On October 29, 2020, the Department of Health and Human Services (“HHS”), the Department of Labor, and the Department of the Treasury (collectively, the “Departments”) released the Transparency in Coverage Final Rules (the “Final Rules”), which requires non-grandfathered group health plans and health insurance issuers offering non-grandfathered health insurance coverage in the individual and group markets to disclose certain information including negotiated rates with providers and estimated out-of-pocket expenses to enable consumers to make informed health care purchasing decisions.

According to the Final Rules, the transparency in coverage requirements will provide the following consumer benefits:

• enable consumers to evaluate health care options and to make cost-conscious decisions;

• strengthen the support consumers receive from stakeholders that help protect and engage consumers;

• reduce potential surprises in relation to individual consumers’ out-of-pocket costs for health care services;

• create a competitive dynamic that may narrow price dispersion for the same items and services in the same health care markets; and

• put downward pressure on prices which, in turn, potentially lowers overall health care costs.

Participants, Beneficiaries, and Enrollees Disclosure Requirements

The Final Rules are intended to enable participants, beneficiaries, and enrollees to obtain an estimate of their potential cost-sharing liability for covered items and services they might receive from a particular health care provider, so the rules require group health plans and health insurance issuers to disclose certain information relevant to a determination of a consumer’s out-of-pocket costs for a particular health care item or service upon request. This information includes seven content elements for disclosure:

1. ​Estimated cost-sharing liability: The estimated amount, in dollars, a participant, beneficiary, or enrollee would be expected to pay for a covered item or service (or bundled payment arrangement, as applicable) under the terms of the plan or coverage, which must include all applicable forms of cost-sharing (g., deductibles, coinsurance, and copayments), and should be calculated based on in-network rates, out-of-network allowed amounts, and individual-specific accumulators (e.g., deductibles and out-of-pocket limits).

2. Accumulated accounts: The amount of financial responsibility that a participant, beneficiary, or enrollee has incurred at the time the request for cost-sharing information is made, with respect to a deductible and/or an out-of-pocket limit, as well as any treatment limit on a covered specific item or service.

3. In-network rates: The negotiated rate and underlying fee schedule rate, reflected as a dollar amount, for an in-network provider or providers for a requested item or service, to the extent necessary to determine the participant’s, beneficiary’s, or enrollee’s cost-sharing liability, as well as an individual’s out-of-pocket cost liability for prescription drugs and the negotiated rate of the drug.

4. Out-of-network allowed amounts: The maximum amount a group health plan or health insurance issuer would pay for a covered item or service furnished by an out-of-network provider; alternatively, any other calculation that provides a more accurate estimate of the amount a plan will pay for the requested covered item or service, such as usual, customary, and reasonable amounts.

5. Items and services content list: A list of each covered item and service for which cost-sharing information is being disclosed that is subject to a bundled payment arrangement.

6. Notice of prerequisites to coverage: As applicable, informing the individual that a specific covered item or service for which the individual requests cost-sharing information may be subject to a prerequisite (e., requirements relating to medical management techniques that must be satisfied before a plan or issuer will cover the item or service) for coverage, including exclusively concurrent review, prior authorization, and step-therapy or fail-first protocols.

7. Disclosure notice: Notice that must include the following required disclaimers in plain language:

   and may include disclaimers that the plan or issuer deems appropriate, as long as they do not conflict with required information above. The Departments provided model language for the notice, but permits plans and issuers to create their own.

• Out-of-network providers may balance bill (required only if balance billing is permitted under state law);

• The estimated cost-sharing liability for a covered item or service is not a guarantee that coverage will be provided for those items and services;

• Actual charges for covered items and services may be different from those described in a cost-sharing liability estimate; and

According to the Departments, the requirements for disclosing to participants, beneficiaries, and enrollees are modeled after the specific price and benefit information disclosures required for Explanations of Benefits (“EOBs”), and these seven content elements generally reflect the same information included in an EOB after healthcare services are provided. These elements must be disclosed in “plain language”, defined as “written and presented in a manner calculated to be understood by the average participant, beneficiary, or enrollee.”

Under the Final Rules, plans and issuers are required to provide estimates for 500 items and services identified by CMS for plan years (in the individual market, for policy years) beginning on or after January 1, 2023. However, plans and issuers will be required to disclose pricing information with respect to all items and services for plan years (in the individual market, for policy years) beginning on or after January 1, 2024. CMS clarified that these items and services include covered prescription drugs and durable medical equipment.

CMS encourages plans to “further innovate around the baseline standards” for cost-sharing information to include quality information and other metrics that would assist in consumer decision-making.

