New Legislation on Drug Pricing Transparency Passes in the House

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The Summary

What you should know about the bipartisan Lower Costs, More Transparency Act that passed the House on December 11, 2023.

What you should know about the bipartisan Lower Costs, More Transparency Act that passed the House on December 11, 2023.

Sponsored by Representative Cathy McMorris Rodgers (R-WA), along with House cosponsors Frank Pallone Jr (D-NJ), Jason Smith (R-MO), and Virginia Foxx (R-NC), the bipartisan bill HR 5378 (Lower Costs, More Transparency Act) made its way through the House in a 320-71 vote on December 11, 2023 and is currently waiting to be addressed in the Senate (source).

At its core, the Lower Costs, More Transparency Act aims to ensure healthcare providers and insurers disclose information about the costs to patients (source). The bill has wide-spanning impact across different parts of the healthcare system, including pharmacies, drug manufacturers, hospitals, Medicaid, and Medicare. From expanding price transparency requirements, to facilitating oversight of pharmacy benefit managers (PBMs), to implementing site-neutral Medicare payments for certain drugs, to cutting parts of the budget (source), here are the most important parts of the Lower Costs, More Transparency Act that you need to know:

Price Transparency Requirements

Introducing greater price transparency within the U.S. healthcare system has been a key priority of lawmakers since the Obama administration. Traditionally, the prices charged for medical services are not known to patients. The hope is that by requiring healthcare providers to publicly disclose their prices, patients can search for and compare prices and then choose lower-cost providers, thereby inducing greater price competition (and lower prices). 

The 2010 Affordable Care Act (ACA) laid the foundation for legislative transparency requirements, which were subsequently expanded under the Trump and Biden administrations. Currently, the Centers for Medicare and Medicaid Services (CMS) enforces price transparency requirements for hospitals (source) and health plans (source), whereby they must post online the prices charged for a variety of medical services.

HR 5378 seeks to strengthen and expand these requirements, with the goal of ensuring that patients better understand how much they would pay for a medical service. The act would codify existing price transparency rules and expand these requirements to laboratories, imaging service providers, and ambulatory surgical centers.

Enhanced Oversight of PBMs

The Lower Costs, More Transparency Act would also have a significant impact on how pharmacy benefit managers (PBMs) operate. PBMs play an important, behind-the-scenes role in managing prescription drug benefits on behalf of various health insurers, whether private or public (source). They do this by maintaining lists of covered medications, known as formularies, and negotiating rebates and discounts from drug manufacturers.

CMS found that in some cases, PBMs have lowered drug prices and slowed the growth of drug spending in the past by passing on rebates to health insurers, thereby lowering their costs (source). However, many experts argue that PBMs are unaccountable and introduce undesirable incentives into the healthcare system. In particular, PBMs keep secret the prices and rebates they negotiate with drug manufacturers and how much they charge health insurers for drugs. This allows them to employ a practice called “spread pricing,” where they charge health insurers more for generic drugs than they pay drug manufacturers (source). Moreover, some argue that the emphasis on rebates incentivizes PBMs to encourage utilization of higher-priced drugs. This can have important financial implications for the uninsured, who do not have insurance coverage for prescription drug purchases.

HR 5378 looks to increase transparency for patients and hold PBMs more accountable, as well as establish oversight of their relationships with drug manufacturers (source). The bill would require PBMs to report detailed data on prescription drug spending, including acquisition costs and rebates, out-of-pocket spending, and formulary placement rationale (source). It also requires the Government Accountability Office to provide oversight of PBMs, by collecting information and reporting on their practices.

The Pharmaceutical Care Management Association (PCMA), which represents the interests of PBMs, opposes HR 5378 and has since ramped up spending to fight this bill (as well as other proposed legislation to make PBMs’ business practices more public).

Site-Neutral Medicare Payments

In general, Medicare pays different amounts for medical services depending on where the service is delivered. For example, when a service is performed in a hospital facility, such as a hospital outpatient department, it is reimbursed at a higher rate than when that same service is performed in an independent physician’s office. This is done to account for the higher costs and complexity of treating patients in a hospital setting. 

However, some experts argue that this practice has led to increased consolidation (with hospitals acquiring independent physician practices, in order to bill at higher rates) and rising spending that has not translated into better patient outcomes. Thus, lawmakers have pushed for an equalization of these reimbursement rates (or site-neutral payments), which would result in lower payments to hospital facilities. This change could generate substantial savings for Medicare and potentially lower overall healthcare spending.

Section 203 of HR 5378, which has generated considerable pushback, takes a step in this direction by proposing site-neutral payments for Medicare Part B drugs. In particular, it mandates that Medicare pay the same rate for physician-administered drugs, regardless of whether these drugs are delivered in hospital outpatient departments or independent physician offices (source).

The American Hospital Association (AHA) has lobbied against this provision, and it urged members of the House of Representatives to vote “No” on HR 5378 back in December (source). The AHA is concerned that the bill would be the catalyst for further site-neutral Medicare payment policies, which would broadly “equalize Medicare payments for outpatient services regardless of where they are performed.'' In an interview, AHA President Rick Pollak called site-neutral policies a barrier to adequate care, arguing that lowering reimbursement rates would harm hospitals that provide key services lacking elsewhere, at a time when many of them are already struggling financially (source).

Additional Proposed Changes

There are several other smaller provisions within HR 5378, such as an extension on special diabetes programs and the creation of an advisory committee to assess the usefulness and usability of the new price transparency information (source). 

Additionally, when the ACA passed in 2010, an original provision cut Medicaid payments to hospitals serving high numbers of uninsured and low-income patients, because the ACA aimed to reduce the number of uninsured Americans through Medicaid expansion and subsidies for marketplace coverage. However, hospitals reacted negatively to the provision, and a moratorium was placed on it (source). The Lower Costs, More Transparency Act extends the suspension of the provision for an additional two years, through fiscal year 2025 (source).

The Lower Costs, More Transparency Act also removes the Medicaid improvement fund, reallocating over $6 billion dollars (source) which was used to store budget offsets, not actual spending on Medicaid (source).

Future Outlook

Despite stern opposition from the AHA and PCMA, there appears to be little opposition in the Senate over the bill's provisions. With an estimated $725 million in net savings from 2024 to 2033 and an estimated $2.2 billion dollars in revenue over ten years, according to researchers at the American Enterprise Institute, there is a good chance that we will see HR 5378 signed into law sometime in 2024 (source).

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