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February 14, 2020

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Price Transparency: Federal Government Issues Final Rule for Hospitals and Proposed Rule for Group Health Plans and Health Insurers

On November 15, 2019, the Federal Government issued two rules: one in final form and one in proposed form, both designed to increase price transparency in health care. The rules follow on the Executive Order announced by President Trump on June 24, 2019, directing HHS to adopt regulations improving price and quality transparency, and implement statutes added by the Affordable Care Act. The two rules issued are:

(1)Final Rule: “2020 Outpatient Prospective Payment System and Ambulatory Surgery Price Transparency Requirement for Hospitals to Make Standard Changes Public,” which requires hospitals—even non-Medicare and non-Medicaid hospitals—to make public their “standard charges” (which includes rates negotiated with third parties). The underlying premise is that price transparency will allow patients to be better informed and then lead to more efficient markets by promoting choices and competition.

(2)Proposed Rule: “Transparency in Coverage,” which directs health insurers and group health plans to make available to patients any negotiated rates with in-network providers and its out-of-network pricing. The purpose of the Proposed Rule is to provide transparency that the proposed federal agencies believe promotes choice and competition and allow patients to be active consumers.

While several states already have price transparency mandates in place, hospitals—and soon, plans—will be required to ensure their disclosures are consistent with the new federal requirements.     

Final Rule: Hospital Price Transparency

The Final Rule, to be effective January 1, 2021, requires each hospital operating in the U.S. to establish (and update) and make public a yearly list of standard charges for items and services, including DRGs.  

Definitions

Under the Final Rule, the following definitions apply.

Hospital” includes Medicare hospitals and any non-Medicare hospital licensed by a state (including D.C. and US territories). The term does not include federally owned and operated hospitals (e.g., VA, Indian Health, or Department of Defense operated hospitals).

Standard Charges” include: (i) the gross charge (from the chargemaster); (ii) the discounted cash price (price applied to individual who pays cash); (iii) the payor-specific negotiated charge (charge negotiated with a third-party payor); (iv) the de-identified minimum negotiated charge (the lowest charge that the hospital has negotiated with all third-party payors for an item or service); and (v) the de-identified maximum negotiated charge (the highest charge that a hospital has negotiated with all third-party payors for an item or service).

Hospital ‘Items and Services’” means all items and services, including individual items and services and service packages, that could be provided to a patient in connection with an inpatient admission or an outpatient department visit for which the hospital has established a standard charge.

Requirements

The obligations of Hospitals under the Final Rule include:

(1)  Making public all standard charges for all items and services in a machine readable form. Hospitals must:

(a)  For each hospital location, make public all standard charges for all items and services online in a single digital, machine readable file.

(b)  Include a description of each item and service (including packages) and any code used for accounting or billing.

(c)  Display the file prominently and clearly identify the hospital location with which the charges are associated in a publicly available website using a CMS-specified naming convention.

(d)  Ensure that the data are easily accessible, without barriers, free of charge, without password protection and digitally searchable.

(2)  Displaying at least 300 “shoppable services” in a consumer-friendly manner. “Shoppable Service” means a service that can be scheduled by a patient in advance.  Hospitals must:

(a)  Make at least 300 “shoppable services” (including 70 CMS-specified and 230 hospital-selected) the hospital provides in a consumer-friendly manner.  

(b)  Display payer-specific negotiated charges, de-identified minimum and maximum negotiated charges, and discounted cash prices for at least such 300 “shoppable services.”

(c)  Include a plain language description of each “shoppable service,” an indicator of the CMS-specified “shoppable services” not offered by the hospital, the location at which the “shoppable service” is provided and the standard charges at such location.

(d)  Select such “shoppable services” based on the utilization or billing rate of the services. (This is to ensure they are commonly provided services.)

(e)  Charge information must be displayed prominently and be easily accessible without barriers, free of charge, without password protection, and digitally searchable.

(f)  Update the information at least annually and indicate when last updated.

