As the constant rise in prescription drug costs continues to place pressure on employees, employers, and the healthcare system, more and more people are calling for change. One of the ways the Federal government responded was by passing legislation to provide transparency into prescription drug costs and their drivers.
The government obtains this information by requiring employers to submit data on their employees’ healthcare plan spending patterns. As such, employers are required to fill out an RxDC Report annually.
In this article, we shall explain what RxDC Reporting is, its legal requirements and compliance obligations, components of the RxDC Report, and provide a step-by-step guide to the reporting process.
Let’s begin.
What is RxDC Reporting?
Prescription Drug Data Collection (RxDC) Reporting is the annual Federal requirement for health insurance companies and employer-based health plans to submit detailed data on prescription drugs and healthcare spending.
Data collection is mandated by the Consolidated Appropriations Act of 2021 (CAA).
The reporting regulations apply to most health insurance companies and most group health plans.
Some of the information that those responsible are required to submit includes:
- Prescription drug utilization and spending
- Highest cost and most frequently used medications
- Rebates, fees, and other forms of compensation paid to pharmacy benefit managers (PBMs)
- Premiums and cost-sharing paid by healthcare plan members and their employers.
Once you compile the necessary data, submit it electronically to the Centers for Medicare & Medicaid Services (CMS) using the Health Insurance Oversight System (HIOS).
The Purpose of RxDC Reporting
The primary goal of RxDC reporting is to ensure transparency in prescription drug pricing, thereby enabling the general public, employers, and insurers to make informed decisions.
Other reasons the Federal government instituted the reporting include:
- Understanding the primary factors contributing to higher prescription drug prices and general healthcare spending.
- Identifying the medications that contribute the most to healthcare bills.
- Analyzing the effect of prescription drug rebates on premiums and out-of-pocket costs.
- Understanding how PBM compensation affects overall healthcare costs.
Collecting the data across the country allows the Federal government, through the CMS, to identify inefficiencies in healthcare systems, analyze and anticipate cost trends, and make recommendations for future policy changes.
As an employer, RxDC reporting is an ideal way to demonstrate data accountability and transparency in employee benefits to your employees. This, in turn, will strengthen the trust between you and your employees.
Who is Responsible for RxDC Reporting
The responsibility for RxDC reporting depends on the nature of your employees’ healthcare plans.
That is, whether they are fully funded or self-funded:
Fully Funded Plans
For fully funded plans, the insurance company providing coverage typically assumes responsibility for gathering and submitting the required information. That is because insurance companies have access to most of the data CMS requires.
However, as an employer, you should ensure your insurance carrier submits the data before the deadlines. Failure to do so may leave you responsible for correcting or completing the submissions and expose you to legal penalties.
Therefore, it is vital to obtain written confirmation from your insurance carrier that they submitted the data. This shifts liability for any issues that arise away from your company to your insurance carrier.
Self-Funded Plans
As the employer and sponsor of your employees’ self-funded plans, you are legally responsible for submitting the data demanded by the RxDC report.
A third party, such as your insurance carrier, PBM, or Third Party Administrator (TPA), may agree to assist you in collecting and submitting relevant data; however, you remain ultimately responsible for ensuring compliance with the mandate.
Legal Requirements and Compliance Obligations
RxDC Reporting is an annual requirement mandated by the Consolidated Appropriations Act of 2021 (CAA).
The CAA also adds provisions to other Federal laws, such as the Employee Retirement Income Security Act (ERISA) of 1974, the Internal Revenue Code (IRC), and the Public Health Service Act (PHS), to increase transparency.
Here are some of the obligations under an ERISA compliance checklist. They include:
- Submit complete and accurate data.
- Coordinate with third parties to aggregate data.
- Make submissions before deadlines.
- Retain documentation post-submission.
- Authorize vendors, such as PBMs and TPAs, to submit data.
- Obtain written vendor agreements that clearly outline the responsibilities of all parties.
RxDC Reporting Deadline
RxDC Reporting occurs annually, with a submission deadline of June 1st. The report covers data from the previous calendar year. For example, the June 1st, 2026 submissions should include data from the entire 2025.
The CMS has occasionally granted deadline extensions or enforcement relief.
However, you should not rely on delays and plan as if the June 1st deadline is final.
Remember, failure to comply with the CAA deadline stipulations can expose you or your insurance carrier to penalties and compliance scrutiny.
