Price Transparency in Hospitals – Is Hospital Pricing Data a Protected Trade Secret?

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[co-author: Shanice Cameron - Summer Associate, 2021]

By this point, it's no secret the cost of healthcare services can vary dramatically between different providers of the same services. The Bush, Obama, Trump and Biden administrations all pushed for price transparency in healthcare, but the opposition has been fierce. Many healthcare providers argue that their pricing data should be protected as a trade secret, and that disclosure will lead to increased prices because facilities that charge less may increase their prices to match their higher-priced competitors. Supporters of price transparency believe that it will aid consumers in making well-informed decisions about where to seek healthcare services based on the costs of those services, making it easier for consumers to comparison shop and avoid being blindsided by healthcare costs.

History of Price Transparency

In 2010, the U.S. Congress passed the Affordable Care Act (ACA), which required U.S. hospitals to make public “a list of the hospital's standard charges for items and services provided by the hospital.” 42 U.S.C. § 300gg-18(e) (2018). Hospitals began making available their chargemaster rates (i.e., standard rates without any discounts applied) for their services. In 2018, the Centers for Medicare & Medicaid Services (CMS), an agency within the U.S. Health and Human Services Department (HHS), announced it would require hospitals to post their chargemaster rates online in a machine-readable format. Many complained, however, that consumers remained in the dark because chargemaster prices can be highly inflated and bear little resemblance to what patients can ultimately expect to pay.

On June 24, 2019, then-President Donald Trump issued an executive order requiring the Secretary of HHS to “propose a regulation, consistent with applicable law, requir[ing] hospitals to publicly post standard charge information, including charges and information based on negotiated rates and for common or shoppable items and services,” in easy-to-understand formats so as to "inform[] patients about actual prices.”1 Thereafter, CMS solicited comments and feedback from thousands in the healthcare field, many of whom objected to the disclosure of the additional pricing information, which they considered to be a trade secret.2 In November 2019, CMS promulgated the final Hospital Price Transparency Rule (the “Rule”), which took effect on Jan. 1, 2021. 45 C.F.R. § 180.10 et seq. (2021). On July 9, 2021, President Joe Biden issued a separate executive order directing “HHS to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing.”3

The Rule

The Rule requires all U.S. hospitals “to establish, update, and make public a list of the hospital's standard charges for items and services provided by the hospital.” 45 C.F.R. § 180.10. Where one parent company operates multiple hospitals that have disparate pricing, "[e]ach hospital location operating under a single hospital license (or approval) ... must separately make public the standard charges applicable to that location." 45 C.F.R. § 180.50. Each hospital must "make public" their pricing data in two ways: “(a) A machine-readable file containing a list of all standard charges for all items and services as provided in § 180.50”; and “(b) A consumer-friendly list of standard charges for a limited set of shoppable services as provided in § 180.60." 45 C.F.R. § 180.40.4 The published pricing information applies to “all items and services ... that could be provided by a hospital to a patient in connection with an inpatient admission or an outpatient department visit for which the hospital has established a standard charge.” Examples include: (1) supplies and procedures; (2) room and board; (3) facility fees; (4) professional charges; and (5) “[a]any other items or services for which a hospital has established a standard charge.” 45 C.F.R. § 180.20 (cleaned up). For each item and service, the hospital must produce specified pricing data fields in a particular format. 45 C.F.R. §§ 180.50; 180.60. All data must be updated annually. 45 C.F.R. § 180.50(e).5

Challenges to the Rule

To date, there has only been one legal challenge to the Rule. The American Hospital Association (“AHA”), together with several hospitals and hospital associations, filed a lawsuit against the Secretary of HHS arguing that the Rule violated the ACA, the Administrative Procedure Act, and the First Amendment because the Rule, among other things, unfairly forced hospitals to disclose trade secret information. See Am. Hosp. Ass'n v. Azar, 468 F. Supp. 3d 372, 374 (D.D.C. 2020), aff'd, 983 F.3d 528 (D.C. Cir. 2020).

On appeal, the AHA took issue with the requirement that hospitals disclose their negotiated rates and their cash prices. See Am. Hosp. Ass’n v. Azar, 983 F.3d 528, 534-35 (D.C. Cir. 2020).