Monitoring and Enforcement

CMS has authority to monitor hospital compliance by evaluating complaints, reviewing individuals’ or entities’ analysis of noncompliance, and auditing the website. If non-compliance is found, CMS will issue a warning notice, and may request that the hospital submit a corrective action plan. If a hospital fails to respond to the request for a corrective action plan or comply with the requirements of the corrective action plan CMS has the authority to impose a $300 per day civil monetary penalty and publicize the penalty on a CMS website. Hospitals are afforded administrative appeal rights.

Lawsuit Challenge

The American Hospital Association and other hospital groups have filed a lawsuit challenging the regulation as violating the First Amendment of the Constitution and as violating contractual confidentiality provisions.

Proposed Rule: Transparency in Coverage

The Proposed Rule was issued by the Departments of Health and Human Services, Labor and Treasury on November 15, 2019. The purpose of the Proposed Rate is to bring greater transparency across the health care industry and allow for comparison shopping.

The Proposed Rule would require:

  • Each “non-grandfathered group health plan”— grandfathered health plans are those in existence as of March 23, 2010, when the Affordable Care Act was adopted, so long as they maintain their status as grandfathered health plans—or health insurance offering non-grandfathered health insurance coverage in individual and group markets to make available to participants, beneficiaries, and enrollees personalized out-of-pocket cost information for all covered health care items and services through an internet-based self-service tool, and, if requested, in paper form.
  • Each non-grandfathered group health plan or health insurance issuer offering non-grandfathered health coverage in the individual and/or group markets would be required to make available to the public, including consumers, researchers, employers, and others, the in-network negotiated rates with their network providers and historical payments of allowed amounts to out-of-network providers through standardized, regularly updated machine readable files.
  • The Proposed Rule would allow issuers that incentivize consumers through introduction of plans that include provisions that encourage consumers to shop for services from lower-cost, high-value providers and that share resulting savings with consumers to take credit for such “shared savings” in their medical loss ratio (“MLR”) calculations. Such issuers would not be required to pay MLR rebates that would provide a benefit to consumers that is currently captured in any existing MLR revenue or expense categories.

The Proposed Rule solicits comments on:

  • Whether group health plans and health insurance issuers should be required to make available through a standards-based application programming interface the cost-sharing information.
  • How health care quality information can be incorporated into the price transparency proposals.

Comments are due by 5:00 p.m. on January 14, 2020. It is proposed that the rule would become applicable for plan years beginning one year after finalization of the rule, except for the MLR provision, which would become applicable beginning with the 2020 MLR reporting year.

Takeaways—It is clear that the government believes that price transparency is an important step in its efforts to influence health care costs. The hospital industry contends there are serious issues associated with such transparency but is facing a final rule that requires it. Health plans are now facing a similar challenge with a proposed rule seeking stakeholder comments in short order.  

© 2020 Foley & Lardner LLP

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About this Author

C. Frederick Geilfuss II, Health Care Attorney, Foley Lardner Law Firm
Partner

C. Frederick Geilfuss II is a partner and health care lawyer with Foley & Lardner LLP. Mr. Geilfuss counsels health systems, hospitals, medical clinics, rehabilitation agencies, nursing homes, and other health care providers on general operational concerns, regulatory and business matters. He has many years of experience in health care acquisitions, integrated delivery service issues, managed care contracting, defense of providers against government enforcement actions, finance, real estate, administrative and medical staff issues, physician recruitment, fraud and...

414-297-5650
Kristin Jenkins, Health Care Attorney, Foley Lardner Law Firm, Los Angeles, California
Associate

Kristin Jenkins is a law graduate with Foley & Lardner LLP. She is a member of the firm’s Health Care Practice.

Ms. Jenkins was a summer associate with Foley, where she gained experience in the area of health care law. She also worked as a research assistant for Professor Jill Horwitz, M.P.P., J.D., Ph.D., at the University of California, Los Angeles School of Law and as a judicial extern to The Honorable Nathanael Cousins of U.S. District Court for the Northern District of California.

213-972-4832