Question: What are the main data elements employers need to be aware of in the RxDC reporting, and what is new for this reporting season?

Short Answer: This is the third season of RxDC reporting, which is due annually each year by June 1 to report on the prior calendar year. Employers will typically be responsible for collecting and providing to their reporting vendor certain information referred to as the “P2” plan information and “D1” average monthly premium information. This year, CMS has simplified the D1 average monthly premium calculation.

General Rule: RxDC Reporting Due Annually by June 1

All employer-sponsored medical plans, whether fully insured or self-insured (and regardless of size or grandfathered status), are subject to the annual prescription drug and health care spending data submission requirements under Section 204 of the Consolidated Appropriations Act, 2021 (“CAA”). These requirements are commonly referred to as the Prescription Drug Data Collection (“RxDC”) report.

The RxDC data submission includes information on the most frequently dispensed and costliest drugs, as well as prescription drug rebate information. One of the key uses of this information is for the government to compile biennial public reports (as required by the CAA) addressing prescription drug pricing trends and the impact of prescription drug costs on premiums and out-of-pocket expenses.

More broadly, CMS states that the RxDC reports “are expected to enhance transparency and shed light on how prescription drugs contribute to the growth of health care spending and the cost of health coverage.”

The first RxDC submission for the 2020 and 2021 calendar years was completed (after multiple extensions) by January 31, 2023, with a one-time good faith efforts standard. Since then, the CAA requires plans to submit the RxDC annually by June 1 to report on the prior calendar year. Accordingly, the second RxDC submission for the 2022 calendar year was completed by June 1, 2023. All plans use the calendar year as the “reference year” for reporting, regardless of ERISA plan year or insurance policy renewal date.

We have now arrived at the third round of RxDC reporting, whereby all group health plans must submit the 2023 RxDC report by June 1, 2024. No good faith efforts standard or extensions apply.

What’s New in This Year’s RxDC Reporting—Good News and Bad News

In some rare good news, the reporting actually became slightly easier this year. In the prior two rounds of reporting, the average monthly premium calculation was calculated on a per-member-per-month basis. That is no longer the case.

Starting with the 2023 reference year (i.e., the 2023 calendar year reporting completed by June 1, 2024), the monthly average premium is no longer determined on a per member basis. It’s merely the total monthly amounts, which means the annual premiums paid by members and employers are simply divided by 12 instead of the prior approach which required dividing by “member-months”. (See below for more details.)

The bad news is that also starting with the 2023 reference year (i.e., the 2023 calendar year reporting completed by June 1, 2024), CMS is enforcing restrictions on data aggregation. The technical wording of this “aggregation restriction” is that the data submitted in files D1 (premium and life years) and D3-D8 (top 50 most frequent brand drugs, top 50 most costly drugs, top 50 drugs by spending increase, Rx totals, Rx rebates by therapeutic class, Rx rebates for the top 25 drugs) must not be aggregated at a less granular level than the aggregation level used by the reporting entity that submitted the data in the D2 (spending by category) file.

In plain English, this means that if the D2 information is filed for a specific plan tied to an employer EIN, the D3-D8 information must also be specific to that plan tied to an employer EIN. If the D2 information is filed for an insurance carrier, TPA, PBM, or some other level that is not the employer level, the D3-D8 information can be reported at that level or at the specific employer/plan sponsor level. In some cases, this will now require employer/plan level data entries that were not previously required, which could prove to be more burdensome.

• For the full list of other changes this year, see page three of the RxDC reporting instructions.

Employers Rely Primarily on Insurance Carriers and TPAs for RxDC Reporting

For employers with fully insured medical plans, the insurance carrier is directly responsible for submitting this RxDC report. While there is no clear employer action item in the process, employers should nonetheless confirm with their insurance carriers that they will be timely processing the reporting. Furthermore, as discussed in more detail below, employers should assist their insurance carrier by providing any requested P2 and D1 information for the RxDC report that the carrier may not have access to on their own. Failure to timely respond to a carrier request may result in the employer being required to submit the RxDC report on their own.

For employers with self-insured medical plans (including level funded plans), as with most compliance burdens the obligation technically lies with the employer. However, in most situations employers will rely on their third-party administrator (TPA) or pharmacy benefit manager (PBM) to submit the RxDC report. This delegation through written agreement is expressly permitted in the RxDC regulations.

The RxDC reporting instructions confirm this approach:

3.2 Can a vendor submit information on my behalf? Yes. Plans, issuers, and carriers can contract with issuers, TPAs, Administrative Services Only providers (ASOs), PBMs, or other third-party vendors to submit data on their behalf.

