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Judges Signal Support for Hospital Pricing Disclosure Rule (1)

Oct. 15, 2020, 4:20 PMUpdated: Oct. 15, 2020, 5:34 PM

The nation’s second most powerful court seemed likely Thursday to uphold a rule that has become a cornerstone of the Trump administration’s health-care agenda and forces hospitals to disclose the prices they privately negotiate with insurance companies.

Judge David Tatel, on the U.S. Court of Appeals for the District of Columbia Circuit, questioned during virtual oral arguments why the plain language of the Affordable Care Act doesn’t allow for the rule.

“Isn’t it perfectly reasonable for the government to interpret this statute so it promotes the maximum amount of disclosure?” Tatel asked.

The Centers for Medicare & Medicaid Services rule, which President Donald Trump called for in a June 2019 executive order, 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 U.S. District Court for the District of Columbia sided with the Trump administration in June in a challenge brought by industry groups and hospital systems led by the American Hospital Association.

The industry groups and hospital systems argue the CMS unlawfully expanded the definition of “standard charges” that a hospital must disclose under a provision in the ACA to include negotiated rates.

But Judge Merrick Garland wanted to know why the prior rule requiring hospitals to list their gross charges, or maximum allowed costs for services, wasn’t also unlawful if those rates are inflated as the lower court’s decision noted.

If they in fact contain false information, why do you think those are the appropriate kind of charges under the statute, he asked.

However, Garland also asked the government to respond to the industry’s argument that the rule is overly burdensome and will cost more than expected.

Once hospitals compile the lists and put them online, the burden will diminish in subsequent years, said Courtney Dixon, the Department of Justice attorney who argued on behalf of the CMS.

“The hospitals’ comments about burdens did not fall on deaf ears,” she said, noting the agency increased its compliance estimates and delayed the effective date in the final rule.

But the industry and hospital groups say negotiated rates won’t help patients understand their out-of-pocket costs.

“Determining which negotiated rate applied to a particular patient for a particular item or service is exceedingly complex,” they argued in their brief.

Burdensome and Expensive

Hospitals will never know what people will actually pay, said Lisa Blatt, chair of Williams & Connolly’s Supreme Court and appellate practice, who argued on behalf of the industry groups and hospital systems.

“They don’t even know what insurance companies will actually pay, which the government concedes, because the actual payment at the end of the day is going to turn on variables about patient care,” she said.

Judge Harry Edwards wasn’t buying the industry’s argument that the gross charges hospitals are required to list now on a master list are more transparent than the rates they negotiate with insurers.

“If I’m hearing you correctly, your principle objection doesn’t have anything to do with worrying about transparency,” he said. “It’s just that the government’s approach is more burdensome on you and more expensive.”

Blatt pushed back, telling Edwards hospitals don’t like lying to their patients.

“But you’re lying to your patients in suggesting the charge master rate is a rate,” Edwards said. “It’s not, and there’s nothing that alerts the consumer when they see that charge master rate beware because any and everything below this is possible.”

The ACA requires disclosure of knowable numbers and many negotiated rates don’t have knowable numbers, Blatt told the three-judge panel, noting negotiated rates involve complex algorithms.

“This is an unprecedented disclosure regime,” she said. “It’s implausible that Congress intended this provision of the Affordable Care Act to usher in a sea change of industry practice without anyone noticing until 2019.”

Proponents of the rule argue health care is the only industry in American commerce where consumers are left in the dark about the cost of a service until after it’s provided.

If the rule is allowed to take effect, “it will create a functional marketplace in healthcare, unleashing competition and reducing the costs of healthcare and health coverage, while spurring innovation,” Cynthia Fisher, founder and chairman of PatientRightsAdvocate.org, nonprofit fighting for transparency in health-care pricing, said in a statement ahead of arguments.

The case is American Hospital Assoc. v. Azar, D.C. Cir., No. 20-05193, oral argument 10/15/20.

(Updated with additional reporting starting in 12th 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@bloombergindustry.com; Brent Bierman at bbierman@bloomberglaw.com