One of the first directives issued by President Trump targets rising prices, including in the health care system. In particular, the price relief Presidential Memorandum calls on relevant agencies to “eliminate unnecessary administrative expenses and rent-seeking practices that increase healthcare costs.” The memorandum requires updates from a deputy every thirty days on agency progress. What falls within the purview of this memorandum remains for relevant agencies, including the U.S. Department of Health and Human Services (HHS) and the U.S. Department of Labor (DOL), to determine. A thorough investigation into the various intermediaries profiting from our country’s opaque, convoluted commercial health care system would be a welcome start and likely yield significant opportunities for cost containment intervention in the months and years to come.
Administrative Waste and Rent-Seeking in Health Care
If you work in health policy, the first industry actors you may think of when reading this memorandum are pharmacy benefit managers (PBMs). PBMs are facing accusations left and right — from President Trump, to the Federal Trade Commission, to federal and state lawmakers, to state Attorney General offices — that they are raking in excessive profits at the expense of patients, employers, and government programs, as well as independent pharmacies.
If you do not work in health policy, you likely are thinking about big health insurers denying coverage for needed care or, at least, forcing you or a loved one to jump through an array of bureaucratic hoops before they will agree to reimburse you for needed services.
The reality of the problem is much deeper. There is an immense web of profit-seeking companies that stand between patients and their doctors, increasing the cost of health care. CHIRblog has previously covered alleged questionable conduct by insurance companies acting as third-party administrators (TPAs) for self-funded employer health plans. Like PBMs, TPAs negotiate complex and often-hidden contracts with the suppliers of health care services and can dictate terms in their favor, at the employer’s expense. CHIR experts Linda Blumberg and Kennah Watts have written about other “profit-enhancing middlemen” who maximize margins for insurers and health care providers while generating their own profits. These include entities like revenue cycle and claims denial management companies, claims repricers, and independent dispute resolution (IDR) service providers. As Blumberg and Watts explain, we effectively have an arms race between health care providers and insurers fighting over claims, with a growing multitude of companies taking a cut along the way and producing unnecessary administrative costs.
As health care costs continue to rise, consumers and employer sponsors of insurance cannot afford to have their precious dollars siphoned off in this exploitative manner.
HHS and DOL Have Authority to Demand Information About These Practices
Federal agencies currently have the authority to investigate the various financial arrangements undergirding the commercial health care system and can leverage this authority as a first step in complying with the recent price relief memorandum.
Under existing law, 42 U.S.C. §§ 18031(e)(3) and 300gg–15a, state and federal officials have the authority to request a wide swathe of information from health insurers and group health plans. This includes claims payment policies and practices, periodic financial disclosures, and other information that officials determine appropriate. The Trump Administration previously tapped these authorities to institute the Transparency in Coverage rules and require insurers to publicly release price information. The agencies can similarly take advantage of these authorities today to get a wide range of information about insurer contracts affecting claims payment and related data. For example, the agencies could seek insurer contracts with claims repricers and denial management companies, examine data about the fees they collect, and request information about overpayment recovery. The agencies could also request provider contracts that reveal any revenue neutrality agreements that guarantee providers a certain amount of reimbursement per year, or “skip lists” that protect some hospitals from itemized bill review. Special scrutiny should be given to any agreements between insurers and their affiliated providers.
DOL also has broad research and investigative authorities under ERISA Sections 504 and 513. The Secretary of Labor can undertake studies they deem appropriate or necessary relating to employee benefit plans. The Secretary also can launch investigations, requiring those under investigation to submit records, file data, and testify under oath to determine whether any violations of ERISA have occurred. DOL recently used this authority to investigate certain TPAs for collecting undisclosed fees and cross-plan offsetting. Once it further lifts the hood, DOL may find other examples of conflicts of interest, self-dealing, and other prohibited transactions that cost employers and plan members money.
Looking Ahead to Future Reforms
Although rising health care prices remain the leading driver of health care spending in the United States and warrant direct action, shedding light on this complex web of intermediaries can help eliminate unnecessary administrative bloat in the system and achieve the goals of President Trump’s price relief memorandum. Information generated from these investigations can enable federal agencies, as well as Congress, to target and prioritize future reform initiatives to reduce wasteful spending and rent-seeking behavior and help private employers better protect themselves from exploitative contracts. These efforts, in turn, also may create clearer pathways to address monopolistic pricing by corporate health care systems, whether through government action or private market interventions.