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Federal District Court Upholds Hospital Price Transparency Rule; Implementation And Compliance Questions Remain
Friday, June 26, 2020

The US District Court for the District of Columbia rejected a challenge to the legality of a rule requiring hospitals to publish their negotiated payment rates, increasing the likelihood that the rule will become effective on January 1, 2021. While the plaintiffs intend to appeal, hospitals should consider what steps may be necessary to comply with the rule’s requirements in the event that it is not invalidated or stayed within the next six months. This On the Subject highlights several key areas of ambiguity that pose potential risks and opportunities for hospitals as they begin their compliance preparations, including the scope of practitioner employment, service packages and shoppable service ancillary services, among others. We also address several potential legal risks for hospitals that do not comply with the rule’s requirements.



On November 15, 2019, the Centers for Medicare & Medicaid Services (CMS) issued a final rule (Final Rule) that requires hospitals to establish, update and make public a list of their standard charges for items and services they provide, including negotiated prices with third-party payors, by January 1, 2021. Less than a month after the Final Rule was issued, the American Hospital Association, several other hospital associations and individual hospitals promptly filed suit in the US District Court for the District of Columbia, arguing that CMS had exceeded its authority under the Administrative Procedure Act, that the Final Rule violates the First Amendment, and that the Final Rule is arbitrary and capricious.

On June 23, 2020, the District Court sided with CMS on all arguments. The plaintiffs filed a Notice of Appeal the following day, and the American Hospital Association has stated that it will seek expedited review. Pending the results of the appeal, however, hospitals must contend with the fact that the Final Rule could very well go into effect on January 1, 2021. Accordingly, this On the Subject evaluates some key legal considerations that hospitals should evaluate in connection with the Final Rule.

Determining Which Physicians Are “Employed”

The Final Rule requires hospitals to make public their standard charges for all items and services provided by the hospital, which include “services of employed physicians and non-physician practitioners” (i.e., the professional component of services provided at a hospital). Despite receiving feedback from commenters that the designation of an “employed” physician or practitioner is not always straightforward, CMS declined to offer a specific definition of employment. In particular, commenters pointed out that large academic medical centers may have faculty that are affiliated with a separate business entity and are not necessarily employed by the hospital, and independent practices may assign billing rights to the hospital even though its practitioners are not considered hospital employees. Instead of providing more clarity in response to these questions, CMS opted to “preserve flexibility” for hospitals to identify employed practitioners.

The scope of an employee is a key issue in this context: if a service is performed by a non-employed practitioner, it does not constitute an “item and service” provided by the hospital for which a charge must be made public. Hospitals that employ practitioners may be at a disadvantage because the charges that they disclose could be higher than those of other hospitals that are not required to include such charges because they are not technically “employing” the practitioner. This is a particularly critical distinction for “service packages” that aggregate several hospital services into a single charge. If certain hospitals exclude entire services from service packages because they are not performed by an “employed” practitioner, the service package rate will appear lower than that of a hospital that employs the professionals who furnish the same service that a non-employed practitioner performed at the first hospital. It will be important for hospitals to establish and consistently apply a definition of “employment” for purposes of implementing the requirements of the Final Rule.

Determining Service Packages

As noted, the Final Rule requires hospitals to report their standard charges for “service packages,” which are defined broadly and vaguely to simply mean an “aggregation of individual items and services into a single service with a single charge.” There are many operational questions associated with preparing and publishing charges for such service packages. In particular, service packages may vary based on the particular payor and may not align with particular CPT and HCPCS codes. In addition, the charges for service packages are not located on a hospital’s chargemaster, and as a result, hospitals will have to source the charges from other parts of the hospital’s billing and accounting systems, or from their various third-party payor contracts.

It is important to distinguish “service packages” from shoppable services and ancillary services (described below), where service packages are groups of services for which a hospital has established a single negotiated rate with at least one third-party payor. Service packages may be found in rate tables or rate sheets in contracts with third-party payors, and service package rates may be listed on Explanations of Benefits (EOBs) of patients enrolled in the third-party payor plan. If a hospital has not established a charge for a set of services and negotiated a rate for that package of services, the services likely would not qualify as a “service package” under the Final Rule for purposes of publishing a rate for the set of services.

Selecting Shoppable Services and Determining Their Scope

In addition to requiring publication of charges for items and services, the Final Rule requires hospitals to publish the charges for so-called “shoppable services,” which are defined as “a service that can be scheduled by a healthcare consumer in advance.” The intent is for the term to encapsulate non-emergency services that a patient can schedule based on convenience and which are therefore more conducive to price shopping. CMS provides the examples of “delivery of babies” and cancer treatments, where the location of delivery is typically planned well in advance and patients with cancer diagnoses often seek information from various providers before committing to a treatment course by a particular provider.

Hospitals’ published charges for “shoppable services” must also specify the charges for any ancillary services that a hospital “customarily provides (and bills for) … as part of or in conjunction with the primary service.” Examples of such ancillary services include laboratory, radiology, drugs and therapy services, although CMS also notes that there may be some items and services (including service packages) that hospitals customarily provide without any ancillary services.

