On November 15, 2019, CMS published a controversial final rule intended to improve hospital pricing transparency for consumers.¹ To achieve this lofty goal, the rule requires hospitals to post information about their gross charges, payer-specific negotiated charges, de-identified minimum and maximum negotiated charges, and discounted cash prices.

The rule will require these various "standard charges" to be publically available beginning in 2021. The American Hospital Association and three other hospital advocacy groups have already announced plans to challenge the rule, particularly the breadth of CMS's definition for "standard charges."

CMS also published a proposed pricing transparency rule applicable to health insurers on the same day as the hospital final rule. One thing is clear: CMS is fully embracing President Trump's executive order to advance price transparency in the healthcare industry.

Background

In 2010, the Affordable Care Act added a new Section 2718(e) to the Public Health Service Act requiring all hospitals to make public a list of their "standard charges." In previous rulemaking, CMS interpreted the statute to require hospitals to publish their chargemasters in a machine-readable format.

In June of this year, President Trump issued an Executive Order entitled "Improving Price and Quality Transparency in American Healthcare to Put Patients First,"² that sent CMS marching toward requiring hospitals to make even more pricing information available to the public by proposing and now finalizing these new price transparency rules.

CMS is focused on making more consumer-friendly pricing information available to the public to help reduce healthcare costs for individuals. The agency believes that allowing insight into negotiated rates will enable consumers to calculate their out-of-pocket costs and coinsurance liability more accurately and will increase market competition.

Additionally, CMS expressed that pricing information disclosures further the agency's drive to value-based care because consumers can pair the publically available quality information with more meaningful pricing data to make more informed decisions about the value of their care.

The Details: Defining What Price Information Must be Disclosed

Who Must Comply – "Hospital" Defined (45 CFR § 180.20)

Any institution licensed as a hospital pursuant to any state or applicable local law or that is approved by the applicable agency of such state or locality as meeting the standards established for such licensing is considered a "hospital" that must comply with the rule, whether they are enrolled in Medicare or not. The pricing information is required for all locations operating under a hospital license, including off-campus outpatient departments.

Federally owned or operated hospitals, such as Indian Health Service facilities and VA facilities, are largely excluded from the requirements of the rule due to unique circumstances with their patient populations and benefit design. CMS did not exempt rural hospitals from the final rule despite a number of commenters who raised concerns about implementation challenges.

What is a "Standard Charge" (45 CFR § 180.20)

In the preamble to the final rule, CMS put forth a detailed argument about why the statutory term "standard charges" could be interpreted to include several different rates. After presenting its reasoning for why the term extends beyond just chargemaster rates, CMS defined "standard charges" to mean "the regular rate established by the hospital for an item or service provided to a specific group of paying patients."

Under this definition, standard charges include:

• Gross charges – The charges for an individual item or service that is reflected on a hospital's chargemaster, absent any discounts. Despite the fact that few patients are obligated to pay these rates, CMS is requiring hospitals to disclose gross charges to drive competition in the negotiation process with third-party payers.

• Payer-specific negotiated charges – The charges that a hospital has negotiated with any third-party payer for an item or service. Third-party payers are defined only as entities that are legally responsible for payment of a claim.

  Medicare and Medicaid fee-for-service rates are not considered to be payer-specific negotiated rates because they are not subject to negotiation. However, Medicaid managed care and Medicare Advantage rates are within the scope of this definition.

  While this part of the definition could prove the most useful to insured consumers who want to calculate their out-of-pocket costs, it is also the most concerning to hospitals and insurers who fear losing leverage in their negotiations. CMS clarified that hospitals are only required to disclose the base rates they negotiate with payers.

• Discounted cash price – The charge that applies to an individual who pays cash. CMS confirmed that this price is the discounted cash rate unrelated to any charity care or bill forgiveness reductions. If a hospital has not established a lower cash price for an item or service, the hospital's gross charges for the item or service would be considered to be the discounted cash price.
• De-identified minimum and maximum negotiated charges – The lowest and highest charge that a hospital has negotiated with all third-party payers. CMS believes that consumers would be able to compare the negotiated charge for their insurance product with this range to assess the value of the provider and the insurance product.

Hospitals should not consider Medicaid fee-for-service rates when determining the minimum negotiated charges because they are not negotiated rates, though Medicaid managed care rates would be within the scope of the rule.

What Are the "Items and Services" For Which Prices Must Be Disclosed (45 CFR § 180.20)

CMS defines hospital "items and services" to mean all items and services, including individual items and services and service packages, that could be provided by a hospital to a patient in connection with a hospital admission or an outpatient department visit for which the hospital has established a standard charge.

Examples include supplies, procedures, room and board, use of the facility, services of employed physicians and non-physician practitioners (i.e., professional charges), and any other items or services for which a hospital has established a standard charge. This aspect of the rule may prove to be the most challenging to implement as hospitals and payers negotiate more unique payment arrangements that may be considered "service packages" under the rule.

Additionally, CMS declined to provide any guidance about when a physician or non-physician is considered to be "employed" by the hospital, leaving open for interpretation whether charges for physicians employed by an affiliated entity or working as independent contractors of the hospital would need to be disclosed.

Payment rates for professional services are often part of a separate negotiated contract which will require hospitals to consider even more agreements when posting their charges. 

Pricing Disclosure Required in Two Formats

The rule requires hospitals to make their standard charges available publically in two formats:

1. A machine-readable, online file containing a list of all standard charges; and
2. An online display of shoppable services in a consumer-friendly manner.

CMS included several specific requirements concerning the rule's public display aspects to maximize usefulness to consumers by encouraging integration of the data in price transparency tools, research, and consumer apps and enabling consumers to easily navigate the original data without special tools.

