Chapter 9.B.2: Consumer-directed Health Care

Insert at p. 1107 after note 3

Hospital Price Transparency

To enable people to make informed choices about where to receive care, section 2718(e) of the Affordable Care Act requires “each hospital” to “make public (in accordance with guidelines developed by the Secretary) a list of the hospital’s standard charges for items and services provided by the hospital.” Initially, HHS interpreted this provision only to require hospitals to publish their chargemasters, which contain the nondiscounted fee-for-service prices that hospitals bill uninsured patients who pay directly for their care. For insured patients, however, chargemasters are irrelevant, and even those patients who lack insurance often receive large discounts from chargemaster rates. Chargemasters are also inscrutable: as two commentators have noted, “services are identified using obscure abbreviations and terminology that is unclear even to physicians.”¹

In November 2019, HHS finalized a new rule expanding hospitals’ price transparency obligations. Concluding that the rates listed on chargemasters “bear little relationship to market rates” and “are usually highly inflated,” the agency required hospitals to publish their “standard charges,” including the prices that the hospital had negotiated with insurers. 84 Fed. Reg. 65224, 65538 (Nov. 27, 2019). Prior to the rule’s adoption, these prices were normally kept confidential. In addition to providing a complete list of standard charges in a machine-readable format, the new rule requires hospitals to publish a more “consumer-friendly list” of their 300 most “shoppable services,” defined as those services “that can be scheduled by a healthcare consumer in advance.” 45 C.F.R. §§180.20, 180.40, 180.60. Because the regulation applies only to hospitals, it does not cover freestanding ambulatory surgical centers or physicians who are not directly employed.²

HHS believes that supplying more information about prices “will enable healthcare consumers to make more informed decisions, increase market competition, and ultimately drive down the cost of healthcare services, making them more affordable for all patients.” 84 Fed. Reg. at 65527. The American Hospital Association immediately challenged the rule in court, arguing that HHS underestimated compliance costs and overestimated the rule’s benefits.

AMERICAN HOSPITAL ASSOCIATION v. AZAR, 983 F.3d 528 (D.C. Cir. 2020)

In support of its [Administrative Procedure Act] claim, the Association argues that the Secretary failed to adequately address the difficulties that hospitals face in compiling the information the rule requires, overestimated the rule’s benefits, and changed the interpretation of “standard charges” without adequate explanation. In considering these arguments, we are “not to substitute [our] judgment for that of the agency, but instead to assess only whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” DHS v. Regents of the University of California, 140 S. Ct. 1891, 1905 (2020) (internal quotation marks and citation omitted). Moreover, and of special significance to this case, “when an agency’s decision is primarily predictive, our role is limited; we require only that the agency acknowledge factual uncertainties and identify the considerations it found persuasive.” Rural Cellular Ass’n v. FCC, 588 F.3d 1095, 1105 (D.C. Cir. 2009).

Feasibility and Administrative Burdens

The Association advances two slightly different arguments under the umbrella of excessive burden. First, many negotiated rates are “unknown”—or even “unknowable,” as Association counsel insisted at oral argument—so complying with the rule is “impracticable, and often impossible.” Second, identifying each patient group’s negotiated rate for all items and services would require a “herculean effort.” Central to both arguments, hospitals often build algorithms based on complex contracts to calculate the applicable negotiated rate for a particular patient’s care. Accordingly, the Association argues, many negotiated rates are determined only after the patient receives care and so cannot be disclosed beforehand. Relatedly, the Association argues that hospitals’ complex pricing systems produce an “unlimited number” of “standard charges,” because possible permutations for identifiable patient groups are “infinite.”

The Association’s arguments miss the mark. Consider two examples, one raised at oral argument and one offered by the Association in its brief. Patient A may have thought she needed only one x-ray, but she actually needed two; and instead of paying twice the amount of the first x-ray, the insurer paid only 1.5 times that amount based on a volume discount. Patient B scheduled a hand nerve-repair surgery but ended up receiving tendon repair as well to correct a problem discovered during surgery; the insurer paid a discounted rate for the tendon repair because it occurred at the time of a related procedure. Whether and how much Patient A would be charged for the second x-ray and Patient B for the tendon repair was, as the Association emphasizes, “unknown” until after their treatments. The rule, however, does not require hospitals to disclose all possible permutations of costs based on hypothetical additional care or any other variable factor. It simply requires disclosure of base rates for an item or service, not the adjusted or final payment that the hospital ultimately receives based on additional payment methodologies. See Price Transparency Requirements, 84 Fed. Reg. at 65,550–51. So for Patient A, the rule requires disclosure of only the cost of one x-ray, and for Patient B, only the cost of a tendon repair procedure without any related procedures. Nothing in the rule requires the disclosure of discounts that may be applicable based on variable factors.

