The Department of Health and Human Services (HHS), and the Trump Administration as a whole, has placed a particular focus on the promotion of price transparency as a tool to control the costs of healthcare. In June, the President issued an executive order that directed HHS to propose a rule that would require hospitals to disclose negotiated rates for services that hospitals or their employees provide. Exec. Order No. 13,877, 84 Fed. Reg. 30,849 (June 27, 2019). HHS, through the Centers for Medicare & Medicaid Services (CMS), implemented the executive order by issuing a proposed rule in August, which relied on a provision of the Affordable Care Act that requires hospitals to make public a list of their “standard charges.”

The proposed rule sought to convert the “standard charges” statute into a significantly more onerous requirement for hospitals to publish multiple lists, not only of their standard charges, but also of the specific rates that they negotiate for items and services with particular payers. CMS has now finalized that rule, and in so doing, imposed even further disclosure requirements on hospitals beyond those contemplated in the proposed rule. The rule is vulnerable to a legal challenge, and indeed the American Hospital Association and several associations and individual hospitals have filed suit in a federal district court to challenge the rule. That litigation is unlikely to be resolved before the rules goes into effect, however, and in the meantime, hospitals will face numerous legal and practical challenges in preparing to comply with the new regime. The final rule leaves several important questions unresolved, creating considerable uncertainty for hospitals as they attempt to implement the new requirements.

Background

In 2010, when it enacted the Affordable Care Act, Congress added a new Section 2718 to the Public Health Service Act, which specifies in relevant part that:

Each hospital operating within the United States shall for each year establish (and update) and make public … a list of the hospital’s standard charges for items and services provided by the hospital, including for diagnosis-related groups established under section 1886(d)(4) of the Social Security Act [42 U.S.C. § 1395ww(d)(4)].

42 U.S.C. § 300gg-18(e). The statute directed the Secretary to develop guidelines to govern the manner in which a hospital makes its standard charges public. Id. The Secretary, through CMS, initially proceeded with a light touch. CMS first addressed the issue in the fiscal year (FY) 2015 inpatient prospective payment system (IPPS) final rule, in which the agency declared that hospitals could comply with the statute by making public either “a list of the standard charges (whether that be the chargemaster itself or in another form of their choice),” or “their policies for allowing the public to view a list of those charges in response to an inquiry.” 79 Fed. Reg. 49854, 50146 (Aug. 22, 2014). The agency chose at that time to defer to the judgment of hospitals as to how to make their standard charges available to the public: “we believe hospitals are in the best position to determine the exact manner and method by which to make the list public in accordance with the guidelines.” Id.

CMS continued to defer to hospitals’ judgments on this issue until it revisited the issue, under a new Administration, in 2018. In its FY 2019 IPPS rulemaking, CMS stated its belief that “chargemaster data are not helpful to patients for determining what they are likely to pay for a particular service or hospital stay.” 83 Fed. Reg. 20,164, 20,549 (May 7, 2018). The agency declared that it is “considering ways to improve the accessibility and usability of the charge information” that hospitals are required to disclose. Id. As “one step” in that effort, the agency revised its guidelines to specify that it would require hospitals to make a list of their standard charges available via the internet in a machine-readable format. The agency specified that a hospital could publish this data “in the form of the chargemaster itself or another form of the hospital’s choice.” Id. At the same time, the agency opined that the statutory phrase “standard charges” was ambiguous, and sought public comment on several possible definitions for that phrase, including “average or median rates for items on the chargemaster,” “average or median rates for groups of services commonly billed together (such as for an MS-DRG),” and “the average discount off the chargemaster amount across all payers.” Id. The agency further asked for comments on whether it should require hospitals to disclose to patients their expected out-of-pocket costs. Id.

CMS reiterated its approach to the statute in its final FY 2019 IPPS rule, declaring that it would require, as of January 1, 2019, “that hospitals’ list of standard charges be made available to the public via the internet in a machine readable format and that hospitals update this information at least annually, or more often as appropriate.” 83 Fed. Reg. 41,114, 41,686 (Aug. 17, 2018). The agency did not attempt to provide a more detailed definition of the phrase “standard charges,” other than to reiterate that hospitals could choose to publish data “either in the form of the chargemaster itself or another form of the hospital’s choice, as long as the information is in machine readable format.” Id. The agency declared that it would not require “at this time” that hospitals publish payer-specific data, hinting that it may choose to impose that requirement in the future. Earlier this year, CMS’s sister agency, ONC, expanded on that hint by issuing a request for information seeking the public’s views on way in which the agency could require hospitals to disclose payer-specific pricing data. 84 Fed. Reg. 7424, 7508-7553 (Mar. 4, 2019).

As noted above, following these agency pronouncements, the President issued an executive order directing the agency to propose a price transparency rule. CMS did so as part of its FY 2020 OPPS rulemaking. 84 Fed. Reg. 39,398, 39,571 (Aug. 9, 2019). After taking comments, the agency has now finalized a rule, imposing an obligation on hospitals to disclose their negotiated rates, effective January 1, 2021. 84 Fed. Reg. 65,524 (Nov. 27, 2019). (At the same time, the agency issued a proposed rule that would impose similar disclosure requirements on group health plans and health insurance issuers in the individual and group markets. 84 Fed. Reg. 65,464 (Nov. 27, 2019).)

