The CMS Final Rule on Hosptial Price Transparency was published near the end of 2019, and many hospitals are still debating whether to comply because of industry and legal challenges. While the outcomes of the legal challenges are unknown, what is almost certain is that CMS will continue its focused and unwavering efforts to drive greater transparency in hospital, drug manufacturer and insurance company pricing.
The stated rationale goes like this: If consumers have pricing information, they will be able to "shop" for their healthcare services and spending on healthcare will go down. Both CMS Administrator Seema Verma and Secretary of Health and Human Services Alex Azar―the forces behind the transparency train―have been consistent and forceful with their message: Informed consumers will drive down spending. They have also been open that falling short of perfection will not stand in their way of immediate action and have consistently communicated that the laws to date are just a start and will need to be improved. While the outcome of the legal battles and effectiveness of the laws remain uncertain, what is certain is that there are no obvious signs of the transparency campaign slowing down.
Thus, it was not a surprise that a year after the law that required hospitals to publish their rather clunky and largely uninformative "chargemasters" on their websites, CMS rolled out another rule that was effectively Hospital Price Transparency, Take Two. This final CMS rule, set to go into effect on January 1, 2021, significantly increases hospitals' responsibilities to disclose prices to patients. Although lobbying and litigation efforts continue to try to block the rule, hospitals should start preparing now to implement the processes and procedures necessary to comply with the Price Transparency Rule.
In 2018, CMS issued a rule requiring hospitals to publish their chargemasters online. Although the rule did not penalize providers for noncompliance, Administrator Verma publicly commended several health systems for their voluntary compliance and encouraged consumers to contact her directly with names of hospitals that did not comply.
In June 2019, President Donald Trump issued an executive order directing federal agencies to push for greater price transparency among insurers and healthcare providers. Following this order, CMS proposed a rule regarding price transparency in July 2019. After accepting comments from the public, CMS published the Price Transparency Requirements for Hospitals to Make Standard Charges Public Final Rule in the Federal Register on November 27, 2019. See 84 Fed. Reg. 65524. In issuing the Price Transparency Rule, CMS cited several studies suggesting that "consumers want greater healthcare pricing transparency," pointing to the lack of such transparency as "one reason for [the] upward spending trajectory [in healthcare]." 84 Fed. Reg. 65525
Application and Requirements
The Price Transparency Rule applies to all hospitals, defined in the regulation to mean "an institution in any State in which State or applicable local law provides for the licensing of hospitals, that is licensed as a hospital pursuant to such law or is approved, by the agency of such State or locality responsible for licensing hospitals, as meeting the standards established for such licensing." The Price Transparency Rule, however, expressly excludes federally owned or operated hospitals, including but not limited to Veterans Affairs and Military Treatment Facilities and Indian Health Program Hospitals.
In order to comply, hospitals must make public online: (1) a "machine-readable" file containing a list of all "standard charges" for all items and services provided in 42 C.F.R. § 180.50; and (2) a consumer-friendly list of "standard charges" for a limited set of "shoppable services" as provided in 42 C.F.R. § 180.60. The Price Transparency Rule defines a "standard charge" as "the regular rate established by the hospital for an item or service provided to a specific group of paying patients." This includes: the gross charge (as reflected on the chargemaster less any discounts); third-party payer-specific negotiated charge; the lowest charge negotiated with a third-party payer for an item/service; the highest charge negotiated with a third-party payer for an item/service; and the discounted price for an individual paying cash.
Machine-Readable File of Standard Charges
The Price Transparency Rule states that a machine-readable format is a digital representation of data in a file that can be imported or read on a compute for further processing. For example, ".xml" ".json" and ".csv" formats are acceptable machine-readable formats.
For purposes of the Price Transparency Rule, "items and services" means 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. Examples include supplies and procedures, room and board, facility fees, services of employed physicians and nonphysician practitioners (i.e., professional charges) and any other items or services for which a hospital has established a standard charge. This items and services requirement is much broader and requires a more comprehensive data set than the fee-for-service price list that hospitals were required to disclose under the Chargemaster Rule finalized in 2018.
Consumer-Friendly List of Shoppable Services
Following criticism that the Chargemaster Rule was largely unusable for the typical consumer, many comments to the proposed price transparency rule expressed concerns that the "data to be made public would be too complex, voluminous, and time consuming for consumers to navigate and understand." In response, the Price Transparency Rule requires hospitals to disclose a list of "shoppable services," with CMS stating that a "shorter data set presented in a consumer-friendly manner is more likely to be directly useful to consumers who seek to compare costs for common shoppable services hospital-by-hospital."
The Price Transparency Rule defines shoppable services as those that can be scheduled by a healthcare consumer in advance. Typically, these services are provided on a nonurgent basis, and are classified as "shoppable" because they are the sort of procedures for which a patient may feasibly "shop around" to find the best price. In order to comply with this requirement, hospitals must publicize a list of 300 shoppable services―as many as it provides from a list of 70 services identified by CMS, and additional services chosen by the hospital. When choosing services to include, CMS indicated that a hospital must "consider the rate at which it provides and bills for that shoppable service."
The list of shoppable services must also include corresponding ancillary services and their charges. An ancillary service is defined as "an item or service a hospital customarily provides in conjunction with a shoppable primary service." Examples include laboratory or radiology services, drugs, hospital fees and charges for employed professional services (excluding those provided by independent physicians).
