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Posting Negotiated Rates and More: CMS’s Final Rule on Price Transparency for Hospitals

on Wednesday, 8 January 2020 in Health Law Advisory: Zachary J. Buxton, Editor

On November 15, 2019, the Centers for Medicare and Medicaid Services (“CMS”) released its final rule for hospitals to publicly post their “standard charges” on the internet. The final rule—partially titled “Price Transparency Requirements for Hospitals to Make Standard Charges Public” and published in the November 27, 2019 edition of the Federal Register—follows a series of escalating requirements for hospitals originally required under the Affordable Care Act (“ACA”).

The ACA amended the Public Health Service Act (42 USC § 300gg-18) by adding new Section 2718(e) requiring hospitals to make their “standard charges” for “items and services” publicly available and to update the list annually. The requirement went largely ignored until the 2015 Inpatient Prospective Payment System (“IPPS”) final rule when CMS reminded hospitals of their obligation under § 2718(e). At the time, CMS instructed hospitals to make their charges publicly available upon request or publish instructions of how the public can request such charges.

CMS did not issue further instructions until the 2019 IPPS proposed and final rules when the agency required hospitals to post a list of their standard charges in a machine-readable format and update it at least annually. Hospitals needed to comply with this requirement by January 1, 2019.

In response, many hospitals posted their chargemasters in an Excel file but CMS’s lack of guidance led to widespread confusion; CMS responded by issuing two sets of FAQs (here and here) in an attempt to alleviate it.

On June 24, 2019, President Donald Trump signed Executive Order No. 13877 titled “Improving Price and Quality Transparency in American Healthcare to Put Patients First.” Section 3 of the Executive Order instructed the U.S. Department of Health and Human Services to issue a proposed regulation within 60 days that required hospitals to publicly post standard charges and negotiated rates. CMS issued the proposed rule and it was first displayed in the Federal Register on July 29, 2019.

The rule finalizes regulations that will be codified at 45 CFR Part 180 titled “Hospital Price Transparency.” There are two main requirements. First, hospitals must publicly post all “standard charges” for all “items and services” offered by the hospital in a machine-readable format such as .XML, .JSON and .CSV formats.

Second, hospitals must publicly post, in a consumer-friendly format, the “standard charges” for 300 total “shoppable services” in addition to any ancillary services commonly provided with those “shoppable services.” CMS has pre-selected 70 of the “shoppable services” that all hospitals must post and the remaining 230 may be selected by the hospital. If a hospital has an internet-based price estimator tool that meets certain requirements under the regulations, it will be deemed to have met the requirement to make the standard charges for the 300 shoppable services available.

By far, the largest controversy under the final regulation is CMS’s definition of “standard charges.” CMS defined standard charges to include (1) gross charges (i.e., chargemaster rates), (2) payer specific negotiated charge, (3) de-identified minimum negotiated charge, (4) de-identified maximum negotiated charge, and (5) discounted cash price. Hospitals must publicly post all five “standard charges” in a machine-readable file and a consumer-friendly file for “shoppable services.”

Within days of the publication of the final rule, the American Hospital Association; Association of American Medical Colleges; the Federation of American Hospitals; the National Association of Children’s Hospitals, Inc.; Memorial Community Hospital and Health System located in Blair, NE; Providence Holy Cross Medical Center located in Missions Hills, CA; and Bothwell Regional Health Center in Sedalia, MO, filed a lawsuit challenging CMS’s authority to issue the final rule.

The lawsuit argues that the final rule is unlawful because the law at issue—§ 2718(e) of the Public Health Service Act—requires hospitals to post their “standard charges” and the regulation goes beyond that definition by including the negotiated rates between private parties. The lawsuit also argues that the rule is unlawful because it unconstitutionally compels speech in violation of the First Amendment and because it is arbitrary and capricious.

The lawsuit is pending in the U.S. District Court for the District of Columbia. It is currently unclear how the litigation will unfold or what impact, if any, it will have on implementation of the final rule for price transparency. Baird Holm LLP will provide ongoing updates in the Health Law Advisory on the status of the lawsuit and its impact on implementation of the final rule.

The final price transparency rule is scheduled to go into effect on January 1, 2021.

Zachary J. Buxton

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