Trial Court Rules CMS Has Authority to Issue Price Transparency Rule

Posted 6/24/20 (Wed)

On June 23, the U.S. District Court ruled that the Centers for Medicare & Medicaid Services (CMS) has the authority to require hospitals to reveal the prices they negotiate with insurers, saying:

"The agency fulfilled its duty to examine the evidence before it and connect it to the final rule. That the agency's proposed solutions may not have been to plaintiff's (hospital's) satisfaction does not render the rule the rule arbitrary and capricious…".

The rule is supposed to go into effect January 1.

The American Hospital Association brought the lawsuit, along with other industry groups and health systems, arguing the rule violates hospitals' First Amendment rights and that CMS exceeded its power under the Affordable Care Act (ACA). Hospitals argued that Congress only gave the authority to require hospitals to disclose their chargemasters when it used the phrase "standard charges."

The plaintiffs argued that the proposed rule would do nothing to help patients understand their out-of-pocket costs, while imposing significant burdens on hospitals. They pointed out that hospitals and health systems have consistently supported efforts to provide patients with information about the costs of their medical care and the reference to “standard charges” in current law cannot be interpreted to include rates negotiated with third-party payers.

NDHA joined other state and regional hospital associations in filing an amicus brief supporting AHA's opposition to the rule. The brief sought to provide the court with additional background information about how hospital charges and reimbursement work in the real world. It described the history of hospital charging in the United States and how we ended up where we are today—a system in which hospitals maintain a list of standard charges (i.e., the “chargemaster” list), which is used as the starting point for individualized negotiations with private insurers. The result of these complex negotiations is a myriad of discounts and deviations from the chargemaster’s” standard pricing list. Hospitals typically have contracts with dozens of private insurers, covering multiple types of plans, each of which has different payment rates and reimbursement methodologies. None of these charges—which are discounted from the “chargemaster” starting point—can be reasonably described as “standard”. Nor can the required disclosure of many different payer- and plan-specific charges be reasonably described as “a list” within the meaning of the statute. The brief pointed out it is quite the contrary - publishing the innumerable variations in separately-negotiated rates across hospitals and insurers will yield an unintelligible mish-mash that no patient, doctor, or hospital administrator would ever call “a list.” And, more importantly, the information would not be helpful to patients in understanding their out of pocket cost.

The court, however, concluded that “standard charges” can be interpreted to include rates negotiated with third-party payers, although acknowledging it was a close call. The decision surmised that "…had Congress intended to require the publication of just a hospital's chargemaster or chargemaster rates, it could easily have done so by using the term 'chargemaster'" instead of standard charges, as it had done elsewhere in the ACA.”

The court also rejected hospitals’ argument that making public payer-specific negotiated rates would chill negotiations between payers and providers, stating that the rule only requires the final agreed-upon price to be published. "Plaintiffs are essentially attacking transparency measures generally, which are intended to enable consumers to make informed decisions; naturally, once consumers have certain information, their purchasing habits may change, and suppliers of items and services may have to adapt accordingly," the decision asserts. It went on to say it was reasonable for the agency to rely on its own economic analysis and experience with price transparency and assume the rule will result in informed customers putting pressure on providers to lower costs and increase the quality of care.

AHA has stated its intention to appeal the decision and seek expedited review. NDHA will continue its support of the challenge as the case works its way through the appeal process.