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There's Still Time: 3 Threats Could Thwart Hospital Price Transparency Rule

Analysis  |  By Steven Porter  
   January 29, 2020

Although the Trump administration has already declared a political victory by standing up to the hospital lobby, there's still a lot that could happen between now and the rule's effective date.

This article appeared in the January/February 2020 edition of HealthLeaders magazine.

President Donald Trump declared "a major victory" when his administration issued a final rule last November that requires hospitals to begin publishing troves of pricing data online next year, including the rates they negotiate with insurers.

"I don't know if the hospitals are going to like me too much anymore with this, but that's OK," he said at the White House when the rule was announced.

The policy is undoubtedly a daring move by an administration that has pushed aggressively to revamp the U.S. healthcare system. But there are good reasons to believe the mission-accomplished implication of Trump's speech was premature.

Hospitals have sued to block the rule. Politics could interrupt the process. And, even if the policy survives to implementation, its enforcement mechanisms could be too weak to ensure thorough compliance across the industry. Any of these three could prevent the final rule from delivering its purported benefits and could open the door to further reforms—which means industry leaders may still have time to shape the future of transparent pricing in healthcare.

Barry H. Ostrowsky, president and CEO of RWJBarnabas Health, based in West Orange, New Jersey, says the price transparency rule, as finalized, takes "probably a bit of a sledgehammer approach." But the immediate reaction to block the rule through litigation won't grapple with the fact that consumers and lawmakers will keep demanding transparency, he says.

"Sometimes we react because a rule or a policy isn't written as it was intended to perform, and that's fair. But I don't think you're going to, through litigation, remove or erase the desire for price transparency," Ostrowsky says.

It would be preferable, he says, for the industry to devise its own plan to satisfy demands for price transparency, then tweak that plan over time. The industry just might get another chance to do so, if any of these three threats undermine the final rule.

1. Biggest threat: Hospitals' lawsuit

A lawsuit filed in December 2019 by four major hospital groups is arguably the biggest and most pressing threat to the final rule. It accuses the administration of overstepping its legal authority by finalizing an arbitrary and capricious policy that violates the First Amendment.

The plaintiffs—the American Hospital Association (AHA), the the Association of American Medical Colleges (AAMC), the Children's Hospital Association (CHA), and the Federation of American Hospitals (FAH), along with three individual hospitals—have asked that a federal judge block the government from enforcing the rule, which is set to take effect January 1, 2021.

"Absent a prompt ruling, the hospital and health system field will need to immediately begin to expend substantial resources to prepare to come into compliance with the Final Rule, which will mean diverting significant personnel and financial resources from other pressing health care needs," the complaint states.

The hospitals made a motion for summary judgment just five days after filing their complaint. A ruling on that motion isn't expected until mid-March at the earliest.

Are negotiated rates 'standard charges'?

The government claims it already has the legal authority it needs to impose the new requirements. The final rule cites three statutes, including a provision that requires each hospital to publish a list of its "standard charges for items and services."

Matthew Fiedler, PhD, a fellow at the USC-Brookings Schaeffer Initiative for Health Policy, says the administration is interpreting "standard charges" as including the prices hospitals negotiate with insurers.

"This provision is the main basis for the rule on hospital prices that the Administration recently finalized," Fiedler says.

The plaintiff hospitals contend, however, that the administration's take on "standard charges" contradicts both the healthcare industry's well-established understanding of the phrase and the straightforward definitions listed in dictionaries.

The relevant statute gives the Centers for Medicare & Medicaid Services limited authority to require hospitals to publish their chargemasters, the plaintiffs argue. Negotiated rates are, by definition, non-standard; therefore, the hospitals argue, it makes no sense to say "standard charges" include negotiated rates.

"An agency cannot purport to reverse the plain meaning of statutory language by engaging in creative definitions of otherwise clear terms, such that black means white and yes means no," the complaint states.

Thomas P. Miller, JD, a fellow at the American Enterprise Institute, says the final rule incorporates a broad interpretation of the underlying statutory provisions. How the courts read those provisions, either affirming the administration's interpretation or insisting on a narrower approach, will ultimately determine whether the mandate survives, he says.

