Hospital Price Transparency Is Here—But How Will It Be Enforced?

With just three days left in 2020, last-ditch efforts to derail HHS’ controversial new hospital transparency rules before they took effect on Jan. 1 failed when the U.S. Court of Appeals for the District of Columbia Circuit rejected The American Hospital Association’s (AHA) lawsuit. As a result, hospitals are now officially required to post the rates they negotiate with private insurers online. But the inauguration of a new administration may yet prove to be the hospital industry’s deliverance.

The Price Transparency Rule

The transparency requirements are contained in a final rule that HHS published in November 2019. They were supposed to take effect on Jan. 1, 2020. But in response to industry protest, the agency agreed to push back the effective date for one year. While serving the laudable goal of furnishing consumers the pricing information they need to shop around and make informed decisions about medical care, the transparency requirements are also administratively burdensome and highly intrusive.

Specifically, they require hospitals to publish their “standard charges” for both gross charges and payer-specific negotiated charges for all items and services. Pricing information must also be available on the Internet in a machine-readable file and include information such as common billing or accounting codes used by the hospital, along with a description of the particular item or service. The pricing information must be presented in a “consumer friendly” way using “plain language” and include payer-specific negotiated charges for common “shoppable” services.

“Shoppable services” is defined as those that can be scheduled by a health care consumer in advance, theoretically in the interest of shopping out the best price or deal. That includes most lab tests, as well as x-rays, outpatient visits, imaging tests and bundled services like pre- and post-delivery care and cesarean deliveries. Hospitals must display negotiated charges for at least 300 services, including 70 selected by the CMS and 230 selected by the hospitals. Especially irksome is that those services cover inpatient and outpatient procedures offered to any and all patients, not just Medicare beneficiaries.

“Consumer-friendly” disclosure means making hospital charge information public in a prominent location online (or in written form upon request) that’s easily accessible, without barriers and searchable.

“Plain language” Product and service descriptions must also be in “plain language” with the shoppable service charges displayed and grouped with charges for any ancillary services the hospital customarily provides with the primary shoppable service. Hospitals must also update their posted pricing information at least once a year.

What Hospitals Must Do to Comply

On Dec. 18, 2020, HHS issued instructions on how hospitals must disclose their prices, outlining two methods:

• A machine-readable file that contains standard charges for all charges and services at the hospital, including gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges; and
• A consumer-friendly display of at least 300 shoppable services, that can be scheduled in advance, including plain-language descriptions in a searchable format. This section must also provide gross and discounted cash prices, payer specific charges, and de-identified minimum and maximum negotiated charges.

The Legal Battle Over Transparency

AHA has vigorously fought the transparency rule almost from the moment HHS proposed the final version in November 2019, arguing that requiring disclosure of the closely guarded rates negotiated with payors violates hospitals’ First Amendment rights. AHA President Rick Pollack also warned that the rules “could seriously limit the choices available to patients in the private market and fuel anticompetitive behavior among commercial health insurers in an already highly concentrated insurance industry.”

In December 2019, the Association of American Medical Colleges, Children’s Hospital Association and Federation of American Hospitals joined AHA in a lawsuit challenging the rules and HHS’ statutory authority to require public disclosure of individually negotiated rates between commercial insurers and hospitals. The agency won the first round on June 27, when the U.S. District Court for the District of Columbia dismissed the case without a trial.

The appeal to the D.C. Circuit was the last hope of AHA and its allies. But it was not to be. The appeal judges upheld the lower court’s ruling, finding that HHS’ rule was: i. consistent with the First Amendment; ii. within the agency’s power to issue under the Affordable Care Act; and iii. did not seek to expand, nor “otherwise affect traditional or ordinary economic regulation of commercial activity.”

AHA had also argued that hospitals use different payment methodologies and store information across different systems, making it difficult to put into a single, comprehensive list. But the court noted that the rule’s effective date had already been delayed by one year, that it only applies to base rates, and that HHS increased the burden estimate tenfold. They wrote that the newer, 150-hours-per-hospital estimate in the rule’s first year is similar to one provided by the Healthcare Financial Management Association, a trade group for healthcare finance leaders, which filed an amicus brief in support of the AHA.

Finally, the judges also rejected the AHA’s argument that the price transparency rule will mislead consumers, agreeing with HHS’ contention that that it’s actually the current system (i.e., pre-transparency rules in effect before Jan. 1, 2021) rule that’s misleading.

Takeaway

The stakes are high. CMS declared its intention to enforcing the new rules aggressively via response to complaints and proactive monitoring and auditing. Hospitals that don’t comply face the risk civil monetary penalties of up to $300 a day and more than $100,000 per year. However, on Dec. 21, the AHA a letter calling on the incoming Biden-Harris administration to “exercise enforcement discretion” with regard to the new rule. Given the popularity of the concept of empowering consumers to make informed decisions about their own health care, judicious and restrained enforcement rather than repeal may turn out to be a workable solution.