The Final Rule

CMS’s final rule follows its proposed rule in redefining the statutory phrase “standard charges” to include not only the hospital’s chargemaster but also “payer-specific negotiated charges,” meaning the particular rates that a hospital has negotiated with third party payers. 84 Fed. Reg. at 65,535. Notably, the final rule goes further than the proposed rule to declare that the so-called “standard charges” that a hospital must disclose will also include the “cash discounted price” that a hospital offers for a service (i.e., the “charge that applies to an individual who pays cash (or cash equivalent) for a hospital item or service”, 84 Fed. Reg. at 65,553), as well as the “de‑identified minimum negotiated charge” and “de‑identified maximum negotiated charge,” that is, the lowest and highest rates “that a hospital has negotiated with all third party payers for an item or service,” id. at 65,554.

The agency issued its rule under a provision of the Public Health Service Act, rather than the Medicare statute. Accordingly, the new disclosure requirements apply not only to Medicare-enrolled hospitals, but to any state-licensed hospital in the United States. 84 Fed. Reg. at 65,533. The agency excepted federally-owned or operated hospitals from the rule’s requirements. Id.

A hospital that is subject to the rule would be required to disclose pricing information with regard to all of its “items and services,” which phrase is defined 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 an inpatient admission or an outpatient department visit for which the hospital has established a standard charge.” 84 Fed. Reg. at 65,556. The rule recites that this definition would include, for example, “supplies and procedures,” “room and board,” “facility fees,” and the services of physicians and non-physician practitioners who are employed by the hospital. Id. at 65,557. The rule requires hospitals to disclose pricing information for any “service packages,” meaning any groupings of individual items or services that the hospital uses for billing purposes.

The final rule requires hospitals to disclose their standard charges in two ways. First, for all of the hospital’s “items or services,” as that phrase is defined above, the hospital is required to make public a comprehensive machine-readable file listing each of the multiple forms of “standard charges” described above for those items and services. 84 Fed. Reg. at 69,555. The rule requires a standardized format for this file, listing a description of the item or service, the gross charge for the item, any payer-specific negotiated charges for the item, and billing codes for the item. Id. The file must be published on the internet without any password or other barriers to public access to the file. Id. at 65,561.

Second, hospitals will be required to publish a consumer-friendly display of its charges for certain common “shoppable” services, meaning services that can be scheduled by a healthcare consumer in advance. 84 Fed. Reg. at 65,564. The consumer-friendly display would group primary services together with ancillary items and services that are customarily furnished in conjunction with the primary service. Id. The display would need to include a plain-language description of services. Id. The display would need to include as many of the 70 specific services that CMS lists in the final rule that are provided by the hospital, as well as additional “shoppable” services that the hospital provides, so that the hospital lists a total of at least 300 such services. Id. at 65,571-72. The display would need to list the particular locations or campuses at which the service is available. Id. at 65,573. If the standard charge for the service varies by inpatient or outpatient setting, the display would need to identify the charge in both settings. Id. at 65,574. The information must be also in a paper copy, such as a brochure or booklet, for consumers who request it. Id.

CMS will enforce the new rule, initially by relying on consumer complaints, but may also initiate audits of hospitals’ compliance with the rule. 84 Fed. Reg. at 65,582. If a hospital is found to be out of compliance, CMS generally would first provide a written warning notice to the hospital of the violation, then require the hospital to submit a corrective action plan for the agency’s approval, and finally impose a civil monetary penalty; CMS would retain discretion to depart from this sequence, however. Id. at 65,584. The civil monetary penalty for a violation would be a maximum of $300 per day, and would not be aggregated (that is, even if a hospital is found to have committed multiple violations, the penalty would not exceed $300 per day). Id. at 65,589. Any penalties that are imposed would be publicized on CMS’s website. Id. A hospital that receives a penalty would have the right to an administrative appeal. Id.

When it published its proposed rule, CMS did not address the effective date for the rule’s new requirements. The agency received a number of comments relating that hospitals would need a significant period of time to prepare for implementation of the new rule. The final rule accordingly recites CMS’s agreement with commenters “that some hospitals may find it challenging to initially comply with the new requirements … in a short timeframe,” and that they “may need time … to develop the capacity to meet the new requirements.” 84 Fed. Reg. at 65,585. The agency accordingly set January 1, 2021, as the effective date for the new rule.

Conclusion

Despite the rule's technical complexity, CMS left a number of important subjects unaddressed in its new price disclosure rule. For example, even though the agency acknowledged that there is a wide variety of ways in which hospitals contract with physicians or practitioners for their services, CMS declined to specify the criteria needed for a physician or practitioner to be “employed” by the hospital for purposes of the disclosure requirements. 84 Fed. Reg. at 65,535. Uncertainty on this issue could have a significant practical impact, given that hospitals that list prices for their employed physicians’ or practitioners’ services will appear (misleadingly) to be significantly more expensive than hospitals that do not do so. In addition, the agency failed to offer guidance on how hospitals should treat disclosures for particular services that are grouped differently by different payers. In the absence of further guidance on this issue, it is likely that public confusion will emerge, given that apples-to-apples comparisons might not be possible for the treatment of particular individualized services by different payers. Nor, to name another example, did the agency offer hospitals any guidance on how to square their compliance with the new rule with their conflicting obligations to maintain pricing confidentiality under contractual confidentiality provisions, state trade secrets laws, or the antitrust laws.

The final rule also appears to be vulnerable to a legal challenge. The statute on which the agency relies simply requires hospitals to disclose “a list” of their “standard charges.” Notwithstanding this, the agency intends now to require hospitals to publish multiple lists, not of standard charges that would apply across the board, but of payer-specific charges. The agency’s legal authority for its new proposal is thus open to question, as the American Hospital Association and several other associations and individual hospitals have contended in their recently-filed federal district court lawsuit referenced above. Even while that litigation is pending, however, hospitals would be well advised to begin their compliance efforts now, given the scale of the implementation challenge that CMS has now imposed on them.

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