Hospitals sue HHS over requirement they disclose negotiated rates

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Trine K. Tsouderos HRI Regulatory Center Leader, PwC US December 06, 2019

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A group of hospital associations and hospital systems sued HHS Secretary Alex Azar this week over CMS’ requirement that they disclose negotiated prices, a move that the federal agency says will help consumers but that the hospitals say is “arbitrary and capricious,” and likely to produce mass confusion if the final rule is allowed to take effect Jan. 1, 2021. “The Final Rule is unlawful, several times over,” the hospitals argue in their lawsuit.

The plaintiffs, led by the American Hospital Association, are asking the courts for preliminary and permanent injunctive relief barring CMS from enforcing the rule. The hospitals also are asking for attorney fees and a declaration that the rule exceeds the agency’s statutory authority, violates the First Amendment, and is “unenforceable.”

Within hours of CMS publishing its final rule in late November, several hospital associations threatened to quickly file suit. The rule requires hospitals to generate a publicly accessible dataset of gross charges, payer-specific negotiated charges, discounted cash prices and de-identified minimum and maximum negotiated charges for every item and service offered. They also must make public negotiated charges for 300 “shoppable services.” All of this must happen by Jan. 1, 2021, according to the final rule.

CMS’ argument is that this information will help consumers compare prices, predict out-of-pocket costs and ultimately pressure hospitals and insurers to reduce prices overall. Over the past three years, the Trump administration has touted price transparency as a necessary step toward a more consumer-friendly health industry and toward reducing healthcare spending. So far, however, the agency’s efforts, including a rule requiring drug companies to disclose list prices in televised ads, have largely been struck down in the courts.

(The federal agency also is turning its attention to insurers and has published a proposal that would force them to disclose more information on pricing as well. That measure has drawn criticism from the payer industry.)

In their lawsuit, the hospitals argue that the final rule will not help consumers and lower prices. Instead, they argue, the rule will generate confusion. CMS exceeded its statutory authority, wrongly asserting that its authority to require publication of “standard charges” applies to negotiated ones, according to the suit. But, the hospitals say, negotiated charges are “the opposite of standard, in fact, because they reflect the non-standard amount negotiated privately between a hospital and commercial health insurer.”

The hospitals also maintain that the rule illegally “compels speech,” violating their First Amendment rights. The rule also is “arbitrary and capricious” and “does not stand up to even the barest of scrutiny.”

The hospitals contend that the rule will hurt them, summarily destroying any leverage they have in negotiations with insurance companies. Compliance will be very expensive and complex, they say, requiring them to hire new staff or reassign workers, and imposing costs that could threaten the viability of hospitals operating on slim margins.

They urge the courts to act quickly, as hospitals will soon have to start working on compliance to meet the 2021 deadline.

Filed in the US District Court for the District of Columbia, the lawsuit was brought by the American Hospital Association; the Association of American Medical Colleges; the Federation of American Hospitals; the National Association of Children’s Hospitals; Memorial Community Hospital and Health System, a 21-bed hospital in rural Nebraska; Providence Holy Cross Medical Center, a health system based in California; and Bothwell Regional Health Center, a system operating in Missouri.

HRI impact analysis

It is true that healthcare consumers typically have no idea how much they will owe when they obtain services from a hospital, and that the bills, arriving weeks and months later, are often an unwelcome surprise. Consumers’ frustration over this is driving campaign promises of Medicare for All, lawmakers’ proposals around surprise billing and countless headlines about big medical bills. It also has fueled the Trump administration’s push for more transparency around pricing for all kinds of medical products and services.

The hospitals’ lawsuit raises questions about how much CMS can do on its own to force the industry to disclose prices. Chargemaster rates, already public, are of little use to most consumers; those rates bear little relation to the prices negotiated by insurers, much less how much patients may owe given their deductibles and other cost-sharing. Negotiated rates may be more useful; the courts will decide whether it will take an act of Congress to require their publication.

Still, it remains unclear whether consumers will shop around for services, and under what circumstances. This is especially true if the services patients are seeking, such as a vaginal delivery or joint replacement, mean they are likely to exceed their deductibles, and perhaps even out-of-pocket maximums, no matter where they go.

Also, while patients would know the prices of the hospital items and services under the rule, nonhospital services such as those of another physician could present a significant wild card in the overall bill to the patient for a particular care episode. In their suit, the hospitals argue that “more information is not the same thing as better information.”

Still, as the case makes its way through the courts, hospitals and insurers likely should reconsider their pricing strategies, as leverage could shift if the changes are allowed to go forward. The Jan. 1, 2021, deadline is just over a year away; preparations for compliance should begin soon. Hospitals should consider how the regulations could affect patient experience strategies and billing and payment operations, and whether public pricing could become a market differentiator. They also should consider how new entrants may use the information. 

Employers, which are taking a more active role in trying to manage healthcare costs, may find that the new information arms them better for choosing insurers and pressing them to negotiate harder on the employers’ behalf. 

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Ben Comer

Senior Manager, Health Research Institute, PwC US

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

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