December 11, 2019

The New York Times is reporting that several of the nation’s leading hospital organizations, as well as three individual hospitals, have filed suit against Alex M. Azar II, in his official capacity as secretary of the Department of Health and Human Services (HHS).  The legal action is in response to an HHS regulation requiring added levels of transparency relative to certain hospital charges.  The plaintiffs include the American Hospital Association, the Association of American Medical Colleges, the Federation of American Hospitals, and the National Association of Children’s Hospitals, Inc.

The suit stems from a 2019 rule promulgated by HHS that purportedly seeks to force hospitals to publicly reveal the amount of discounted prices they grant to insurance companies in connection with certain medical procedures.  Specifically, the complaint arises from a Final Rule issued by the Centers for Medicare & Medicaid Services (CMS), an agency within HHS, under the title, Medicare and Medicaid Programs: CY 2020 Hospital Outpatient PPS Policy Changes and Payment Rates and Ambulatory Surgical Center Payment System Policy Changes and Payment Rates. Price Transparency Requirements for Hospitals to Make Standard Charges Public, which was published in the Federal Register on November 27, 2019 (see 64 FR 65524).  That last line of the title is the primary point of contention that led to the legal action against the administration.

The Beef Begins

The genesis of the argument that ultimately led to the present legal action was the Trump administration’s stated desire to enhance transparency for the patient-consumer, “to allow patients to better shop for deals on a range of services, from MRIs to hip replacements,” as the Times put it.  As part of that governmental goal, the Final Rule requires hospitals—beginning January 1, 2021—to post on their websites a file containing five types of pricing information for every item and service they provide. The specific information that must be disclosed involves the following:

• Gross charges
• Payer-specific negotiated charges
• Discounted cash price
• De-identified minimum negotiated charges
• De-identified maximum negotiated charges

In addition, hospitals must publicly disclose negotiated charges and certain other information relative to 300 “shoppable” services, i.e., a healthcare service that can be scheduled by patients in advance.

From the perspective of the plaintiffs, the Final Rule requires each hospital in America to publicly display a massive volume of “confidential pricing information reflecting individually negotiated contract terms with all third-party payers, including all private commercial health insurers, with which the hospital contracts.”

A Bone of Contention

The AHA and its fellow claimants contend that HHS’s new mandates are arbitrary, capricious and altogether unlawful, alleging that they exceed the agency’s statutory authority, are in breach of the First Amendment guarantees, are unduly burdensome and run counter to established judicial precedent.  The arguments are fleshed out as follows:

1. The statute relied on by HHS in creating these new mandates speak to the agency’s ability to regulate standardized pricing.  Specifically, 42 U.S.C. § 300gg-18(e) requires hospitals to publish their “standard charges for items and services provided by the hospital.”  However, the new mandates as found in the Final Rule force publication of negotiated pricing, which the statute does not expressly cover.  Plaintiffs argue that a standard charge is the starting point of a negotiated charge, thus reaching a non-standard price point.
2. The negotiated charges are confidential and proprietary to both hospitals and commercial health insurers.  Disclosing this information to the general public would “effectively eliminate hospitals’ ability to negotiate pricing with insurers at arms’ length.” The end result of this new Rule amounts to an undermining of competition because it would “blunt incentives for health insurers to participate in innovative arrangements that have the potential to lower costs and increase quality.”
3. The administrative burden of these new government mandates will overwhelm an already overly burdened hospital staff.  The financial costs of implementing these provisions are simply prohibitive—especially for those facilities operating on the margins.
4. Another agency of the federal government, the Federal Trade Commission (FTC), has set a precedent against such mandates by previously ruling that a similar attempt by the Minnesota legislature would ultimately prove deleterious to patients from the standpoint of out-of-pocket costs.  The FTC specifically noted that “classifying plan provider contracts as public data would offer little benefit but could pose substantial risk of reducing competition in health care markets.”  In addition, a federal judge ruled last summer that HHS exceeded its regulatory authority with a rule requiring drug companies to list certain prices.

It didn’t help matters much when Caitlin Oakley, a spokeswoman for HHS, in a brusquely worded statement, proclaimed: “Hospitals should be ashamed that they aren’t willing to provide American patients the cost of a service before they purchase it.”  America’s hospital execs must have felt steam emerging from their ears in response.

The End Game

Clearly, the suit filed by the AHA, et al, was not wholly unexpected by the administration.  After announcing the Final Rule, Secretary Azar stated, “We may face litigation, and we feel we are on a very firm legal footing.”  That remains to be seen as there seems to be legal precedent auguring against the administration’s position, as well as what appear to be sound legal arguments in the case at hand.

Until this matter is adjudicated in the courts, hospitals will need to do some contingency planning.  In the event the lawsuit proves unsuccessful at vacating the 2021 mandates, CEOs will want to have a game plan for complying with these requirements.  They should begin early next year meeting with applicable departments, such as accounting, HR and IT, to determine how to comply with these mandates as efficiently as possible.  The goal is to minimize the effect of the costs associated with (a) gathering and publishing the price data, and (b) having little to no privacy in price negotiations with payers.