Employers with self-insured plans should confirm that their TPA or PBM will be completing the RxDC report as the “reporting entity” on behalf of the plan (and request documentation to confirm the filing).

The RxDC Information Reported

For employer-sponsored group health plans, there RxDC report will include the following information:

P2: Group Health Plan Name and Related Information*
D1: Average Monthly Premium*
D2: Spending by Category
D3: Top 50 Most Frequent Brand Drugs
D4: Top 50 Most Costly Drugs
D5: Top 50 Drugs by Spending Increase
D6: Rx Totals
D7: Rx Rebates by Therapeutic Class
D8: Rx Rebates for the Top 25 Drugs

*Carriers and TPAs frequently ask employers to provide and confirm information for the RxDC report.

The Employer’s Role: P2 and D1 Information Often Requested by Carrier/TPA

In most cases, the employer will not be completing the RxDC report because it will be completed by their insurance carrier, TPA, and/or PBM (also known as the “reporting entity”). Generally, the D2-D8 data elements fall squarely within the reporting entity’s domain to obtain and report. However, in some cases the reporting entity does not have access to the other information they need to complete the full filing.

The pieces that the reporting entity often will request from the employer are the P2 and D1 data elements. Oftentimes the carrier and/or TPA will reach out to the employer requesting that the employer respond with the information needed to complete those components. Employers should provide such assistance where needed because it appears that failures to comply with the RxDC reporting requirements would fall under the standard IRC §4980D penalty scheme, which is $100 per day per affected individual for noncompliance.

The P2 RxDC Data: Group Health Plan Name and Related Information

The P2 field includes some basic plan information that the insurance carrier, TPA, or PBM (“reporting entity”) often will request from the employers:

P2 Column A: Group Health Plan Name

The instructions state to enter the “group health plan name” without further specification. The FAQ most directly addressing this issue simply directs the reporting entity to “identify the group health plan” for these purposes.

• Best Practice: Absent additional guidance clarifying the element, employers should use the ERISA plan name from the wrap plan document/SPD and Form 5500.

P2 Column B: Group Health Plan Number

The instructions state to enter “a unique plan number,” which can be “the plan number from your accounting system, the Form 5500 Plan Number (if a Form 5500 is filed for the plan), the plan sponsor EIN (if the plan sponsor only has one plan), or create a new identification number to enumerate the plans in the plan list.”

• Best Practice: Use the ERISA plan number that employers (regardless of plan size) should have in their wrap plan document/SPD and (where applicable) on the Form 5500. For most plans, this is “501”.

P2 Column C: Carve-Out Description

If the reporting entity is reporting on only a portion of the plan benefits, this field is used to reflect the applicable carved out benefit program. The carve-out category applies where a reporting entity is a benefit administered or insured by an entity other than the entity administering or insuring the majority of the plan’s other benefits. The permissible entries include pharmacy only, medical only, behavioral health only, fertility only, specialty drugs only, hospital only, and other.

• Note: This field was optional in prior reporting years. It is no longer optional for reporting entities that are reporting a benefit that qualifies as a carve-out.

P2 Column D: Form 5500 Plan Number

For employers that submit a Form 5500, use the three-digit plan number reported on the Form 5500. For most plans, this is “501”. All health and welfare plans with at least 100 covered participants on the first day of the plan year must submit a Form 5500.

Note: The instructions direct employers that do not complete the Form 5500 to leave this field blank—even though they should still have an ERISA plan number that is reflected in the wrap plan document/SPD.

P2 Column E: States in Which the Plan is Offered

The instructions state to use the two-character state postal code for each state in which the plan is offered. If the plan is offered in every state and in DC, enter “National”.

Note: This should always be information the reporting entity has access to without the employer’s input.

P2 Column F: Market Segment

This should be information the reporting entity has access to without the employer’s input:

• Small group market: Fully insured plans offered by employers with 50 or fewer employees

• Large group market: Fully insured plans offered by employers with more than 50 employees

• SF small employer plans: Self-insured plans (including level funded) offered by employers with 50 or fewer employees

• SF large employer plans: Self-insured plans (including level funded) offered by employers with more than 50 employees

P2 Column G-H: Plan Year Beginning Date and Plan Year End Date

The instructions state the plan year may be “the year in the plan document of a group health plan, the deductible or limit year used under the plan, or the policy year.”

• Best Practice: Use the ERISA plan year from the wrap plan document/SPD and (where applicable) the Form 5500.

P2 Column I: Members as of 12/31 of the Reference Year

The instructions state to include all persons covered, including employees, spouses, domestic partners, children, and any other category of covered dependents.

