America’s healthcare market is about to get less fair and more costly, thanks to a badly written new set of compliance and declaration rules from the Department of Labor. It’s not too late to stop it.
The proposed rules come on the heels of February’s Consolidated Appropriations Act, which erected a comprehensive federal framework to enhance transparency, lower costs, and increase oversight of the pharmacy benefits manager market. The bipartisan omnibus spending package made real progress toward transparency and savings in America’s opaque healthcare system and was a lobbying defeat for the PBM industry.
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Instead of letting the law take effect and assessing the results, the DOL is using its fiat bureaucratic powers to crack down on the PBM industry all over again. The proposed Pharmacy Benefit Manager Fee Disclosure Rule, proposed in January, would impose onerous and partially duplicative reporting requirements on both PBMs and employers, punishing small businesses and mid-market benefits managers that lack substantial compliance departments.
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Intended to promote transparency, the rules are an unnecessary complication to the otherwise promising CAA regulatory regime. Whatever your opinions are of America’s health insurance industry, the DOL’s proposed rules will raise costs and lower competition in an already consolidated healthcare market. Transparency might be the goal, but it won’t be the result.
For PBMs, which serve as middlemen between prescription drug manufacturers and health insurance plans, the question is not whether there should be more or less regulation, but precisely what that regulation should be. The CAA answered that question by providing a framework that required PBMs to disclose financial relationships with drug manufacturers, brokers, or healthcare plan sponsors, and to report their pricing arrangements, including rebates, with drug manufacturers. That makes the new DOL laws redundant.
Enter the Department of Labor and its proposed new rules. Without the rules, PBMs would already have to accommodate the CAA’s regulatory requirements. Now, they will also have to fulfill a laundry list of new, duplicative disclosure obligations regarding direct and indirect compensation they receive from health plans, manufacturers, pharmacies, or affiliates.
Imagine you are a PBM filing disclosures under both the CAA’s regulatory regime and the Department of Labor’s. You earned a rebate from drug manufacturer X, which you dutifully report in accordance with the CAA. But don’t stop there! The Department of Labor’s rule forces you to also disclose the rebate you receive from drug manufacturer X under “indirect compensation.”
Now you are disclosing the same transaction under two different titles, to two different regulatory regimes that may or may not have the same interpretation of what constitutes “indirect compensation.” Each disclosure requires a mountain of paperwork and comes with a bundle of compliance costs. This excessive bureaucracy is a recipe for slow-moving insurance claims and higher administrative costs on both sides, sure to be passed on to consumers and taxpayers alike.
It’s not just the disclosure requirements themselves that are an issue; it is the time PBMs have to adjust to them. The department’s recent attempts at pharmaceutical price transparency — the Transparency in Coverage rule and the Prescription Drug Data Collection report — had 32-month and 19-month lead times, respectively. The new proposed DOL rule provides just six months of lead time. Hiring new employees and training existing ones to adopt new reporting standards along an accelerated timespan is unrealistic. It threatens PBMs’ abilities to comply with CAA, an act passed by a bipartisan congressional majority.
All this will harm smaller PBMs, which often lack the resources to expand disclosure capacities massively. While the three largest PBMs — who together process 80% of all prescription claims in the United States — will likely be able to hire new staff and renovate existing operational systems, their competitors are less likely to afford these additional burdens. The DOL is therefore making the PBM market less competitive. Instead of trying to regulate benefits managers into oblivion, the federal government should stimulate competition by promoting healthy regulation, such as the CAA, instead of fiat rulemaking.
The department’s authority to propose this rule in the first place comes from tying it to the 1974 Employee Retirement Income Security Act, which created minimum standards for self-insured, employee-sponsored health plans. The key here is “minimum standards”, not a blank check for the Department of Labor to establish any onerous disclosure requirements it sees fit. By recycling washed-up legal authority from a bill passed over 50 years ago, the department circumvents the traditional democratic process and imposes further regulatory hurdles on an industry already undergoing reform.
But the regulatory hurdles don’t end at pharmacy benefits managers. Because ERISA regulates self-insured health plans, ordinary businesses will fall under the proposed rule’s disclosure requirements. This includes an increasing number of small and mid-sized firms that are pivoting toward self-insured plans. Many of these businesses lack healthcare expertise or have no dedicated compliance professionals.
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Imposing additional burdens on them — as if they are the source of America’s healthcare quagmire — is the misguided result of a rulemaking process that lacks the democratic framework Congress must follow.
Introducing transparency and fair pricing into U.S. healthcare markets is a noble goal, and PBMs are far from perfect, but creating duplicative, burdensome regulations introduced by bureaucratic fiat is counterproductive. The CAA took a lot of effort and political capital to pass. Any further federal action should complement, not complicate, that progress.
Jack Verrill is a Young Voices senior contributor from Falmouth, Maine. A junior attending the London School of Economics, he can be reached at [email protected] or found on X @Jack_Verri11.
