A Look Inside The Hospital Transparency Final Rule

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On November 15, 2019, The Centers for Medicare & Medicaid Services (CMS) finalized a controversial set of requirements for the disclosure of hospital pricing data to degrees heretofore not seen. Stemming from the recent transparency Executive Order (EO), the final rule reflects the current administration’s overall push to increase pricing and cost transparency throughout the health care system. While the original proposal faced substantial backlash from stakeholders, CMS’ final decision is nearly identical to what the agency originally proposed.

So, what’s in store for hospitals when these provisions kick in on January 1, 2021?

Background: A First Stab At Transparency

CMS first attempted to increase hospital pricing transparency in its fiscal year (FY) 2019 inpatient prospective payment system (IPPS) regulation, wherein it levied requirements on hospitals to comply with previously unenforced requirements to make publicly available their “standard charges” for all “items and services.” CMS required hospitals to disclose this data in a machine-readable format and to update this information at least annually. These requirements went into effect on January 1, 2019.

Transparency 2.0

Hospitals varied in the extent to which they made the required information accessible for consumers, with most simply posting charge master data that does not typically reflect actual fees. As directed by the administration’s EO, CMS proposed farther-reaching proposals to require hospitals to report must more detailed pricing information. The two primary requirements were:

  1. Posted charge information must be based on payer-specific negotiated rates; and
  2. For up to 300 self-selected common “shoppable” items and services, hospitals must display payer-specific negotiated charges in a manner that is consumer-friendly and that includes costs for associated ancillary items and services that the hospital provides in tandem with the shoppable service.

Key Definitions

The final rule formally codifies CMS’s technical definitions for key components of this new regulatory framework and sheds light on the scope of these new disclosure requirements. In brief, CMS finalized definitions for the following:

  1. Hospital: CMS broadly defines a hospital as an institution in any State or territory 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.
  2. Standard Charge: Standard charges are redefined to include the following: gross charges, discounted cash prices, payer-specific negotiated charges, de-identified minimum negotiated charges, and de-identified maximum negotiated charges.
  3. Items and Services: These include individual items and services and service packages, that a hospital provides in connection with an inpatient or outpatient visit for a particular patient.

Hospital Pricing Transparency Requirement Details

As stated above, the new transparency requirements hospitals must meet relate to all charges and at least 300 “shoppable” charges.  More specifically, hospitals must:   

Hospitals Must Make Public All Standard Charges For All Items And Services In A Machine-Readable Format.

Hospitals will now have to disclose their list of standard charges for all items and services online in a single, machine-readable digital file. As noted, these standard charges must include each of the data elements outlined above for each item and service (i.e., the gross and payer-specific charges for each item and service, along with minimum and maximum negotiated charges). Hospitals must also disclose the associated billing codes for each item or service, including, for example, (Current Procedure Terminology) CPT codes, Healthcare Common Procedure Coding System (HCPCS) codes, diagnostic-related Groups (DRGs), or others.

Hospitals retain some flexibility to choose where to post the machine-readable files, so long as they are contained on a publicly available website, are displayed prominently, and clearly identify the hospital location with which the standard charges are associated. As with FY 2019’s transparency provisions, hospitals will have to update this information at least annually.

Hospitals Must Display Shoppable Services In A Consumer-Friendly Manner

To enable consumers to make comparisons across hospital sites of care, CMS will also require hospitals to provide a consumer-friendly list of payer-specific negotiated charges for at least 300 shoppable services (70 of which were specified by CMS). As defined, shoppable services are those that a patient can schedule in advance and are typically furnished on a non-urgent basis. In such cases, CMS asserts, consumers will benefit from being able to compare prices among hospitals. CMS will allow hospitals the flexibility to determine how best to display such information to the public, so long as it is done in a consumer-friendly fashion. CMS further offers several examples of hospitals that are already meeting these requirements in its final rule.

Monitoring And Enforcement

For hospitals that do not comply with these requirements, CMS will first issue a noncompliance warning. If hospitals do not then come into compliance, they will fall under a corrective action plan (CAP) and will ultimately face a civil monetary penalty (CMP) if the non-compliance is not resolved. At most, non-compliant hospitals can incur a CMP of up to $300 a day.

Legal Challenges To Come

Shortly after the rule’s release, several major hospital trade associations – including the American Hospital Association (AHA), Association of American Medical Colleges (AAMC), and Children’s Hospital Association (CHA) – announced they would be filing a lawsuit challenging the new requirements. CMS contends access to the information that will be made available under the rule will benefit consumers, especially when supplemented by new transparency policies for insurers. Hospitals, however, contend that the sudden availability of such information will only hinder, not help, consumers in accessing appropriate medical care.

The crux of the hospitals’ legal argument  is that the section of the Public Health Services Act that CMS cites as its authority for effectuating these changes is not expansive enough to justify the new requirements. The specific section – sec. 2718(e) – does provide CMS the authority to require hospitals to disclose standard charges. However, the hospitals argue, it does not define standard charges to include payer-specific negotiated rates. CMS disputes these assertions, with HHS Secretary Alexander Azar recently contending the final rule stands on “very sound legal footing.”

It will be left to the courts to decide, then, whether CMS has the authority to define standard charges as including payer-specific negotiated rates, which is the pivotal new requirement in the transparency rule. In the meantime, hospitals have just over a year to prepare for disclosing this pricing information, the likes of which have never before been available to the public.

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