The same principle applies to rates for diagnosis-related groups. Responding to comments, echoed here by the Association, that payer-specific charges cannot be identified for diagnosis-related groups because rates can change based on the patient’s condition or treatment plan, the rule makes clear that the disclosure requirement applies to “the base rate that is negotiated by the hospital with the third party payer, and not the adjusted or final payment received by the hospital for a packaged service.” Id. at 65,547.

This distinction between negotiated rates and final payments also addresses the Association’s contention that the rule fails to grapple with situations where no negotiated rate exists for a certain line item because “multiple items and services [are folded] into bundled rates for a particular procedure.” In response to comments raising just this concern, the rule explains that hospitals must disclose only base rates that have been negotiated. Price Transparency Requirements, id. at 65,551. In other words, nothing in the rule requires hospitals to “reverse-engineer” what negotiated rate they may have hypothetically reached in lieu of a bundled rate.

The same complex hospital billing systems and contracts drive the Association’s argument that the rule will saddle hospitals with “inordinately costly” burdens. According to the Association, hospitals can have “thousands of agreements” with individualized subcontracts for each plan, with each contract featuring “dozens of pages of complex conditions and formulae.” The rule, the Association complains, will require hospitals to “manually cull their contracts to identify each variable (location, inpatient versus outpatient setting, plan, etc.) and run each permutation,” resulting in thousands of different patient groups. As a result, hospitals expect to spend much more time and resources—“orders of magnitude” more—to comply with the rule than the Secretary’s estimates.

In considering this argument, our job is to determine whether the Secretary “examine[d] the relevant data and articulate[d] a satisfactory explanation for [his] action.” Motor Vehicle Manufacturers Ass’n of the United States, Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 43 (1983). The Secretary did just that.

As the Association concedes, the rule acknowledges that hospitals use different payment methodologies and house information across different systems, making it challenging to consolidate the data into one comprehensive list. Price Transparency Requirements, 84 Fed. Reg. at 65,556. The rule also recognizes that due to the number of payers per hospital, hospitals may have many payer-specific charges to compile, and that they utilize “a variety of payment methodologies in their contracts” with insurers. Id. at 65,593. In response to commenters’ concerns, the rule clarifies that hospitals must disclose only base rates, delays the effective date by a year, and increases its burden estimate tenfold. Id. at 65,550–51, 65,575–76, 65,592–93. The rule thus recognizes that hospitals are at “different stages of readiness to offer consumers transparent price information” and that “different hospitals may face different constraints when estimating their burden and resources required.” Id. at 65,593. Indeed, the resulting burden estimate for the implementation year—150 hours per hospital location—is similar to the estimate provided by the Healthcare Financial Management Association (HFMA), which filed an amicus brief in support of the Association. To be sure, as the Association points out, the rule’s ultimate estimate is less than HFMA’s because, unlike that estimate, it declines after the first year and includes clinician time. In our view, however, the Secretary reasonably adjusted the estimate downward for subsequent years based on a perfectly sensible assumption that compliance costs will decline once hospitals start using “the business processes and system infrastructures or software . . . built or purchased during the first year.” Id. at 65,596. That the Secretary arrive at an estimate thirty hours lower than an industry association’s calculation was hardly unreasonable given the wide range of estimates offered by commenters. Id. at 65,593–94, 65,595–96; see National Ass’n of Home Builders v. EPA, 682 F.3d 1032, 1040 (D.C. Cir. 2012) (“[W]e do not review [the agency’s] cost figuring de novo, but accord [the agency] discretion to arrive at a cost figure within a broad zone of reasonable estimate.” (internal quotation marks omitted)). As the district court aptly put it, “[i]t can hardly be said hospitals’ concerns about their burden fell on deaf ears.” American Hospital Ass’n, 468 F. Supp. 3d at 389.

Benefits

The Association challenges the Secretary’s prediction that the disclosure scheme will advance the goal of “providing consumers with factual price information to facilitate more informed health care decisions.” Price Transparency Requirements, 84 Fed. Reg. at 65,544–45. Instead, the Association claims, the rule is likely to “misinform[] consumers” and “facilitate anticompetitive effects.” But again, the Secretary “examine[d] the relevant data and articulate[d] a . . . ‘rational connection between the facts found and the choice made.’” State Farm, 463 U.S. at 43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)).