Plans and issuers must disclose this cost-sharing information to participants, beneficiaries, and/or enrollees in two ways:

1. Internet-based self-service tool: A self-service tool, offering real-time responses, on an “internet website” for participants, beneficiaries, and enrollees to use, without a subscription or other fee, to search for cost-sharing information for covered items and services, by a specific in-network provider, all in-network providers, and out-of-network providers, as well as for out-of-network allowed amounts/permissible alternative metrics for specific items and services.

2. Paper form: If requested, all seven content elements in paper form, without a fee, with all information required for the self-service tool, to be mailed to a participant, beneficiary, or enrollee via the USPS or other delivery system no later than 2 business days after the request is received (or, alternatively, by phone or email if the participant, beneficiary, or enrollee requests disclosure by another means and it still meets all requirements).

Note, CMS also finalized a “special rule” which provides that, to the extent coverage under a plan consists of fully-insured group health insurance coverage, the plan satisfies the requirements of the Final Rules if the plan requires the issuer offering the coverage to provide the information pursuant to a written agreement between the plan and the issuer.

Public Disclosure Requirements

In the interest of making pricing information transparent to consumers, regulators, and researchers – and therefore enabling informed decisions, more effective competition, downward pressure on costs, and innovation in health care payment and delivery – the Final Rules require covered plans and issuers to make public, with respect to all their covered items and services:

• Negotiated rates with in-network providers;

• Data outlining different billed charges and allowed amounts paid for covered items and services furnished by out-of-network providers; and

• Negotiated rates and historical net prices for prescription drugs furnished by in-network providers.

This data will need to be published in at least two machine-readable files, one with information regarding rates negotiated with in-network providers (the “In-network Rate File”), and one with data on allowed amounts for items and services furnished by out-of-network providers (the “Allowed Rate File”). Reporting on information on prescription drugs that would have been included in the In-network Rate File (pursuant to the first requirement) will need to be included in a separate machine-readable file (the “Prescription Drug File”). All files will be required to be in a non-proprietary, open format, and will have to be updated on a monthly basis. These files are meant to provide information sufficient for consumers to connect specific providers to applicable pricing for the specific items and services that they furnish.

The public disclosure requirement applies to plan years beginning on or after January 1, 2022

The Departments declined to provide specific technical direction in the Final Rules, instead proposing to publish separate technical implementation guidance that could more easily be updated, and to provide targeted technical assistance to plans as needed. Technical implementation guidance for developing the machine-readable files will be made available on the collaborative GitHub platform, and updated monthly. The Final Rules did offer guidance on the required content elements for each file:

1. Name and identifier for each coverage option offered by a plan or issuer. Identifiers will be Employer Identification Numbers or Health Insurance Oversight System IDs, as applicable.

2. Billing codes. Codes should be the codes a plan or issuer uses for billing, adjudicating, and paying claims, and can include CPT codes, HCPCS codes, DRGs, NDCs, or other common payer identifiers. For items or services that do not have codes, a plan or issuer is permitted to select an indicate or its choosing.

3. Applicable rate/pricing data. Within each file, specific pricing information would have to be associated with a provider’s NPI, as well as a Place of Service Code and a TIN. Calculation of pricing information will differ between the three types of machine readable files.

• For the In-network Rate File, this data would consist of in-network applicable amounts – negotiated rates, amounts in underlying fee schedules, and derived amounts. This file will exclude prescription drug information, except when prescription drug products are included as part of an alternative payment arrangement. Appropriate calculation of this data may differ between and within plans and issuers, depending on how they pay their contracting providers. For instance:

  • Plans and issuers that reimburse providers based on a formula will be required to provide the calculated dollar amount of the negotiated rate for each provider.

  • Plans and issuers that do not have negotiated rates because they use alternative payment arrangements will be required to report derived amounts, if they are otherwise required to calculate such derived amounts in the normal course of business, and to note that such rates are subject to alternative payment arrangements.

  • A plan or issuer that uses a single billing code for a bundled arrangement will be required to report that single code and list the included items and services; if a negotiated rate exists for each item and service in a bundle, these rates will need to be included in addition to the negotiated rate for the total bundle.

  • For capitated payment models, plans and issuers will have to report both the PMPM or similar amount, prior to any adjustments for enrollee characteristics, and the underlying fee schedule, and to note any entry representing a capitated amount and list all items and services covered under that amount.

  • Other plans and issuers will similarly be required to report base rates – for instance, plans and issuers with value-based arrangements will be required to report negotiated rates prior to application of adjustments for achievement of quality goals.

