What you can’t see does cost you

U.S. Chamber sides with special interests against mainstreet business interests in suit to keep healthcare prices hidden

The U.S. Chamber of Commerce and pharmacy benefit managers (PBMs) filed separate lawsuits in August challenging key elements of a price transparency rule for health plans finalized last fall by the Trump administration. This rule took a historic step to finally provide patients meaningful information on health care prices upfront and empower innovators to develop tools for patients to make better, value-conscious decisions. Special interests, such as the PBMs, have long profited from hidden pricing and these lawsuits are clear efforts to avoid having to compete on price.

Historic price transparency rule

In June 2019, President Trump issued an Executive Order on Improving Price and Quality Transparency in American Healthcare To Put Patients First, making price transparency one of his administration’s top healthcare priorities. The goal of the EO is simple: to increase competition, innovation, and value in the health system by making price and quality information more broadly available.

America’s health care system has long had a cost problem. Health care costs consistently rise faster than the overall inflation rate and, as a result, consume a greater portion of the economy. Hidden pricing is a key contributor to this cost problem. Simply put, providers don’t have to compete for individual patients on price when the price is hidden. This, in turn, substantially lessens the competitive pressure to keep prices down.

For decades, powerful special interests that profit from hidden pricing, including PBMs, large hospital systems and health insurers, have successfully held back or watered-down price transparency efforts.

However, they failed to water down the health plan transparency rule. This rule will deliver price transparency across most private health plans and for every item and service they cover. It builds on a number of other federal initiatives to promote price and quality transparency, including a hospital transparency rule which now requires hospitals to publicly post the prices they negotiate with health plans. This rule has already been litigated and upheld by the courts.

Because of the health plan transparency rule’s breadth and how it takes on a root cause responsible for the high and rising cost of American health care, Centers for Medicare & Medicaid Services Administrator (CMS) Seema Verma said it “represents perhaps the most consequential healthcare reform in the last several decades.”

Trump sponsored, Biden approved

It appears the Biden administration has fully approved the price transparency initiatives sponsored and finalized by the Trump administration. In July, Biden directed the Secretary of Health and Human Services to “support existing price transparency for hospitals, other providers, and insurers.” Under this executive order, CMS has already proposed a rule to significantly increase the penalties on hospitals for not complying with the hospital transparency rule. And since the lawsuits were filed, CMS issued a set of Frequently Asked Questions affirming their commitment to enforce the key elements of the health plan transparency rule.

Lawsuits challenge transparency rule

The Biden administration has already taken concrete action to promote price transparency. Litigation risks undermining the health plan transparency rule’s comprehensive effort to apply meaningful transparency across every individual health insurer, employer health plan, hospital, clinic, and pharmacy.

The health plan transparency rule includes two main requirements. First, it requires health plans to provide an online shopping tool that provides the price for all items and services that the plan covers and an estimate of the consumers out-of-pocket costs. Second, it requires health plans to publicly post data files online with additional pricing information in a “machine-readable format” that can be easily imported into a computer. This includes three separate data files with in-network negotiated prices, historical out-of-network prices paid, and prescription drug pricing. The lawsuits focus entirely on challenging aspects of this second requirement:

• First, they argue the entire machine-readable file requirement is unlawful because it violates the ACA’s requirement that the information must be provided in “plain language.” The essence of their argument is that the machine-readable file is by design a large, unwieldy data file with technical jargon designed to be imported into a computer and, therefore, by design is not plain language and cannot be understood by the general public.
• Second, they challenge the requirement to disclose the “historical net price” of prescription drugs within the machine-readable file. This is an estimate of the price a health plan paid for an in-network prescription drug after rebates or any other price concessions are paid to the plan. The historic net price aims to provide an estimate of the total price the plan ultimately paid for the drug. While they make several arguments challenging this requirement, the main argument claims the historical net price is not a logical outgrowth from the proposed rule because the proposed rule does not include any specific reference to it and, therefore, deprived the public from a meaningful opportunity to comment.

Neither of these arguments are surprising — the final rule anticipated each of them — and so the U.S. Department of Justice should be prepared to provide a clear and convincing answer in court.

U.S. Chamber drops their complaint

The U.S. Chamber filed its case in the Eastern District of Texas in partnership with the Tyler Area Chamber of Commerce. While a lawsuit was expected, the U.S. Chamber’s lead role in this challenge is a surprise. Though the U.S. Chamber has many members with a strong interest in keeping prices hidden — including health insurance carriers, third party administrators of self-funded group health plans, and PBMs — they have many members, maybe a majority that support the rule.

It appears the Tyler Area Chamber of Commerce got an earful from these businesses and withdrew from the lawsuit. In an email to the U.S. Chamber, the Tyler Area Chamber of Commerce explained it wanted to withdraw “based on feedback from community leadership.” As a result, the whole complaint was dropped, leaving just the one complaint filed by the PBMs.

The U.S. Chamber dropped its lawsuit, but critics are still asking a lot of questions. Many U.S. Chamber members are likely struggling to understand why the organization filed the complaint in the first place. By representing so many businesses, the U.S. Chamber cannot please every member all of the time, but price transparency is a major issue with clear bipartisan support. Businesses across America are growing more and more frustrated with the chronic difficulty in managing the rising cost of health care for their employees. Thus, taking legal action against the health plan transparency rule appears in direct conflict with the interests of a large portion of U.S. Chamber members.

As the Wall Street Journal reports, this conflict surfaced in a simple question posed by the chief executive of Employee Benefits Consulting who asked the Tyler chamber, “why would a self-funded employer not want transparency in healthcare pricing?”