The lawsuit claims also that the final rule violates hospitals' First Amendment rights by seeking to compel speech. It argues that the rule is arbitrary and capricious, too, because the data hospitals must publish won't actually help patients make cost-informed decisions about their care.

"When comparing options for healthcare services, patients' prime consideration when it comes to pricing is their own out-of-pocket costs—that is, the amounts patients pay directly," the complaint states.

Keep an eye on the ACA case

Of the three statutes cited by the final rule, the first and second are provisions of the Public Health Service (PHS) Act. It's ironic, Fiedler says, that the rule cites those two provisions, since they were added to the law by the Affordable Care Act (ACA)—which the administration argues should be invalidated in its entirety.

In other words, the Trump administration argues both that the ACA is completely invalid and that the ACA is a sound legal basis for the hospital price transparency final rule. (Major hospital groups disagree on both counts.)

An appellate court decision kicked the dispute over the ACA's constitutionality back down to a federal district court in Texas in December 2019, but the case is widely expected to reach the Supreme Court eventually.

Although it's unclear exactly what would happen to the price transparency rule and related lawsuit if the Supreme Court were to invalidate the entire ACA, the administration would likely have a tougher time defending its rule if those two provisions of the PHS Act were removed. That would leave only the third statutory citation: a provision of the Social Security Act that gives the Health and Human Services secretary general authority to establish rules and regulations as necessary.

2. Significant threat: Political state of play

When the hospital price transparency rule was first proposed, the administration had slated it to take effect January 1, 2020. The final version, however, bumped the timeline back a full year. That gave President Trump the political benefit of taking on the hospital lobby in an ostensibly consumer-friendly way, without having to deal with most of the rule's impact until after the 2020 election.

Mike Strazzella, head of federal government relations at Buchanan Ingersoll & Rooney in Washington, D.C., says President Trump has made healthcare price transparency an important piece of his campaign.

"I think the president has made it very clear that, regardless of the threat of a lawsuit, he's going to move forward with that agenda," he says.

Strazzella, who worked previously for The Hospital & Healthsystem Association of Pennsylvania and whose current clients include hospitals and insurers, says consumers need information about their out-of-pocket costs, not a confusing dump of price data that won't make sense without an intimate understanding of the industry's complicated price negotiations.

"The reality is that it is a convoluted system," he says.

Even if the hospitals' lawsuit doesn't block or even delay the rule, there's still a lot that could happen politically in 2020 to interrupt the process, especially since the Trump administration is still working on a proposed rule for price transparency that applies to health insurers, who have responded with a war cry of their own.

The industry could pressure the administration into delaying or modifying its plans; another round of major legislation to replace the ACA could affect the statutory authority for this rule; or the Democratic presidential nominee could win in November, enter the Oval Office just three weeks after the rule's effective date, and take the policy in another direction.

After the hospitals filed their lawsuit, HHS spokesperson Caitlin Oakley released a statement chastising hospitals for their resistance to the Trump administration's plan.

"Hospitals should be ashamed that they aren't willing to provide American patients the cost of a service before they purchase it," Oakley said, reiterating the commitments President Trump and HHS Secretary Alex Azar have made to price transparency.

Hospital groups have said they are ready and willing to collaborate on a solution that brings meaningful price transparency to the healthcare industry. They just don't think this administration's current plan is the way to go.

3. Lingering threat: Lax enforcement

Even if the final rule on hospital price transparency survives the legal challenge and election-year politicking, there's a chance its enforcement mechanism won't put enough pressure on hospitals to achieve its stated objective.

The rule allows CMS to impose civil monetary penalties for hospitals that fail to comply. But some proponents of the policy's central concept worry that these relatively minor fines may be insufficient. In other words, the mandate has teeth, but they may be mere baby teeth.

That could lead to a situation in which healthcare price data remains spotty and convoluted across the industry, even as hospitals take steps toward full compliance.

A hospital that fails to comply with the final rule faces a maximum fine of $300 per day, even if the hospital is violating multiple requirements of the policy.

"The technical term for that is 'chump change,' " said Kaiser Family Foundation Executive Vice President for Health Policy Larry Levitt. "I wonder how many hospitals will just pay the fine."

