Hospitals Challenging Final Rule Mandating Charge Publication

Legal arguments serving as the foundation of the filing are of questionable merit.

A few weeks ago, I wrote about the new rule issued in the Nov. 27 Federal Register. You can find the regulations at 84 Fed. Reg. 65,524.

The rule, which takes effect Jan. 1, 2021, will require hospitals to make publicly available the reimbursement they receive from every insurer for every service. This is a major change, as most contracts forbid hospitals from publicizing reimbursement rates. 

In recent weeks, several hospital trade groups and a trio of hospitals filed suit to seek an injunction against the effectiveness of the rule. Many predict that this rule will never take effect. There is certainly a chance that they are correct. The rule will require an enormous change in practice, and any such enormous change will face careful judicial review. Courts have been quite skeptical of federal regulations in recent rulings. The historic deference to agency decisions may be on the wane. But I think there is a very real possibility that this rule will survive the challenge and take effect. Much of this comes down to an interpretation of a federal statute. This rule seeks to implement a statute found at 42 U.S.C. § 300gg-18(e): 

Each hospital operating within the United States shall for each year establish (and update) and 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, including for diagnosis-related groups established under Section 1395ww(d)(4) of this title.

A core part of the hospitals’ suit is that while the law requires publication of “standard charges,” the negotiated rate between a hospital and an insurer is not “standard charges.” The hospitals’ argument says that standard charges don’t include negotiated or tailored rates. It is a decent argument, but it has one enormous flaw. It ignores an “s.” If the law was only going to require the hospital to publish its chargemaster, the law could have stated that a hospital must publish its standard charge, singular. But the law refers to “standard charges.” (emphasis added).  By including the plural, the law seems to recognize the reality that hospitals typically have more than one standard charge for a service. I realize that there is usually one chargemaster, but if the chargemaster rate is $1,000, but BCBS will pay $750 for the service, and the hospital knows that when it sends BCBS the bill for $1,000, there is a good argument that the fact that the hospital will accept $750 as payment in full means that its charge for that service was really $750. 

While the hospitals may assert that the rates paid by each payor are “individualized,” not “standard,” there is a strong counterargument. If thousands of patients for a particular insurer are getting the same charge, that “charge” seems pretty darned “standard.”

Another argument raised by the hospitals is that the charges are confidential. While it is true that the contracts do typically forbid hospitals from disclosing the contracted rates, that argument also seems quite flawed. Every patient gets an EOB containing the charge on it. The prices are not publicly shared, but nor are they a secret. The suit also invokes the First Amendment, arguing that the rule compels speech. But the government can compel speech when a legitimate state interest is present, and it seems like people have a right to know what they are going to be charged to get care. 

I will readily acknowledge that some parts of the rule are not well-thought-out, and that may prompt courts to stay some or all of the rule. The first part of the rule requires disclosure of all reimbursement rates, and the second part focuses on “shoppable” services. Since shoppable services are a subset of all care, that part of the rule seems somewhat duplicative. But I do not think this is a situation where the regulation goes terribly beyond what is called for in the statute. In short, while I am glad that the American Hospital Association (AHA) has had so much success challenging rules in the last few years, I am not sure that they will prevail in this particular case.