Two New Lawsuits Challenge Insurer Transparency Rule
Within two days, the U.S. Chamber of Commerce and the Pharmaceutical Care Management Association (PCMA) filed separate lawsuits to challenge the Trump administration’s transparency rule for health insurers. Under this rule, group health plans and health insurers must disclose certain cost-sharing estimates to enrollees and publicly release negotiated rates for in-network providers, historical out-of-network allowed amounts and billed charges, and drug pricing information.
The Chamber (joined by the local chamber of commerce in Tyler, Texas) filed its lawsuit in the eastern district of Texas; PCMA filed its lawsuit in district court in Washington DC. Both lawsuits challenge the transparency rule under the Administrative Procedure Act (APA) and focus solely on the requirements related to disclosure of rates and other pricing information (i.e., not the parts of the rule related to cost-sharing estimates).
The transparency rule was finalized in late October 2020 but, to my knowledge, has not been challenged in court until now. However, litigation is not surprising. The preamble to the final rule included an extensive legal justification after commenters questioned the rule’s statutory basis and constitutionality. And a related hospital transparency rule had been challenged in court (but has since been upheld and gone into effect). Insurers may have hoped for a reprieve (or at least a delay) in this rule from the Biden administration but appear to have now filed given that parts of the rule go into effect in 2022.
Even if the Chamber and PCMA are successful here, more transparency requirements are coming. In the Consolidated Appropriations Act enacted in December 2020, Congress included several additional new transparency requirements (both within the No Surprises Act and beyond). Some of these changes will directly benefit consumers through improved information while others will enhance the collection of data for use by researchers, the media, and policymakers. Most relevant to this lawsuit, the new law requires plans and insurers to submit data on pharmacy benefits and drug costs to federal regulators on an annual basis. This information will be compiled in a publicly available biannual report.
Brief Background
Increased price transparency was a long-standing priority of the Trump administration. Among other actions, President Trump issued an executive order on health care price and quality transparency in June 2019. The order directed the Secretaries of the Departments of Health and Human Services (HHS), Treasury, and Labor to, within 90 days, solicit comment on how providers, insurers, and group health plans could be required to disclose information about expected out-of-pocket costs before a patient receives care. The executive order technically directed the agencies to issue an advance notice of proposed rulemaking (such as a request for information), but the agencies moved directly to rulemaking.
The Departments issued the proposed insurer transparency rule in November 2019. Comments were originally due in mid-January 2020, but HHS briefly extended the comment deadline in response to insurer requests. The Departments received more than 25,000 comments and, in response to comments, significantly increased cost estimates for the final rule and delayed some applicability dates.
The rule’s goal is to enable enrollees to estimate their cost-sharing before receiving health care to encourage shopping and price competition. To this end, the final rule requires group health plans and insurers in the individual and group markets to 1) disclose cost-sharing estimates at the request of an enrollee (beginning in 2023); and 2) publicly release negotiated rates for in-network providers, historical out-of-network allowed amounts and billed charges, and drug pricing information (beginning in 2022). To meet the latter requirement, plans and insurers must disclose pricing information in three machine-readable files: one on all applicable rates (including negotiated rates, underlying fee schedules, or derived amounts) with in-network providers for all covered items and services (the “in-network rate file”); one on billed charges and allowed amounts for covered items and services provided by out-of-network providers (the “allowed amount file”); and one on negotiated rates and historical net prices for prescription drugs furnished by in-network providers (the “prescription drug file”). This information must be updated monthly and made publicly available on an insurer or plan’s website free of charge.
The latter part of the insurer transparency rule is based solely on legal authority under the Affordable Care Act (ACA), including Section 1311(e)(3) of the ACA and Section 2715A of the Public Health Service Act (enacted by the ACA). Both this rule and a complementary hospital transparency rule were key examples of how the Trump administration leveraged provisions of the ACA to achieve some of its major health care priorities, even while arguing against the ACA in court. Given this framework, state insurance regulators are the primary enforcers of the transparency rule for fully insured plans and policies. The Department of Labor will enforce the final rules for group health plans subject to ERISA, Treasury will oversee certain church plans, HHS will oversee non-federal governmental plans, and the Office of Personnel Management will oversee the Federal Employees Health Benefits Plans.
