CMS Finalizes Medicare Advantage Price Transparency Requirements, Despite Industry Criticism

On September 2, 2020, the Centers for Medicare and Medicaid Services (“CMS”) filed the unpublished version of the forthcoming Inpatient Prospective Payment Systems (“IPPS”) Final Rule for 2021. One of the more controversial provisions in the IPPS Final Rule finalizes CMS’ proposal, with modification, to require hospitals to report certain market-based payment rate information on their Medicare cost report for cost reporting periods ending on or after January 1, 2021. Specifically, this includes requiring hospitals to report on the Medicare cost report, the median payer-specific charge that the hospital has negotiated with all of its Medicare Advantage organization (“MAO”) payers, by Medicare Severity Diagnosis Related Groups (“MS-DRGs”) (the classification system by which hospitals are paid for patients’ hospital stays). The payer-specific negotiated charges used by hospitals to calculate these medians would be the payer-specific negotiated charges for service packages that hospitals are already required to make public under the requirements finalized in the Hospital Price Transparency Final Rule and, therefore, CMS argues that “the additional calculation and reporting of the median payer-specific negotiated charge will be less burdensome for hospitals.” In addition, CMS also finalized the market-based MS-DRG relative weight methodology, which incorporates this market-based rate information, to inform its calculations for inpatient hospital rates beginning in 2024.

These changes have already been met with criticism from the hospital industry. Upon the release of the IPPS Final Rule, the American Hospital Association (“AHA”) released a statement expressing their “deep disappointment” that “CMS continues to require hospitals and health systems to disclose privately negotiated contract terms with payers.” The AHA instead urged CMS to focus on patients’ out-of-pocket costs, to assist “consumers in becoming more prudent purchases of health care.” Additionally, the AHA argued that the policy “will require hospitals to divert critically needed resources during this historic pandemic to administrative tasks that will not benefit patients.” The AHA noted that they do not believe CMS has the authority to compel the disclosure of these terms, and their legal challenge remains ongoing.

The AHA also released a scathing statement regarding the price transparency push before the IPPS Final Rule was released, arguing that the “disclosure of privately negotiated rates will not further CMS’s goal of paying market rates that reflect the cost of delivering care.” Instead, the AHA asserted that the MAO rates “take into account any number of unique circumstances”, and therefore are not relevant for “fixing Fee-for-Service Medicare reimbursement.”

These changes by CMS are consistent with sentiments held in Congress, as the push for price transparency is a popular one with legislators, such as the Lower Health Care Costs Act discussed in our July 29, 2019 blog post, although no progress has been made on the bill since that time.