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Balancing Provider Pricing Transparency and Anti-Competitive Behavior

On November 15, 2019, CMS issued a final rule that requires hospitals to disclose to patients the hospital’s “standard charges,” which include the reimbursement rates the hospitals negotiate privately with insurers.  This rule is in line with President Trump’s Executive Order, dated June 24, 2019, which focused on increasing price and quality transparency for American healthcare consumers.  The Final Rule goes into effect as of January 1, 2021, at which time hospitals will have to post their standard charges online.  Any hospital that refuses to do so will be subject to a fine of up to $300 per day.  While CMS believes that the Final Rule will lower healthcare costs by allowing customers to compare prices and proactively shop for care, the Final Rule has been met with strong resistance from hospitals that claim that it is beyond the scope of CMS’ power to promulgate.

Hospitals have pushed back against the Final Rule’s disclosure requirements, challenging the requirements in a lawsuit brought on December 4, 2019, against the federal Department of Health and Human Services (“HHS”).  The suit was brought by the American Hospital Association, Federation of American Hospitals, the Children’s Hospital Association and the Association of American Medical Colleges.  Last month, Judge Carl J. Nichols of the US District Court for The District of Columbia heard a motion for summary judgment from the plaintiffs seeking to vacate the Final Rule.  Following arguments, Judge Nichols indicated that he will move quickly to make a decision, given the importance of the issues involved and the short time line until the Final Rule takes effect on January 1st.

In their motion for summary judgment, the plaintiffs reasoned that the Final Rule runs counter to the Affordable Care Act, violates the Administrative Procedure Act, and violates the Constitution and the First Amendment.  Specifically, the plaintiffs argued that the Final Rule improperly “mandates speech in a manner that fails to directly advance a substantial government interest” and, indeed, is the “epitome of arbitrary and capricious action” that lacks a rational basis and fails to reach the threshold demand for reasoned decision making.  In support of these arguments, the plaintiffs reasoned that the reporting requirements will not actually achieve the goal of providing meaningful or useful transparency for patients, but will only encourage anti-competitive behavior among health insurers by allowing the insurers to collude in price fixing.  The Federal Trade Commission voiced similar anti-competitive concerns with respect to the President’s Executive Order, warning that too much transparency can be an issue because consumers often cannot digest or make productive use of the information provided, while sophisticated insurance plans will gain access to competitors’ pricing information and thereby find ways to drive up prices.

Moreover, and as a practical matter, the plaintiffs noted that the necessary efforts to implement the reporting requirements in anticipation of the January 1st effective date would be overly burdensome in the best of times, but will be particularly so under the current COVID-19 Public Health Emergency.

In response, HHS insisted that, contrary to the hospitals’ assertions, the disclosure requirements are not burdensome and are in line with the administration’s goals of encouraging price transparency in the healthcare sector.  Further, HHS contended that the government has the legal authority to implement rules which provide patients with clarity, increase competition and ultimately lower costs.  Indeed, the Final Rule would reduce healthcare spending by allowing patients to shop around for the best deal before the receive non-emergency services.  The idea is that patients will have access to pricing information and their medical records and be able to easily shop around for common procedures.  This would create a market where physicians and hospitals are competing for patients and reducing costs.  CMS has also stated that the new reporting requirements will allow hospitals to receive more stable and consistent payments over time.

While Judge Nichols will likely be issuing a decision on the summary judgement motion soon, whatever he decides will likely be appealed.  We will monitor the ongoing litigation, whose outcome will have a wide ranging impact.  If the new reporting requirements are upheld, hospitals will have to expend considerable resources to comply and, given that rate information will now suddenly become public to both competing hospitals and competing insurance plans, the way rates are both set by plans and negotiated between hospitals and plans will undergo important and unpredictable changes, with potentially unforeseen consequences not intended by the government.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 161

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About this Author

Steven J. Chananie, Sheppard Mullin, complex healthcare transactions lawyer, compliance arrangements attorney
Partner

Steven Chananie is a partner in the Corporate Practice Group in the firm's New York office, focusing on healthcare issues. Mr. Chananie has represented numerous healthcare providers, advising them on regulatory and fraud and abuse issues in the structuring of complex healthcare transactions and arrangements; guiding them in the resolution of potential compliance problems; and assisting them in implementing or modifying their compliance programs.  Mr. Chananie has also defended numerous clients against civil government actions and investigations, including in False Claims...

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Kimberly Rai Lawyer Sheppard Mullin NYC
Attorney

Kimberly Rai is an attorney in the Corporate Practice Group in the firm's New York office.

As a member of the firms Due Diligence Team, Ms. Rai supports the Corporate and Finance & Bankruptcy Practice Groups on various matters relating to mergers and acquisitions, venture capital and private equity.

Prior to joining the firm, Ms. Rai worked in house as Assistant General Counsel for a retail energy supplier. She has experience in retail energy compliance and general corporate matters

Education

  • J.D., Fordham University School of Law
  • B.A., New York University
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