Although the scope of the final rule has broad implications, this enforcement mechanism "is quite weak," Levitt said.

If a hospital were to be assessed the maximum $300 penalty for an entire year, it would owe the government $109,500 for failing to comply with the final rule during that year. (The amount will be updated annually with a cost-of-living adjustment multiplier, according to the rule.)

Health Care Cost Institute (HCCI) President and CEO Niall Brennan, MPP, said that sum amounts to "an infinitesimal rounding error for hospitals."

In HCCI's comment on the proposed rule (which included the same $300 maximum daily penalty), Brennan praised the rule's monitoring methods and enforcement actions as "appropriately varied and iterative," but he said typical hospitals may see $100,000 as a small piece of their total revenue.

"We worry that many stakeholders will view the noncompliance penalty as a new business expense rather than an incentive to comply with the transparency requirements," Brennan wrote.

For its part, CMS acknowledged in the rule that stakeholders had expressed concerns about the penalty amount. While some comments on the proposal called for higher penalties, others pushed for lower penalties or no penalties at all.

Paying more than $100,000 in fines might be chump change for large hospitals, but some commenters argued that such penalties could prove overly burdensome for small hospitals, especially critical access hospitals, according to the CMS summary of the comments. Officials rejected some commenters' calls for a sliding fee scale, as cited in the summary, but said they will continue to consider the topic and may revisit a scaling methodology in future rulemaking.

After considering higher and lower dollar amounts, CMS officials settled on the $300 maximum, figuring they had struck an appropriate balance, according to the rule.

"We believe this amount to be sufficient to prompt hospitals to timely and properly display standard charges in both machine-readable and consumer-friendly formats in accordance with the requirements of this final rule," the document states.

Furthermore, the rule's regulatory impact analysis estimates that its provisions will cost each hospital about $11,900 to implement in the first year, then about $3,600 to maintain compliance in subsequent years—so the maximum penalty for noncompliance is steeper than the total estimated cost of compliance, giving hospitals an adequate incentive to comply, the rule states.

But the administration may be underestimating the burden this rule places on providers.

"I believe that their estimate of time, hours, and cost is incorrect. I don't believe there is any organization that has their [chargemaster] data also formatted by payer to show contracted rates for easy review and comparison, so just putting that together is another large ask," said Debra May, executive partner at Bluetree Network in Reno, Nevada.

"All hospitals use some variation of a tool, or manual work, for their insurance contracts, so I don't know that it's as easy as 'print out your rates for XX codes and publish them,' " May added. "This is an extremely heavy lift for hospitals that are already buried with administrative burden to just get paid for the services they provide."

Compiling the pricing data could result in a spreadsheet with hundreds of thousands of rows and columns, the hospitals argued in their lawsuit.

"Hospitals and health systems report that a file of this size could easily crash most standard computer systems," the complaint states, "and some members worry about the ability of their websites to function at all with such a large file."

Ostrowsky, from RWJBarnabas Health, says hospitals want to be seen as consumer-friendly, so they will take steps to comply with the rule. Practical limitations, however, may make full and immediate compliance impossible for some, he says.

The public shouldn't assume, then, that hospitals are flouting the rule if they fall short of full compliance, even as inconsistent price data might impede consumers' ability to comparison-shop, Ostrowsky adds.

"If the intent was to empower consumers to make informed decisions," he says, "then we ought to be able to comply in a way where that actually results."

Ostrowsky says he's not entirely certain whether this rule will lead to its stated aim.

Editor's note: HealthLeaders news editor John Commins and HCPro's Revenue Cycle Advisor editor Nicole Votta contributed to this report.

“I don't think you're going to, through litigation, remove or erase the desire for price transparency.”

Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.

Photo credit: Illustration by Adria Fruitos


The government claims it already has the legal authority it needs to impose the new requirements.

Hospitals contend that the administration's take on "standard charges" contradicts both the healthcare industry's well-established understanding of the phrase and the straightforward definitions listed in dictionaries.

In addition, hospitals argue that compiling the pricing data could result in a spreadsheet with hundreds of thousands of rows and columns.

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