CMS does not specifically define what it means to “customarily provide” an ancillary service that must be included with the primary shoppable item or service, although it provides that ancillary services are “typically billed with the primary shoppable service,” and that the determination must be made on a hospital-by-hospital basis. To quote CMS, “identifying and listing the standard charges for ancillary services along with the primary shoppable service may take some thought and clinical input.” It will be important for hospitals to document and consistently apply their approach to determining which ancillary services are customarily provided with primary shoppable items or services.

A hospital’s approach to selecting such ancillary services has important implications for the way consumers will view and use the charge information. If, for example, a hospital includes more ancillary services for a given primary service than competitor hospitals, it may be disadvantaged because consumers could falsely conclude that hospitals specifying fewer ancillary services will charge a lower global amount for the shoppable service. On the other hand, hospitals may be deemed noncompliant with the Final Rule if they do not include all ancillary services that are “customarily” or “typically” provided, notwithstanding the vagueness of these terms.

Hospitals must make public the charges associated with a total of 300 shoppable services, and CMS indicates in the Final Rule that it may increase this number once hospitals are accustomed to posting charge information. CMS specified 70 shoppable services in the Final Rule, and hospitals must post their charges for as many of these services as they provide. The remaining shoppable services will be selected by the hospital, and in selecting such services, the hospital “must consider the rate at which it provides and bills for that shoppable service.” This language is intended to require hospitals to take into account the frequency with which services are provided.

There is a significant amount of discretion and uncertainty regarding which items and services a hospital should select to meet the 300 shoppable services target. CMS indicated that hospitals must select services based on the utilization or billing rate of services in the past year; however, CMS expressly notes that it does not preclude hospitals from incorporating other criteria into their selection process, such as cost. While this is likely to result in a lack of uniformity across hospitals, it also offers a measure of flexibility to hospitals to determine how to best construct their list of shoppable services. Hospitals should develop and follow a consistent methodology for selecting their shoppable services not otherwise identified by CMS.

Penalties for Noncompliance

The Final Rule incorporates several mechanisms for monitoring and enforcing hospitals’ compliance. CMS has established a pathway for individuals and entities to report instances of alleged noncompliance, which CMS may then investigate (in the future, CMS may also self-initiate audits of hospital websites). In instances where hospitals are found to be noncompliant, CMS has specified three levels of enforcement:

  • CMS may issue a written warning to the hospital.

  • CMS may request a corrective action plan if the noncompliance constitutes a material violation of one or more requirements.

  • If a hospital fails to respond to a request for a plan or to comply with a plan’s terms, CMS may impose (and publish notice of) civil monetary penalties. The financial penalties are capped at $300/day, which equates to a maximum of $109,500 per year.

CMS acknowledged that some hospitals may prefer to pay the penalties rather than comply with the provisions in the Final Rule. Although it refrained from altering the proposed penalties as a result, CMS indicated that it would monitor any such occurrences and may adjust the penalties in future rulemaking.

When developing compliance plans, hospitals should consider both the financial costs as well as the potential reputational costs of noncompliance with the Final Rule. As far as the latter is concerned, consumers will be able to assess for themselves whether hospitals are publishing their charges and can file complaints directly with CMS. In addition, CMS will also publish the names of all hospitals that have been penalized for noncompliance on its website, alongside a notice of continuing violations. This may lead to additional financial cost if consumers opt to receive services elsewhere because they are unable to compare a hospital’s standard charges to charges published by other hospitals in compliance with the Final Rule.

Finally, CMS expressly declined to adopt suggestions that it require hospitals to report or attest to CMS that they are in compliance with these requirements, but stated that it may revisit this issue in future rulemaking. There are many circumstances in which hospitals must certify or attest to compliance with laws that may be implicated by noncompliance with the Final Rule’s requirements. For example, the Medicare Enrollment Application and hospital Conditions of Participation require hospitals to “abide by” or “be in compliance with” applicable laws, and hospitals regularly enter into commercial transactions in which they must represent and warrant compliance with laws. Hospitals should be aware of the various potential implications of noncompliance with the Final Rule beyond financial penalties.

Key Takeaways

Despite the ongoing litigation surrounding the Final Rule, it likely could become effective on January 1, 2021. Even if the Final Rule is invalidated on appeal, its invalidation may not happen much before the implementation date. Hospitals may find it difficult to rush implementation if an appeals court upholds the law. Accordingly, hospitals should determine whether and how they will comply with the Final Rule’s provisions. In particular, they should consider what criteria to use in establishing their list of shoppable services, and how to evaluate which ancillary services are “customarily” provided alongside these services. Hospitals should document in their policies and procedures how they make these decisions, and should approach the decisions consistently. Hospitals would be wise to also consider the potential implications of noncompliance with the Final Rule, such as financial or reputational harm, or potential noncompliance with compliance attestations or certifications.

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