FEDERAL COURT UPHOLDS CMS'S HOSPITAL PRICE TRANSPARENCY RULE

The Federal District Court for the District of Columbia has upheld the Centers for Medicare & Medicaid Services’ (CMS) Price Transparency Requirements for Hospitals to Make Standard Charges Public Rule (“the Rule”), which requires hospitals to post their prices, including their negotiated rates with health insurers.  The Rule had been challenged by the American Hospital Association (AHA) and some individual hospitals.  It is scheduled to take effect on January 1, 2021.

The Rule had its genesis in the Affordable Care Act, which required hospitals to “make public…a list of the hospital’s standard charges for items and services provided by the hospital including for diagnosis-related groups….” 42 U.S.C. §300gg-18(e). 

The Rule defined “standard charges” to include both a hospital’s gross charges as well as payer-specific negotiated charges, discounted cash prices, and de-identified minimum and maximum negotiated prices. In addition, the Rule required hospitals to make public payer-specific negotiated charges for 300 “common shoppable services,” as well as the amount a hospital is willing to accept as payment in cash for these services. 

The hospitals had alleged that the Rule is unlawful for three reasons.  First, they alleged that the Rule exceeded CMS’ statutory authority because the ACA only required that hospitals publish their “standard charges,” and negotiated rates are by definition not “standard.”  Second, they alleged that the Rule violated the First Amendment “because it compels disclosure of highly confidential individually negotiated pricing data without any reasonable expectation that it will advance any governmental interest in healthcare-pricing transparency.”  In support of this allegation, the hospitals argued that the most important information for patients is the amount that they will be required to pay out of pocket, which is determined by the specifics of their health plans rather than on a hospital’s charges.  Third, the hospitals alleged that the Rule is arbitrary and capricious under the Administrative Practices Act because it does not further CMS’s stated interest in promulgating the rule and because it would impose a “huge cost” on hospitals to implement.

U.S. District Judge Carl Nichols granted the government’s motion for summary judgment, thereby upholding the Rule.  After undertaking a detailed analysis of the ACA provision and CMS’ rulemaking process under the framework established by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), Judge Nichols concluded:

It is a close call whether the agency reasonably interpreted ‘standard charges’ to include rates negotiated with third-party payers.  After all, the more charges published for any one item or service the less any one of these charges can be considered ‘usual’ or ‘customary.”  But in this exceptionally unique market, the Court cannot conclude that CMS’s interpretation is unreasonable.  It is undisputed that different groups (or sub-groups) of patients have different economic relationships with both hospitals and third-party payers; that some patients have no third-party coverage; and that the amounts paid to hospitals for items and services differ across these different patient groups is thus a reasonable construction that accounts for the peculiar dynamics of the health-care industry.

Opinion at 21.

The Court also rejected the hospitals’ First Amendment argument that the Rule should be reviewed under a strict scrutiny standard because the Court concluded that the Rule regulated commercial speech.  The Court held that although “the evidence in the record is not definitive,” the weight of the evidence showed that the Rule was reasonably related to CMS’s interest in providing consumers with factual price information to facilitate more informed healthcare decisions and in lowering healthcare costs, and, therefore, was constitutional.

Lastly, the Court rejected the hospitals’ argument that the Rule was arbitrary and capricious because in its rulemaking CMS had considered commenters’ concerns, which were “echoed” in the hospitals’ briefs and articulated which information it found most convincing.  Therefore, the Court concluded that CMS had “filled its duty to examine the evidence before it and connect it to the Final Rule.”  Opinion at 43.

The AHA has already announced that it intends the appeal the Court’s decision.  In a statement, AHA General Counsel Melinda Hatton said:

We are disappointed in today’s decision in favor of the administration’s flawed proposal to mandate disclosure of privately negotiated rates.  The proposal does nothing to help patients understand their out-of-pocket costs.  It also imposes significant burdens on hospitals at a time when resources are stretched thin and need to be devoted to patient care.  Hospitals and health systems have consistently supported efforts to provide patients with information about the costs of their medical care.  This is not the right way to achieve this important goal.

The case is Am. Hospital Assoc.et al. v. Azar, D.D.C., No. :19-cv-03619.  The opinion is linked here