CMS Finalizes Hospital Price Transparency Requirements, Disclosure of Negotiated Rates

Overview


On November 15, the Trump Administration released a final rule requiring hospitals to publicly disclose hospital charges, including negotiated prices with third-party payers by January 1, 2021. We outline key considerations for hospitals and other stakeholders in connection with the rule and its requirements, as well as a chart detailing the specific requirements.

In Depth


The Trump Administration on November 15, 2019, released a final rule (the Final Rule) requiring hospitals to publicly disclose hospital charges, including negotiated prices with third-party payers by January 1, 2021. More specifically, the Centers for Medicare and Medicaid Services (CMS) is adding a set of new regulations that establish requirements for hospitals to publicly disclose their charges, penalties for non-compliance and details on the specific methods and elements for disclosure.

CMS originally proposed these requirements in the Calendar Year 2020 Medicare Hospital Outpatient Prospective Payment System Proposed Rule (the Proposed Rule), which we discussed in a prior On the Subject titled “Proposed OPPS Changes for 2020: A review of Four Key Proposals.” Despite significant opposition to the Proposed Rule from the hospital stakeholder community, the Final Rule is materially similar to the Proposed Rule, with only minimal changes. Other than the one-year delay in implementation, the primary difference between the Proposed Rule and Final Rule is the option for hospitals to comply with the disclosure requirements through development of an internet-based “price estimator tool” to allow consumers real-time access to price estimates of identified hospital services.

One other notable development is that the Administration simultaneously posted a proposed rule that would apply similar requirements on employer-based group health plans and health insurance issuers whereby such entities would be required to disclose price and cost-sharing information to participants, beneficiaries and enrollees up-front. This additional proposed rule is intended to be responsive to a key hospital argument that payers are better positioned to provide actionable price comparison information to consumers, because actual patient liability is driven more by plan- and patient-specific liabilities than hospital negotiated charges.

It estimated that there are approximately 6,002 hospitals operating within the United States that would become subject to the new disclosure requirements.

This article outlines key considerations for hospitals and other stakeholders in connection with the Final Rule and its requirements, as well as a chart detailing the specific requirements as set forth in the Proposed Rule and as finalized in the Final Rule.

I. CRITICAL CONSIDERATIONS

1. Operational Compliance

Compliance with the Final Rule will require many hospitals and hospital systems to devote extensive resources to determine particular hospitals’ “standard charges,” which include not only the hospital’s chargemaster, but also payer-specific charges, discounted cash prices (to the extent such prices exist), minimum negotiated charges and the maximum negotiated charges, not only for individual items and services, but also for service packages in cases where standard charges exist. Moreover, hospitals will be required to identify the relevant universe of 300 “shoppable” services at each hospital based on billing data, as well as the ancillary services that the hospital “customarily” provides with the shoppable services.

These tasks can be expected to consume significant resources from hospitals as they:

  • review third-party payer contracts to identify negotiated rates,
  • determine whether the hospital offers any “discounted cash prices,”
  • review utilization data and the nature of particular services to determine a universe of 300 “shoppable” services,
  • assess the ancillary services that are “customarily” provided with these “shoppable” services, and then
  • prepare and publish this data in a compliant format.

Operational compliance with the Final Rule can be expected to involve a number of nuanced analyses and determinations across an array of individuals across hospital departments.

The Final Rule’s “internet-based price estimator tool” option for hospitals may relieve some of the Final Rule’s burden for hospitals that have already established qualifying tools, or to the extent developing such a tool would be less burdensome than otherwise meeting the requirements of making public the hospital’s standard charges for selected shoppable services in a consumer-friendly manner. However, even hospitals that offer a qualifying internet-based price estimator tool will be required to make public all standard charges for all hospital items and services online.

