What Employers Need to Know About Removing Gag Clauses from Health Care Contracts

August 1st, 2023
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Before the clock strikes midnight on December 31, 2023, private employers and other public health care purchasers will have been required to attest to their benefit plan contracts being free of gag clauses. There is more than meets the eye to this requirement.

Service agreements with third-party administrators (TPA), pharmacy benefit managers (PBM) and other vendors have long included “gag clauses,” which are contractual restrictions that prevent employers from accessing and sharing their own health care price and quality data. The presence of these gag clauses has restricted the data and information employers need to monitor their vendor partners and assess the value of the health care services they are buying for employees.

Section 201 of the Consolidated Appropriations Act (CAA) made it impermissible for employers to have gag clauses in their service agreements. In this way, the CAA significantly highlighted the need and opportunity for employers to access and use their health care data, which is reflected in the surge of headline-grabbing lawsuits over the past 12 months.

The burden of ensuring contracts are free of gag clauses rests entirely on employers, not their vendors. Access to previously confidential information also binds employers to use that data to drive improvements and make informed decisions for the plan as a core part of their fiduciary obligations.

The Attestation Requirement

In February, the tri-agencies responsible for enforcement issued an FAQ that clarified many uncertainties around the CAA’s gag clause provision. This provided confirmation that:

Four Emerging Obstacles for Employers

Gag clauses have been prevalent in most service provider agreements to date. These contract phrases serve the interests of vendors, such as health plans, PBMs, TPAs and consultants, who benefit from not having to provide employers with strategically important information on health care price and quality. As a result, employers have unsurprisingly found it difficult to comply with their requirement to remove all gag clauses.

Here are four examples of such obstacles:

  1. Service providers are taking the position that they have removed all gag clauses from their service agreements with little or no context on what has changed.
  2. Service providers are offering to attest compliance on behalf of their self-insured clients without any accompanying discussion of whether all gag clauses have been removed.
  3. Service providers are removing gag clauses from their service agreements only to then include them in their confidentiality agreements and/or NDAs.
  4. Service providers are providing incomplete or partial data to employers, which gives the appearance of cooperation without the substance needed to properly attest.

These challenges complicate the ability of employers and purchasers to attest by the end of this year. Those who have encountered one or more of these obstacles are in an awkward position. They currently have no other option but to consider submitting a false attestation or none at all.

However, a recently introduced House bill called the Health DATA Act provides necessary improvements to the gag clause removal portion of the CAA. Specifically, it would elaborate purchasers’ right to fully access their data, introduce service provider accountability through civil penalties for noncompliance and, perhaps most importantly, let employers submit a reasoned explanation of their circumstances in lieu of attesting.

How Employers Can Take Charge of their Attestations

In the meantime, employers can take several concrete steps to tackle their requirement to strip gag clauses out of their service agreements:

  1. Gather all service agreements and vendor contracts that concern health care price and quality, including your PBM contract.
  2. Enlist the help of a trusted, independent third-party that is well-versed in reviewing benefit plan service provider contracts for gag clauses.
  3. Identify impermissible gag clauses in service contracts (two illustrative examples are set out in departmental guidance).
  4. Negotiate the removal of gag clauses from all service provider contracts, confidentiality agreements and NDAs.
  5. Negotiate contract amendments to ensure vendor cooperation in meeting your fiduciary obligations, especially those related to the CAA’s gag clause provisions.

Taking these steps and documenting them appropriately will not only improve employers’ contracts but will go a long way toward demonstrating prudence and good-faith compliance with the CAA’s requirements. Additionally, if vendors still prove uncooperative in removing gag clauses from existing service agreements, these steps will be an important component of employers explaining why they were unable to attest.

Navigating the gag clause removal and attestation process will most likely result in uncomfortable conversations between employers and the vendors they’ve long relied on to provide quality health care benefits to their employees, and will call into question long-standing assumptions about health care data ownership, or lack thereof. Through it all, employers will gain clear line-of-sight into whether their vendors are a help or a hindrance in fulfilling their clarified fiduciary obligations under the CAA.

High Health Costs Hurting Employers’ Ability to Hire and Keep Workers

January 3rd, 2023
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A new survey of U.S. employers underscores the widening damage done by rising health care costs: Nearly 75% of those surveyed say health care expenses are squeezing out salary and wage increases and more than 80% believe health costs are negatively impacting their ability to stay competitive in today’s labor market.

