U.S. District Court Holds Department of Health and Human Services’ Price Transparency Rule is Constitutional

In November 2019, the Centers for Medicare and Medicaid Services (CMS), an agency within the Department of Health and Human Services, issued a Rule entitled 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 Fed.Reg. 65,524). CMS had two interests in promulgating the Price Transparency Rule: (1) provide consumers with pricing information to facilitate more informed health care decisions; and (2) lower health care costs. The Rule goes into effect on January 1, 2021. The Rule, as codified in 45 C.F.R. §180.20, requires each hospital to “make public a list of the hospital’s standard charges for items and services provided by the hospital.”  The Rule requires hospitals to publish five types of “standard charges”:

  • Gross charge,” which “means the charge for an individual item or service that is reflected on a hospital’s chargemaster, absent any discounts”;
  • Discounted cash price,” which “means the charge that applies to an individual who pays cash (or cash equivalent) for a hospital item or service”;
  • Payer-specific negotiated charge,” which “means the charge that a hospital has negotiated with a third party payer for an item or service.” These charges must be “clearly associated with the name of the third party payer and plan.” 45 C.F.R. §180.50;
  • De-identified maximum negotiated charge,” which “means the highest charge that a hospital has negotiated with all third party payers for an item or service”; and
  • De-identified minimum negotiated charge,” which “means the lowest charge that a hospital has negotiated with all third party payers for an item or service.”

The “standard charges” for all services must be made available in a machine-readable file. The “standard charges” for “a limited set of shoppable services” (services that can be scheduled in advance) must be made available in a consumer-friendly list.

The Rule imposes a maximum total civil monetary penalty of $300 per day for non-compliant hospitals if the violation continues after a written warning and corrective action plan.

As you can imagine, hospitals were not happy about this Rule. Accordingly, in December 2019, the American Hospital Association (AHA) and others filed a lawsuit claiming that:

  • The Rule exceeds the CMS’ statutory authority because it requires the hospitals to make more than just the chargemaster publicly available.
  • The Rule compels speech in violation of the First Amendment. The AHA’s main argument is that the stated purposes for the Rule will not be accomplished by the Rule and, therefore, CMS cannot force hospitals to publish the “standard charges.” The AHA further argues that “the publication of payer-specific negotiated rates will chill negotiations between hospitals and insurers.”
  • The Rule is arbitrary and capricious because it imposes a disproportionately large cost on hospitals without significantly improving patients’ decision-making. The AHA argued that patients may be confused and not seek medical care if they assume a higher negotiated rate correlates with higher out-of-pocket costs.

Ultimately, the AHA wanted to limit publication to a hospital’s chargemaster (exactly what is required of them now). Practically speaking, the chargemaster is useless to patients trying to determine the cost of services or comparing costs between hospitals. For example, the chargemaster for the Cleveland Clinic’s Main Campus is 11,614 lines on an excel spreadsheet containing the procedure code, procedure name and current charge. Without more information, a patient is left guessing at the highest price of his or her procedure. The patient cannot determine from the chargemaster what he or she will actually be billed or how much he or she actually owes.

On June 23rd, the United States District Court for the District of Columbia entered an Order rejecting the AHA’s arguments and holding that the Rule is constitutional. The Court found that:

  • CMS did not exceed its authority by requiring disclosure of the five types of “standard charges,” instead of only “chargemaster charges.” Contrary to the AHA’s argument, “standard charges” does not unambiguously mean “chargemaster charges.”
  • Hospitals’ First Amendment rights will not be violated by being compelled to make their “standard charges” public. To be constitutional, the Rule need only be reasonably related to CMS’ interests and cannot be so unjustified or unduly burdensome that it chills protected speech. The Rule is reasonably related to CMS’ interests, because it would increase competition, thus lowering health care costs and patients would have more useable information to compare hospitals and to determine the cost of their care. Additionally, even AHA argued that speech (i.e. negotiations) would not be chilled (arguing that insurers would ultimately benefit).
  • The Rule is not arbitrary or capricious because the agency reviewed the relevant data and clearly articulated its conclusion that the Rule furthers the government’s dual interests of informing patients of the cost of health care and lowering the costs of health care. According to CMS, with the information that patients will have upon implementation of the Rule, they can compare costs between hospitals and make a more educated decision about their health care. In writing the Rule, CMS even considered the arguments made by the AHA.

It is a victory for patients. However, it may be short lived. Immediately after the Order was filed, the AHA appealed the decision. The D.C. Circuit Court of Appeals will review the decision de novo and decide the constitutionality of the Rule. This will take time. In the interim, the effective date will likely be stayed pending the decision from the Court of Appeals and the hospitals will continue to hide the real price of the services they provide.