First, the AHA argued that hospitals should be required to disclose only their chargemaster rates, which are the standard rates without any discounts applied. Id. The court concluded that limiting the Rule in this way would not accomplish the goal of the law because chargemaster rates were already required to be published by Medicare. Id.

Second, the AHA argued it should not have to publish two different lists because the law only required “a list.” Id. at 535. The court disagreed, explaining that the Rule required only “a list” published in two different formats. Id.

Third, the AHA argued the Rule put an excessive burden on hospitals to compile the data because there were an unlimited number of possible rates that could not be determined until after the patient was treated. Id. For example, if a patient came in for nerve surgery, but ended up also needing a tendon repair surgery, the AHA argued the hospital would not know the cost of the surgery until the surgery was complete. Id. at 536. In rejecting the argument, the court explained that the hospital is not required to calculate every possible iteration of treatment for every patient, but rather is required to publish the rate for the scheduled procedure. Id. at 536-37.

Finally, the AHA argued at the trial court level that "the publication of payer-specific negotiated rates will chill negotiations between hospitals and insurers" and require hospitals to divulge trade secret information. See Am. Hosp. Ass’n v. Azar, 468 F. Supp. 3d 372, 394 (D.D.C. 2020), aff'd, 983 F.3d 528 (D.C. Cir. 2020). Both the trial and appellate court rejected this argument explaining "[t]he fact that these charges will be revealed to consumers (after a hospital procedure) severely undermines Plaintiffs' argument that negotiated rates constitute trade secrets." Id. at FN 24; see also Am. Hosp. Ass'n v. Azar, 983 F.3d 528, 531 (D.C. Cir. 2020) (acknowledging patients typically "learn what a given hospital service cost . . . either from a hospital bill or an 'Explanation of Benefits' form from their insurance company; the latter details the insurer's negotiated rates and the patient's out-of-pocket costs.").

On December 29, 2020, the U.S. Court of Appeals for the District of Columbia affirmed the District Court and upheld the constitutionality of the Rule. No additional appeals were taken.

A State Example: Kansas' Position

For decades, individual states approached price transparency with varying approaches. These differences led to significant discrepancies in healthcare prices in pockets of the country. Kansas is one of the remaining states that collects healthcare pricing data, but does not publicly release it. Kansas officials assert the data is a protected trade secret based on Kansas’ state regulations, which explicitly limits the scope and release of data from insurance databases.6 For example, Kansas Regulation 40-1-45 mandates that raw data collected by the Commissioner of Insurance “shall not be made available to the public”; however, compilations of the data can be released provided that the compilation does not include “patient-identifying information or trade secrets.”7 The Kansas Open Records Act (KORA) explicitly exempts trade secrets from disclosure under the Uniform Trade Secrets Act (UTSA) and defines a “trade secret” as follows:

Trade secret means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.8

To remain compliant with Kansas' statutes and regulations, the Kansas Insurance Department only shares aggregated data with third parties. This aggregated data reflects that price discrepancies can be significant. Depending on where an individual lives in Kansas, the price paid by larger employer health plans can be more than 2.5 times that of Medicare. The Kansas Health Institute determined that a visit to an emergency room could cost $700 in the Kansas City area versus $150 in south-central Kansas.9 These pricing differences are what proponents of the Rule argue should be made public so consumers can better determine where to seek medical treatment.

CMS Implementation of the Rule

CMS serves as the investigating agency for compliance and has authority to monitor hospital compliance through audits of hospital websites and evaluations of complaints made by individuals and other entities. The Rule assigns responsibility to CMS to evaluate “whether a hospital has complied with the requirements” of the Rule.10 If CMS finds a hospital non-compliant, CMS “may take any of the following actions ... (1) Provide a written warning notice to the hospital of the specific violation(s); (2) Request a corrective action plan from the hospital if its noncompliance constitutes a material violation of one or more requirements, according to § 180.80; [or] (3) Impose a civil monetary penalty on the hospital and publicize the penalty on a CMS website according to §180.90 if the hospital fails to respond to CMS’s request to submit a corrective action plan or comply with the requirements of a corrective action plan.”11 The Rule imposes a civil penalty of up to $300 per day, which must be paid "in full within 60 calendar days”—though there is an ability to request a hearing and appeal if the hospital disagrees with CMS.12