RxDC Reporting Penalties
Noncompliance with RxDC Reporting mandates can expose your business to significant financial penalties.
Potential penalty for noncompliance is $100 per affected individual per day under IRC §4980D and ERISA §502. However, the enforcement includes periods of relief and discretion.
Aside from penalties, noncompliance can also trigger Federal audits, increase your company’s legal risk, or damage your company’s reputation.
Therefore, it’s important to consider expert guidance in your benefits plans.
Ethos Benefits takes a fiduciary approach to our benefits plan management, including ensuring annual compliance and implementing a proactive renewal strategy. We also operate on a transparent, flat-fee model with no surprise charges.
Schedule a consultation today and get guidance on your benefits administration.
Components of the RxDC Report
The RxDC Report consists of multiple forms that employers or vendors must complete, depending on the health plan and coverage type.
The type of information required in each form is:
- Plan Information (P2 File): Contains basic plan information, including plan sponsor details, plan year dates, coverage type, number of employees enrolled, and number of states where your business is offering the plan.
- Total Annual Spending by Category (D1 File): Includes your total health care spending data and details, such as your premium contributions and your employees’ premium contributions, and the total number of members.
- Healthcare Spending by Category (D2 File): Outline how much you spend on primary care, specialty care, prescription drugs, and wellness, among others.
- Top 50 Brand Drugs by Utilization (D3 File): List the top 50 drugs most frequently prescribed to your employees by doctors.
- Top 50 Costly Drugs (D4 File): List the top 50 prescription drugs that utilize most of your employees’ plan’s funds annually.
- Top 50 Drugs with the Highest Cost Increase (D5 File): A list of drugs with the most significant year-over-year spending increases.
- Total Expenditure on Prescription Drugs (D6 File): Aggregate data from your employees’ various healthcare plans and determine the total annual spending on prescription drugs and the number of participants with paid claims.
- Rebates and Fees Paid by Manufacturers (D7 File): Outline any prescription drug rebates and other fees paid by manufacturers to PBMs and other intermediaries. You should also know how those amounts are applied.
- Top 25 Drugs by Rebate Amount (D8 File): List the top 25 prescription drugs with the highest average rebate amount.
Step-By-Step RxDC Reporting Process
To complete your RxDC Report, you need to plan well in advance and work effectively with your vendors.
Below is a step-by-step guide to help you navigate the process:
1. Understand Who is Responsible
You need to identify who is responsible for reporting. If your employees have fully funded plans, you can transfer responsibility to your insurance carrier through a written agreement.
However, if your employees have a self-funded plan, you retain all the reporting responsibility even if you authorize your PBM or TPA to handle the process.
2. Confirm Third-Party Capabilities
Contact your vendors, such as insurance carriers and TPAs, to ensure they can handle the RxDC Reporting. That includes confirming they can submit the files and meet the technical requirements listed by the CMS.
They should also be able to submit the files before the deadline. Once confirmed, you can legally authorize them to submit the data files on your behalf.
3. Collect and Validate Data
Gather the information required for the CAA data files, including plan information, total annual spending, spending by category, and total spending on prescription drugs.
Review the data to ensure it is accurate and complete. Lastly, ensure the data is consistent across the various vendors your employees have hired.
4. Submit the Data to the CMS
First, register or log in to your HIOS account.
Download the CMS RxDC Excel templates, proceed to fill them out with the data you gathered, and review the files to ensure there are no errors. Finally, upload the files to the HIOS portal.
5. Keep Meticulous Records
Once submitted, you will receive notification of receipt of the data files from the CMS. Keep a record of the submission notification and other documents, such as vendor confirmations.
Impact of RxDC Reporting on Employers and Employees
The RxDC Reporting process has a varying effect on employers and employees.
Impact on Employers
As an employer, you will experience the following:
- Increased Administrative Workload and Cost: The volume of data collection mandated by the CAA is substantial, requiring employers to maintain a dedicated workforce to remain compliant.
- Compliance Risks: CAA requires the submission of detailed prescription drug data; failure to comply exposes employers to potential penalties, including fines and audits.
- Vendor Oversight Responsibilities: Employers need to reach agreements with third parties, such as insurance carriers, PBMs, and TPAs, on how to share reporting responsibilities and assign liability.
The impacts are not only negative.