Machine-Readable File of Standard Charges (45 CFR § 180.50(b))

The preamble to the rule reveals that CMS believes the full set of standard charges will be most frequently accessed by industry stakeholders who will transform the data into consumer-facing formats, rather than being accessed by individual consumers directly. Hospitals will be required to include standardized data elements to enhance uniformity, and CMS included in the final rule announcement a sample table depicting how the data may be formatted in a manner consistent with the rule.

The file must include the following information:

• The gross charges, payer-specific negotiated charges for each payer, de-identified minimum and maximum negotiated charges, and discounted cash prices for all items, services, and service packages. The file must identify these charges in the inpatient and outpatient settings, as applicable. Each type of standard charges may be presented on separate tabs of a spreadsheet.
• A description of each item, service, or service package, and any code used by the hospital for purposes of accounting or billing (e.g., CPT code, DRG, or NDC). Hospitals are not required to include revenue codes, but if the same service has different standard charges based on the department that furnishes the service, the list would need to include separate lines for each standard charge.

All of the information must be included in a single digital file that (1) is in a machine-readable format such as .XML, (2) is displayed prominently on a publically-available website, and (3) clearly identifies the hospital location with which the standard charges information is associated. The website must not require an individual create a user account or password or disclose personally identifiable information to access the data. CMS has even established a specific naming convention for the file in the rule.

Finally, hospitals must update the data file at least once every 12 months and indicate the date of the last update in the file or on the webpage linking to the file.

The Consumer-Friendly Display of Pricing for Shoppable Services (45 CFR § 180.60)

CMS recognizes that the massive data sets of standard charges may not be a useful tool for consumers to assess pricing for common hospital services. The rule thus requires hospitals to create a consumer-friendly display of pricing for the items and services it provides to patients most frequently.

Hospitals are required to display pricing for at least 300 "shoppable services," described by CMS as services that can be scheduled by a health care consumer in advance and which are typically provided in non-urgent situations (e.g., x-rays, outpatient visits, imaging, laboratory tests, or bundled services like a cesarean delivery and related care). The 300 shoppable services must include 70 services identified by CMS (if the hospital offers those services) with the balance selected by the hospital from the most commonly provided services.

The 70 services selected by CMS are in Table 3 of the rulemaking.

Hospitals must provide the following information for each shoppable service:

• A list of all payer-specific negotiated charges, de-identified minimum and maximum negotiated charges, and discounted cash prices (or gross charges in the absence of a discounted rate);
• A plain-language description of the service and the primary code used to bill for the service;
• The location where the service is provided, including whether the standard charge applies when the service is provided in the inpatient setting, the outpatient setting, or both; and
• A list of corresponding charges for ancillary services the hospital customarily provides in conjunction with the primary service (based on each hospital's own determination of what other services, such as laboratory services, room and board, therapy services, and charges for employed professionals, it typically bills for with the primary service).

CMS did not address many critical questions about the requirements of this part of the rule. 

For example, there is no objective standard for hospitals to determine which ancillary services are "customarily" provided in conjunction with a primary service. The rule also does not give hospitals meaningful guidance concerning how they should select the 230 (or more) shoppable services.

We encourage hospitals to raise these questions during CMS's education events about the rule, such as open door forums.

The same display standards generally apply to this consumer-friendly list of shoppable services as the full list of standard charges. However, hospitals have more flexibility to present the data in a consumer-friendly manner such as posting separate files containing each set of standard charges rather than a single file or integrating the data in a price estimate tool.

The final rule does not require hospitals to make the information available in a paper format.

Importantly, hospitals maintaining a price estimator tool that allows consumers to obtain estimates of the amount they will be required to pay the hospital for the shoppable services will be deemed to meet the requirements of this section of the rule. Hospitals that have already invested in price estimator technologies should confirm that their tools meet the requirements at 45 CFR § 180.60(a)(2) to be exempt from the consumer-friendly display of pricing requirements in the rule.

Enforcement and Appeals Process

CMS has established an email address to report concerns about hospitals' compliance with the rule. Evaluation of reports of noncompliance are one of the compliance monitoring activities established in the rule. CMS also will independently audit hospitals' websites to monitor compliance with the rule.

The rule also establishes an enforcement framework for noncompliance that may result in civil monetary penalties of up to $300 per day in the aggregate for all violations of 45 CFR Part 180 and a public notice of the noncompliance on a CMS website. The cost of implementing the rule will likely far outpace the potential annual penalties of $109,500.

CMPs will generally not be issued until after CMS provides an opportunity to correct the noncompliance through a warning notice describing the non-compliance or a corrective action plan if the noncompliance constitutes a material violation. The final rule also establishes an appeals process for hospitals to request a hearing before an administrative law judge of the civil monetary penalty.

Legal Battle Ahead: Hospital Advocacy Groups Challenge the Rule

The four major hospital advocacy groups announced³ they will jointly file suit to challenge CMS's alleged authority to force hospitals to publicly disclose their privately negotiated rates. The suit will likely allege that CMS overstepped its statutory authority by interpreting the term "standard charges" to mean four types of rates including negotiated rates that both hospitals and insurers claim are proprietary business information. The groups are also expected to challenge the disclosure of negotiated rates on First Amendment grounds.

Stay tuned for whether this lawsuit will stop or merely slow down CMS's march toward transparent pricing….

1 https://www.hhs.gov/sites/default/files/cms-1717-f2.pdf?language=en
2 https://www.whitehouse.gov/presidential-actions/executive-order-improving-price-quality-transparency-american-healthcare-put-patients-first/
3 https://www.aha.org/press-releases/2019-11-15-joint-statement-national-hospital-and-health-system-groups-public

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