Notwithstanding the potential for substantial civil penalties, some complain there has been a lack of meaningful compliance.13 These same critics claim some hospitals are underreporting data or burying the price transparency links on their websites.14 They also complain there has been a lack of uniformity and format in the data output by hospitals—making it difficult for consumers and researchers to meaningfully use the data.15 For example, some hospitals are using HTML code, which prevents the price lists from appearing in online searches.16 At least one organization, Patient Rights Advocate, reported that 94 percent of hospitals are non-compliant.17

To encourage compliance, in April 2021 CMS began sending out warning letters and reported sending at least 165 warning letters as of July 2021—which provided hospitals 90 days to address website price transparency deficiencies.18 CMS also recently proposed an increase to the civil penalties associated with non-compliance for hospitals with 30 or more beds.19 However, a CMS spokesperson recently said "CMS intends to continue its monitoring and enforcement activities and will issue additional warning letters on a monthly basis going forward," but that CMS has not yet issued any civil penalties and will hold off doing so for now.20

Takeaways

Inconsistent compliance with the newly enacted Rule and CMS’ lack of enforcement, coupled with state trade secret limitations on the release of data, could delay the release of robust data sets to researchers and consumers who want to participate in price shopping. Importantly, the Rule mandates CMS expose and publish the names of those hospitals that face civil penalties, which has not yet occurred but may be on the horizon.21 Accordingly, hospitals should evaluate their compliance with the Rule and assess any countervailing state trade secret laws.

Notes

1 Exec. Order No. 13877, Improving Price and Quality Transparency in American Healthcare to Put Patients First, 84 Fed. Reg. 30,850 (June 24, 2019).

2 Am. Hosp. Ass'n v. Azar, 468 F. Supp. 3d 372, 377 (D.D.C. 2020), aff'd, 983 F.3d 528 (D.C. Cir. 2020) ("Hospital and insurer organizations and advocacy groups, on the other hand, objected to the Rule on a number of grounds. Many disputed that the agency had the statutory authority to require disclosures of specific negotiated charges . . . or to require the publication of information they believed to constitute trade secrets.")

3 Fact Sheet: Executive Order on Promoting Competition in the American Economy (July 9, 2021); see also The White House, Executive Order on Promoting Competition in the American Economy (July 9, 2021), at Section (5)(p)(ii) (stating "Secretary of Health and Human Services shall: . . . support existing price transparency initiatives for hospitals, other providers, and insurers along with any new price transparency initiatives or changes made necessary by the No Surprises Act (Public Law 116-260, 134 Stat. 2758) or any other statutes.")

4 Machine-readable format "means a digital representation of data or information in a file that can be imported or read into a computer system for further processing. Examples of machine-readable formats include, but are not limited to, .XML, .JSON and .CSV formats." 45 C.F.R. § 180.20.

5 The complete rules and regulations are outlined in a comprehensive report drafted by HHS. See Medicare and Medicaid Programs: CY 2020 Hospital Outpatient PPS Policy Changes and Payment Rates and Ambulatory Surgical Center Payment System Policy Changes and Payment Rates. Price Transparency Requirements for Hospitals To Make Standard Charges Public, 84 FR 65524-01.

6 Kan. Admin. Regis. § 40-1-45 (1998).

7 Id. §§ (a)(1)-(2).

8 Kan. Stat. Ann, § 60-3320(4)(i)-(ii) (2019).

9 Phillip Steiner, et al., A Glimpse Into Hospital Prices in Kansas, Kansas Health Institute (May 24, 2021); Kansas Knows what Hospitals Get Paid But Says it Can't Share it with a National Comparison Group.

10 45 C.F.R. § 180.70(a).

11 45 C.F.R. § 180.70(b) &180.80.

12 45 C.F.R. §§ 180.90(a), (c), and (d); 180.100.

13 See ADVI, Implementation of Newly Enacted Hospital Price Transparency Rule (last visited on Aug. 24, 2021).

14 Id.

15 Id.

16 Tom McGinty, Anna Wilde Mathews and Melanie Evans, Hospitals Hide Pricing Data From Search Results, Wall Street Journal (March 22, 2021).

17 See Revcycle Intelligence, Jill McKeon, CMS Holds Off on Hospital Price Transparency Noncompliance Penalties.

18 Id.

19 Id.

20 Id.

21 45 C.F.R. § 180.90 (2021).

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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