By Katherine Jett Hayes and Michal McDowell

Background

The Patient-Centered Outcomes Research Institute (PCORI) was established under the Affordable Care Act (ACA) as a non-profit corporation to serve as a resource to patients, providers, purchasers and policymakers in making informed decisions about health outcomes, clinical effectiveness and appropriateness of medical treatments, items and services. The corporation is charged with advancing quality and evidence as to how health conditions can be prevented, diagnosed, treated, monitored and managed through research and evidence synthesis. The primary duties outlined in the ACA include identifying research priorities and setting an agenda for research provided through federal funding. PCORI is authorized to carry out a research project agenda through systematic reviews and assessments of existing and future research and evidence, and to enter into contracts to conduct research consistent with the research agenda.

In funding research projects, PCORI is directed to give preference to the Agency for Healthcare Research and Quality (AHRQ) and the National Institutes of Health (NIH), to the extent that the research funded is consistent with each agency’s authority. PCORI is governed by a Board of Governors consisting of the Director of AHRQ, the Director of the NIH, and 17 members appointed by the Comptroller General and representing patients, providers, drug and device manufacturers, health services researchers, experts in quality improvement, and federal and state government officials. The Secretary of Health and Human Services is authorized to make Medicare and Medicaid and CHIP data available for the purposes of research subject to applicable confidentiality and privacy standards.

The HHS Secretary may only use evidence and findings from research conducted under the auspices of PCORI to make coverage decisions under Medicare if decisions are made through an iterative and transparent process, which includes public comment. The Secretary is not authorized to deny coverage of items or services sole only the basis of comparative clinical effectiveness research. In addition, the Secretary is prohibited from using findings or evidence to make a coverage decision that would deny coverage on the basis of age, disability, expected length of life or quality of life.

Research for PCORI is funded through the general fund of the Treasury (from funds not otherwise appropriated) and through net revenues received in the Treasury from fees imposed under the ACA’s subchapter B of chapter 34. Under the ACA, PCORI will receive an estimated $3.5 billion in total funding from the Patient-Centered Outcomes Research Trust Fund for patient-centered outcomes research through September 30, 2019. This is the date through which the ACA authorizes the operation of PCORI. Twenty percent of funding is transferred to the HHS Secretary, for the purpose of disseminating information and building research capacity. And eighty percent of that amount (the twenty percent transferred to HHS) is further transferred to the Agency for Healthcare Research and Quality (AHRQ) to assist in fulfilling that purpose.

Recent Developments

Plans Subject to Fee

On December 6, 2012, the Department of Treasury released final regulations to implement fees on health insurers and health plan sponsors to support PCORI. The rules apply for policies with policy years ending on or after October 1, 2012, and before October 1, 2019. For policy years ending on or after October 1, 2012, and before October 1, 2013, the applicable dollar amount is $1. For policy years ending on or after October 1, 2013, and before October 1, 2014, the applicable dollar amount is $2. For any policy year ending in any Federal fiscal year beginning on or after October 1, 2014, the applicable dollar amount is the sum of the applicable dollar amount for the policy year ending in the previous Federal fiscal year and the product of this dollar amount and the percentage increase in the projected per capita amount of the National Health Expenditures (NHE). The NHE indexes are released by the Department of Health and Human Services (HHS) before the beginning of the Federal fiscal year.

Certain plans are exempt from the fee. They include, among others, accident-only and disability income insurance policies, general liability insurance, automobile liability insurance, workers’ compensation policies, and certain health insurance policies, if offered separately, including dental or vision benefits and long-term care insurance or similar benefits. Disease-specific, hospital indemnity, and Medicare supplemental insurance policies are also exempt from the fee.

Unless exempt, fees apply to health insurance policies, including a policy under a group plan, issued for individuals residing in the United States. Prepaid health insurance arrangements are also included. Fees also apply to self-insured plans if any portion of the coverage is provided other than through an insurance policy, and the plan is established or maintained by one or more employers for the benefit of their employees or former employees, by a voluntary employees’ beneficiary association, 501(c)(6) business leagues, multiple employer welfare arrangements, rural electric cooperatives or rural telephone cooperative associations. In the final Treasury Department rule, the agency noted that the PCORI fee does not include a permissible benefit plan expense and that the Department of Labor will provide additional guidance on the issue. The rule also clarifies that the PCORI fee applies to retiree coverage and retiree-only plans as well as continuation of coverage required under the Consolidated Omnibus Budget Reconciliation Act (COBRA).

Calculation of Covered Lives

The fee imposed on both issuers of health insurance policies and on plan sponsors of self-insured health plans are based on the average number of lives covered under the policy or plan during the plan year. Issuers may use one of four methods for calculating payments. Issuers must use the same method for the duration of the plan year. The rule provides examples of each option. They include:

• Actual count: calculated by adding the total number of lives covered for each day of the policy year and dividing that total by the number of days in the policy year.
• Snapshot: calculated by adding the totals of lives covered on a date during the first, second, or third month of each quarter (or more dates in each quarter if an equal number of dates is used for each quarter), and dividing that total by the number of dates on which a count is made.
• Member months: calculated by determining an amount that equals the sum of the totals of lives covered on pre-specified days in each month of the reporting period reported on the National Association of Insurance Commissioners (NAIC) Supplemental Health Care Exhibit filed for that calendar year. Under this method, the average number of lives covered under the policies in effect for the calendar year equals the member months divided by 12.
• State form method – calculated using a form that is filed with the issuer’s state of domicile and a method similar to the member month calculation, if the form reports the number of lives covered in the same manner as member months are reported on the NAIC Supplemental Health Care Exhibit.

Plan sponsors may use one of three methods, including the actual count method, the member month method, or may instead choose from 5500 method, which is based on the number of participants reported on form 5500 for that plan year.

Government Programs Exempt from the Fee: Sections 4375 and 4376, added to the Internal Revenue Code by the ACA, impose fees on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans. The purpose of these provisions is to provide a funding source for the Trust Fund that is to be financed, in part, by fees to be paid by issuers of specified health insurance policies and sponsors of applicable self-insured health plans. According to Sections 4375 and 4376 of the ACA, there is a fee imposed on each health insurance policy for each policy year ending after September 30, 2012 a fee equal to the product of $2 ($1 in the case of policy years ending during fiscal year 2013) multiplied by the average number of lives covered under the policy. Section 4377(b)(1)(B) of the Act provides that governmental entities shall not be exempt from the fees imposed by sections 4375 and 4376 unless the policy or plan is an exempt governmental program. Section 4377(b)(3) includes Medicare, Medicaid, Children’s Health Insurance Program, insurance for the Armed Forces of the United States or veterans, and insurance for Indian tribes as exempt governmental programs.

Determination of Whether an Individual is Residing in the United States: The final rule clarifies that if the most recent address on file for an employed individual is outside the United States, covered lives of the spouse, dependents or other covered lives may be treated as living outside the U.S.

Self-Insured Expatriate Plans: Self-Insured plans formed for the purposes of covering employees working and residing outside the U.S. are not subject to the PCORI fee.

Health Reimbursement Arrangements (HRAs) and Flexible Spending Arrangements (FSAs): HRAs and FSAs are included as self-insured health plans and are subject to fees unless the plan meets one of the exceptions outlined above.

Reporting and Payment Deadlines: Issuers and plan sponsors of self-insured plans must pay the PCORI fee for a policy year or plan year no later than July 31 of the year following the last day of the policy year or plan year. The rule requires plans to report and pay using form 720. The final regulations do not permit or include rules for third-party reporting or payment of the PCORI fee.