As an employer, you gain access to substantial data that can help you understand your cost drivers, negotiate contracts with third parties, such as PBMs, and develop data-driven cost control strategies.
Impact on Employees
Employees do not participate directly in RxDC Reporting; however, they benefit indirectly from it.
Some of the benefits they experience include:
- Improved Transparency: Employees can understand the rationale for prescription drug costs, helping them budget more effectively for their healthcare expenses.
- Better Plan Design Decisions: Access to data on rebates and their impact on out-of-pocket costs can help employees make better decisions on their plan designs.
- Long-Term Cost Reduction: As the Federal government learns more about cost drivers, it develops policies that will eventually lower prescription drug costs, thereby reducing healthcare costs for employees.
Best Practices for Seamless RxDC Compliance
The RxDC reporting guidelines can be challenging for employers who are not adequately prepared.
Therefore, it is crucial to follow the practices below to ensure you are not caught offguard:
- Start Preparing Early: Begin data collection and verification well in advance of the June 1st deadline. This allows you to avoid last-minute issues, such as difficulty finding vital documents and rushed work that can lead to errors and cause your submissions to be rejected.
- Clarify Roles with Third Parties: Ensure you obtain written confirmation from your insurance carrier that they have submitted the required data if your employees have fully funded plans. On the other hand, if your employees have self-funded health insurance, ensure you write to your PBM or TPA outlining their reporting responsibility to avoid any compliance issues.
- Provide Data on Time: Ensure you submit your healthcare spending data promptly to third parties, such as your insurance carrier, whenever they request it.
- Use Data Management Tools: Invest in tools to integrate and validate data from multiple sources. Such tools will also minimize data entry, thereby minimizing human errors and further streamlining the process.
- Perform Internal Audits: Regularly review collected data to ensure no missing files or inaccuracies exist before submission. To achieve this, you need a dedicated compliance team to oversee the process.
- Monitor Regulatory Changes: Continually review CMS guidelines to stay informed of any regulatory changes that may affect the submission process, such as expanded data requirements.
- Retain All Documentation: Do not discard any data after submission. That data may be vital in the event of an audit or if your submissions are rejected and the CMS accepts your request for a review.
Frequently Asked Questions (FAQs)
Here are answers to some questions we receive regularly from other clients:
What is the Difference Between RxDC Reporting and Gag Clause Compliance?
Both RxDC reporting and the Gag Clause Compliance are mandated by the CAA of 2021. However, RxDC reporting focuses on promoting transparency in prescription drug costs and healthcare spending.
On the other hand, Gag Clause Compliance focuses on reviewing contract language to ensure service provider contracts do not restrict access to cost or quality information.
What Are the Most Common Reasons RxDC Submissions Get Rejected?
The most common reasons RxDC submissions get rejected include:
- Missing or incomplete data files
- Inaccurate data, for example, typos in plan names or discrepancies in financial figures.
- Late data submissions. The submission deadline for the previous calendar year’s data is June 1st.
- Failure to verify the bearer of responsibility in writing with third parties.
Providing a third party responsible for reporting on your behalf with insufficient data.
Are TPAs Allowed to Submit RxDC Data without Employer Approval?
No, TPAs are not allowed to submit RxDC data without employer approval. A TPA must receive authorization from an employer in a clearly worded written statement.
However, the ultimate responsibility for submitting the data still lies with the employer.
How Long Should Employers Retain RxDC Reporting Documentation?
Generally, as an employer, you should retain RxDC reporting documentation in accordance with ERISA recordkeeping requirements.
Some documents you should keep include submission confirmations, third-party agreements, and communications from CMS.
Conclusion
RxDC Reporting is vital to ensuring transparency and accountability in prescription drug pricing and healthcare spending. It is therefore essential for employers to understand the requirements, their responsibilities, and the deadlines to ensure compliance.
Employers should also coordinate with their vendors to ensure data accuracy and retain all vital documentation as a backup in case of setbacks, such as submission rejections.
Given the complexity of the RxDC Reporting process, it is advisable to hire external support to provide much-needed guidance.
At Ethos Benefits, we provide employee benefits consulting that takes a fiduciary-driven approach to annual compliance. We ensure the responsible parties are identified, the vendors are authorized, and submissions are completed on time.
Book a consultation today to reduce your administrative burden for RxDC reporting and compliance.
