Question: What are the main data elements employers need to be aware of in the RxDC reporting, and how should employers coordinate with service providers to complete it?

Short Answer: This is the fourth season of RxDC reporting, which is due annually each year by June 1 to report on the prior calendar year. Employers are typically responsible for collecting and providing to their reporting vendor certain information referred to as the “P2” plan information and “D1” average monthly premium information. Last year, CMS 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, and the third submission for the 2023 calendar year was completed by June 1, 2024. 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 fourth round of RxDC reporting, whereby all group health plans must submit the 2024 RxDC report by June 1, 2025. No good faith efforts standards or extensions apply.

RxDC Reporting Rules Changed Last Year (But No Changes This Year)
In some rare good news, the reporting actually became slightly easier last year. Since the 2023 reference year (i.e., the reporting on the 2023 calendar year that was completed last year 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, CMS began 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 now requires employer/plan level data entries that were not previously required, which is somewhat more burdensome.

• Note: CMS has a useful slide summary of those 2023 reference year changes available for reference.

The RxDC Reporting Instructions for the 2024 reference year (i.e., the reporting on the 2024 calendar year reporting that must be completed this year by June 1, 2025) there are “no changes” from last year.

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 the RxDC report. While there is no clear employer action item in the process, employers should confirm with their insurance carriers that they will be timely processing the reporting. Furthermore, as discussed in more detail below, carriers may have different requirements and expectations regarding the information needed to complete reporting on their behalf, and therefore employers should assist by providing any requested information for the RxDC report (e.g., the P2 and D1 information described below). 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—with input from the employer on some of the required data elements similar to the coordination required with a fully insured carrier. This delegation through written agreement is expressly permitted in the RxDC regulations and instructions. Employers with self-insured plans should confirm that their TPA or PBM will be completing the RxDC report as the “reporting entity” for the plan.

The RxDC Information Reported
For employer-sponsored group health plans, the RxDC report includes 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, employers do not complete the RxDC report because it is 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. Typically the carrier and/or TPA will reach out to the employer requesting that the employer respond with the information needed to complete those components. The deadline to respond to the vendor is often well in advance of the June 1 filing deadline (e.g., many vendor deadlines are in March).

Employers should timely provide such assistance when requested because the vendor may not file on the employer’s behalf if the employer does not meet the vendor’s deadline. In that situation, the employer would need to file on its own, work with another vendor to file on their behalf, or face potential penalties. It appears that failures to comply with the RxDC reporting requirements would fall under the standard IRC §4980D penalty scheme of $100 per day per affected individual for noncompliance.

The P2 RxDC Data: Group Health Plan Name and Related Information
The P2 file 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 listed in the wrap plan document/SPD and (where applicable) 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 an entity is reporting on 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 prior to last year’s reporting season. 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 small 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”.

P2 Column F: Market Segment
This item looks to the size and funding arrangement for the plan:

• 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 listed in 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, COBRA participants, and any other category of covered dependents.

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
The D1 file includes a number of data elements, but the component that reporting entities (insurance carrier, TPA, and/or PBM) generally will require that the employer provide is the plan’s average monthly premiums:

D1 Column E-F: Average Monthly Premium Paid by Members and Employers
Starting last 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 that has been applicable since last year. Those slides still refer 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 D1 calculation table from slide summary going forward.

Useful RxDC Reporting Resources
CMS maintains a useful library of materials to assist in the reporting process:

• RxDC Primary Website

• RxDC Reporting Instructions

• RxDC Changes for the 2023 Reference Year

• 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 were 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 argued 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 was that a fiduciarily prudent approach would have saved the plan and employees millions of dollars.

In January, the court dismissed the relevant portion of the lawsuit on procedural grounds for failure to show the plaintiff had standing to bring the claim. The court found that it was speculative as to whether higher prescription drug costs might have caused the employee to pay higher premiums for the plan, and that any higher drug costs would not have caused the plaintiff to pay more in cost-sharing because the plaintiff would have reached the plan’s out-of-pocket maximum regardless.

Nonetheless, the RxDC reporting provides an opportunity for employers to revisit their prescription drug pricing in light of this new potential liability that could yield different results in different circumstances.

For more details:

• Newfront ERISA for Employers Guide

• 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 Provisions Have Reached Full Implementation
These RxDC reporting requirements are part of the broader reform provisions of the CAA, which also include the patient protections against surprise billing, machine-readable file cost disclosures, mental health parity comparative analysis disclosures/certifications, and participant-level cost-sharing disclosures.

For more details:

• Newfront Office Hours Webinar: Year in Review

• The CAA Mental Health Parity Employer Certification Requirement

• The CAA Gag Clause Attestation Requirements

• The CAA Surprise Billing Notice

• The CAA Transparency in Coverage Participant-Level Disclosures

• The CAA Patient Protection Provisions Under the No Surprises Act

• The CAA Machine-Readable File Posting

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).