Complex regulations to generate higher quality and cost-effective employer-provided healthcare are underway. Here’s why CFOs need to be involved.
By Russ Banham
StrategicCFO360, a Chief Executive publication
Although few things tie together Presidents Obama and Trump, both leaders signed laws requiring group health plan providers and sponsors (employers) to disclose detailed price information to plan participants (employees) on medical services prior to receiving care.
The rules are predicated on putting more information in the hands of consumers, such as their cost-sharing liability for possible medical procedures, hospital stays, follow-up care and medications. These costs differ across a plan provider’s distributed healthcare facilities, with doctors and hospitals in one location charging more or less than other locations. Acquiring this information easily and quickly today online is nigh impossible.
The two laws—the Affordable Care Act (ACA) signed in 2010, and the Consolidated Appropriations Act (CAA) signed in 2020—put forth various provisions to eventually make this a walk in the park. For much of the past two years, plan providers and sponsors have ingested (and hopefully digested) hundreds of pages of regulations involving myriad medical care services, related prices and cost-sharing information. “There are thousands and thousands of healthcare services that must be matched to information on what each health plan pays for them,” said Christi Skalka, managing director in audit and advisory firm Deloitte’s healthcare practice.
Doing most of the ingestion within companies are HR leaders, given their remit to manage employee healthcare benefits. It’s a full plate. Few regulations are as confounding as those involving healthcare and this is certainly the case with the latest menu item.
A case in point is compliance. For fully insured healthcare plans, the issuing health insurer is ultimately responsible and liable for compliance if the plan sponsor enters into a written agreement with the insurer. Alternatively, although third-party administrators (TPAs) and pharmacy benefit managers (PBMs) are expected to be the reporting entity on behalf of plan sponsors (employers) that self-insure the healthcare plan, compliance responsibility and liability fall to the sponsor. Bear in mind that most large companies self-insure, putting these financial considerations squarely in the CFO’s purview.
StrategicCFO360reached out to more than a dozen CFOs about their oversight of the price transparency rules for interview purposes. All declined the opportunity, with a few offering to pass the request on to their organization’s HR leader. “For the most part, these rules are not on the CFO’s radar, unless they’re in the healthcare industry,” Skalka said.
Attention Must Be Paid
Indifference is not a solution. “CFOs should be focused on these highly technical laws,” said Molly Iacovoni, senior vice president in insurance broker Aon’s legal consulting group. “Significant penalties of up to $100 per day, adjusted annually, for each individual affected by the violation, may apply, in addition to the possibility of civil penalties.”
The federal government also would require a non-compliant employer to perform corrective actions, she said. “Depending on the number of plan participants or how the government interprets the $100 per day provision in this context, the penalties could be extremely significant,” Iacovoni added.
How “significant?” For a company with hundreds of employees, the penalties could easily reach into the millions of dollars. For a large publicly traded company that self-insures with thousands of employees, the financial impact could be severe, putting the CFO on the spot to explain the inaction, which if significant could ignite a shareholder class action derivative lawsuit.
“If the company is audited at some point, the CFO will need to prove the organization is in compliance with the rules,” said Anu Gogna, senior director, research and innovation center, in the health and benefits technical services practice at insurance broker Willis Towers Watson.
Three for the Road
Here’s a brief look at three time-sensitive regulations within the ACA and the CAA. For more in-depth information, readers are advised to peruse the actual laws.
The Transparency in Coverage Rule and No Surprises Act stemming from the ACA requires most group health plans to create and disclose Machine Readable Files (MRFs) on July 1, 2022. An MRF is a digital representation of data within a file that can be imported into a computer system for processing. In the healthcare context, the MRFs are formatted to make it easier for researchers, regulators and application developers to access and analyze data.
On that date (now obviously passed), all covered items and services offered by a plan provider and the in-network suppliers of medical care must be filed in the MRF, along with the cost of billed charges and applicable cost-sharing data, such as deductibles, co-insurance, co-payments and the amount a plan participant has paid toward the deductible and out-of-pocket maximum.
All this data needs to be updated monthly and published, via a link to a public website (though not for access by plan participants—not yet). As mentioned, the data at this stage will be available primarily to researchers, regulators and app developers. “As the name implies, MRFs are intended to be read by machines and are not meant to be participant facing,” Iacovoni explained.
The link and what constitutes a public website are gray areas yet to be cleared up. Some group health plans have public websites, others don’t. “Employers should consult with counsel to determine whether the information or function of a public website has enough of a connection to the employee benefits plan to render the website `the plan’s’ website,” she said.
Employers that sponsor a fully insured medical plan with an insurance carrier can delegate the MRF compliance to the carrier through a written agreement. Midsized and larger corporations that typically self-insure the group health plan, however, must ensure the TPA of the plan has complied with the rule by the deadline, now passed. “Even if the employer delegates the MRFs to a TPA through a written agreement, the employer as the plan sponsor is responsible and liable (for compliance),” Iacovoni reiterated.
