On June 23, 2020, Judge Carl Nichols of the United States District Court for the District of Columbia issued a decision upholding CMS’s price transparency rule, which was adopted late last year. The case is cited as American Hospital Association v. Azar, No. 1:19-cv-03619, 2020 WL 3429774 (D.D.C. 2020). The rule, slated to go into effect on January 1, 2021, will require hospitals to publish multiple types of pricing data for each item and service they provide, including the gross charge for the item, the discounted price that the hospital would accept from a cash payer for the item, and the payment rate for the item that was negotiated with any commercial payer.

The Affordable Care Act enacted section 2718(e) of the Public Health Service Act, which requires hospitals, under “guidelines” adopted by CMS, to annually publish a list of their “standard charges,” including Diagnosis-Related Groups (DRGs), for every item and service they provide. CMS announced its first guidelines for section 2718(e) in 2014, stating that hospitals could comply with the provision by annually publishing their chargemasters. In a 2018 rulemaking, CMS updated its guidelines to require hospitals to post their chargemasters in a machine-readable format.

On June 24, 2019, President Trump issued an executive order directing the Secretary of HHS to propose a regulation consistent with applicable law that would require hospitals to publish, among other things, “charges and information based on negotiated rates” to “inform[] patients about actual prices.”

Within months after the President’s order, CMS proposed and finalized updated implementation guidance for section 2718(e). The agency found, based on comments from prior rulemakings, that hospitals’ charges tend to vary by patient population—particularly between self-pay patients and those with third party coverage. Therefore, CMS redefined “standard charges” to mean “the regular rate established by the hospital for an item or service provided to a specific group of paying patients.”

Consistent with this new definition, CMS’s new rule requires hospitals to publish five (5) types of standard charges for each item and service: (1) gross charges (i.e., the chargemaster); (2) discounted prices that apply to patients who pay cash; (3) payer-specific negotiated rates; and the de-identified (4) minimum and (5) maximum charges that a hospital has negotiated with third-party payers. CMS will monitor compliance and will enforce these new guidelines with civil monetary penalties.

Within days after CMS finalized its new rule, the American Hospital Association, along with several other advocacy groups and hospitals filed suit in the United States District Court for the District of Columbia to challenge the rule. In a motion for summary judgment, the plaintiffs argued that CMS’s new rule belies the unambiguous meaning of the statute because “standard charges” can only mean chargemaster charges. The plaintiffs also asserted that the rule is unreasonable and that it compels speech in violation of the First Amendment. Finally, the plaintiffs challenged CMS’s authority to enforce section 2718(e) through civil monetary penalties.

The district court denied the plaintiffs’ motion for summary judgment. First, the court rejected the notion that “standard charges” unambiguously means chargemaster rates. The court reasoned that chargemaster is a term of art in the healthcare industry, and the fact that Congress chose not to use it in section 2718(e) suggests that “standard charges” does not unambiguously mean chargemaster charges. Furthermore, the district court observed that chargemaster rates are hardly “standard” because that they only apply to about 10% of patients. Finally, the court noted that section 2718(e) says that standard charges should include DRGs, which are not in the chargemaster.

The district court also ruled that it was not unreasonable for CMS to require hospitals to report multiple forms of pricing data for each line of service given the agency’s finding that charges vary between different patient groups. Furthermore, the court found that the rule did not violate the First Amendment because agencies can compel commercial speech when doing so is reasonably related to a public interest. In the court’s view, CMS’s rule advanced the public’s interest in providing consumers with factual price information to facilitate more informed health care decisions.

Finally, the district court found that section 2718(b)(3) of the Public Health Service Act empowered CMS to enforce 2718(e) through civil monetary penalties. The court declined the plaintiffs’ invitation to read section 2718(b)(3) narrowly as only authorizing enforcement of subsection (b).

The plaintiffs in the action have filed a notice of appeal. Briefing before the United States Court of Appeals for the D.C. Circuit is expected to occur over the next several months.

A copy of the court’s decision is available here.