The insurer transparency rule complements a similar hospital transparency rule issued by HHS in November 2019. That rule, which was also required under President Trump’s executive order, directed HHS to require hospitals to post standard charge information based on negotiated rates for common or shoppable items or services. The rule was quickly challenged in court by the American Hospital Association but upheld by the district court and the DC Circuit. The hospital transparency rule went into effect on January 1, 2021, although compliance by hospitals has been mixed.
On July 9, 2021, President Biden signed an executive order to promote competition. This executive order touched on a range of topics but expressly directed HHS to “support existing hospital price transparency rules.” Pursuant to the executive order, HHS recently proposed increasing penalties on hospitals that fail to comply with the Trump-era rule to a minimum of $300/day per hospital, to a yearly maximum of $2 million per hospital. The executive order did not mention the separate insurer transparency rule at issue here, but the disclosure of negotiated rates includes hospitals so the insurer transparency rule may have been contemplated under that directive.
The Lawsuits
The Chamber’s lawsuit was filed on August 10, 2021 and assigned to Judge Jeremy Kernodle (a 2018 Trump appointee) in federal district court in the eastern district of Texas. PCMA’s lawsuit was filed on August 12, 2021 and assigned to Judge John Bates (a 2001 Bush appointee) in federal district court in DC. (Regular readers may recall that Judge Bates invalidated parts of the Trump administration’s rule on association health plans in 2019.)
The two lawsuits are similar in scope. The plaintiffs in both argue that they and/or their members will be harmed by parts of the transparency rule and that the provisions that require the disclosure of machine-readable files and prescription drug pricing data violate the APA and are inconsistent with the ACA. They each ask for the challenged provisions to be declared unlawful and vacated.
Machine-Readable Files
Under Section 1311(e)(3)(A), insurers that want to offer marketplace plans must submit data to the marketplace, HHS, state insurance regulators, and the public. The statute includes a list of the data that must be provided (e.g., data on enrollment and disenrollment, claims denials, cost-sharing, etc.) and a catch-all provision for additional disclosures requested by the Secretary of HHS. Section 1311(e)(3)(B) requires any information submitted under Section 1311(e)(3)(A) to be provided in “plain language,” which is defined as “language that the intended audience, including individuals with limited English proficiency, can readily understand and use because that language is concise, well-organized, and follows other best practices of plain language writing.” Section 2715A generally extends this disclosure requirement to group health plans and health insurers.
The plaintiffs argue that these statutes do not authorize the disclosure of information in “machine-readable files” because these files are inconsistent with the “plain language” requirement. This argument applies to all three machine-readable files: the in-network rate file, the allowed amount file, and the prescription drug file. Machine-readable files, they argue, are read by a computer (not a person) and will necessarily include complicated pricing data and jargon that cannot be used and understood by the average consumer. These files are “the opposite of a simple, plain-language disclosure requirement” that Congress did not authorize under Section 1311. This is true, the plaintiffs argue, even if the information is ultimately translated into consumer-friendly tools by third parties such as app developers.
The plaintiffs also claim that machine-readable file requirement is arbitrary and capricious. The connection between machine-readable files and user-friendly consumer tools that enable cost-conscious decisions is “anything but direct,” since consumers will not be able to use the raw data included in the machine-readable files. Even if this information could be made usable by consumers via third-party app developers, other parts of the rule require the development of cost-sharing self-service tools that would better accomplish this goal. They further take issue with the rule’s cost-benefit analysis and decision not to delay the rule’s effective date, despite comments urging the agencies to do so.
It is not clear if these arguments will win the day. But, even if they do, the Chamber and PCMA appear to object to the form of the disclosure under the rule, rather than the substance. It raises the question of whether the agencies would cure this alleged defect by requiring plans and insurers to go beyond the disclosure of machine-readable files and incorporate this information into a more public-facing tool that could be used by consumers even more directly.