Instead of buying health insurance, a majority of employers are “self-funded,” meaning that they assume the financial risk of their employees’ health care benefits. Most of these businesses write lump-sum checks to pay their employees’ health care expenses without ever knowing the price of any individual service because they contract with a third-party administrator (TPA), often a health insurance company, that keeps the price hidden. This makes it very difficult for a self-funded plan to assess whether the TPA is negotiating good pricing. Moreover, there’s little opportunity for the employer to design a health plan that helps steer and reward employees for choosing lower-cost, higher-value care.

Recognizing these constraints, most employers should welcome transparency. Indeed, the right question is, why would they not want transparency? Why would they not want to know whether their TPAs are actually negotiating a good deal on their behalf?

Many TPAs don’t negotiate well

The fact is, recent research and the newly released hospital transparency data suggests many TPAs do not deliver good pricing. A 2019 study published by the RAND Corporation found wide variations in private hospital care pricing relative to Medicare, ranging from around 150 percent of Medicare at the low end up to 438 percent on the high end. The study asks the obvious question, “whether it is reasonable and necessary for some employers to be paying prices three times as high as Medicare, especially when apparently similar hospitals may have prices that are closer to Medicare’s reimbursement rates.” Seeing this unexplainable variation in pricing, the study concludes this variation “represents an important opportunity for employers to save money.”

A New York Times analysis of the pricing data newly required by the hospital transparency rule draws similar conclusions and pointedly notes how the data “hints at why the powerful industries wanted this information to remain hidden.” The data showed wide variations in pricing and “numerous examples of major health insurers … negotiating surprisingly unfavorable rates for their customers.” In fact, they uncovered cases where the negotiated price was higher than the price for customers with no coverage at all.

With this failure to negotiate good pricing on behalf of employers coming into clear view — and in no small part thanks to federal transparency rules — the U.S. Chamber’s initial participation in this litigation makes no sense. Member businesses are not getting a good deal from health insurers and TPAs. Nonetheless, the U.S. Chamber filed a suit that appears focused on protecting the interests of health insurers and TPAs at the expense of every other employer.

Comparing the public comments of the U.S. Chamber and health insurers submitted on the transparency rules strongly suggests the U.S. Chamber is just carrying water for the health insurers. The U.S. Chamber’s complaint and their public comments on the transparency rules read like they were cut and pasted from the health insurance industry’s comments. Their complaint asserts the rule’s provisions “threaten to reduce competition, and ultimately raise costs to consumers.” Likewise, in comments to the proposed rule, America’s Health Insurance Plans (AHIP) — the largest health insurer association in the country — asserted “the contemplated disclosures will reduce competition, lead to higher prices, and cause consumer confusion.” Showing further alignment, both the U.S. Chamber’s complaint and AHIP’s comments raised the same constitutional objections under the Takings Clause and the First Amendment that the PBMs notably never raised.

Clearly, health insurers have the most to lose if this rule takes effect. It’s certainly curious that they did not file a lawsuit, while the U.S. Chamber did file a lawsuit which hewed closely to the health insurers’ legal comments on the proposed rule.

It’s hard to not draw the conclusion that the U.S. Chamber’s health insurer and other health care industry members paid them a good sum of money to lead opposition to the rule. It would not be the first time health insurers paid off the U.S. Chamber to support their interests. As The Hill reported in 2012, insurers gave the U.S. Chamber over $100 million in 2009 and 2010 to fight Obamacare. The big difference here is that the price transparency pay-off directly works against the interests of the rest of the U.S. Chamber’s members. This begs the question: Does the U.S. Chamber still represent American main street businesses?

Looking ahead

Of course, it is highly uncertain how any one judge will view and rule on any legal issue and this is no exception. The U.S. Chamber filed its case in the Eastern District of Texas. The PBMs filed their case in the U.S. District Court of the District of Columbia, certainly a more liberal district than Texas.

The U.S. Chamber and the PBMs likely coordinated where these cases were filed to take advantage of this diversity because price transparency is not a clear conservative or liberal issue. It’s a smart move to put the issue before judges who likely have different legal philosophies.

Filing these cases in differing districts also increases the chance of conflicting opinions, which would help expedite moving the question to the U.S. Supreme Court. Now that the U.S. Chamber dropped their complaint, the PBMs are left to fight on their own in D.C. before the same court that upheld the hospital transparency rule. That was a different rule with a different statutory basis and so the decision to uphold the hospital rule does not telegraph how the court will rule in this case.

Defeating transparency will be difficult

If the PBMs win their case, it will be a serious setback to broad and meaningful price transparency. The machine-readable file requirement may ultimately provide the most helpful information to consumers. These files are standardized so software developers and other innovators can easily aggregate the information to develop tools that helps consumers make educated and actionable pricing comparisons across providers.

Fortunately, if the PBMs are successful, it’s more likely they would only succeed on their challenge to the historical net pricing information for prescription drugs. Their challenge to the entire machine-readable file basically rests on the thin claim that a computer data file cannot be “plain language” for people because the file is structured to be read by computers. Yet, the rule requires a plain language description for each item and service in the file. The PBMs are effectively asking the court to ignore the role of computer technology in distributing information to the public. That is not likely to be a winning argument.

Even if the PBMs win this case, price transparency will be hard to defeat over the long-term. As noted previously, the courts have already upheld the hospital transparency rule and we’re already seeing preliminary research that reveals how consumers and employers can benefit from this transparency. It will be incredibly hard for the PBMs and other special interests to continue arguing for hidden pricing when more and more hospital pricing information comes to light.

Moreover, the health plan transparency rule has the backing of both the prior and the present presidential administrations. Even if the courts vacate the rule, there will likely remain avenues to accomplish the same goal in future rulemaking or lawmaking. The status quo is not working across America’s health care system and the public’s patience is wearing thin. Thanks to these new federal rules, the public interest now has the advantage over special interests.