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Implementing Health Reform: Third-Party Payments And Reference Pricing



May 22nd, 2014

On May 21, Secretary Sebelius released a letter providing a further clarification of what has become a rather muddled policy regarding the ability of third parties to pay for premiums and cost-sharing for qualified health plans (QHPs).   The issue was first raised on October 31, 2013; Secretary Sebelius stated in a letter to Congressman Jim McDermott (D-WA) that QHPs were not federal health care programs and thus presumably were not subject to the anti-kickback laws, which generally prohibit payments by providers for business.  The letter raised the possibility that hospitals or other providers could pay premiums for QHP enrollees, thus keeping them insured and the hospitals’ bills covered.  This possibility was attractive to hospitals, which could often at minimal expense help high-cost, low-income patients cover their hospital bills through health insurance.

HHS quickly attempted to shut down this possibility though a November 4, 2013 Frequently Asked Questions document encouraging insurers not to accept premium payments from hospitals or other health care providers or commercial entities, and expressing a fear that such payments could distort the risk pool.  CMS did not clarify on what authority it was discouraging such payments.

This FAQ, however, was seized on by insurers to refuse to take any premium payments from third parties.  On February 7, 2014, therefore, CMS issued yet another FAQ  clarifying that the earlier FAQ did not bar payments by Ryan White programs, Indian organizations, or private charitable foundations. Specifically, it said as to private charitable foundations that:

The concerns addressed in the November 4, 2013 FAQ would not apply to payments from private, not-for-profit foundations if: . . . they are made on behalf of QHP enrollees who satisfy defined criteria that are based on financial status and do not consider enrollees’ health status. . . . CMS would expect that premium and any cost sharing payments cover the entire policy year.

On March 11, however, CMS issued an interim final rule with comment period requiring QHPs (including standalone dental plans) to accept premium and cost-sharing payment from Ryan-White, Indian Health, and other federal and state programs. The rule did not mention private foundation payments.

This prompted a letter to the Secretary from the American and Catholic Hospital Associations requesting that CMS publicly reconfirm its February 7 statement that “hospital-affiliated and other charitable foundations” could assist needy individuals with the payment of premiums and cost sharing. The letter to Richard Umbdenstock of the AHA and Sister Carol Keehan of the CHA does essentially that. After reciting the history set out above, it states:

We believe that existing guidance related to third-party payments of premiums and cost sharing made on behalf of Marketplace QHP enrollees by private, not-for-profit foundations is sufficient to put the public on notice that as a general matter, such payments are not prohibited by HHS’s rules to the extent they are provided in a manner consistent with the February 7, 2014 FAQ.

The letter concludes by stating that no further guidance is necessary on this issue. Neither the February 7 FAQ nor the May 21 letter specifically bless payment by “hospital-affiliated” foundations, but it seems that it would be difficult for HHS to challenge such payments in the wake of the May 21 letter.

Reference pricing. Another issue that has provoked a great deal of controversy in recent days is payment for health care items and services by insurers and self-insured plans based on reference prices. Under reference pricing, a payer offers to pay a fixed price for an item or service—for example a medical device or a hip-replacement surgery. The plan member can then go to any vendor or provider that will provide the item or service for that price. In fact, the member may go to any vendor or provider, but will have to pay the difference between the plan’s offered price and the price charged by the vendor or provider.

Reference pricing has long been used in other countries as a means to controlling health care expenditures, particularly for drugs and devices. Recent research in the United States has demonstrated that reference pricing can dramatically reduce prices for procedures as well,  as consumers redirect their business to lower-cost providers and providers lower their prices.

Several questions arise, however, as to whether reference-priced payments are consistent with the Affordable Care Act. On May 2, 2014, the Employee Benefits Security Administration (EBSA) of the Department of Labor (along with HHS) attempted an answer at one of these questions in an FAQI blogged about this FAQ at the time. Two weeks later, however, the national news media discovered the FAQ, and it became a cause célèbre.

It is important to recognize the limited nature of the EBSA FAQ. First, it only addresses the use of reference pricing by large-employer and self-insured plans. It explicitly does not apply to non-grandfathered plans in the individual and small group market. Second, the FAQ’s endorsement of reference pricing is equivocal. The Departments express concern “that such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.”

The Departments therefore request comment on a policy that would allow reference pricing, expressing particular interest in “standards that plans using reference-based pricing structures should be required to meet to ensure that individuals have meaningful access to medically appropriate, quality care.” The FAQ concludes that until further guidance is issued,

the Departments will not consider a plan or issuer as failing to comply with the out-of-pocket maximum requirements of PHS Act section 2707(b) because it treats providers that accept the reference amount as the only in-network providers, provided the plan uses a reasonable method to ensure that it provides adequate access to quality providers.

The FAQ, like those on third-party payment for QHP premiums and cost sharing, raises as many questions as it answers. As already noted, it only addresses large-group and self-insured plans, which are subject to far fewer constraints under the ACA than are individual and small group plans. One ACA provision that does limit large-group and self-insured plans — the one addressed by the FAQ — is Public Health Act 2707(b), which applies to these plans section 1302(c) of the ACA. Section 1302(c) limits group health plans for 2014 to the out-of-pocket maximum permitted for high-deductible health plans that accompany health savings accounts. For 2015 and future years it provides a formula for increasing this limit. For 2014 out-of-pocket limits are set at $6,350 for self-only coverage and $12,700 for other than self-only coverage. For 2015, these amounts increase to $6,600 and $13,200.

