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June 24, 2020

Hospitals must disclose 'secret' negotiated prices, judge rules

Daily Briefing

    Judge Carl Nichols of the U.S. District Court for the District of Columbia on Tuesday rejected a lawsuit filed by a coalition of hospital groups that argues a rule CMS finalized last year that will require hospitals to publish the prices they negotiate with insurers is "unlawful."

    CMS' latest transparency rules: A true game changer or much ado about nothing?


    In November 2019, CMS released the final piece of the 2020 Hospital Outpatient Prospective Payment System (HOPPS) final rule, which updates calendar year 2020 HOPPS regulations to require all hospitals operating in the United States to publish the negotiated rates they reach with insurers for health care services, the agency said in a fact sheet

    Under the final rule, hospitals beginning in 2021 will be required to post online "a machine-readable file … that includes all standard charges (including gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges) for all hospital items and services." Hospitals under the rule also will have to publicly post "discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges for at least 300 'shoppable' services."

    The rule also finalized methods for CMS to monitor hospital compliance with the requirements, as well as actions the agency can take against non-compliant hospitals including warning notices, requesting corrective action plans, and levying civil monetary penalties that could equal as much as $300 per day. CMS also can publicize penalties against non-compliant hospitals under the final rule, and hospitals will be able to appeal the penalties.

    Judge rejects hospital groups' lawsuit challenging the rule

    A coalition of hospital groups—including the American Hospital Association (AHA), the Association of American Medical Colleges, the Federation of American Hospitals, and the National Association of Children's Hospitals—and three hospitals filed a lawsuit challenging the final rule, arguing that the rule violates the First Amendment and exceeds the administration's authority.

    The groups contended that disclosing the payment rates they negotiate with insurers could be confusing to patients—as those disclosed rates would be different than the prices patients would be obligated to pay out of pocket—and potentially drive up overall prices. The groups also argued that the rule would impose overwhelming administrative burdens, requiring them to compile large amounts of information that would crash most standard computer systems.

    But Nichols in a summary judgement rejected those arguments. Nichols wrote, "Hospitals may be affected by market changes and need to respond to a market where consumers are more empowered" as a result of the new requirements, but that is not enough reason to "make the rule unlawful."

    And in response to the plaintiffs' arguments that the disclosing rates could potentially increase prices, Nichols acknowledged that "the evidence in the record is not definitive" in demonstrating that increased transparency would reduce prices. However, he added, "Traditional economic analysis suggested to the agency that informed customers would put pressure on providers to lower costs and increase the quality of care."

    Trump admin, hospital groups react

    HHS Secretary Alex Azar praised the ruling, saying, "Especially when patients are seeking needed care during a public health emergency, it is more important than ever that they have ready access to the actual prices of health care services."

    President Trump in a tweet also praised the ruling, writing, "Patients deserve to know the price of care BEFORE they enter the hospital. Because of my action, they will. This may very well be bigger than health care itself."

    CMS Administrator Seema Verma in a tweet called the ruling a "huge WIN for American patients," and said the lawsuit was "disingenuous [and] self-serving … designed to keep patients in the dark."

    But Melinda Hatton, AHA's SVP, said the hospital groups intend to appeal the ruling. "The [rule] does nothing to help patients understand their out-of-pocket costs," she said. "It also imposes significant burdens on hospitals at a time when resources are stretched thin and need to be devoted to patient care."

    What hospitals need to know

    Overall, Advisory Board's Christopher Kerns said, "The ruling—while still subject to appeal—underscores" the fact that "[e]ven during a period of financial distress for hospitals, the underlying forces demanding greater transparency among providers have not subsided. CMS intends to use price transparency as a means of minimizing variation in prices paid, which will likely have the long-term impact of slowing rates of pricing growth across the industry."

    Kerns added, "The strongest long-term position" for hospitals to take "is to continue the work to control costs, improve quality and access, and provide a patient experience worthy of the price differentials that exist today." (Advisory Board publishes Daily Briefing) (Luhby, CNN, 6/23; Armour, Wall Street Journal, 6/23; Kliff/Sanger-Katz, "The Upshot," New York Times, 6/23; Wise, The Hill, 6/24; AHA statement, 6/23).

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