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Hospital Price Transparency Rule Draws Immediate Legal Threats (1)

Nov. 15, 2019, 8:59 PMUpdated: Nov. 15, 2019, 9:53 PM

The Trump administration’s latest move to require hospitals to publicly disclose their negotiated rates is setting up yet another legal battle with health care industry giants. And so far, the giants are winning.

Some of the industry’s most powerful trade groups have joined forces to challenge the new hospital disclosure rule as an administrative overreach by the Centers for Medicare & Medicaid Services.

“This regulation exceeds the administration’s authority, and we plan on joining with hospitals to file a legal challenge,” Chip Kahn, president and CEO of the Federation of American Hospitals, said in a statement.

Similar legal challenges to other Trump administration health proposals have found success in the courtroom this year. But in a phone briefing with reporters, Joe Grogan, director of the White House Domestic Policy Council, said, in essence, bring it on.

“This president is willing to be disruptive if it means doing the right thing for the American people,” Grogan said. “And make no mistake about it, this rule today will irritate many vested interests in Washington, D.C.”

The rule calls for some 6,000 U.S. hospitals to publicly provide their negotiated rates with insurers for 300 common medical services along with the discounted cash price they’re willing to accept for those procedures.

Prices for the 300 “shoppable” medical services, which can be scheduled in advance, must be displayed prominently in a consumer-friendly manner, written in plain English, and provided in a searchable format. Costs for all medical services must also be posted online in a machine-readable format so they can be incorporated into tools like smart-phone apps.

In a joint statement with the Federation of American Hospitals, the American Hospital Association, the Association of American Medical Colleges, and the Children’s Hospital Association said the rule would “introduce widespread confusion, accelerate anticompetitive behavior among health insurers, and stymie innovations in value-based care delivery.”

The future litigants called the rule “a setback in efforts to provide patients with the most relevant information they need to make informed decisions about their care.”

Rule Overreaches

The trade groups plan to rely on the Affordable Care Act and the First Amendment to argue the administration overstepped its authority in issuing the rule, Melinda Reid Hatton, the American Hospital Association’s general counsel, told Bloomberg Law.

The rule alters how the ACA defines the standard charges that patients pay. Now it would include negotiated contract rates, Hatton said.

“I don’t think it’s a stretch at all to suggest that the Congress never meant standard charges to mean individually tailored contract rates, so there I think that’s a huge stretch of their statutory authority,” she reasoned.

Hatton also argued there is a no compelling government need under the First Amendment to require this kind of commercial speech.

“Even CMS seems to concede multiple times that what patients want and need are out-of-pocket costs,” she said. “Well, that’s not what they are even suggesting they are requiring at all.”

Hatton said AHA expects to file the lawsuit in the next couple of weeks in the U.S. District Court for the District of Columbia.

States Demand Transparency

More than half of states have passed legislation establishing price transparency websites or mandating that health plans, hospitals, or physicians make price information available to consumers, according to HHS. States with such laws include California, New Hampshire, Massachusetts, Oregon, and Colorado.

Oregon has offered pricing data for the top 100 common hospital outpatient procedures and top 50 common inpatient procedures on its OregonHospitalGuide.org website since 2015, HHS said in its rulemaking.

“This is not the first transparency rule in place, so it’s not totally without precedent,” said Allison Hoffman, a professor and health law expert at the University of Pennsylvania Law School. “That doesn’t necessarily determine how a legal challenge would play out. It is the first national attempt at this, but it’s not the first kind of transparency rule in health care.”

Becca Davison, director at ADVI Health, a global healthcare consulting firm, said the new rule is a “positive step” for price transparency. But she also understands the concerns about making more information public about the private negotiations between insurers and hospitals. Doing so, she added, won’t necessarily provide the magic pill for lower prices “as some would like.”

Trade Secrets?

Others have suggested that rates negotiated between hospitals and insurers are proprietary trade secrets that shouldn’t be available for public consumption.

Mike Strazzella, practice leader for federal government relations at Buchanan Ingersoll and Rooney in Washington, said he believes the hospital rule would violate federal antitrust law and lead to anticompetitive behavior by allowing negotiations between insurers and hospitals to be based on competitors’ prices rather than the individual needs of the participants.

He expects a long legal battle that could extend into 2021 when the rule is slated to take effect. Hospitals will likely seek an injunction to stop the rule in case the court battle drags on, he said.

“Even though some people might say, ‘well there’s time for the courts to figure this out,’ there’s not. Because hospitals will have to expend the energy of trying to determine whether they should be implementing and preparing for this,” Strazzella said.

The administrative burden is just “going to be horrendous,” he added, because the cost of services change frequently. “I think this is going to be very difficult to implement, even outside of the legal challenges.”

But HHS Secretary Alex Azar said the rule will help consumers better understand their medical bills.

“American patients have been at the mercy of a shadowy system with little access to the information they need to make decisions about their own care,” Azar said.

Court Losses Mount

Hospitals are hoping to prevail the way drugmakers and hospitals did earlier this year.

In July, a federal judge ruled in favor of drug companies by striking down a Trump administration rule that would have required them to include the list prices for medications in TV ads. The rule never went into effect.

In the opinion for the U.S. District Court for the District of Columbia, Judge Amit P. Mehta said Congress didn’t give the administration the authority to require drug price disclosures, despite the government argument that greater price transparency would lead to lower their prices.

“To accept the agency’s justification here would swing the doors wide open to any regulation, rule, or policy that might reasonably result in cost savings to the Medicare and Medicaid programs, unless expressly prohibited by Congress,” Mehta wrote.

But the Trump administration has already shrugged off one court loss and moved ahead with plans for Medicare to pay the same rate in 2020 for similar medical services provided at doctors’ offices and at off-campus, hospital-based clinics.

The site-neutral policy is expected to save $650 million for Medicare, while beneficiaries would save another $160 million in out-of-pocket costs under the payment rule finalized Nov. 1 by the CMS.

After the American Hospital Association and nearly 40 hospitals sued to stop the policy, the U.S. District Court for the District of Columbia ruled in September that the CMS exceeded its statutory authority when it cut the Medicare payment rate for clinic-based services.

In spite of the ruling, Medicare plans to continue the policy next year while it evaluates whether to appeal the court decision.

To contact the reporters on this story: Tony Pugh in Washington at tpugh@bloomberglaw.com; Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com