photo illustration of Ben Franklin wearing a health care mask and bonnet on a one hundred dollar bill

Hospitals must disclose prices, judge rules

A federal judge ruled the Department of Health and Human Services’ rule to force hospitals to disclose their negotiated prices with insurers was legal. The rule, introduced last November, was quickly challenged in court by America’s powerful hospital lobby. Michael Brady of Modern Healthcare reported:

During oral arguments last month, the American Hospital Association claimed the rule would violate hospitals’ First Amendment rights and that CMS exceeded its power under the Affordable Care Act. Hospitals argued that Congress only gave HHS the authority to require hospitals to disclose their chargemasters when it used the phrase “standard charges.”

But Nichols was unpersuaded, writing that “had Congress intended to require the publication of just a hospital’s chargemaster or chargemaster rates, it could easily have done so by using the term ‘chargemaster'” instead of standard charges, as it had done elsewhere in the ACA.

“It is undisputed that chargemaster rates are not the amounts paid on behalf of 90% of hospitals’ patients, and thus it is hard to see how they can be considered usual, common or customary,” Nichols wrote.

Nichols said it was “a close call” whether it was reasonable for CMS to interpret standard charges to include rates negotiated with insurers since “the more charges published for any one item or service, the less any one of those charges can be considered ‘usual’ or ‘customary.’?”

The AHA lambasted the ruling, saying the judge “premised on the erroneous conclusion that the ‘standard charges’ referenced in current law can be interpreted to include rates negotiated with third-party payers. While the court ruled that this was a close call, that conclusion clearly does not reflect the experience of hospitals and health care systems.”

According to the opinion, the agency’s interpretation was reasonable given the convoluted relationships among insured patients, hospitals and insurers.

This is a monumental ruling in favor of price transparency advocates, and against the hospitals and insurers who wanted to keep those prices a secret. When the rule was released last fall, I wrote in a Locker Room blog post about the specifics of what the rule would require hospitals to post,

“Payer specific charges” mean the negotiated rate that each payer agrees to pay for the completed service. This is a big deal because it is a widespread occurrence that prices vary widely by payer, hospital, city, region, and state. Often insurer A and insurer B pay different rates for the same service at the same hospital just based on negotiations between hospital and insurer. 

The lack of price transparency is just one of the main criticisms of the health care system. I believe its a significant catalyst for such a dysfunctional health care system. It’s almost impossible to find an industry like health care where almost everyone involved has no idea what is the true cost of the service provided. 

The dysfunctional American health care system is kept dysfunctional by the complex and convoluted way we purchase health care using the third-party payer model. This system benefits large hospital systems and insurers, sometimes to the loss of the patient. Requiring price transparency in hospitals will go a long way towards shielding patients from unexpected charges, allow consumers to be better shoppers of health care when they can, and put downward pressure on health care prices for everyone.

Jordan Roberts / Health Policy Analyst

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. He analyzes state and national health policy issues with an eye toward removing governm...

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