Hospitals Sue HHS Over Price Transparency Rule

Ken Terry

December 05, 2019

Hospital groups sued the US Department of Health and Human Services (HHS) in federal court December 4, alleging that the HHS lacks the authority to require hospitals to publicly reveal the prices they have negotiated with private insurers.

The American Hospital Association (AHA), the Association of American Medical Colleges, the Federation of American Hospitals, and other plaintiffs said in the complaint that they intended to seek a summary judgement against the final rule, which was announced on November 15 by the Centers for Medicare and Medicaid Services (CMS), as reported by Medscape Medical News.

This rule, which is part of the 2020 update to the Outpatient Prospective Payment System (OPPS), is scheduled to go into effect on January 1, 2021. It will require hospitals to make publicly available cost information on all services and items.

Among the "standard charges" that the hospitals will have to disclose in a computer-readable file are gross charges, payer-specific negotiated charges, the amount that a hospital is willing to accept in cash from patients, and minimum and maximum negotiated charges.

In addition, hospitals must post online in a consumer-friendly format the minimum and maximum negotiated charges for 300 common "shoppable services." These are services that consumers can schedule in advance, such as x-rays, outpatient visits, imaging and laboratory tests, and bundled services like a cesarean delivery, including pre- and post-delivery care.

CMS says that its statutory authority for this rule derives from a section of the Public Health Service Act that requires hospitals to make public an annual list of their standard charges for items and services, starting this year. Under an earlier rule based on this requirement, hospitals are already required to make public their chargemaster list prices. But the hospitals' complaint denies that these standard charges have anything to do with negotiated prices.

"Negotiated charges are not 'standard charges,' " the complaint said. "They are the opposite of standard, in fact, because they reflect the non-standard amount negotiated privately between a hospital and a commercial health insurer. For these and other reasons…CMS lacks statutory authority to implement the Final Rule."

The plaintiffs also alleged that the final rule "runs afoul of the First Amendment, because it mandates speech in a manner that fails to directly advance a substantial government interest."

While the hospital groups endorse the Trump administration's goal of providing more information to patients about the cost of care, the suit contends the final rule will not accomplish that. Because the negotiated rates don't reliably predict a patient's out-of-pocket costs, the plaintiffs maintained, publishing those rates will generate confusion about a patient's financial obligations, rather than elucidating them.

In addition, the suit claims the CMS rule would undermine competition by making it impossible to bargain on prices. "The negotiated charges covered by the Final Rule are confidential and proprietary to both hospitals and commercial health insurers, and their public disclosure would effectively eliminate hospitals' ability to negotiate pricing with insurers at arms' length."

Transparency in Coverage

CMS also targets insurance companies with its proposed Transparency in Coverage rule. Announced November 15 in tandem with the hospital transparency rule, that regulation would force most insurers to give consumers instant, online access to estimates of their out-of-pocket costs, depending on which provider they chose. Insurance companies would have to make public their negotiated rates for in-network providers, along with their payment rates for out-of-network providers.

America's Health Insurance Plans (AHIP), the insurance industry's trade association, expressed support for the principle of price transparency, but said that neither the OPPS final rule nor the proposed transparency rule satisfies its principles.

Among these principles, Matt Eyles, president and CEO of AHIP, said in a news release that "transparency should be achieved in a way that encourages — not undermines — competitive negotiations to lower patients' and consumers costs and premiums." In other words, the insurers don't want to reveal what they're paying particular providers.

The hospitals' preferred alternative is to offer out-of-pocket cost estimates to patients prior to the provision of care, according to an AHA news release. Since January 1 of this year, when CMS began requiring hospitals to post their chargemasters, some hospitals have started placing self-service cost estimators on their patient portals.

Although there's no way of telling whether the hospitals' argument will prevail in the suit against the transparency rule, the hospital associations have been on a legal roll lately. In September, a federal judge ruled that CMS had exceeded its authority in requiring site-neutral payments for evaluation and management services in hospital outpatient clinics and independent practices, as reported by Medscape Medical News.

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