American Hospital Association’s Lawsuit Challenging CMS’s Price Transparency Final Rule Set for Summary Judgment Hearing in April

King & Spalding

On December 4, 2019, the American Hospital Association and several hospital associations and hospitals (“Plaintiffs”) filed suit against the Secretary of Health and Human Services (“HHS”) to challenge the Centers for Medicare & Medicaid Services’ (“CMS”) final rule on price transparency (“Final Rule”). The Final Rule, among other things, requires hospitals to publicly disclose “payer-specific negotiated charges,” meaning the specific rates that a hospital has negotiated for all items and services with each third party payer. In their motion for summary judgment, Plaintiffs argued that the Final Rule was unlawful for multiple reasons. First, Plaintiffs argued that the Final Rule exceeded CMS’s statutory authority in the Public Health Service Act by effectively re-defining “standard charges” to include “payer-specific negotiated charges.” Whereas “standard charges” generally and historically has referred to a hospital’s usual or customary chargemaster charges, plan-specific negotiated charges are not commonly understood to mean “standard charges.” Plaintiffs also contended that the Final Rule violates the First Amendment by mandating speech: specifically, by compelling disclosure of highly confidential pricing data in a manner that fails to directly advance a substantial government interest. Plaintiffs further argued that the Final Rule is not narrowly tailored to achieve the goal of transparency in healthcare pricing. Plaintiffs noted that consumers want to know what a given service will cost them out-of-pocket, but the Final Rule’s mandated disclosures of large quantities of complex pricing data will not provide consumers with the information they need. Plaintiffs also argued that negotiated charges are confidential and proprietary to both hospitals and insurers, and that the disclosure of such information would undermine competition.

HHS opposed Plaintiffs’ motion for summary judgment and filed its own motion for summary judgment on February 4, 2020. In its brief, HHS argued that Plaintiffs’ reading of the Public Health Service Act--specifically, that "standard charge” means only the “chargemaster charge”--is incorrect. HHS argued that “chargemaster charges” are not “usual” or “customary” for the majority of patients, and that a hospital’s “standard” charges depend on whether the patient is insured or uninsured or has in-network or out-of-network insurance. With respect to Plaintiffs’ First Amendment argument, HHS maintained that the Final Rule only requires disclosure of commercial information and thus it is subject to (and meets) the lowest level of First Amendment scrutiny. Moreover, HHS argued that the Final Rule does in fact provide some patients with their out-of-pocket costs and provides many patients with information they need to determine those costs.

Over the past few weeks, several non-party organizations appearing as amici curiae (friends of the court) have filed briefs in support of Plaintiffs, including state and regional hospital associations who explained the complexity and variability of hospital charges and confidential negotiated rates and the burden on hospitals to comply with the Final Rule in light of the requirement to disclose significant volumes of detailed and complicated pricing information. Additionally, King & Spalding represented the Chamber of Commerce of the United States in filing an amicus curiae brief, which argued, among other things, that CMS lacks the statutory authority to require hospitals to disclose their negotiated rates and that the Final Rule compels the disclosure of misleading information that bears no relationship to a patient’s true financial exposure, in violation of the First Amendment.

The court set a hearing on the motions for summary judgment for April 22. Plaintiffs seek a ruling that declares the Final Rule unlawful and enjoins HHS from enforcing, implementing, or taking any other action in reliance on the Final Rule. King & Spalding will continue to provide updates on developments in the litigation as the Final Rule’s January 1, 2021 effective date quickly approaches. In the meantime, hospitals should move forward with their efforts to comply with the Final Rule’s disclosure obligations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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