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Poison Pill Quiets Hospitals on Defying Price Transparency Rule

Sept. 16, 2020, 9:53 AM

Hospitals that threatened to defy the federal government’s requirement to disclose their negotiated prices with insurers by Jan. 1 are reconsidering after a harsh new penalty—possible loss of Medicare payments—was buried in a subsequent regulation.

Some had considered not complying, protesting that disclosing prices is costly and would put some of their business practices in jeopardy. The fine set out by the initial price transparency regulation was $300 a day, whereas major hospitals project their initial costs of complying at $500,000 a year, or more than $1,300 a day, according to the American Hospital Association.

However, a recent yearly payment rule said that hospitals that don’t provide their median negotiated rates with Medicare Advantage private insurance plans could be denied any Medicare payment. That would make a rebellion difficult: A 2019 analysis found about 18% of hospital revenue came from Medicare, according to Definitive Healthcare.

“There was certainly a sense among hospitals that one way to address the enormous amount of time and resources” needed to comply with the price transparency rule was to pay the fines, said Mark Polston, a partner at King and Spalding’s health-care practice. However, “that’s now changed” with their Medicare reimbursement at risk, he said.

Price transparency has been a signature issue for President Donald Trump and Centers for Medicare & Medicaid Services Administrator Seema Verma. They say the lack of information about hospital prices is partly to blame for the U.S. having some of the world’s highest health-care costs.

Michael Park, a partner at Alston & Bird’s health care legislative and public policy group, said he’s telling clients they’re going to be required to submit the data and any relief is unlikely before the Jan. 1 deadline.

“Nobody’s very thrilled about having to comply with this, just because of the burden,” Park said. Sheree Kanner, a partner at Hogan Lovells and lead of the firm’s health practice, said some of her hospital clients have also been considering paying the penalty.

Appeals Court Pivotal

The price transparency rule will require 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 upheld the rule June 23. The hospital groups challenging the rule have appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit. The court is scheduled to hear arguments on Oct. 15.

Some hospitals—including critical access hospitals, children’s hospitals, freestanding cancer hospitals, and others—aren’t paid through the rule that instituted the loss of Medicare payment penalty, so they could still choose to pay the fine rather than comply with price transparency.

To provide the CMS with those median negotiated rates for the subsequent rule, the hospitals have to first put together the information required by the price transparency rule.

The CMS estimated complying with the transparency regulation will cost each hospital about $11,900 initially and then $3,000 per year after, in contrast to the American Hospital Association’s $500,000 initial estimate.

Kanner said this new requirement is likely easier to comply with than price transparency because commercial insurance payments tend to be “all over the map,” whereas Medicare Advantage payments are more consistent, making it more straightforward to calculate the median rate.

Future Medicare Rates

Polston, who is a former CMS attorney, said his hospital clients have since asked for help complying with the price transparency rule and are “taking it very seriously” because the potential penalties are now higher.

It’s unlikely that any hospitals would want to litigate the cost reporting provision, but they may if the price transparency rule is overturned, Kanner said.

Kanner, a former CMS general counsel, said she doesn’t think the two provisions the agency cites for its ability to require hospitals submit these rates in the new rule gives it that authority, and that could open the possibility of litigation against the rule.

The agency will use this data to calculate inpatient hospital payments starting in 2024, and it will help the CMS use market-based pricing in the traditional Medicare program, a CMS spokesperson said.

Hospitals Could Still Refuse

Critical access hospitals, of which there are about 1,300 largely in rural areas, could still decide that it’s easier to pay the fine than comply with the price transparency requirements. All hospitals have said the rule is onerous, but it is especially so for rural hospitals, said Brock Slabach, senior vice president for member services at the National Rural Health Association.

The CMS has assumed this data is somewhere on a computer for all hospitals, Slabach said “and that’s just not the case for rural hospitals.”

Rural hospitals receive the majority of their payment from Medicare and Medicaid, and so they historically haven’t focused on accounting their receipts from private insurers, Slabach said. To provide the information required in the transparency regulations, rural hospitals would have to recreate the receipts from commercial and individual payers and assess how much they received, Slabach said.

The CMS spokesperson disputed that, saying the negotiated rates can be found in multiple parts of hospital billing and accounting systems other than the list of billable items—known as a chargemaster. This means identifying negotiated charges for different insurance payers wouldn’t require hospitals to recreate their receipts, the spokesperson said.

Urban hospitals receive a much higher proportion of their income from commercial insurance plans, so many have third-party companies who assemble this data, and have been doing so for years, Slabach said.

No rural hospitals have outright said they plan to not comply, Slabach said, but he expects that’s what will end up happening.

To contact the reporter on this story: Shira Stein in Washington at sstein@bloomberglaw.com

To contact the editors responsible for this story: Bernie Kohn at bkohn@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com

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