• Note: This should always be information the reporting entity has access to without the employer’s input.

P2 Column J: Plan Sponsor Name

This is the employer for standard plans. If the employer is a controlled group of entities that participate in the same plan, the entry here will be the entity sponsoring the plan, as listed in the ERISA wrap plan document/SPD.

P2 Column K: Plan Sponsor EIN

This is the employer’s EIN for standard plans. This will be listed in the ERISA wrap plan document/SPD and (where applicable) Form 5500.

The D1 RxDC Data: Average Monthly Premium—New Simpler Calculation Approach

The D1 field includes a number of data elements, but the ones that reporting entities (insurance carrier, TPA, and/or PBM) generally will request for employers to determine relate to the average monthly premiums:

D1 Column E-F: Average Monthly Premium Paid by Members and Employers

Starting this year, the monthly average premium is no longer determined on a per member basis. It’s simply the total monthly amounts, which means the annual premiums are simply divided by 12 instead of the prior approach which required dividing by “member-months”.

For the average member premium amount, the instructions state to report the average monthly premium (or premium equivalents) paid by members during for the medical plan in the reference year (prior calendar year). This is now done by taking the total annual premium (or premium equivalents) paid by members (i.e., excluding the amount paid by employers) during the reference year and dividing the result by 12. “Members” include all persons covered by the plan (e.g., employees, spouses, domestic partners, children). Amounts paid by the employer are excluded for this purpose.

For the average employer premium amount, the calculation is now the total annual premium (or premium equivalents) paid on behalf of members for the medical plan in the reference year (prior calendar year) divided by 12. Amounts paid by members (i.e., the employee-share of the premium) are excluded for this purpose.

In the plan is self-insured, the total premium paid by employers is the total premium equivalents (total plan cost) minus the premium paid by members. Premium equivalents include claims costs, admin fees, stop-loss premium, network access fees, and payments made under capitation contracts. They do not include stop-loss reimbursements, retained prescription drug rebates, or amounts related to FSA/HSA/HRA contributions.

Basic Example of Average Monthly Premium Calculation

• Note: The CMS slide summary addressing this calculation has not yet been updated to reflect this simpler calculation approach. It still refers to the prior reporting year calculation that was determined by “member-months,” and it includes a calculation table template (slide 21) that has been removed from the instructions because it is no longer applicable. Employers should not rely on that calculation table from slide summary for the D1 calculation this year.

Useful RxDC Reporting Resources

CMS maintains a useful library of materials to assist in the reporting process:

• RxDC Primary Website

• RxDC Reporting Instructions

• RxDC P2/D1 Data Elements Slide Summary

• RxDC FAQ List

• RxDC Training Materials Compilation

Prescription Drug Prices in the News: J&J Case

Prescription drug prices are the focus of a recent class action lawsuit filed against Johnson & Johnson (“J&J”) as employer-plan sponsor of its group health plan. The complaint argues that J&J breached its fiduciary duty by failing to engage in a prudent and reasoned decision-making process that would have drastically lowered the cost of prescription drugs in general and generic-specialty drugs in particular, and would have resulted in other cost savings for the plan. The allegation is that a fiduciarily prudent approach would have saved the plan and employees millions of dollars.

The RxDC reporting provides an opportunity for employers to revisit their prescription drug pricing in light of this new potential liability currently being litigated in the J&J case.

We have been considering the practical implications of the J&J case in recent weeks:

• J&J Case Practical Considerations: The Core Four ERISA Fiduciary Duties (Part 1)

• J&J Case Practical Considerations: The Core Four ERISA Fiduciary Duties (Part 2)

• J&J Case Practical Considerations: The ERISA Trust Rules for Health Plans (Part 1)

• J&J Case Practical Considerations: The ERISA Trust Rules for Health Plans (Part 2)

Reminder: CAA Price Transparency Provisions are Nearly Fully Implemented

These RxDC reporting requirements are part of the broader price transparency provisions of the CAA, which also include the patient protections against surprise billing, prescription drug cost reporting, machine-readable file cost disclosures, mental health parity comparative analysis disclosures, and participant-level cost-sharing disclosures.

For more details:

• The CAA Gag Clause Attestation Requirements

• The CAA Surprise Billing Notice

• The Transparency in Coverage Participant-Level Disclosures

• The CAA Patient Protection Provisions Under the No Surprises Act

• The CAA Machine-Readable File Posting

• The Mental Health Parity Comparative Analysis Requirement

• Newfront Office Horus Webinar: 2023 Year in Review

Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).