In a federal lawsuit, seven healthcare organizations and hospitals systems allege HHS exceeded its statutory authority and clinical laboratories will want to watch how this court case unfolds

There is quite a brouhaha over the final new federal rule requiring hospitals to allow patients and the public to see the prices they charge for services—including clinical laboratory and anatomic pathology prices. Some very influential hospital associations and healthcare systems are opposing implementation of this rule.

For more than a decade, Dark Daily has reported on the federal government’s efforts to enact pricing transparency in healthcare. In many e-briefings, we advised pathologists and medical laboratory leaders that the outcome of those efforts will likely affect clinical laboratory workflows and bottom lines, and that many clinical laboratories are not prepared to negotiate directly with customers over the price of their services.

Now, the federal Centers for Medicare and Medicaid Services (CMS) has passed a final rule (CMS-1717-F2) that expands on an earlier rule mandating pricing transparency for hospital procedures—including medical laboratory and anatomic pathology services. This new rule requires hospitals to disclose not only their chargemaster prices, but also prices negotiated with payers.

Hospital leaders are not pleased by this, and though the final rule does not go into effect until January 1, 2021, they are already pushing back through representative organizations such as the American Hospital Association (AHA), which has brought a lawsuit to federal court that seeks to overturn the new rule.

New Transparency Rules Include Rates Negotiated with Health Insurers

Beginning Jan. 1, 2019, CMS required hospitals to disclose chargemaster prices to customers. These are essentially the “list prices” for hospital procedures. However, as Dark Daily reported in “California Healthline Report Finds Hospital Chargemaster Prices Fluctuate Dramatically Even Among Hospitals Located Near Each Other,” June 12, 2019, there were problems. Chargemaster prices typically do not reflect the actual fees charged to patients or payers. Thus, consumers still found it problematic to price shop before committing to healthcare.

In an effort to remedy this, the new 2020 final rule expands the pricing information hospitals are required to provide and includes several categories of prices negotiated with health insurers.

Simultaneous to this final rule, CMS also announced a proposed rule (CMS-9915-P) titled, “Transparency in Coverage,” that if passed, will require health insurers to disclose pricing for healthcare services as well.

In a federal Department of Health and Human Services (HHS) press release, the Trump Administration stated that both rules will “increase price transparency to empower patients and increase competition among all hospitals, group health plans, and health insurance issuers in the individual and group markets.”

“Under the status quo, healthcare prices are about as clear as mud to patients,” said CMS Administrator Seema Verma in the HHS press release. “This final rule and the proposed rule will bring forward the transparency we need to finally begin reducing the overall healthcare costs.”

AHA Sues HHS in Federal Court

In response, four hospital organizations and three health systems filed a lawsuit in federal court against the HHS. The suit alleges the final rule “exceeds the agency’s statutory authority,” and violates the First Amendment by requiring public disclosure of prices negotiated with payers. This information, they say, is “highly confidential and commercially sensitive.”

The plaintiffs include the:

In court documents, the plaintiffs argue that “the Final Rule is arbitrary and capricious and lacks any rational basis. The agency’s explanation for the Final Rule runs counter to both logic and evidence. In fact, it is belied by the agency’s own research regarding what patients care about most when selecting a hospital: their own out-of-pocket costs. The agency’s justification for the Final Rule therefore does not stand up to even the barest of scrutiny. That is the epitome of arbitrary and capricious agency action.”

A brief filed by the plaintiffs contends that patients’ actual out-of-pocket costs are determined by a complex set of factors and aren’t reflected in negotiated rates. In addition, the brief states, “the sheer burden of compliance with the rule is staggering, and way out of line with any projected benefits associated with the rule.”

Charles N. Kahn III (above), President and CEO, Federation of American Hospitals (FAH), said in an AHA press release that, “CMS’ final rule fails to offer patients easy-to-understand information regarding their out-of-pocket obligations for care, so we feel obligated to contest the regulation. We contend the agency exceeded its authority and should go back to the drawing board.” (Photo copyright: FAH.)

Details of the Final Rule on Hospital Price Transparency

If it goes forward, starting Jan. 1, 2021, the final rule requires hospitals to disclose five types of standard charges, according to the HHS and AHA press releases:

  • The chargemaster rate, also known as the gross charge;
  • The discounted cash price, which CMS defines as the amount the hospital will accept from self-paying patients;
  • The payer-specific negotiated charge, defined as “the charge that the hospital has negotiated with a third-party payer for an item or service.” This would be the charge that applies if a patient uses an in-network provider;
  • The maximum charge negotiated with payers; and
  • The minimum charge negotiated with payers.

Hospitals must list these charges for all billable “items and services,” including medical laboratory and pathology services, in a machine-readable format, such as a CSV file that can be opened in a spreadsheet program.

In addition, they must provide a “consumer-friendly” list of charges for at least 300 “shoppable services,” defined as services that consumers can schedule in advance. Each list would include 70 services specified by CMS and an additional 230 services selected by the hospital.

The CMS-specified shoppable services include 14 laboratory and pathology tests. They include:

  • Basic metabolic panel
  • Blood test, comprehensive group of blood chemicals
  • Obstetric blood test panel
  • Blood test, lipids (cholesterol and triglycerides)
  • Kidney function panel test
  • Liver function blood test panel
  • Manual urinalysis test with examination using microscope
  • Automated urinalysis test
  • PSA (prostate specific antigen)
  • Blood test, thyroid stimulating hormone (TSH)
  • Complete blood cell count, with differential white blood cells, automated
  • Complete blood count, automated
  • Blood test, clotting time
  • Coagulation assessment blood test

Blood Brother Clinical Laboratories Also Affected by Price Transparency

Price transparency is also at the center of two federal lawsuits involving Laboratory Corporation of America (LabCorp) and Quest Diagnostics. The Dark Report, Dark Daily’s sister publication, reported on these suits in “Lawsuits Alleging Overcharges to Proceed in Two Courts in 2020,” December 16, 2019.

The plaintiffs in those cases are uninsured or underinsured customers who claim they were charged far more for medical laboratory tests than customers covered by insurance. In both cases, customers were charged at the chargemaster rates. The plaintiffs contend that the medical laboratories should have disclosed their rates in advance.

Whichever way this all goes, clinical laboratories will need to monitor the multiple efforts by the states and the federal government to make it easy for patients to see the prices of hospital, physician, and other medical services in advance of treatment. This has the potential to be a disruptive trend, particularly for hospitals.

—Stephen Beale

Related Information:

Hospitals Sue HHS Over Negotiated Price Disclosure Rule

Hospitals Vary in Publishing CMS Chargemaster Prices

Providers Critical of CMS Price Transparency Push in Pay Rule

Verma: Chargemaster Rule Is ‘First Step’ to Price Transparency

Trump’s Transparency Executive Order Leaves Details to HHS, CMS

CMS May Not Have Power to Make Hospitals Disclose Negotiated Prices

HFMA Summary Negotiated Rate Posting Requirement CY 2020 OPPS Proposed Rule

Rules Issued on Disclosure of Hospital and Health Plan Negotiated Rates

Joint Statement from National Hospital and Health System Groups on Public Disclosure of Privately Negotiated Rates Final Rule

Hospital Groups File Lawsuit Over Illegal Rule Mandating Public Disclosure of Individually Negotiated Rates

Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States

Trump Administration Announces Historic Price Transparency Requirements to Increase Competition and Lower Healthcare Costs for All Americans

Lawsuits Alleging Overcharges to Proceed in Two Courts in 2020

Latest Push by CMS for Increased Price Transparency Highlights Opportunities and Risks for Clinical Laboratories, Pathology Groups