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The Ongoing Saga of the CMS Hospital Price Transparency Rule
Wednesday, May 12, 2021

The Centers for Medicare & Medicaid Services (CMS) Hospital Price Transparency Rule went into effect on January 1, 2021, but whether it will succeed in making prices readily comparable for healthcare consumers remains to be seen. Since introducing the rule in late 2019, CMS has battled resistance from industry stakeholders on several fronts, from a barrage of negative comments on the initial design of the rule to a multi-stage legal challenge in federal court. Recent developments, including several reports on hospitals’ compliance efforts, have caused some to speculate about possible increased enforcement activity. However, on May 10, 2021, CMS announced a proposal to walk back its plan to incorporate some of the required information reporting into hospitals’ cost reports. Where does this mixed bag leave hospitals and what will come of the Hospital Price Transparency Rule?   

Hospital Price Transparency Rule

The Hospital Price Transparency Rule originated in the Affordable Care Act, which requires hospitals to establish and make public “a list of the hospital’s standard charges for items and services provided by the hospital” in accordance with guidelines developed by the Department of Health and Human Services (HHS).[1] In 2014, HHS, through CMS, “remind[ed] hospitals of their obligation to comply” with this provision by requiring that “hospitals either make public a list of their standard charges (whether that be the chargemaster itself or in another form of their choice), or their policies for allowing the public to view a list of those charges in response to an inquiry.”[2] This preliminary guidance remained in place until November 2019, when CMS published a final rule entitled “Price Transparency Requirements for Hospitals to Make Standard Charges Public.”[3] 

Effective January 1, 2021, the Hospital Price Transparency Rule requires hospitals to make their prices available online in two forms: a comprehensive, machine-readable file and a consumer-friendly shoppable services list. Hospitals are required to update both sets of information annually. The rule applies to all licensed hospitals, regardless of whether the facility is enrolled in Medicare.

The first requirement, aimed at making price information available to sophisticated parties such as employers, providers, and online tool developers, is for hospitals to publish an online data file containing the standard charges for “all items and services” provided by the hospital. Specifically, the hospital must provide a description and billing code for all items and services provided during inpatient or outpatient care, including supplies, procedures, room and board, facility fees, and professional charges. For each item or service, the hospital must provide five “standard charge” amounts: (1) gross charge, or the amount on the hospital chargemaster for the item or service; (2) the discounted cash charge, or the amount billed to individuals who pay cash for services; (3) the payer-specific negotiated charge for each third-party payer with which the hospital contracts, including Medicare Advantage plans; (4) the de-identified minimum negotiated charge for each item or service; and (5) the de-identified maximum negotiated charge for each item or service. Adding further complexity to this requirement for multi-hospital systems, CMS has clarified that the requirement to post a data file applies separately to each hospital location that has a different set of standard charges, even if the hospital is one of several operating under a single hospital license.

The second requirement, geared toward the general public, is for hospitals to publish an online “consumer-friendly shoppable services” list of the standard charges for 300 shoppable services provided by the hospital, including 70 CMS-specified shoppable services and 230 hospital-selected shoppable services that are commonly provided to the hospital’s patient population. A “shoppable service” for these purposes is one that can be scheduled in advance by a healthcare consumer. For each shoppable service on the list, the hospital must provide a plain-language description and any “primary code” used by the hospital for billing or accounting purposes in addition to the standard charges identified above. Each shoppable service must be presented alongside any ancillary services the hospital customarily provides with that shoppable service. The hospital must also indicate the location where the service is provided and clarify whether the relevant charge is for the inpatient or outpatient setting (or both). CMS has clarified that a hospital may meet the consumer-friendly shoppable services list requirement by maintaining an internet-based price estimator tool that includes the 300 shoppable services from the list and allows healthcare consumers to estimate the out-of-pocket amount they will be obligated to pay for the relevant service. CMS “believe[s] these requirements will allow health care consumers to directly make apples-to-apples comparisons of common shoppable hospital services across health care settings[.]”

