On November 15, the Centers for Medicare and Medicaid Services (CMS) published the Price Transparency Requirements for Hospitals to Make Standard Charges Public Final Rule (the Final Rule, effective January 1, 2021), in the Federal Register (85 Fed. Reg. 65524) on November 27, 2019.

In the Final Rule, CMS establishes requirements for all hospitals to make their standard charges available to the public, and provides an enforcement scheme to enforce those requirements. CMS explains its view that the current lack of price transparency in health care pricing is one of the causes of the high, and rising, costs of health care services. CMS believes that there is “a direct connection between transparency in hospital standard charge information and having more affordable health care and lower health care coverage costs.” Thus, CMS is hopeful that if it encourages transparency in health care pricing through policies and regulation, such transparency will encourage choice and competition.

The Final Rule sets forth a number of compliance requirements, including (1) requiring hospitals to provide patients with clear, accessible information about their standard charges for the items and services they provide, including negotiated rates with payers and minimum and maximum negotiated charges that apply to inpatient and outpatient services, and (2) requiring hospitals to display certain shoppable services in a consumer-friendly manner. CMS also creates standards for monitoring and enforcing hospital compliance with the transparency rules. Below is a broader discussion of the various key terms that are defined in the Final Rule, as well as the applicable requirements with which hospitals must comply. 

Definition of “Hospital”

The Final Rule defines a “hospital” as an institution in any state that is licensed by such state or local agency as meeting the state or local standards established for hospital licensure. CMS includes in the definition of “state” each of the United States, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, American Samoa and the Northern Mariana Islands. The definition of “hospital” does not, however, depend in any way on the entity’s ability to be categorized as a “hospital” pursuant to Medicare policies or regulations. CMS provides examples of entities that would fall under the definition of a hospital, including critical access hospitals, inpatient psychiatric facilities, sole community hospitals and inpatient rehabilitation facilities.

CMS excludes from its definition of “hospital” federally owned or operated hospitals that do not treat the public (outside of emergencies) and have non-negotiated rates. Ambulatory surgical centers and physicians’ offices are similarly excluded.

Definition of “Items and Services” Provided by Hospitals

The Final Rule states that “a hospital must establish, update, and make public a list of all standard charges for all items and services online in the form and manner specified” in the regulation. CMS defines “items and services” to mean “all items and services, including individual items and services and service packages, that could be provided by a hospital to a patient in connection with an inpatient admission or an outpatient department visit for which the hospital has established a standard charge.” The Final Rule provides examples of such items and services to include, but not be limited to, supplies, procedures, room and board, use of the facility and other items (generally described as facility fees), services of employed physicians and non-physician practitioners (generally reflected as professional charges), and any other items or services for which a hospital has established a charge.

CMS defines “individual items and services” for which standard charges must be reported to include (1) each item or service appearing on the hospital’s chargemaster (such as charges for supplies, procedures, room and board and facility fees) and (2) services performed by hospital-employed physician and non-physician practitioners (but not services performed by independent practitioners who bill separately for their services). CMS defines a “service package” to be an aggregation of individual items and services bundled into a single service with a single charge.

The Final Rule requires hospitals to disclose two types of information: (1) its “standard charges” for all items and services that could be provided by the hospital, and (2) a consumer-friendly list of charges for a limited set of “shoppable services.”

The Five Types of “Standard Charges”

The Final Rule defines “standard charges” to mean the regular rate established by a hospital for an item or service provided to a specific group of paying patients. A “standard charge” includes the following:

• Gross Charge: The charge for an item or service that is reflected on a hospital’s chargemaster, absent any discounts.

• Payer-Specific Negotiated Charge: The charge the hospital has negotiated with a third-party payer for an item or service.

  • This is sometimes referred to the “negotiated rate,” “in-network amount” or “allowed charges.” It should be noted that payer-specific negotiated charges do not include fee-for-service Medicare or Medicaid (which are typically non-negotiated payment rates), but does include pricing under managed Medicare and Medicaid plans.

  • Despite concerns raised by hospitals and payers, CMS explained that it does not consider payer-specific negotiated charge information confidential, proprietary or protected as a trade secret. CMS also dismissed concerns that requiring hospitals to disclose payer-specific negotiated charges would violate free speech protections or antitrust law, or that it would drive up the cost of care.

• Discounted Cash Price: The charge that applies to an individual who pays cash for a hospital item or service.

  • CMS clarified that this charge is the discounted rate offered by the hospital to a self-pay individual, unrelated to any charity care or bill forgiveness that the hospital may choose to provide. Should a hospital not offer a discounted cash price, then the hospital would provide its gross charges as this information.

• De-Identified Minimum Negotiated Charge: The lowest charge that a hospital has negotiated with all third-party payers for an item or service.

• De-Identified Maximum Negotiated Charge: The highest charge that a hospital has negotiated with all third-party payers for an item or service.

By broadly defining “standard charges,” CMS tried to capture the various rates a hospital may charge a patient regardless of insurance status. For example, the inclusion of gross charges and discounted cash price are intended to capture the charges applicable to self-pay patients, while the remaining three negotiated charge categories are intended to capture charges applicable to patients with insurance coverage.

CMS intends for the five categories of standard charges to be severable, such that if a court were to invalidate the inclusion of one individual category (e.g., payer-specific negotiated charges), the remaining categories would remain and take effect on January 1, 2021.

Requirements for Making Hospital Standard Charges Public

The Final Rule requires that hospitals make public their standard charges in two ways: (1) a comprehensive searchable file that includes the standard charge information for all hospital items and services, and (2) a consumer-friendly format of the hospital’s more common “shoppable” services.

