September 29, 2020

Volume X, Number 273

September 29, 2020

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September 28, 2020

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Proposed and Expanded Disclosure Obligations for Hospitals Regarding not Only Gross Charges, but Third Party Payor Pricing as Well

On July 29, 2019, CMS released its proposed outpatient prospective payment system (“OPPS”) rule outlining a variety of changes it may implement for calendar year 2020. One proposal that has inspired immediate reactions from industry members would require hospitals to disclose certain additional pricing information, including some prices negotiated with third party payors, to the public.

Proposed Rule Would Require Disclosure of Negotiated Charges

In line with its broader focus on improving the efficiency of the health care market by empowering patients with more information, and relying under its authority under Section 2718(e) of the PHS Act, the administration has proposed to require hospitals to make their standard charges public through, not only a machine-readable file with all standard charge information for all hospital items and services, as is currently required, but also a consumer-friendly display of standard charges for at least 300 common “shoppable” services. “Shoppable” services would be service packages that could be scheduled by a health care consumer in advance, and would be required to include 70 shoppable services defined by CMS, as well sufficient additional shoppable services, selected by each hospital based on its utilization or billing rates, to reach 300 total services.

Not only would the rule require a consumer-friendly display for certain services, as well as the release of each hospital’s chargemaster, it would also substantially expand the charge information that would be required in both the publicly released chargemaster and the shoppable services display. In particular, under the proposed rule, standard charges would include both gross charges, most relevant to uninsured patients, and also payer-specific negotiated charges, most relevant to insured patients. Gross charges would be defined as the charges for individual items or services as reflected on a hospital’s chargemaster, absent any discounts, while payer-specific negotiated charges would be the charges the hospital negotiated with third party payors for items or services. Items and services could include both particular procedures, supplies, and services, and items and services that a hospital prices as a unit, including but not limited to diagnosis-related groups. Items and services could also include the price of professional services rendered by hospital-employed physicians and non-physician practitioners. The new requirement would apply broadly to any institution that: (1) is licensed as a hospital pursuant to [State or applicable local] law or (2) is approved, by the agency of such State or locality responsible for licensing hospitals, as meeting the standards established for such licensing” – a definition intended to “appl[y] to each hospital operating within the United States.”

To enforce the requirement, CMS would rely predominantly on complaints made to CMS. A hospital identified as noncompliant would receive notice of its deficiencies and be given an opportunity to come into compliance. Hospitals that failed to submit or comply with a corrective action plan could be subject to civil monetary penalties of up to $300 per day of non-compliance.

In other words, under CMS’ proposal, nearly every hospital in the United States would be required to disclose not just its chargemaster, but also every one of the negotiated rates it pays for each of the items and services it provides, or risk paying what could ultimately amount to substantial monetary penalties.

AHA Criticizes Potential Anti-Competitive Effects

Comments on the proposed rule are due to CMS by September 27, 2019. Some industry groups, however, are already making their positions known. For instance, American Hospital AssociationCEO Rick Pollack called the proposal “the wrong approach” and maintained that “it could seriously limit the choices available to patients in the private market and fuel anticompetitive behavior among commercial health insurers in an already highly concentrated insurance industry.”

In fact, CMS “recognize[s] that the impact resulting from the release of negotiated rates is largely unknown” and that “some stakeholders have expressed concern with the public display of de-identified negotiated rates which may have the unintended consequence of increasing health care costs of hospital services in highly concentrated markets or as a result of anticompetitive behaviors without additional legislative or regulatory efforts.” CMS seems to believe that its proposal – to release identified negotiated rates – would not have this effect on health care costs, although it does not suggest any “additional legislative or regulatory efforts” that would act as safeguards.

Interested parties may wish to comment on CMS’ price transparency proposal, including on its suggestions of alternative “standard charges” that it could require hospitals to release. However, based on the CMS proposal, hospitals should prepare to release substantial, previously confidential and sensitive, pricing data in 2020.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume IX, Number 217

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About this Author

Associate

Ms. Kraus focuses her practice on representing healthcare entities in regulatory compliance matters.  Ms. Kraus advises clients on compliance with federal and state fraud and abuse laws, assists clients in responding to government investigations, and represents clients in False Claims Act litigation.  Ms. Kraus also assists clients with regulatory due diligence in transactional matters, and through advocacy with federal and state regulators, and leverages her background in health policy to help clients maximize opportunities in the changing healthcare landscape...

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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 Act cases, threatened Anti-Kickback prosecutions, and various state and federal audits. He brings his knowledge of government enforcement efforts — along with his technical legal expertise and his practical understanding of how healthcare providers operate in the real world — to his guidance on regulatory and compliance matters.

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