  • If none of this data exists for an item or service because it is not subject to a negotiated rate, derived rate, or underlying fee schedule rate (for instance, in some staff model HMOs), the plan or issuer will not be required to report pricing information.

  • Plans and issuers will also be required to include in this file any underlying fee schedule rates that are used to calculate consumer cost-sharing liability.

• For the Allowed Amount File, this data will consist of allowed amounts and historical billed charges. Allowed amounts will be based on dates of service between 90 and 180 days of the Allowed Amount File publication date. Allowed amounts will consist of the actual amount paid by the plan or issuer plus the enrollee’s share of the cost. In addition, plans and issuers will be required to report billed charges, defined as the total charges for an item or service billed to a plan or issuer by a provider. Billed charge data will serve as a “child” to allowed amount data in the Allowed Amount File, such that each allowed amount will have under it the amount of each provider-billed charge. To address privacy concerns, plans and issuers will not be required to report out-of-network allowed amounts in relation to a particular provider and particular item or service when doing so would result in reporting amounts associated with fewer than twenty claims for payment.

• For the Prescription Drug File, this data would consist of negotiated rates and historical net prices. Negotiated rates will be broadly defined to mean the amount a plan or issuer has contractually agreed to pay an in-network provider, including an in-network pharmacy, for covered items and services, whether directly or through a TPA or PBM. Recognizing that prescription drug rates fluctuate frequently, the Departments clarified that when a plan or issuer uses a formula for reimbursement, the reported negotiated rate should be the rate used by the plan or issuer to reimburse providers on the date the file is extracted. Historical net price is defined to mean the retrospective average amount a plan or issuer paid to a drug manufacturer for a prescription drug, inclusive of rebates, discounts, chargebacks, fees, and other price concessions, for the period between 90 and 180 days before the publication of the Prescription Drug File. As for allowed amounts, to address privacy concerns, plans and issuers would not be required to report historical net price data in relation to a particular pharmacy and particular drug code when to do so would require reporting a historical net price associated with fewer than twenty different claims.

While the Final Rules offer some allowances for operational efficiencies involving contracts between plans and issuers, between issuers and third parties, and to allow aggregation of certain out-of-network allowed data, the Final Rules largely do little to mitigate and in some cases add onto the burden on plans and issuers suggested in the proposed rule.

Throughout their commentary, the Departments focused heavily on the dilatory effects of free operation of the market where consumers are well-informed about the pricing of goods and services. The Departments repeatedly rejected concerns that publication of negotiated rates would distort health care markets, opining that additional transparency would instead to counteract price distortions currently in the market. For instance, in responding to a concern that disclosure of negotiated rates could impair issuers’ ability to reward high performing providers with higher reimbursement, and that small health plans who negotiated discounted rates by offering plans in limited service areas could be harmed, the Departments responded that they “understood that requiring release of this pricing information may impact commercial arrangements and result in certain one-time and ongoing administrative costs”, but that these harms were outweighed by the benefits of the transparency. Meanwhile, although the Departments also noted concerns about conflicts between the requirements of the Final Rules and gag clauses and non-disclosure agreements in payor agreements, they responded simply by noting that “the onus for ensuring a contract provision does not violate applicable law rests with the parties to the contract.”

The Departments likewise dismissed concerns that release of pricing information would create an excessive focus on price, to the exclusion of other important features of health care providers, noting that quality information is also available to consumers through many fora. And, although the Department noted concerns that data would be too confusing to be useful to consumers and that the format would not be conducive to use, it responded that the availability of data could only improve consumer decision-making, and that it expected third-party developers to make pricing information available to the public in user-friendly formats.

Medical Loss Ratio Changes

HHS also finalized amendments to the medical loss ratio (“MLR”) regulations to allow group and individual health insurance issuers to receive credit in their MLR calculations for savings they share with enrollees that result from the enrollees shopping for, and receiving care from, lower-cost, higher-value providers. The change is effective with the 2020 MLR reporting year.

HHS identified the following shared savings arrangements as already in use with enrollees:

• Savings are calculated as a percentage of the difference between the rate charged by the provider chosen by the enrollee for a medical procedure and the average negotiated rate for that procedure across all providers in the issuer’s network.

• Shared savings are provided as a flat dollar amount according to a schedule that places providers in one or more tiers based on the rate charged by each provider for a specified medical procedure.

• Shared savings are provided in form of a gift card, a reduction in cost sharing, or a premium credit.

According to HHS, allowing flexibility for issuers to include savings they share with enrollees in the numerator of the MLR would increase issuers’ willingness to undertake the investment necessary to develop and administer plan features that may have the effect of increasing health care cost transparency, which in turn could lead to reduced health care costs.