The Pulse of the Purchaser survey, conducted online in August and September by the National Alliance of Healthcare Purchaser Coalitions, assessed employer views on health care and the workplace environment. Respondents included 152 employer-members of organizations affiliated with the National Alliance. The purchasers represented an array of sectors and ranged in size from more than 10,000 employees to less than 1,000.

‘A Street Fight’

Michael Thompson, National Alliance president and CEO, said the survey results bring into sharp relief the growing challenges employers face in recruiting and retaining talent amid a volatile labor market and the unrelenting financial burden of health care.

“The consensus among many of the responding employers is that attracting and retaining employees has become a street fight,” Thompson said. “Concerns about a recession and runaway inflation make it even more critical that employers are able to hire and keep top talent and getting unreasonable health care costs under control has a far-reaching impact on wages and ability to compete.”

The survey found that post-pandemic, finding and keeping employees has become an even higher priority for nearly 80% of employers, with 100% agreeing that health and wellbeing benefits are essential to effective hiring. Rising health care costs also remain a significant concern for employers, with the biggest cost drivers of employer-sponsored health benefits coverage for employees and their families being drug prices (93%), high-cost claims (87%) and hospital costs (79%).

Ninety-seven percent of respondents believe hospital prices are unreasonable and indefensible, and 93% say hospital consolidation has not improved the cost or quality of services. Additionally, employers familiar with transparency tools such as those from RAND, National Academy for State Health Policy and Sage Transparency are up to 10 times more likely to strongly disagree that hospital prices are reasonable and defensible.

Hospitals Continue to Seek More Money

The results of this survey come at the same time the hospital industry – a primary source of rising health care costs in the U.S. – is asking Congress to stop scheduled Medicare payment cuts and provide more federal relief due to challenging economic conditions. But a recent analysis of SEC filings by the Kaiser Family Foundation found that the nation’s three biggest for-profit hospital chains each had positive operating margins that exceeded pre-COVID levels for most of the pandemic, including as recently as the third quarter this year.

In short, the industry continues to cry hungry with two loaves of bread under its arms.

Strategies to Lower Costs

Almost half (47%) of employers, according to the Pulse of the Purchaser survey are using centers of care excellence; within the next three years, many others are looking at tiered networks (46%), sites of care (43%), contracting and performance guarantees tied to Medicare pricing and reference-based pricing (36%).

More than 90% of employers say they have implemented or are considering high-cost claims management, mental health and substance use access and quality, hospital quality transparency, hospital price transparency and whole person health.

Employers are open to a range of policy and regulatory remedies, including drug price regulation (82%), surprise billing regulation (79%), hospital price transparency (76%) and hospital rate regulation (72%).

States are also sending a strong signal that providers need to compete on value and will no longer be allowed to engage in anti-competitive practices to gain market power. In states as varied as California, Washington, Texas and Indiana, state lawmakers are working to eliminate anti-competitive contracting practices and increase transparency around pricing, quality and costs.

The Influence of the CAA

At the federal level, the landmark Consolidated Appropriations Act of 2021 (CAA) requires plan sponsors be given access to new and critically important health care pricing information. At the same time, it imposes fiduciary obligations for employers who self-insure under the Employee Retirement Income Security Act of 1974 (ERISA).

Under the law, self-insured employers will need to demonstrate that the health care services they buy for employees are cost-effective and high-quality. That means they must take steps now to ensure appropriate oversight procedures are in place that will enable them to document their efforts to comply with CAA’s provisions. It also means that employers will increasingly have access to new and critically important insights into the prices they’re paying for employee health care services – details they have been unable to previously obtain from vendors to whom they pay millions of dollars each year to negotiate on their behalf.

Advice from a Purchaser Who Took on Health Care’s Status Quo and Won

April 14th, 2022
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Read and re-read your contracts, and don’t agree to anything that will keep you from fulfilling your fiduciary responsibilities.

 

Dig into the data. Read the fine print. Follow the money.

That’s Marilyn Bartlett’s advice to employers and purchasers struggling to contain soaring health care costs and looking to gain greater transparency from plans, third-party administrators (TPAs), pharmacy benefit managers (PBMs) and brokers.

“You need to become aware of the full range of costs, including all the hidden fees and incentive arrangements used by health care providers, middlemen, service providers and vendors. You’re the fiduciary, so you have a responsibility to understand where the money goes.” -Marilyn Bartlett

Bartlett knows what she’s talking about when it comes to driving down health care costs. As a certified public account and the former administrator of Montana’s state employee health plan, Bartlett rescued the 31,000-member state plan from impending insolvency by carefully examining existing contracts and reviewing stakeholder financial data to drive better deals for the state.