The ACA itself defines the cost sharing subject to these limits as including “deductibles, coinsurance, copayments, or similar charges,” as well as any other charges covered individuals must pay for “qualified medical expenses” with respect to essential health benefits covered by the plan. The limit on cost sharing explicitly does not apply to “balance billing amounts for non-network providers, or spending for non-covered services.”

“Balance billing” means provider charges over and above those covered by a health plan. In regulations issued in 2013, however, HHS with minimal explanation interpreted this provision to mean that, “ in the case of a plan using a network of providers, cost-sharing paid by, or on behalf of, an enrollee for benefits provided outside of such network shall not count towards the annual limitation on cost-sharing.” In an FAQ issued January 9, 2014, EBSA and HHS reaffirmed that “A plan may, but is not required to, count out-of-pocket spending for out-of-network items and services towards the plan’s annual maximum out-of-pocket limit.” In other words, not just balance billing, but all billing by non-network providers does not need to be counted.

In their reference pricing FAQ, EBSA and HHS seem to assume that a reference price payment scheme is essentially the same as a network. In a network, the payer negotiates a price with a network of providers and agrees to pay in-network providers the negotiated price minus any enrollee cost sharing. In a reference pricing scheme, the payer offers the reference price and agrees to pay any provider who accepts it that price.

In fact, however, reference pricing is not the same as a network. First, providers that participate in a network are known up front, or at least should be. Enrollees can refer to the provider directory when picking a plan or a provider (although provider directories have proven notoriously untrustworthy in the first few months of ACA implementation). Regulators and accreditors can assess the network to determine its adequacy. Payers can consider quality of care and geographic accessibility in forming networks, as well as price. It does not automatically follow, therefore, from the fact that the ACA permits payers to exclude out-of-network balance billing, or even that the regulations permit exclusion of all out-of-network cost sharing, that reference pricing is permissible.

Moreover, even large group and self-insured plans are subject to ACA requirements beyond those imposed by 2707(b). PHA section 2711, which applies to all insurers and group health plans, prohibits annual dollar limits, a prohibition that has become absolute as of 2014. It only specifically permits annual limits on services that are not essential health benefits. The tri-agency rule on dollar limits provides that subject to certain exceptions not relevant here, “a group health plan, or a health insurance issuer offering group health insurance coverage, may not establish any annual limit on the dollar amount of benefits for any individual.” The exclusion of fixed-dollar indemnity plans from minimum essential coverage status in its May 16, 2014 final rule was in fact largely based on the fact that these plans do put a dollar limit on per-service payments, much like reference-priced plans. Reference pricing also fits awkwardly with the direct access emergency, pediatric, and obstetric and gynecological care guarantees found in ACA section 2719a.

The ACA does prohibit HHS from promulgating regulations that prohibit: “a group health plan or health insurance issuer from carrying out utilization management techniques that are commonly used as of the date of enactment of this Act.” Perhaps that includes reference pricing, although the agencies do not rely on this provision in the May 8 FAQ. Clearly, more justification of their position from the agencies is needed.

The agencies do recognize that the FAQ permitting reference pricing does not extend to insurers in the individual and small-group market. There is little explanation of why this is so, other than that insurers in these markets must cover the essential health benefits. But why could not an insurer cover the essential health benefits and pay for them through reference pricing? Perhaps application of the actuarial value formula for calculating metal-level precludes reference pricing. How would an insurer in the individual or small group market calculate the actuarial value of a reference price plan, since the share of costs born by enrollees for providers who do not accept the reference price is unknowable?

But does the same problem not apply for calculating minimum value for group health plans, which must be done to determine if group coverage is adequate? Perhaps the reason has something to do with explicit references to network adequacy in the QHP provisions of the ACA. HHS is correct in proceeding cautiously in limiting the use of reference pricing in the individual and small group markets. It is to be hoped that the states, which are primarily responsible for regulating the insured market (but not self-insured group plans) will also proceed cautiously.

The agencies need to provide a great deal more legal analysis and to consider carefully the policy ramifications of reference pricing as they proceed with formal rulemaking. One particular policy consideration that they should take into account is whether, if employers move to defined-contribution payment for employee benefits and insurers move toward reference pricing, we may reach a point where the combined premium and cost-sharing expenses shifted to employees simply become intolerable.

REGTAP. Finally, on May 21, 2014, HHS released at its REGTAP site an operating manual for the use of the federal data hub by SHOP exchanges. The manual is highly technical and will not be analyzed here.

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  1. David Gimlett Says:

    I can see it all now. Full page adds, internet pop-ups, etc. “SPECIAL THIS MONTH-Half off on knee replacements (2 for the price of 1).” “MEMORIAL DAY SALE-20% price reduction on any MRI-good until June 6.” “Up Your Alley-colonoscopies at your nearby Speedy Mart-see coupon”.

    Now the insurance companies want to drag medical care into the mud of marketplace morals. Is this the solution to our dysfunctional medical system? What is happening to the insurance company charade that they want to support quality medical care? We’ve always known they didn’t mean it.

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