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CMS Issues Controversial Health Care Pricing and Insurance Coverage Transparency Rules

Client Alert

Authors: Barbara T. Sicalides, Barak A. Bassman and Tracy Rhodes

11/20/2019
CMS Issues Controversial Health Care Pricing and Insurance Coverage Transparency Rules

On November 15, the Centers for Medicare and Medicaid Services (CMS) issued a final rule requiring public disclosure of hospital charges. Along with the Departments of Health and Human Services, Labor and the Treasury, CMS also issued a proposed rule that would require public disclosure of negotiated rates. The rules follow Executive Order 13877, which aims to address “[o]paque pricing structures” and increase transparency in the health care system to allow patients “[t]o make fully informed decisions” about their health care.

Public Disclosure of Hospital Charges Final Rule

The final rule, effective January 1, 2021, expands CMS’s interpretation of the Public Health Service Act (PHSA) requirement that hospitals create a “list of the hospital’s standard charges for items and services,” which CMS has previously stated must be available online in a machine-readable format.

The rule defines “standard charge” as the hospital’s regular rate for an item or service. Standard charges include not only the gross billed charge, but also discounted cash price, payer-specific negotiated charge, and de-identified minimum and maximum negotiated charges.

The rule finalizes requirements for making hospital charges public. It requires that a machine-readable list of items and services include a description of each item or service, corresponding standard charges, and accounting and billing codes. The list must meet certain file formatting requirements and be updated at least annually. Hospitals must also provide a consumer-friendly list of standard charges for shoppable services — services that can be scheduled in advance by a consumer — that describes each service in plain language, among other things. A list of 70 shoppable services is set out in the rule, and hospitals will separately select additional services as well.

Under the final rule, CMS has authority to monitor compliance by reviewing complaints, evaluating analyses of noncompliance and auditing websites. A hospital that fails to comply with a corrective action plan may face a penalty of up to $300 per day.

Transparency in Coverage Proposed Rule

The proposed rule implements legislative mandates from section 2715A of the PHSA and section 1311(e)(3) of the Patient Protection and Affordable Care Act (PPACA), which require group health plans and insurers to make certain information available to the public, including claims payment policies and practices, data on rating practices, information on cost sharing and payments with respect to out-of-network coverage and more.

Under the proposed rule, most employer-based health plans and insurance issuers would have to supply consumers with an internet-based self-service tool that provides real-time, personalized access to cost-sharing information. These insurers would also have to make public, through machine-readable files, their actual negotiated rates with in-network providers and historical allowed amounts for items and services provided by out-of-network providers. These negotiated rates have traditionally been subject to contractual requirements of confidentiality.

Implications

CMS Administrator Seema Verma stated that these rules will reduce health care costs and increase competition in the health care market by providing greater transparency:

Kept secret, these prices are simply dollar amounts on a ledger; disclosed, they deliver fuel to the engines of competition among hospitals and insurers. This final rule and the proposed rule will bring forward the transparency we need to finally begin reducing [] overall healthcare costs. [These] rules usher in a new era that upends the status quo to empower patients and put them first.

However, opponents have stated that the rules will confuse consumers, increase costs and harm competition. For example, America’s Health Insurance Plans (AHIP) claimed that the rules fail to provide transparency to consumers and undermine competitive negotiations that lower costs and premiums. Similarly, the American Hospital Association (AHA), the Association of American Medical Colleges (AAMC), the Children’s Hospital Association (CHA) and the Federation of American Hospitals (FAH) issued a joint statement that the final rule mandating public disclosure of hospital charges “will introduce widespread confusion, accelerate anticompetitive behavior among health insurers, and stymie innovations in value-based care delivery.”

Opponents’ positions mirror the Federal Trade Commission’s (FTC’s) 2015 comments regarding a state open records law. There, the FTC was concerned about public disclosure of fees, discounts and other pricing terms negotiated in confidence between providers and payers. The FTC concluded that the proposed law posed “a significant risk of anticompetitive harm,” without providing much benefit to consumers. The FTC was especially concerned that public disclosure could undermine selective contracting, which controls costs by requiring providers to bid aggressively for inclusion in networks. It opined that public disclosure of prices would eliminate the need for aggressive bidding, and “overall prices are likely to go up as a result of this reduced price competition.”

The AHA, AAMC, CHA and FAH plan to join with member hospitals to challenge the final rule “on grounds including that it exceeds the Administration’s authority.” In addition, because PHSA sections 2718(e) and 2715A were enacted as part of the PPACA, these rules could face additional challenges if the PPACA is overturned pursuant to pending challenges to its constitutionality in the Fifth Circuit.

Moreover, these new regulations come with potentially new antitrust risks. Even though pricing information may be public, providers and payers should still instruct their relevant personnel that this published pricing information must not be discussed with competitors. As the FTC comments noted above may indicate, antitrust enforcement agencies may be concerned about potential misuse of newly public data to engage in unlawful price coordination. In addition, to the extent either references this data in formulating rate negotiation strategy or during negotiations with the other, they should document the public source of their information in order to avoid the suggestion that the information came directly from communications with competitors.

If the rules survive legal challenges, their impact on health care costs remains to be seen. Notably, the Massachusetts Office of the Attorney General recently reported that Massachusetts’s online cost estimators intended to increase transparency “have had a limited impact on patient selection of high-value health care options.” The report recommended that stakeholders “[t]emper expectations that consumer-driven health care price transparency tools will reduce overall health care cost growth.”

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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