Here, the contractual terms she found that were unnecessarily adding millions of dollars annually to the cost of health care, and the approach she recommends employers and purchasers take to carefully examine the contractual commitments they make with their vendors.

Use all available tools

According to Bartlett, new tools—notably hospital price transparency rules and the prescription drug reporting requirements for self-insured employers contained in the Consolidated Appropriations Act (CAA)—can give purchasers much better insight into how their health care dollars are spent. For instance, brokers will be required to disclose direct compensation paid by TPAs, PBMs and others. But it is important to push for disclosures on indirect, non-cash compensation, too. That information, combined with what brokers are required by law to disclose, can help employers determine exactly who the broker is working for.

The CAA also contains a prohibition on gag clauses that have traditionally restricted purchaser access to provider cost and quality information. This should help level the playing field when it comes to provider and plan negotiations.

Throw away the chargemaster

Bartlett took over Montana’s state health plan in 2015 in the wake of a $28 million loss the previous year. Actuaries were projecting the insurer would be insolvent by 2017. A former controller for a Blue Cross/Blue Shield plan and chief financial officer of a TPA, Bartlett drew from her experience to systematically disassemble and rebuild the plan’s provider and vendor arrangements.

Her first step was to review the wildly varying prices the plan paid to hospitals. One hospital, for instance, charged four times the amount of another for a knee replacement, and virtually all relied on discounts off their chargemaster, or internal price list, to set rates. Using this methodology, some facilities were charging as much as five times the Medicare rate for the same service.

As a result, the plan imposed a new, take-it-or-leave-it reference pricing model that tied all reimbursements to Medicare rates: Hospitals would receive, on average, about 230% of Medicare and the amounts could only increase if Medicare raised its baseline payments for the same service.

“We knew their financial condition and where their break-even points were” by reviewing Medicare cost reports, Bartlett said. “So, we were eventually able to get them to agree. We pulled rates down and got immediate savings.” Hospital cost savings reached $4.6 million in 2016, $12.7 million in 2017 and $15.6 million in 2018.  Today, the plan routinely generates a surplus and premiums haven’t been increased since 2017.

The National Academy for State Health Policy recently launched its interactive Hospital Cost Tool, which provides data on a range of measures to offer insights on hospital profitability and breakeven points calculated using annual Medicare Cost Reports. This provides purchasers with an important tool to model the actions taken in Montana that significantly lowered costs.

Re-read the contracts

In addition to scrutinizing hospital pricing, Bartlett urges purchasers to dig deep into the health plan’s TPA, PBM and consulting contracts. She was appalled by what she found in Montana.  Some of the more egregious contract language included clauses that:

Lesson Learned

Read and re-read your contracts, and don’t agree to anything that will keep you from fulfilling your fiduciary responsibilities. Even if not explicitly banned by the CAA, hidden contract terms or contract terms that limit the availability of data place employers at risk for failing to meet their fiduciary responsibilities. This, in turn, can put them in both regulatory and legal jeopardy.

Bartlett said she believes the CAA disclosure requirements will go a long way toward helping purchasers—and the country—get control health care spending.

“All the money in the system; that comes from employers, employees, consumers and the taxpayer. It’s all of us, and it’s just horrible how much waste there is. So, I think these transparency rules can give us the leverage we need to finally start reducing that waste.” -Marilyn Bartlett

Today, Bartlett is helping state health plans pursue the same cost-saving tactics she employed in Montana in her role as a senior policy fellow with the National Academy of State Healthcare Policy.

Price Transparency Offers Opportunity to Employers and Purchasers

November 10th, 2021
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What is hospital price transparency?

A landmark federal rule requires the nation’s 6,000 hospitals to make pricing data available publicly. This requirement includes plan-specific negotiated prices, not just the “chargemaster” prices, for every item or service.

The rule was supposed to help consumers and purchasers shop more intelligently for health care services. However, due to variable compliance and huge discrepancies in how the data is presented by reporting hospitals, it has been difficult to benchmark or compare data across hospitals.

Why haven’t hospitals complied?

Hospitals that have been slow to comply with the transparency rule have faced a penalty of only $300 per day. This is a very small financial hit to hospitals – large or small.

