Appeals court rejects hospitals’ objections to new price transparency policy

Hospital advocates lost their effort to get a federal court to stop a Trump administration requirement that by Jan. 1 they start posting their negotiated rates with health plans.

A three-judge panel of the U.S Court of Appeals of the District of Columbia Circuit on Dec. 29 rejected hospital advocates’ appeal in the case of the American Hospital Association, et al. v Azar, in which a lower court upheld the price transparency requirements.

Those rules require that on Jan. 1, all hospitals post online the rates they negotiate with all accepted health plans for each hospital item and service, as well as individual health plan rates for 300 “shoppable” services.

Melinda Hatton, general counsel for the American Hospital Association (AHA), said in a written statement that “we are disappointed in today’s decision to uphold the District Court rejection of hospitals’ challenge to the rule. Further, the decision to decline a stay in enforcement ignores the overwhelming burden of the pandemic on hospitals.”

The AHA’s case was backed by friend-of-the-court briefs from 40 state hospital associations, HFMA and the U.S. Chamber of Commerce.

The legal challenge to the rules alleged that the interpretation of “standard charges” violated the Administrative Procedure Act and the First Amendment-related bans on compelled speech.

Arguments rejected by the court

The court rejected AHA’s argument that the Affordable Care Act (ACA) authorized only the release of chargemaster rates.

“Chargemaster rates, in other words, are neither universal nor default, except for purposes of complying with the letter of the Medicare rule,” Judge David S. Tatel wrote for the panel. “Given this context, the statute allows the [HHS] secretary to define standard charges more broadly as regular rates set in advance for identifiable groups of patients.”

The court rejected AHA’s argument that publicizing the two required lists was not allowed by statute. Instead, it agreed with the federal government’s argument that the list of 300 shoppable services is a subset of the first list.

Also rejected were arguments that hospitals would not know how to comply in instances when rates were based on numerous variables, such as bundled rates.

“In response to comments raising just this concern, the rule explains that hospitals must disclose only base rates that have been negotiated,” Tatel wrote. “In other words, nothing in the rule requires hospitals to ‘reverse-engineer’ what negotiated rate they may have hypothetically reached in lieu of a bundled rate.”

The court also rejected HFMA’s estimates that the 150-hour commitment required to implement compliance processes in the first year will continue on into future years, citing “the wide range of estimates offered by [other] commenters.”

“HFMA has always been supportive of transparency; we believe there’s a better approach for consumers and patients than solely the HHS rule,” said Rick Gundling, senior vice president for healthcare financial practices with HFMA. “We will continue to work with healthcare leaders to embrace transparency and evolve the methods to provide meaningful information to purchasers.”

The court rejected AHA’s concerns that the rule overly relies on third-party vendors to use the publicized rates to create tools that would benefit consumers.

“Indeed, such services are ubiquitous in other industries where prices are publicly available, such as travel booking websites and used car price aggregators,” Tatel wrote.

Also falling flat was AHA’s warning that the disclosures will lead to higher prices, since  the new requirement relies on state-led initiatives that either failed to disclose precisely the same information or collected the information from different sources.

“Given the newness of this disclosure scheme, the secretary reasonably relied on studies of similar price transparency schemes to inform his policy judgment,” Tatel wrote.

The court rejected the AHA’s first-amendment argument because the rules require only release of “factual and uncontroversial” data.

Looking to Biden to halt the rule

The AHA is still considering whether to ask the full circuit court to reconsider the ruling, according to a spokesman.

However, the AHA already has appealed to the incoming Biden administration to halt the rule over concerns that the price transparency requirement will not help patients and instead will confuse them, will accelerate anticompetitive behavior among commercial health plans and will impose significant costs on providers at a time when scarce resources are needed to fight COVID-19.

Hatton said, “The AHA has urged the incoming administration to evaluate whether the rule should be revised and to exercise enforcement discretion for the duration of the public health emergency.”

James Pinna, a partner with Hunton Andrews Kurth, said it’s hard to know whether the incoming administration will take a different view of the overall requirements or of certain components. But he noted that CMS already has built on the rules with additional transparency requirements in the FY21 Inpatient Prospective Payment System rule. That rule requires hospitals to include in their annual Medicare cost reports their median rates, per DRG, as paid by Medicare Advantage plans.

“To me, that goes to reinforce the understanding that CMS is serious about pursuing this price transparency initiative,” Pinna said.