices and make them public in a machine-readable format. HHS could impose civil penalties on providers that don’t comply with the rules and would be required to maintain a website detailing each hospital’s compliance.
The measure would also require laboratories to disclose prices for clinical diagnostic lab tests starting in 2026. Imaging services providers would have to disclose prices starting in 2028. Both would have to disclose the discounted cash price, or gross charge if there is none, and insurer-negotiated prices in a machine-readable format, and would be subject to civil penalties for noncompliance.
Health Coverage: Starting in 2026, group health plans would have to disclose the amount of money a participant or beneficiary would have to spend out-of-pocket on a specific item or service when requested. The information would have to include in-network rates; the maximum coverage amount for out-of-network services and any additional charges for which the patient may be liable; cost-sharing amounts from deductibles, copayments, or coinsurance; and any coverage limitations or requirements under the plan.
Health plans would be required to maintain a self-service tool online to provide the requested information in real time.
Group health plans would also have to make rate and payment information public each month, including in-network rates for services and drugs, the average amount paid for drugs dispensed to in-network providers, and amounts billed by out-of-network providers.
Medicare Organizations: Starting in 2025, Medicare Advantage organizations would have to report information to HHS on incentive-based payments made to health-care providers with an ownership or control interest in the organization, as well as shared losses recouped from them.
Medicare Part D drug plan sponsors would have to report to HHS on each pharmacy in which the sponsor, or a pharmacy benefit manager offering services under the plan, has an ownership or control interest.
Starting in 2029, the Medicare Payment Advisory Commission would have to release a report on the state of vertical integration in Medicare every three years.
Funding & Offsets
Funding: The measure would provide HHS and the Treasury Department with $25 million to implement the transparency and PBM provisions. The Labor Department would receive $12 million to implement the bill’s changes under its purview.
The bill would also cut $7 billion from the Medicaid Improvement Fund.
Generic Drug Development: The measure would direct HHS to inform generic drug applicants of whether their ingredients are “qualitatively and quantitatively” different from those in the brand-name drug.
HHS would be required to disclose the ingredients that would enable the generic drugmaker to establish “sameness,” a requirement to receive FDA approval.
The department couldn’t change or rescind a sameness determination after a generic drug application is submitted unless the formulation of the brand-name drug has changed because of safety or effectiveness, or unless an error was identified in the determination.
Within one year of the bill’s enactment, HHS would have to issue guidance on how it would determine whether a generic drug is qualitatively and quantitatively the same as the brand-name drug.
Off-Campus Outpatient Departments: Under the measure, Medicare and its beneficiaries would pay the same rate for physician-administered drugs in off-campus hospital outpatient departments as they do in physician offices, which typically have lower payment rates, according to the American Medical Association.
HHS would phase in the provision over four years, with the site-neutral payments being fully applicable beginning in 2028, or 2029 for hospitals in rural areas or areas with a shortage of health-care workers.
The measure would also require providers’ off-campus outpatient departments to obtain their own standard unique health identifier when billing for services on or after Jan. 1, 2026. Providers would have to attest to HHS that their departments are compliant with federal regulations related to provider-based status.
Budget Effects
The measure would reduce the deficit by $833 million from fiscal 2023 through 2033, according to a Sept. 14 Congressional Budget Office cost estimate, with some of the biggest savings coming from reduced Medicare payments to off-campus outpatient departments.
CBO estimates that the total cost of the private sector mandates in the bill would exceed the threshold set in the Unfunded Mandates Reform Act (UMRA), which is $198 million in 2023. Such mandates would include information collection requirements for PBMs, health insurers, health plan fiduciaries; fee disclosures; and gag clauses on pharmacies.
The bill also would impose intergovernmental mandates on hospitals and other health-care facilities by expanding an existing requirement to publish prices of services. The cost of the mandates would fall below the UMRA threshold, which is $99 million for the year.
Previous Action
Rodgers introduced the measure, called the “Lower Costs, More Transparency Act,” on Sept. 8 with Reps. Frank Pallone Jr. (D-N.J.), ranking member on the Energy and Commerce Committee; Jason Smith (R-Mo.), chair of the Ways and Means Committee; and Virginia Foxx (R-N.C.), chair of the Education and the Workforce Committee. Rep. Richard Neal (D-Mass.), ranking member on the Ways and Means Committee, opposes the bill.
The bill contains provisions from multiple committee-approved bills, including:
- H.R. 3561, which the Energy and Commerce Committee approved 49-0 on May 24.
- H.R. 4507, which the Education and the Workforce Committee approved 38-1 on July 12.
- H.R. 4508, which the Education and the Workforce Committee approved 39-1 on July 12.
- H.R. 3284, which the Ways and Means Committee approved 23-17 on July 26.
Prospects
The House is scheduled to consider H.R. 5378 under suspension of the rules on Sept. 18. A two-thirds majority would be required for passage.
To contact the analyst: Karl Evers-Hillstrom in Washington at kevershillstrom@bloombergindustry.com
To contact the editors: Danielle Parnass at dparnass@bloombergindustry.com; Naoreen Chowdhury at nchowdhury@bgov.com