The next rule arising from the Transparency in Coverage law requires plan providers and sponsors to provide employees by January 1, 2023, an online self-service tool to evaluate 500 of the most “shoppable” healthcare services, such as a shoulder surgery or the removal of a mole. Exactly one year later, online self-service tools also must be developed and provided to employees to shop for prescription drugs.
The third regulation (stemming from the CAA) is the Prescription Drug Data Collection rule, known as RxDC. The rule requires healthcare plans, insurers, TPAs and PBMs to submit information on prescription drug spending to the Centers for Medicare and Medicaid Services (CMS), beginning on December 27, 2022. Several government departments (Labor, Treasury, Health and Human Services) plan to use this information to issue public reports on prescription drug pricing costs and trends.
From a compliance standpoint, RxDC is as challenging and punitive as the Transparency in Coverage rules for employers. “A self-insured health plan retains responsibility and liability,” Iacovoni said, “even if the employer delegates the posting of the MRF or submission of the RxDC to a TPA and/or a PBM, which they will; hence the need for CFOs to monitor and confirm this is being done.”
Apples to Apples
The biggest hurdle in achieving the government’s aims is turning an MRF into decision-making information for plan participants. “What’s up next is rolling out the price comparison tools to demystify the spending decisions for consumers,” said Sally Wineman, area senior vice president, compliance, at large insurance broker Gallagher.
“Rolling out” is not as easy as it the words imply. Transforming voluminous data—a single MRF can exceed a terabyte of data—into an insightful decision-making tool is so technically complicated that many health plans are relying on third-party technology entrepreneurs to help them reach the finish line.
“The intent of the regulations is for disruptors to ingest the MRF data and figure out this new marketplace, creating consumer-friendly tools for plan participants to understand the different costs of care,” said Skalka. “This crucial step is needed to reach a point where plans are indeed participant facing.”
Tech innovators like Turquoise Health, she noted, are building databases composed of information on the negotiated prices between providers and payers, and also developing the analytical tools that will eventually be used to compare and evaluate this data. That’s the finish line in a race where the starting gate lifted this past July 1.
In the final strides, employees should be able to shop for healthcare much like people today shop for merchandise on Amazon, with a bit of Yelp tossed in to discern provider quality. Once this stage of progress is attained, the hope is for improved healthcare consumerism. “A key intention of the rules is to incent consumers to encourage competition (among health insurance carriers and TPAs) to eliminate the outliers in healthcare cost and quality,” Skalka said.
Different people will shop differently, making decisions based on their health, income, savings and age, in addition to their insurance deductible and out-of-pocket maximum, the most they have to pay for covered services in a plan year. These cost-benefit analyses may encourage some employees to opt for less expensive medical care, even if it entails traveling a significant distance to receive it. Others may choose more expensive local providers.
As these decisions are made, competition should arise. “Once every care provider sees what other providers are charging, some prices may rise and some may come down,” Wineman explained. “Over time, we may see a particular hospital say, `Come here for your knee surgery and we’ll bundle in the physical therapy and rehab at a 20 percent discount.”
As data is created on each medical provider’s level of quality and cost, this information may encourage plans to create more limited provider networks. “At some point, a provider’s quality outcomes and lower costs, such as not overdoing it with expensive tests, may end up in `value networks’ charging a lower premium,” Wineman said. “That’s a game changer.”
On the Field
Changing the game will require a team effort, likely coached by employee benefit advisors, consultants and law firms. “This is not as simple as posting a link on the website; if you want to be compliant, you need to find a way to dig into the MRFs, make sure all the data is in there and there are no errors,” said Cheryl Hughes, a principal in the law & policy group at employee benefits consulting firm Mercer.
In doing this, many of Mercer’s clients have assembled large teams that include leaders from legal, finance, accounting, IT and HR, Hughes said. Her colleague, Tracy Watts, senior partner and national leader for U.S. health policy, said that CFOs need to be briefed on what the rules are and how the plan will meet the compliance requirements—at a minimum. “If I were a CFO, I’d want regular updates on compliance to be sure we’re moving in the right direction, as this will take some time,” she said. “And once everything was in place, I’d ask the question, `Why are we better off?’”
That’s an excellent suggestion, given that the focus of the regulations is to ultimately drive down the costs of healthcare for employers and the economy at large. This year, the U.S. is expected to spend $4.5 trillion—approximately 18 percent of the national economy—on healthcare, nearly triple the average paid by other developed countries. Something has to change and maybe it’s on its way.
As Watts put it, “As hard, complicated and challenging as these regulations are, as long as the effort bears fruit in terms of more competition, better quality and more informed consumers, it’s worth it.”
Russ Banham is a Pulitzer Prize-nominated journalist and best-selling author.