Finally, hospitals expecting to incur significant costs to come into, and maintain, compliance with the Final Rule’s requirements may consider those costs in the context of the size of the Civil Monetary Penalties for noncompliance, which is capped at $300 per day and would total $109,500 in penalties over the course of the year. In the Final Rule, CMS acknowledged comments expressing concern that some hospitals may prefer to forgo meeting the Final Rule’s disclosure requirements, and instead face compliance actions including a $300 maximum daily penalty. Hospitals considering such an option would want to consider the possibility of CMS increasing the penalty in future rulemaking (a possibility CMS expressly contemplated in the Final Rule), potential reputational implications of noncompliance, and market dynamics if certain hospitals are silent as to published rates while other hospitals have published rates. Intentional noncompliance with federal law may also have implications in a variety of other contexts, such as accreditation and certifications of compliance in various settings and transactional representations and warranties regarding compliance with federal law, among others

2. Market Dynamics

Although the potential market dynamics of the Final Rule and public accessibility to pricing information are not expected to materialize until after hospitals have come into compliance with the Final Rule and patients begin reviewing the data to a meaningful extent, hospitals may benefit by beginning to anticipate these market dynamics well before standard charges are published. Anticipating the effects of the pricing information on the market for hospital services, however, is likely a task for consultants and economists, rather than individual hospitals or systems.

As CMS acknowledged in the Proposed and Final Rules, any market effects are largely unknown at this time and will likely vary based on a variety of local and regional factors, such as the proximity of hospitals providing similar services, patients’ beliefs regarding the quality of care provided at various hospitals within a reasonable proximity, and the disparity of disclosed standard charges at various hospitals and in particular specialties. Whereas rural hospitals that are relatively distant from other hospitals with similar reputations and charges may experience little market impact from the Final Rule’s disclosure requirements, urban hospitals in close proximity to substitute competitors with different reputations and charges may experience greater market impact. Hospitals anticipating a potential adverse effect may consider strategies to shift the potential trajectory

3. Intra-Health System Dynamics

Because the Final Rule will require separately licensed hospitals within a single health system to comply with the reporting requirements, differing standard charges at particular hospitals may result in intra-health system dynamics, such that patients may prefer to receive services at one system hospital as opposed to another based on the difference in standard charges between the hospitals. Similarly, because the Final Rule will require hospitals to include ancillary services among the “shoppable” services with disclosed standard charges, differences in the ancillary services customarily provided with shoppable services furnished at one hospital as opposed to another hospital in a health system may similar result in patient preferences to be seen at one system hospital or another. Similarly, because standard charges will distinguish between inpatient and outpatient procedures, patients may be more inclined to have procedures furnished in lower-charge settings (e.g., outpatient settings) as opposed to typically higher-charge settings (e.g., inpatient settings)

Larger health systems preparing for disclosure of standard charges should consider how differing standard charges and customarily furnished ancillary services at various hospitals may impact patient perceptions and preferences, and consider pricing or operational strategies that may shape the potential impact of the Final Rule on the health system’s internal dynamics.

4. Third-Party Payer Relationship

Widespread hospital disclosure of standard negotiated charges with third-party payers can be expected to dramatically shape many hospitals’ negotiations and relationships with third-party payers. Rate comparisons among hospitals are likely to become a key negotiating feature between hospitals and third-party payers, where many hospitals with lower rates than proximate, similarly situated hospitals may feel that their rates are sub-market and negotiate with third-party payers for rate increases. At the same time, hospitals with higher rates than proximate, similarly situated hospitals may be foresee certain patients selecting competitor hospitals due to their comparatively lower negotiated rates and be inclined to reduce their own negotiated rates.

The Final Rule’s effect on third-party payer relationships is likely to be defined by the facts and circumstances of particular localities and regions, including the number of proximate hospitals and their respective reputations, services, patient populations and other factors.