Historical Net Price Requirement
The Chamber and PCMA also focus on the prescription drug file, arguing that federal officials cannot require the disclosure of “historical net price” information (i.e., the price paid for prescription drugs after deducting any drug manufacturer price concessions). On this point, they raise procedural and substantive concerns under the APA and hint at constitutional questions about the rule.
First, they argue that the Departments exceed their statutory authority in requesting this information. The cited authority for this requirement is Section 1311(e)(3)(A)(ix), which is a catch-all provision that allows the collection and disclosure of “[o]ther information as determined appropriate by the Secretary [of HHS].” The disclosure of historical net price information on prescription drugs, they argue, is too dissimilar to the other types of information that Congress explicitly said must be disclosed under Section 1311(e)(3)(A)(i)-(viii). That information—such as data on enrollment and disenrollment—involves “comparatively simple, coverage-related information” that may already be disclosed to patients. In contrast, the disclosure of historical net prices will require the release of “complex commercially sensitive pricing information that is confidential, is not publicly available, and has no relevance to a patient’s cost-sharing obligations.” PCMA takes an even harder line, asserting that HHS’s authority to require disclosures extends only to consumer-facing information relevant to an enrollee’s rights or benefits under a plan to help a consumer select among different plan options.
These arguments notwithstanding, the Departments point out, the statute clearly gives HHS broad authority to require the disclosure of additional information “as determined appropriate by the Secretary.” The Departments recognize that the Secretary could only require disclosures “of similar character” to the enumerated items, but many of the explicit items outlined in Section 1311(e)(3)(A)(i)-(viii) are not entirely consumer-facing (such as “[p]eriodic financial disclosures” and “rating practices”). Even so, the Chamber and PCMA argue that the Secretary does not have “carte blanche” to impose new disclosure requirements that are unlike those that Congress specifically laid out in statute; they assert that Congress would have been specific if it wanted to grant HHS the authority to require the disclosure of trade secrets and other proprietary information.
PCMA also points to a separate provision under the ACA that already requires pharmacy benefit managers and some insurers to report certain information relevant to the historical net price. This statute, PCMA notes, limits the disclosure of this information to HHS and even then only requires reporting in aggregate (rather than drug-specific data). HHS has also spelled out related prescription drug-related reporting requirements in other contexts, such as through the medical loss ratio formula.
Second, the Chamber and PCMA argue, construing Section 1311(e)(3)(A)(ix) to authorize the disclosure of historical net prices raises constitutional questions. The plaintiffs suggest that this provision would constitute a taking of private property in violation of the Takings Clause of the Fifth Amendment by depriving plans and insurers from “the opportunity to continue to obtain a competitive advantage from trade secrets.” They also generally raise federalism concerns because this broad authority for HHS would undermine the role of states as the primary regulators of private health insurance. Finally, they raise concerns about the nondelegation doctrine, suggesting that Congress did not provide a limiting principle for the catch-all provision.
Third, the Chamber and PCMA argue that the rule violates the APA because the separate prescription drug file and historical net price disclosure requirement was not contemplated or mentioned in the proposed rule. Therefore, the Departments did not receive public comment on this requirement. (The PCMA complaint outlines this history in detail and emphasizes that it would have commented differently had it received proper notice of this policy.) This part of the final rule then cannot be considered a “logical outgrowth” of the proposed rule, and the public should have been given the opportunity to comment on this provision in advance of its adoption in the final rule.
Finally, the plaintiffs argue that the historical net price disclosure requirement is arbitrary and capricious: This requirement was not adequately justified, and the disclosure will not achieve its goal of lowering out-of-pocket spending. The Chamber and PCMA question the agencies’ reasoning that some consumers may want to base their prescription drug decisions on the amount their plan or insurer pays (rather than the consumer’s own out-of-pocket costs). They also think it is a stretch that this disclosure will expose rebates and other price concessions in a way that reduces the use of those concessions. PCMA makes several additional arguments about how the requirement will affect pharmacy benefit managers and reflects a shift from other policies adopted under programs such as Medicare Part D. Overall, the plaintiffs argue that the requirement is unjustified, illogical, and inadequately explained.