The comprehensive searchable file that includes the hospital’s standard charge information must include the following:

• A description of each item or services (including individual items and services and service packages)

• The gross charge that applies to each item or service for hospital inpatient and hospital outpatient settings

• The payer-specific negotiated charge applicable to each item and service for hospital inpatient and hospital outpatient settings. Each payer-specific negotiated charge must be clearly associated with the name of the third-party payer and plan

• The minimum and maximum de-identified negotiated charge that applies to each item or service for hospital inpatient and outpatient settings

• The discounted cash price that applies to each item or service for hospital inpatient and outpatient settings

• Any code used by the hospital for accounting or billing, such as CPT, HCPCS, DRG, NDC and other common payer identifiers.

The hospital is required to publish standard charge information in a single digital file that is in a machine-readable (i.e., searchable) format. CMS explained that PDF format is not permitted and that acceptable formats include .JSON, .XML and .CVS.

Hospitals are required to post their standard charge information on their own or other publicly available websites. The information must be accessible easily by individuals, and hospitals cannot impose barriers to access, such as charging fees, requiring individuals to register or establish user accounts or passwords, or requiring individuals to provide personally identifiable information (PII). Further, hospitals are required to use a specific naming convention for the file containing the standard charge information.

Hospitals’ standard charge information must be updated at least once every 12 months, and hospitals must clearly indicate the date of the last update of the standard charge information.

In promulgating the Final Rule, CMS explains that by ensuring accessibility to standard charge data for hospitals, it will significantly increase price transparency and provide a useful benchmark for consumers in understanding hospital charges, which in turn will enable them to make more informed health care decisions.

Requirements for Displaying Shoppable Services in a Consumer-Friendly Manner

The Final Rule requires hospitals to make public in a consumer-friendly manner standard charges for at least 300 “shoppable services” (i.e., those that can be scheduled by a patient in advance), including 70 such services specified by CMS and an additional 230 selected by each hospital. The purpose of this requirement is to allow consumers to make apples-to-apples comparisons of payer-specific negotiated charges across health care settings.

Specifically, the Final Rule requires hospitals to:

• Display payer-specific negotiated charges, de-identified minimum and maximum negotiated charges, and discounted cash prices for at least 300 shoppable services. If a hospital does not provide one or more of the 70 such services specified by CMS, the hospital must select additional shoppable services such that the total number of shoppable services is at least 300. If a hospital does not provide 300 shoppable services, the hospital must list as many shoppable services as they do provide.

• Include a plain-language description of each shoppable service, indicate if the hospital does not offer one or more of the CMS-specified shoppable services, and provide the location at which the shoppable service is provided. The standard charges must detail whether each applies to the service provided in an inpatient setting or an outpatient department setting, or both.

• In selecting their own set of shoppable services, hospitals must base their list on the utilization or billing rate of the services, such that those selected for display are commonly provided to the hospital’s patient population.

• Include charges for shoppable services as identified by a common billing code (e.g., HCPCS code).

• Make sure that the charge information is displayed prominently on a publicly available webpage, and that it clearly identifies the hospital location with which the standard charge information is associated.

• Ensure the data is easily accessible, without barriers, including ensuring the user is not charged a fee, and is not required to register, establish an account or password, or submit PII, and is searchable by service description, billing code and payer.

• Update the information at least annually and clearly indicate the date of the last update.

CMS will deem a hospital to have met the requirements for making public standard charges for 300 shoppable services in a consumer-friendly manner if the hospital maintains an internet-based price estimator tool that:

• Provides estimates for as many of the 70 CMS-specified shoppable services as are provided by the hospital, and as many additional hospital-selected shoppable services as is necessary for a combined total of at least 300 shoppable services.

• Allows consumers at the time they use the tool to obtain an estimate of the amount they will be obligated to pay to the hospital for the shoppable service.

• Is prominently displayed on the hospital’s website and accessible to the public without charge and without having to register or establish a user account or password.

Monitoring and Enforcement

The Final Rule grants CMS the authority to monitor compliance with the price transparency requirements by evaluating complaints made to CMS, reviewing the complainants’ analyses of the noncompliance and auditing hospitals’ websites. Should CMS conclude a hospital is noncompliant after providing a warning notice to the hospital or requesting a corrective action plan from the hospital if its noncompliance constitutes a material violation of one or more requirements, CMS may assess a monetary penalty in an amount not to exceed $300 per day. CMS also may publicize the penalty on a CMS website.

Appeals Process

The Final Rule establishes an appeals process for hospitals to request a hearing before an Administrative Law Judge (ALJ) of the civil monetary penalty. Under this process, the Administrator of CMS, at his or her discretion, may review the ALJ’s decision in whole or in part.

Legal Challenges

On December 4, 2019, several hospital groups filed a lawsuit in U.S. District Court for the District of Columbia to block the implementation of the Final Rule. The lawsuit ─ filed by the American Hospital Association, Association of American Medical Colleges, Federation of American Hospitals, National Association of Children’s Hospitals and individual health systems and hospitals ─ argues that the Final Rule violates the First Amendment by “mandating speech that fails to directly advance a substantial government interest.” It also argues that the Final Rule exceeds CMS’s statutory authority, as the Final Rule vastly expands the intended meaning of “standard charges” as set forth in the Affordable Care Act. The plaintiffs have asked the court for an expedited decision so that hospitals do not waste time and resources preparing to comply with the Final Rule if it may be ruled unconstitutional.

Health systems and hospitals should pay close attention to the developments regarding this lawsuit and should be prepared if the Final Rule is upheld by the courts.

Conclusion

The issue of increasing price transparency for consumers and its resulting effects on the rising costs of health care is one to watch closely. The Final Rule has very broad applicability and will require significant effort on the part of hospitals to comply. The outcome of pending lawsuits will impact the future of the Trump Administration’s push toward price transparency, and potentially could change the requirements of all or some of the Final Rule.