Under the Hospital Price Transparency Rule, CMS has authority to impose a civil monetary penalty of $300 per day on hospitals that violate the new requirements and fail to comply with corrective action plans. The agency is also permitted to publicize any such penalties on its website.

Hospitals Fight Back in Court — and Lose

On December 4, 2019, several hospital associations, led by the American Hospital Association, filed suit against CMS in federal court, claiming that the Hospital Price Transparency Rule exceeded CMS’s statutory authority, violated the First Amendment, and was arbitrary and capricious under the Administrative Procedure Act. Among other things, the hospital associations argued that the “standard charges” they were obligated to make available under the language in the ACA was an unambiguous reference to the hospital’s chargemaster rates. As such, CMS could not interpret the requirement to disclose standard charges to require hospitals to disclose negotiated rates with third-party payers.

In an opinion published June 23, 2020, the D.C. District Court disagreed, explaining that the term “standard charges” had not been explicitly defined or consistently used in prior legislation.[4] “[H]ad Congress intended to require publication of just a hospital’s chargemaster or chargemaster rates,” the court said, “it could easily have done so by using the term ‘chargemaster’ in [the relevant provision of the ACA].” The court went on to note that the fact that “chargemaster” is a term of art in the healthcare industry, and yet Congress chose not to use that term, was strong evidence Congress did not mean — or at least, did not unambiguously mean — to limit “standard charges” to a hospital’s chargemaster.

Moreover, while it was “a close call” as to whether CMS reasonably interpreted “standard charges” to include rates negotiated with third-party payers, the court ultimately found that in the “exceptionally unique” healthcare context, the court could not conclude that CMS’s interpretation of the phrase was unreasonable. This was especially true, the court noted, because these third-party payer charges impact the largest group of patients — those with employer-sponsored insurance coverage. In short, “the agency’s decision to account for the complexities of hospital billing and establish a definition based on actual payment rendered is certainly permissible.” The court found the hospital associations’ arguments under the First Amendment and the Administrative Procedure Act equally unpersuasive.

The hospital associations appealed the District Court decision in June 2020, asking the U.S. Court of Appeals for the District of Columbia Circuit for an emergency stay of the rule’s January 1, 2021, effective date. However, in an opinion released December 29, 2020, the D.C. Circuit Court rejected the hospital associations’ arguments and held that the Hospital Price Transparency Rule was permitted under a provision of the Affordable Care Act, did not violate procedural rulemaking requirements, and was not barred by the First Amendment.[5] While the hospital associations initially indicated they were exploring their options for continuing the court challenge, it appears they have instead focused their efforts on sharing resources with hospitals on how to comply with the rule’s provisions and urging the new Biden Administration and CMS to exercise discretion in its enforcement of the rule.

Compliance Efforts and Enforcement Activity

In recent months, attention has shifted to whether and how hospitals are complying with the rule’s detailed requirements. In March, an analysis of 100 of the country’s largest hospitals published in the journal Health Affairs found that 65 of the hospitals reviewed were “unambiguously noncompliant,” either because they had posted no price information online (12) or because they had omitted negotiated prices or other essential information required under the plain terms of the rule (53). Of the remaining facilities, only 22 were “clearly compliant” with each of the rule’s key requirements.

Later that same month, a Wall Street Journal report found that while some hospitals had posted at least some of the relevant price information online, they also had embedded code in the pricing webpages that prevented the information from being searchable online by search engines such as Google. 

On the heels of these reports, a bipartisan group of leaders of the House Energy and Commerce Committee sent a letter to HHS Secretary Xavier Becerra urging the Secretary to conduct “vigorous oversight” and enforce “full compliance” with the Hospital Price Transparency Rule. The lawmakers highlighted the need for HHS to “revisit its enforcement tools, including the amount of the civil penalty, and to conduct regular audits of hospitals for compliance.”     

On the topic of audits, it appears that CMS has begun in earnest its efforts to audit a sample of hospitals for compliance with the rule, as the agency announced in December 2020. CMS representatives have stated that the agency began sending out warnings based on those audits in April. In general, hospitals that received the warnings are given 90 days to address alleged deficiencies described in the letters. Unresolved deficiencies may result in a second warning letter or a request for a corrective action plan.     

