Health Reform WK-EDGE Price transparency rule raises retroactivity concerns
Monday, October 28, 2019

Price transparency rule raises retroactivity concerns

By Joel McElvain

This article originally published in the October 2019 issue of Reimbursement Advisor, a monthly newsletter from Wolters Kluwer Legal & Regulatory, U.S.

Proposed rule should not apply to existing contracts

The Department of Health and Human Services (HHS) has explored a variety of measures to encourage, or to require, hospitals to publicly disclose pricing data for the items and services they provide to their patients.

In furtherance of this policy, HHS has focused on a provision of the Patient Protection and Affordable Care Act (ACA) that requires hospitals to make public a list of their "standard charges." HHS, through CMS, initially issued guidance applying that statute to encourage hospitals to post their chargemasters online.

In its proposed rule for 2020 for the Medicare outpatient prospective payment system (OPPS), however, CMS announced its intention to use that provision to impose a dramatically expanded disclosure obligation on hospitals. The proposed rule would rely on the standard charges statute to impose a significantly more onerous requirement on hospitals to publish multiple lists, not only of their standard charges, but also of the specific rates that they negotiate for items and services with particular payers.

Moreover, the agency did not specify an effective date for its proposed rule. The agency’s silence may mean that it intends to go forward with the new disclosure rule as of Jan. 1, 2020, along with other provisions of its OPPS rule. The disclosure rule, particularly if it goes into effect on such an accelerated timetable, may place hospitals in a legal quandary to the extent that they have existing contracts with payers that impose a nondisclosure obligation with respect to the pricing of items or services.

The disclosure rule may place hospitals in a legal quandary to the extent that they have existing contracts with payers that impose a nondisclosure obligation with respect to the pricing of items or services.

Comments to the agency allowed interested parties to submit comments to the agency to urge it to reconsider the proposed rule or, at a minimum, to defer the rule’s effective date so as not to interfere with hospitals’ existing contractual obligations.


In 2010, as part of the ACA, Congress enacted Section 2718(e) of the Public Health Service Act, which specifies that:

Each hospital operating within the United States shall for each year establish (and update) and make public … a list of the hospital’s standard charges for items and services provided by the hospital, including for diagnosis-related groups established under section 1886(d)(4) of the Social Security Act (42 U.S.C. §§ 1395ww(d)(4) and 300gg-18(e)).

The statute charged HHS with the task of developing guidelines to govern the manner in which a hospital makes its standard charges public. CMS first applied the statute in its fiscal year (FY) 2015 inpatient prospective payment system (IPPS) final rule (79 Federal Register 49854, August 22, 2014). At that time, the agency deferred to hospitals’ judgments, declaring that hospitals could comply with the statute by making public either "a list of the standard charges (whether that be the chargemaster itself or in another form of their choice)," or "their policies for allowing the public to view a list of those charges in response to an inquiry."

As CMS explained the issue at the time, although the Medicare Payment Advisory Commission (MedPac) "[had] suggested that hospitals be required to post the list on the Internet, and while we agree that this would be one approach that would satisfy the guidelines," the agency chose instead to allow hospitals to judge how to make their standard charges available to the public: "[W]e believe hospitals are in the best position to determine the exact manner and method by which to make the list public in accordance with the guidelines."

The agency stated its concern "that challenges continue to exist for patients due to insufficient price transparency," noting that "chargemaster data are not helpful to patients for determining what they are likely to pay."

CMS revisited the issue in its FY 2019 IPPS rulemaking (83 Federal Register 20164, May 7, 2018). The agency stated its concern "that challenges continue to exist for patients due to insufficient price transparency," noting that "chargemaster data are not helpful to patients for determining what they are likely to pay for a particular service or hospital stay."

CMS noted that it is "considering ways to improve the accessibility and usability of the charge information" that hospitals are required to disclose. As a step in that effort, the agency revised its guidelines to specify that it would require hospitals to make a list of their standard charges available via the internet in a machine-readable format.

The agency specified that a hospital could publish this data "in the form of the chargemaster itself or another form of the hospital’s choice." At the same time, the agency noted what it described as an ambiguity in the statutory phrase "standard charges," and sought public comment on several possible definitions for that phrase, including "average or median rates for items on the chargemaster," "average or median rates for groups of services commonly billed together (such as for an MS-DRG)," and "the average discount off the chargemaster amount across all payers." The agency further asked for comments on whether it should require hospitals to patients their expected out-of-pocket charges.

CMS reiterated its approach to the statute in its final FY 2019 IPPS rule, declaring that it would require, as of January 1, 2019, "that hospitals’ list of standard charges be made available to the public via the internet in a machine readable format and that hospitals update this information at least annually, or more often as appropriate" (83 Federal Register 41114, August 17, 2018). The agency did not attempt to provide a more detailed definition of the phrase "standard charges," other than to reiterate that hospitals could choose to publish data "either in the form of the chargemaster itself or another form of the hospital’s choice, as long as the information is in machine readable format." The agency declared that it would not require "at this time" that hospitals publish payer-specific data, hinting that it may choose to impose that requirement in the future.