In early November, the administration finalized a rule to increase to the penalty that takes hospital size into account, raising penalties as high as $2 million a year for large hospitals that fail to make prices public. This increase in penalties will go into effect in January 2022.

What does this mean for employers?

Employers can use this information to drive value-based purchasing.

Employer Opportunities:

Health Plan Opportunities:

Bottom Line: Price transparency means health care purchasers have access to more information to determine value and improve affordability for their employees and members.

 

The Real Cost of Health Care: Hospitals Dragging Their Feet on Price Transparency

May 17th, 2021
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This year’s landmark federal rule requiring the nation’s 6,000 hospitals to begin making pricing data available publicly was supposed to help consumers and purchasers shop more intelligently for health care services. But whether that’s actually occurring seems questionable.

According to news reports and PBGH’s own analysis, wide variation in how hospitals are presenting price information make provider-to-provider comparisons difficult. Worse yet, hundreds of hospitals have coded their price lists in ways that ensure the data is invisible to Internet search engines. The Wall Street Journal reported the practice is so widespread among both hospitals and payers that the Centers for Medicare and Medicaid Services (CMS) recently issued guidance prohibiting it.

Only 35% of hospitals complying

Then there are the hospitals that haven’t complied with the transparency rule at all, apparently willing to accept a $300-per-day financial penalty in lieu of publishing their price lists. A recent study in Health Affairs found that 65 out of 100 hospitals sampled were “unambiguously non-compliant.”

Among those that have posted prices, the numbers frequently have sparked more questions than answers. Case in point: Prices for caesarean sections provided by Sacramento-based Sutter Health varied by a factor of 10—from $6,241 to $60,584—depending on which Sutter facility did the procedure and/or which insurance company paid for it.

Hospitals point to COVID-19 challenges

The transparency final rule, which was initially published in December 2019, codified an executive order issued by President Trump the previous June that had identified hospital price transparency as a means of encouraging provider competition and reducing costs. The American Hospital Association (AHA) filed suit to block the rule’s implementation and sought an emergency stay, but a federal judge upheld the legality of the regulation in December 2020 and the law took effect on January 1.

The rule requires hospitals to post their entire list of standard charges, or chargemaster, along with discounted cash prices, payer-specific negotiated prices, and de-identified minimum and maximum negotiated charges. They also must publish pricing for 300 specific shoppable health services, 70 of which have been predefined by CMS.

Hospitals believe the Department of Health and Human Services (HHS) should exercise discretion in enforcing the rule, given the challenges facilities face due to COVID-19. Insurers, for their part, have argued that the rule will cost them vastly more than anticipated, require the sharing of trade secrets, and compel the disclosure of “staggering” volumes of data.

But key elected officials are not in a sympathetic mood. Bipartisan members of the House Committee on Energy & Commerce in mid-April urged the HHS to conduct vigorous oversight and enforce full compliance. They suggested the possibility of increasing the civil penalty amount and conducing regular hospital audits. Notably, the current penalty of $300 per day, or $109,500 annually, amounts to about 0.0033% of the average hospital’s net patient revenue of $334.5 million in 2018.

A vital tool for purchasers  

The price transparency rule was primarily envisioned as a tool to help consumers make better purchasing decisions. But it will likely prove most valuable to health care purchasers and employers, assuming standardized, accurate pricing data eventually is available nationwide.

That’s because the lack of visibility into pricing historically has been a source of enormous frustration for employers. Without pricing or care quality information, purchasers are effectively flying blind when it comes to decisions about employee health benefits. This knowledge vacuum has been exacerbated by gag clauses and other tactics some providers have used to prevent payers from sharing price or quality information with purchasers.

Equipped with payer-specific discounts and the other details required by the rule,  purchasers should be able to determine:

Greater hospital transparency could also contribute to improved health plan and pharmacy benefit management pricing visibility.

A multi-pronged approach

As important as price transparency is, it represents only one tool for addressing the enormous problem of over-priced, variable-quality health care. New payment models that align Medicare and Medicaid with private sector purchasers are necessary to ensure that efficiency and quality are consistently prioritized across the system.

And while well-functioning markets continue to represent the best way to get lower prices and higher quality, policymakers need to revise marketplace rules to ensure that drug manufacturers, hospitals and physicians don’t use anti-competitive practices to gain market power and raise prices.

Finally, protecting patients from surprise medical billing must be a key priority. Certain physician groups, often backed by private equity firms, can’t be allowed to exploit their monopoly positions to extract high prices from health plans and self-insured employers.