5. Patient Demographics and Procedure Utilization

To the extent the Final Rule’s transparency requirements may influence patient choice among hospitals, differentials in standard charges for categories of procedures from one hospital to another may result in shifting patient demographics and procedure utilization. For example, hospitals with lower charges for certain types of services may attract patients with diagnoses that typically receive those types of services. Utilization of procedures with relatively high standard charges across all reasonably proximate hospitals may decrease as patients may forgo certain relatively high-charge procedures, particularly in cases where another, lower-charge procedure may be available.

6. Litigation

Finally, hospitals should consider the potential impact that anticipated litigation may have on the Final Rule and its various requirements. The rule claims that CMS has authority based on a provision in the Public Health Services Act requiring each “hospital” operating within the United States to each year establish, update and make public a list of the hospital’s “standard charges” for “items and services” provided by the hospital. Following publication of the Proposed Rule, a number of hospitals publicly indicated an intent to sue CMS to block implementation of the requirements if finalized as proposed. The opposition to the requirements and possible legal theories that might be used in litigation were reflected in the comments to the Proposed Rule. Commenters explained that negotiated rates are proprietary, and requiring their disclosure would infringe upon intellectual property rights recognized by Congress through the Defend Trade Secrets Act of 2016. Other commenters indicated that disclosure of payer-specific negotiated charges was limited under the Freedom of Information Act (FOIA), which protects trade secrets and confidential commercial or financial information against broad public disclosure. Other comments asserted that the requirement to disclose payer-specific negotiated charges would violate the First Amendment by compelling speech. Other commenters still noted that some third-party payer contracts prohibit disclosure of the negotiated rates.

In the Final Rule, CMS clearly contemplates litigation (e.g., in CMS’s discussion of de-identified minimum negotiated charges, it noted that it intends all five definitions of “standard charges” to be “severable,” such that if a court were to invalidate the inclusion of an individual definition, the remaining definitions would remain defined as types of standard charges) and acknowledges each of these legal challenges, but recognizes it continues to believe it has the authority to promulgate the requirements. On the day the Final Rule was released, the American Hospital Association, Association of American Medical Colleges, Children’s Hospital Association and Federal of American Hospitals issued a statement indicating they would soon join with member hospitals to file a legal challenge to the rule on grounds including that it exceeds the Administration’s authority. The January 1, 2021, effective date may delay litigation until that time, as courts often dismiss litigation as not ripe in advance of implementation.

II. OVERVIEW OF THE FINAL RULE

Overview of the Final Rule

 

Proposed Rule

Final Rule

Applicability: Hospitals and Locations

Defined “hospital” subject to the disclosure requirement as an institution licensed as a hospital pursuant to a state’s hospital licensing law, or which is approved by the state as meeting the standards established for such licensing.

This definition would apply to hospitals regardless of their Medicare enrollment status or designation, and it would include critical access hospitals (CAHs), inpatient psychiatric facilities, sole community hospitals and inpatient rehabilitation facilities, but not ambulatory surgical centers.

In cases where a hospital had different locations operating under a consolidated or single state license and different hospital locations offered different services with different associated standard charges, the Proposed Rule’s requirements would separately apply to each hospital location such that each hospital location would be required to make public a separate identifiable list of its standard charges.

Finalized without modification.

 

Items and Services

“Items and services” defined as all items and services, including individual items and services and “service packages,” that could be provided by a hospital to a patient in connection with an inpatient admission or outpatient department visit for which the hospital had established a standard charge.

Items and services would also include services furnished by physicians and non-physician practitioners who were employed by the hospital, but not practitioners who were not employed by the hospital but provided services at a hospital location.

“Service packages” would mean an aggregation of individual items and services into a single service with a single charge.

“Items and services” and “Service packages” finalized without modification, but the Final Rule also finalized a technical change to include examples of “items and services” in the regulation, including:

  • supplies and procedures;
  • room and board;
  • use of the facility and other items;
  • services of employed physicians and non-physician practitioners; and
  • any other items or services for which a hospital has established a “standard charge.”

Standard Charges

“Standard charges” defined as including two sets of charges:

(1) “gross charges”
(2) “payer-specific negotiated rates.”