The Proposed Rule

CMS’ new proposed rule declares the agency’s intention to reinterpret Section 300gg-18(e). In particular, the agency intends to define the phrase standard charges to mean not only the hospital’s chargemaster but also "payer-specific negotiated charges," meaning the particular rates that a hospital has negotiated with third-party payers (84 Federal Register 39398, August 9, 2019).

The new rule would not apply only to Medicare-enrolled hospitals, but instead to any state-licensed hospital in the United States.

CMS proposes to issue its rule under a provision of the Public Health Service Act, rather than the Medicare statute; as a consequence, the new rule would not apply only to Medicare-enrolled hospitals, but instead to any state-licensed hospital in the United States. (The agency would, however, except federally owned or operated hospitals from the proposed rule’s requirements.

A hospital that is subject to the rule would be required to publish information with regard to all of its "items and services," meaning all individual items and services, or service packages, that could be provided by a hospital to a patient in connection with an inpatient admission or an outpatient department visit for which the hospital has established a standard charge. For this purpose, "service packages" could refer to Medicare diagnosis-related group classifications or any other grouping that the hospital uses for billing purposes.

The disclosure requirement would also extend to items and services furnished by physicians and nonphysician practitioners who are employed by the hospital, but would not include items or services provided by physicians or practitioners who are not employed by the hospital (such as anesthesiologists who perform services at a hospital but who practice independently).

The proposed rule would require hospitals to disclose their standard charges for these "items and services." This phrase would be defined to mean both "gross charges"—the charges listed by the hospital on its chargemaster—and "payer-specific negotiated charges," meaning the charge that the hospital has negotiated with a third-party payer for an item or service.

The proposed rule would require hospitals to disclose their standard charges in two ways. First, for all of the hospital’s items or services, as that phrase is defined above, the hospital would be required to make public a comprehensive machine-readable file with all the standard charges for those items and services. The proposed rule would require hospitals make public a standardized format for this file, listing a description of the item or service, the gross charge for the item, any payer-specific negotiated charges for the item, billing codes and revenue codes.

Second, the hospital also would be required to publish a consumer-friendly display of its charges for certain common "shoppable" services, meaning services that can be scheduled by a health care consumer in advance. The consumer-friendly display would group primary services together with ancillary items and services that are customarily furnished in conjunction with the primary service.

The display would need to include a plain-language description of services. The display would need to include as many of the 70 specific services that CMS lists in the proposed rule that are provided by the hospital, as well as any additional, so-called shoppable services that the hospital provides, so that the hospital lists a total of at least 300 such services.

CMS would enforce the new rule initially by relying on consumer complaints but may also initiate audits of hospitals’ compliance with the rule. If a hospital is found to be out of compliance, CMS generally would first provide a written warning notice to the hospital of the violation, then require the hospital to submit a corrective action plan for the agency’s approval, and finally impose a civil monetary penalty; CMS would retain discretion to depart from this sequence, however.

The civil monetary penalty for a violation would be a maximum of $300 per day and would not be aggregated (i.e., even if a hospital is found to have committed multiple violations, the penalty would not exceed $300 per day). Any penalties that are imposed would be publicized on CMS’ website. A hospital that receives a penalty would have the right to an administrative appeal.

Uncertainty as to Effective Date and Effect on Existing Contracts

One notable absence from the proposed rule is any statement as to the intended effective date for the new disclosure requirements. The proposal was included in the agency’s proposed rule for the OPPS for calendar year 2020, however, and OPPS rules typically take effect on January 1 of a new calendar year.

As noted, the agency proposes to rely on authority under the Public Health Service Act, not the Medicare Act, to impose its price disclosure rule. Consequently, the agency would not be required to make the price disclosure rule effective as of January 1, as it would with OPPS rules. But it is reasonable to infer from the agency’s silence that it intends the new disclosure requirements to become effective as of January 1, 2020.

If the agency does in fact intend such an expedited schedule for these new requirements, hospitals would face a number of technical challenges to be in compliance within agency’s timeline. In particular, many hospitals have existing contracts with their payers that require both parties to the contract to maintain the confidentiality of pricing data. Unless an exception is created for existing contracts, hospitals may find themselves in a legal dilemma in that they would be required to choose between complying with the new regulation and complying with existing contractual obligations.

In the absence of such an exception, CMS’ price disclosure rule would be open to a legal challenge. Unless a statute expressly grants them such a power, federal agencies are not authorized to impose new regulations that have a retroactive effect (see Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)). Congress has not granted HHS or CMS the authority to impose retroactive price disclosure rules under the Public Health Service Act. Further, a rule that interferes with hospitals’ existing contractual obligations would raise retroactivity concerns, as the rule would impair the rights and obligation of both hospitals and payers under these existing contracts.

Other significant concerns would still remain with regard to the price disclosure rule, but CMS could easily dispel this additional retroactivity concern simply by clarifying that the rule would only apply to newly negotiated contracts.

About the Authors

Joel McElvain is a partner in King & Spalding LLP’s health care industry practice group in Washington, D.C. He may be reached at [email protected] .

Attorneys: Joel McElvain (King & Spalding LLP).

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