CMS Launches — and Withdraws — Additional Enforcement Mechanism

While questions about enforcement swirl and audits continue apace, it is worth noting that CMS recently proposed to repeal a planned change in hospital cost reporting rules that was seen by many as an additional tool to enforce the requirements of the Hospital Price Transparency Rule.

In the FY 2021 Hospital Inpatient Prospective Payment System Final Rule (the “IPPS Final Rule”), CMS modified the annual hospital cost reporting parameters to require hospitals to report “the median payer-specific negotiated charge that the hospital has negotiated with all of its [Medicare Advantage (“MA”)] organization payers, by MS-DRG, for cost reporting periods ending on or after January 1, 2021.”[6] Since hospitals are required to report their negotiated rates with MA plans under the Hospital Price Transparency Rule, CMS reasoned that calculating the median payer-specific negotiated charges for their yearly Medicare cost report would not create much of a burden. While the IPPS Final Rule does not impact payment for specialty hospitals such as critical access hospitals, children’s hospitals, or freestanding cancer care hospitals, it would nonetheless affect the majority of Medicare-enrolled hospitals.

Federal regulations require hospitals to submit yearly cost reports that comply with the Medicare program’s guidance or risk suspension of all Medicare payment, so this change to the cost reporting requirements potentially placed Medicare reimbursement at risk for any hospital not conducting some portion of the underlying analysis and calculation required to publish its standard charges under the Hospital Price Transparency Rule.

While the cost reporting requirements contained in the Medicare Payment Rule were scheduled to be effective January 1, 2021 (coinciding with the effective date of the Hospital Price Transparency Rule), CMS recently walked back the new requirement. In its FY 2022 Hospital Inpatient Prospective Payment System Proposed Rule, which was published May 10, 2021, CMS stated that, “[a]fter further consideration of the many contract arrangements hospital[s] use to negotiate rates with MA organization payers, and the usefulness, for ratesetting purposes, of the market-based data as reported in accordance with [the Medicare Payment Rule],” the agency proposed to repeal the requirement that hospital cost reports include information on a hospital’s MA plans for periods on or after January 1, 2021.[7] The agency went on to clarify that it will be revising the information collection request governing the cost report process to reflect its repeal of this provision. Comments on the proposal are due to CMS by June 28, 2021.

Concluding Thoughts

It remains to be seen whether the goals of the Hospital Price Transparency Rule will be realized. The rule — and, in particular, the requirement to publish a comprehensive, machine-readable file of standard charges, including payer-specific negotiated charges — suffers from certain ambiguities that threaten its efficacy. And that’s to say nothing of the heavy burden the rule places on hospitals and health systems, many of which have been stretched to the brink by the pandemic. While some may interpret CMS’s recent proposal to walk back the requirement that hospitals report information about their payer-specific charges for MA organizations to portend a different approach by the current administration, public interest in the topic and CMS’s ongoing audit activities suggest otherwise. Hospitals would be well-advised to continue their efforts to comply with the requirements of the rule.

[1] 42 U.S.C. § 300gg-18(e) (“Each hospital operating within the United States shall for each year establish (and update) and make public (in accordance with guidelines developed by the Secretary) a list of the hospital's standard charges for items and services provided by the hospital, including for diagnosis-related groups established under section 1395ww(d)(4) of this title.”).

[2] 79 Fed. Reg. 49854, 50146 (Aug. 22, 2014).

[3] 84 Fed. Reg. 65524 (Nov. 27, 2019).

[4] American Hospital Association v. Azar, No. 1:19-cv-03619 (D.D.C. 2020).

[5] American Hospital Association v. Azar, No. 20-5193 (D.C. Cir. 2020).

[6] 85 Fed. Reg. 58432, 58881 (Oct. 1, 2020).

[7] 86 Fed. Reg. 25070, 25527 (May 10, 2021).

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