The Final Rule adopted the proposed definition of “standard charges” as including gross charges and “payer-specific negotiated rates,” but it also added three additional types of “standard charges” that must be disclosed:
(1) discounted cash prices
(2) de-identified minimum negotiated charges
(3) de-identified maximum negotiated charges.

Gross Charges

“Gross charges” were defined as the charge for an individual item or service that is reflected on a hospital’s chargemaster, absent any discounts.

Finalized without modification.

Payer-Specific Negotiated Charges

“Payer-specific negotiated charges” were defined as the charge that the hospital negotiated with a third-party payer for an item or service.

“Third-party payer” would include an entity that is, by statute, contract or agreement, legally responsible for payment of a claim for a healthcare item or service (including Medicare Advantage plans).

Finalized without modification.

Discounted Cash Price

The Proposed Rule considered defining a type of “standard charge” as the “discounted cash price,” defined as the price the hospital would charge individuals who pay cash (or cash equivalent) for an individual item or service or service package.

The Final Rule finalized the definition of “discounted cash price” to mean the charge that applies to an individual who pays cash (or cash equivalent) for a hospital item or service.

The Final Rule clarified that the “discounted cash price” would reflect the discounted rate published by the hospital, unrelated to any charity care or bill forgiveness that a hospital may choose or be required to apply to a particular individual’s bill.

De-Identified Minimum and Maximum Negotiated Charges

CMS considered in the Proposed Rule defining as types of “standard charge” the minimum and maximum negotiated charges of the distribution of all negotiated charges across all third-party payer plans and products.

The Final Rule finalized “de-identified minimum negotiated charge” to mean the lowest charge that a hospital has negotiated with all third-party payers for an item or service, and “de-identified maximum negotiated charge” to mean the highest charge that a hospital has negotiated with all third-party payers for an item or service.

Requirements for Disclosure

 

 

Standardized Elements

Hospitals would be required to disclose the following elements:

  • Description of each item or service
  • Gross charge for each individual item or service when provided in, as applicable, inpatient and outpatient settings
  • Payer-specific negotiated charge when provided in, as applicable, inpatient and outpatient settings
  • Code used by the hospital for accounting or billing for the item or service (e.g., CPT code, HCPCS code, DRG, NDC);
  • Revenue code, as applicable

The list of items finalized in the Final Rule include the proposed standardized elements and added two additional elements:

  • De-identified minimum and maximum negotiated charges that apply to each item or service when provided in, as applicable, inpatient and outpatient settings
  • Discounted cash price that applies to each item or service when provided in, as applicable, inpatient and outpatient settings

Location and Accessibility

Hospitals would have discretion to choose the internet location to post its file containing the list of standard charges so long as the file was displayed on a publicly available web page, was “displayed prominently” and clearly identified the hospital location with which the standard charges information was associated, and the standard charge data was “easily accessible,” “without barriers” and could be digitally searched.

“Displayed prominently” would mean that the value and purpose of the web page and its content was clearly communicated, that there was no reliance on breadcrumbs to help with navigation, and that the link to the standard charge file was visually distinguished on the web page.

“Easily accessible” would mean that standard charge data are presented in a single machine-readable file that is searchable and that the standard charges file was posted on a website that could be accessed with the fewest number of clicks.

“Without barriers” would mean the data could be accessed free of charge, and that users would not have to input information or register to access or use the standard data file.

Finalized without modification.

“Shoppable” Services

 

 

Proposed Definitions

“Shoppable services” was defined as a “service package” that could be scheduled by a healthcare consumer in advance. These are typically routinely provided in non-urgent situations that do not require immediate action or attention to the patient, thus allowing patients to price shop and schedule a service at a time that is convenient for them.

Hospitals would need to make public the payer-specific negotiated charge for a shoppable service that is grouped together with charges for associated ancillary services.

