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Hospitals Lose Legal Skirmish Over Price Disclosure Requirement (2)

June 23, 2020, 7:51 PM; Updated: June 23, 2020, 11:59 PM

The Trump administration can keep its rule requiring hospitals to disclose the prices they privately negotiate with insurance companies, a federal district court held.

The U.S. District Court for the District of Columbia Tuesday rejected hospital industry groups’ claims that the Department of Health and Human Services issued a rule that was arbitrary and capricious, exceeded its rulemaking authority, and violated the First Amendment by mandating speech that fails to directly advance a substantial government interest.

The court instead granted the Trump administration’s motion for summary judgment. It upheld the rule, which is a policy the administration has been pushing in an effort to shine a light on hospital pricing.

The challenge by four of the nation’s leading health-care industry groups, including the American Hospital Association, and three hospitals centered on how the agency defined standard charges that a hospital must list publicly.

“It is a close call whether the agency reasonably interpreted ‘standard charges’ to include rates negotiated with third-party payers,” Judge Carl Nichols said. “After all, the more charges published for any one item or service, the less any one of those charges can be considered ‘usual’ or ‘customary.’”

But, he said, “in this exceptionally unique market, the Court cannot conclude” that the Centers for Medicare & Medicaid Services’ interpretation is unreasonable.

The amounts paid to hospitals for items and services differ across patient groups, which have varying economic relationships with both hospitals and third-party payers, Nichols said.

“The agency’s decision to define ‘standard charges’ based on the different patient groups is thus a reasonable construction that accounts for the peculiar dynamics of the health care industry,” he said.

Azar Celebrates Ruling

The rule requires 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.

The American Hospital Association said it will appeal and seek an expedited review of the ruling.

“The proposal does nothing to help patients understand their out-of-pockets costs,” Melinda Hatton, AHA’s general counsel, said in a statement. “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.”

In a tweet Tuesday afternoon, HHS Secretary Alex Azar called the ruling a big victory for the president’s health-care agenda.

“With this decision, we will continue to deliver on President Donald Trump’s promise for ‘A+' transparency and lower costs for American patients,” he said.

CMS Administrator Seema Verma fired off her own tweet, assailing the litigation.

“This was a disingenuous self-serving lawsuit designed to keep patients in the dark,” she tweeted.

Patient Rights Advocate.Org, a group fighting for price transparency in health care, said the court’s ruling forces hospitals to compete on quality, performance, and at the best price just like any other business.

“It’s overwhelmingly in support of common sense that all Americans deserve the right to see prices to be in control of their health care decisions,” Cynthia Fisher, the group’s founder and chair, said in an interview. “The judge ruled in favor of all of us.”

Competition in a functional marketplace drives down costs and improves quality, Fisher said.

“We’ve seen it in technology, we see it in groceries, we see it in retail, we see it in airlines, we’ve seen it in every other facet of our lives, and now we’re going to be able to see it in health care,” she said.

The industry groups had argued the rule will chill negotiations between hospitals and insurers. But Nichols said in his opinion that the rule only requires hospitals to disclose their final agreed-upon price—which each patient already sees in their insurance-provided explanation of benefits—and not any information about the negotiations themselves.

“Plaintiffs are essentially attacking transparency measures generally, which are intended to enable consumers to make informed decisions; naturally, once consumers have certain information, their purchasing habits may change, and suppliers of items and services may have to adapt accordingly,” he said.

The case is Am. Hospitals Assoc. v. Azar, D.D.C., No. 1:19-cv-03619, Opinion 6/23/20.

(Updated to include a comment from the American Hospital Association, starting in the 10th paragraph.)

To contact the reporter on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Alexis Kramer at akramer@bloomberglaw.com

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