As to efficacy, the rule points out that even though disclosure of negotiated rates alone will be insufficient to provide out-of-pocket cost estimates for many insured consumers, such rates are “a critical piece of information necessary for patients to determine their potential out-of-pocket cost estimates in advance of a service.” Price Transparency Requirements, 84 Fed. Reg. at 65,543. It then explains that the disclosure scheme will provide out-of-pocket cost estimates for consumers without insurance and will be “highly beneficial for consumers in [high-deductible insurance plans] and in plans where the consumer is responsible for a percentage (that is, co-insurance) of the negotiated rate.” Id. at 65,547. For example, a consumer who knows that her copay is twenty percent can estimate her out-of-pocket cost as twenty percent of the rate negotiated by the insurer. See id. The rule compares this outcome to the status quo, i.e., only chargemaster rates are publicly available and they apply to fewer than ten percent of patients, and concludes that the enhanced disclosure scheme will help more consumers. The rule also predicts that its disclosure scheme will enable researchers, government officials, clinicians, employers, and other third parties to “bring more value to healthcare.” Id. at 65,555–56, 65,599.

As to consumer confusion, the rule recognizes such a possibility but nonetheless concludes that the disclosure scheme will benefit the “vast majority” of consumers, especially because consumers are already “exceptionally frustrated at the lack of publicly available data,” and because the availability of the data will lead to more price transparency tools developed by third parties. Id. at 65,547. The Association criticizes the rule’s reliance on third-party actors, calling it “irrationally convoluted.” But anticipating that third-party price aggregators and researchers will bring more efficiency to an industry as large and important as healthcare hardly strikes us as irrational. Indeed, such services are ubiquitous in other industries where prices are publicly available, such as travel booking websites and used car price aggregators. Finally, the rule acknowledges commenters’ concerns about potential anticompetitive effects but concludes that, based on available research in the healthcare industry and traditional economic analysis, the disclosure scheme is likely to lead to lower, not higher, prices. Price Transparency Requirements, 84 Fed. Reg. at 65,529, 65,538–39, 65,598–99. The Association complains that the rule’s analysis rests on inapposite data that came from state-led initiatives that either failed to disclose precisely the same information or collected the information from different sources. The Secretary, however, is not limited to relying only on definitive evidence: “even if this dataset was less than perfect, imperfection alone does not amount to arbitrary decision-making.” District Hospital Partners, L.P. v. Burwell, 786 F.3d 46, 61 (D.C. Cir. 2015); see also State Farm, 463 U.S. at 52 (“It is not infrequent that the available data does not settle a regulatory issue and the agency must then exercise its judgment in moving from the facts and probabilities on the record to a policy conclusion.”). Given the newness of this disclosure scheme, the Secretary reasonably relied on studies of similar price transparency schemes to inform his policy judgment.

The rule’s chief purpose, as the Secretary emphasizes, is to “shift to hospitals some of the burden that patients currently bear” in “navigating a non-transparent hospital-care system.” Appellee’s Br. 48; Price Transparency Requirements, 84 Fed. Reg. at 65,547. The Secretary weighed the rule’s costs and benefits and made a reasonable judgment that the benefits of easing the burden for consumers justified the added burdens imposed on hospitals. See Ad Hoc Telecommunications Users Committee v. FCC, 572 F.3d 903, 908 (D.C. Cir. 2009) (explaining that agency decisions implicating “competing policy choices . . . and predictive market judgments” warrant particular deference).

Though the regulation has now taken effect, evidence suggests that many hospitals have yet to come into compliance. As of March 2021, according to one report, “a review of 1,000 facilities across 27 states found that 30% of providers were not compliant with providing either a consumer-friendly file of prices or a machine-readable one.”³ Of greater ongoing concern, patients may lack the time and wherewithal to use the information that hospitals provide. Even making simple price comparisons can be challenging or impossible: hospital pricing can be highly variable even in the same facility over a short period of time; many hospitals publish incomplete data that can be hard to find; and hospitals are often not clear about how they calculate their standard charges.⁴ As one health-policy expert asked in exasperation, why do we “continue to roll our terribly flawed ‘transparency’ initiatives that do little or nothing to help patients navigate the system in a more informed manner?”⁵

¹ Joseph Antos & Peter Cram, Making Hospital Price Transparency Work for Health Care Consumers, JAMA Health Forum, Apr. 5, 2021.

² Chris Wheeler & Russ Taylor, New Year, New CMS Price Transparency Rule for Hospitals, Health Affairs, Jan. 19, 2021.

³ Samantha Liss and Nami Sumida, Hospitals Lift Curtain on Prices, Revealing Giant Swings in Pricing by Procedure, Healthcare Dive, March 11, 2021.

⁴ Nisha Kurani et al., Early Results From Federal Price Transparency Rule Show Difficulty in Estimating the Cost of Care, Health System Tracker, Apr. 9 2021.

⁵ Niall Brennan (@N_Brennan), Twitter (Jan 5. 2019, 9:56 AM), https://twitter.com/N_Brennan/status/1081565096407642112