An “ancillary service” would be defined as an item or service a hospital customarily provides as part of or in conjunction with a shoppable primary service, including laboratory, radiology, drugs, delivery room, operating room, therapy services, hospital fees, room and board charges, and charges for employed professional services.

“Ancillary services” may also include other special items or services for which charges are customarily made in addition to a routine service charge. To the extent a hospital customarily provides (and bills for) such services as part of or in conjunction with the primary service, the hospital would need to group the service charge along with the other payer-specific negotiated charges that were displayed for the shoppable service.

The Final Rule finalized the definition of “shoppable services” and related definitions as proposed, with the exception that it modified its definition of “shoppable services” to remove reference to a “service package,” because not every shoppable service will be a “service package.”

CMS emphasized that it was still finalizing its requirement that hospitals display ancillary services along with each primary shoppable service, as applicable.

Selected Shoppable Services

Hospitals required to make public a list of their payer-specific negotiated charges for as many of the 70 shoppable services CMS identified in the Proposed Rule that are provided by the hospital, and hospitals would be allowed to select as many additional shoppable services as necessary for the combined total of at least 300 shoppable services.

CMS proposed that hospitals select such services based on the utilization or billing rate of the services in the past year.

The Final Rule generally finalized the rule as proposed, but created an exception for some small or specialty hospitals that do not offer 300 services that could be scheduled by consumers in advance, who must display as many of the services it provides that could be scheduled by patients in advance.

 

Data Elements

Hospital would be required to make available online to the public online the following elements:

  • Plain language description of each shoppable service
  • Payer-specific negotiated charge applicable to the shoppable service
  • A list of all of the associated ancillary items and services the hospital provides with the shoppable service, including the payer-specific negotiated rate for each ancillary item or service
  • The location at which each shoppable service is provided in the hospital
  • Any primary code used by the hospital for accounting or billing for the shoppable service (e.g., CPT, HCPCS, DRG)

The Final Rule makes a variety of modifications to the list of data elements necessary to be disclosed, to include:

  • Plain language description of each shoppable service
  • Payer-specific negotiated charge, discounted cash price, de-identified minimum and maximum negotiated charge applicable to the shoppable service (and corresponding ancillary services, as applicable)
  • The location at which each shoppable service is provided in the hospital, including whether the shoppable service applies to the inpatient setting, outpatient setting or both (and if the standard charge for the shoppable service varies based on location or whether the hospital provides the shoppable service in the inpatient versus the outpatient setting, the hospital would be required to identify each set of standard charges
  • Any primary code used by the hospital for accounting or billing for the shoppable service (e.g., CPT, HCPCS, DRG)

Display, Location and Accessibility

Hospitals would retain flexibility on how best to display the payer-specific negotiated charge data and proposed associated data elements to the public online, so long as the website is easily accessible to the public.

The data must be “displayed prominently,” clearly identify the hospital location with which the standard charge information is associated, the standard charge data must be “easily accessible” and “without barriers,” and the data must be easily searched. Definitions of these terms are provided above.

Finalized without material modifications.

Internet-Based Price Estimator Tool

Silent

The Final Rule created a new option for hospitals to meet the otherwise applicable requirements for displaying shoppable services in a consumer-friendly manner if the tool:

  • Provides estimates for as many of the 70 CMS-specified shoppable services that are provided by the hospital, and as many additional hospital-selected shoppable services as is necessary for a combined total of at least 300 shoppable services
  • Allows healthcare consumers to, at time they use the tool, obtain an estimate of the amount they will be obligated to pay the hospital for the shoppable service
  • Is prominently displayed on the hospital’s website and accessible to the public without charge and without having to register or establish a user account or password

Monitoring, Enforcement and Appeals

CMS would monitor compliance predominantly based on complaints made by individuals and entities.

The Proposed Rule suggested a daily Civil Monetary Penalty of $300 per day for hospital noncompliance with the disclosure requirements.

Finalized as proposed, with the addition that CMS may itself audit hospitals’ websites to determine compliance.