Why Should Hospitals Comply?
CMS indicated that if it concludes a hospital has failed to comply with the Price Transparency Rule's requirements, it may request a corrective action plan (CAP). Additionally, CMS may impose civil monetary penalties on the hospital for failure to submit a CAP or comply with the requirements of an existing CAP. The rule indicates that CMS may publicize these penalties on its website. Currently, the maximum daily dollar amount for a civil monetary penalty to which a hospital may be subject for these violations is $300. As a result, a hospital that fails to comply with the Price Transparency Rule may be subject to a fine of approximately $109,500 per year. Given CMS's indication of its willingness to publicize those hospitals that it views as noncompliant, hospitals also face the risk of reputational harm on top of financial penalties. After the Chargemaster Rule became effective in 2019, several media outlets published lists of noncompliant hospitals.
Challenges to the Price Transparency Rule
The rule has met with several challenges throughout the healthcare industry and significant lobbying efforts from trade groups and associations. For example, the American Hospital Association (AHA) increased its total lobbying spend to $19.9 million in 2018—a 14 percent increase from 2017. This exceeds the 8 percent jump in similar spending the year the Affordable Care Act became law, and the 10 percent jump the year it went into effect. The AHA's general counsel, Melinda Hatton, said that the administration "seem[s] to want to fight about this in the courts. We are trying to oblige them."1
Additionally, several plaintiffs filed a complaint challenging the Price Transparency Rule's implementation in the United States District Court for the District of Columbia on December 4, 2019. Am. Hospital Assoc. v. Azar, No. 1:19-cv-03619 (D.D.C. Dec. 4, 2019). The plaintiffs include three health systems and four hospital associations, and other providers have since expressed their support for the suit. In a joint statement, the plaintiffs said that the Price Transparency Rule would "introduce widespread confusion, accelerate anticompetitive behavior among health insurers, and stymie innovations in value-based care delivery."2 Challenging the Price Transparency Rule as exceeding CMS's statutory authority, the plaints claim that the obligation to publish prices negotiated with insurers does not fall within the scope of the statutory obligation to publish a list of "standard charges" imposed by provisions added to the Public Health Service Act and the Social Security Act by the Affordable Care Act. The plaintiffs further claim that the rule violates the First Amendment, and argue that "it mandates speech in a manner that fails to directly advance a substantial government interest, let alone in a narrowly tailored way."
Hospitals have also expressed concerns that disclosing the details of negotiated rates will allow insurers to engage in anti-competitive behavior. As a result, the providers claim that the Price Transparency Rule's requirements could have a significant negative impact on their ability to negotiate competitive rates with payors. Furthermore, hospitals fear that publishing rates online will allow competitors to access proprietary and confidential information, and provide vendors with access to critical data.
Moreover, some in the industry assert that it is unclear whether the Price Transparency Rule will, in practice, have the intended effect of driving down healthcare spending. In issuing the rule, CMS justified the increased transparency requirements as reflecting what consumers want, rather than what will actually improve the existing marketplace for those consumers. As a result, some opponents of the Price Transparency Rule argue that it places the burden on consumers to drive down prices. CMS itself stated in the rule that it "believe[s] that transparency in healthcare pricing is critical to enabling patients to become active consumers so that they can lead the drive towards value." 84 Fed. Reg. 65526.
Several critics note that listing the cost associated with a particular Current Procedural Terminology (CPT) code (even with the inclusion of ancillary costs) may not actually help patients make an informed decision without additional information regarding their benefits. Further, it is unclear to what extent patients will be able to predict final costs of services based on the lists provided by hospitals. For example, providers at different facilities may recommend different procedures, which would prevent patients from accurately predicting in advance the services they will ultimately receive. How, some ask, can a patient predict that he or she will require a service under CPT code 29881—one of CMS's 70 shoppable CPT codes—versus one of the several other knee arthroscopy procedure codes that may or may not be on a hospital's remaining list of "shoppable" services?
Despite these challenges, it is prudent for hospitals to begin taking necessary steps to comply with the Price Transparency Rule's requirements. Compliance will require collaboration and coordination across health systems. For example, hospitals must determine how they will handle the technical aspects of publishing the required information online in the appropriate format. On the operational side, providers must be prepared to field calls from patients and answer questions regarding the data. Additionally, strategic decisions are required in determining which shoppable services to include in the published list, and how those services will be explained for purposes of providing "consumer-friendly" information. CMS estimates that compliance with the rule will require approximately $11,000 and 150 person hours, but these costs will likely vary widely, as hospitals have criticized CMS for grossly underestimating the costs and time necessary for compliance.
Although hospitals may wish to wait out the challenges to the Price Transparency Rule, the administration has made clear in other contexts that it is unwilling to back down from similar challenges. While the pending litigation or other industry efforts may have some impact on the implementation of the Price Transparency Rule, hospitals should expect the government to continue moving forward with this push for increased transparency. Prudent health systems should take action now to ensure that when the rule goes into effect, they are ready to comply.
1 Melanie Evans, "Hospitals Turn to Courts as Lobbying Fails to Block Price-Transparency Proposal," The Wall Street Journal, Dec. 5, 2019.
2 Joint Statement from National Hospital and Health System Groups on Public Disclosure of Privately Negotiated Rates Final Rule, FAH Hospital Policy Blog, November 15, 2019.
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