Global M&A trends and risks
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Global | Publication | December 2020
The prices of healthcare items and services has long been an area that the federal and state governments in the United States have attempted to reform. With the cost of healthcare items and services continually on the rise, the government has attempted to create strategies and laws to contain these costs.
Publicizing standard charges for a hospital's items and services as a way to empower consumers and decrease healthcare costs was first introduced by the federal government in 2010 in the Affordable Care Act.1 Furthermore, Section 2718(e) of the Public Health Service Act (Section 2718(e)) mandated that hospitals make public "a list of the hospital's standard charges for items and services provided by the hospital."2 CMS initially explained that hospitals could comply with this statute annually by posting their chargemasters, or by posting their policies on how they allow an individual to see this list of charges in response to an inquiry.3 Then, in its Fiscal Year 2019 Inpatient Prospective Payment System Final Rule, the agency updated its approach to require hospitals to annually post their chargemasters online in a machine-readable format.4
However, on June 24, 2019, the federal government's approach to implementing Section 2718(e) and price transparency changed again when President Trump signed an executive order that directed the Secretary of the United States Department of Health and Human Services (HHS) to propose a regulation that would require hospitals to "publicly post standard charge information."5 The resulting Calendar Year 2020 Hospital Outpatient Prospective Payment System (OPPS) & Ambulatory Surgical Center Price Transparency Requirements for Hospitals to Make Standard Charges Public Final Rule (Final Rule) published by the Centers for Medicare & Medicaid Services (CMS) will require all hospitals in the U.S. to establish, update, and make public a list of the hospital's standard charges for the items and services they provide.6 Despite ongoing litigation and the coronavirus pandemic, the Final Rule's effective date remains unchanged and there are actions that all hospitals should take to ensure they are in compliance on January 1, 2021.
This Final Rule requires all hospitals to provide public information on their "standard charges" for the items and services that they provide. CMS explains in the Final Rule that it believes that by disclosing hospitals' standard charge information that the "public (including patients, employers, clinicians, and other third parties) will have the information necessary to make more informed decisions about their care."7
CMS finalizes "standard changes" to "mean the regular rate established by the hospital for an item or service provided to a specific group of paying patients."8 Within its definition of standard charges, CMS will require hospitals to publish five types of "standard charges." First, a hospital will have to post its "gross charge" for each item or service, which is the charge that is reflected on a hospital's chargemaster, absent any discounts.9 Second, a hospital must post its "discounted cash price," which is the charge that applies when an individual pays cash, or cash equivalent, at a hospital for an item or service.10 Third, a hospital will also be required to publish its "payer-specific negotiated charges," or the "charge that a hospital has negotiated with a third party payer for an item or service."11 Finally, a hospital will be required to publish de-identified minimum and maximum charges, which are the lowest and highest charges that a hospital has negotiated with all third-party payers for an item or service.12 The Final Rule defines "items and services" as "all items and services, including individual items and services and service packages, that could be provided by a hospital to a patient in connection with an inpatient admission or an outpatient department visit for which the hospital has established a standard charge."13 CMS also finalizes "hospital" to mean "an institution in a State in which State or applicable local law provides for the licensing of hospitals, that is licensed as a hospital pursuant to such law, or is approved, by the agency of such State or locality responsible for licensing hospitals, as meeting the standards established for such licensing."14
Each hospital in the U.S. will be required to publish their standard charges in two ways. The first is in a single comprehensive machine-readable file that will make public all of the hospital's standard charges for all hospital items and services.15 This consumer-friendly file will need to be updated at least annually and must be posted on a publicly available website that can be accessed free of charge.16 The file should also clearly identify the hospital location with which each standard charge is associated and it must include any code used by the hospital for purposes of billing or accounting for each item of service.17 The second list that hospitals must make public is one that includes the standard charges for at least 300 "shoppable services," which are services that a healthcare consumer can schedule in advance.18 In the Final Rule, CMS specified 70 shoppable services that must be included in this list with the other 230 services being chosen by the hospital.19 The shoppable services list will also need to be easily accessible, without charge, and needs to be searchable by service billing code, description, and payer.20
When the Final Rule becomes effective, CMS will have the authority to monitor hospitals' compliance with these requirements by evaluating complaints and auditing websites.21 If CMS finds a hospital is non-compliant with the Final Rule, the agency may provide a warning notice to the hospital or request an action plan. If the hospital remains non-compliant, CMS may impose a civil monetary penalty of up to $300 per day of non-compliance and will publicize the penalty on the agency's website. Hospitals will have a right to an administrative appeal if they receive a civil monetary penalty.22
In response to the Final Rule, the American Hospital Association (AHA) and six other healthcare associations and health systems and provider groups filed an action in the United States District Court for the District of Columbia, contending that the Final Rule exceeds CMS's statutory authority under Section 2718(e) and that "standard charges" in that statute can only mean the rates on a hospital's chargemaster.23 The Plaintiffs also asserted that the Final Rule compelled speech in violation of the First Amendment and challenged CMS's authority under Section 2718(b)(3) of the Public Health Service Act ("Section 2718(b)(3)") to enforce the Final Rule through civil monetary penalties.24
However, on June 23, 2020, the U.S. District Court issued a decision in favor of the government. First, the U.S. District Court disagreed with the Plaintiffs that the unambiguous meaning of "standard charges" was solely the rates reflected on a hospital's chargemaster and upheld CMS's definition of standard charges as a reasonable interpretation of Section 2718(e) under the Chevron doctrine.25 The Court explained that if Congress had intended "standard charges" to mean "chargemaster" that they would have simply used this term.26 Instead, Congress used the term "standard charges" and the Court noted that chargemaster charges are hardly "standard" since 90 percent of hospital patients pay a rate that is not on the charge master. Arguing that there should be meaning to both the term "standard" and "charge," the Court further explained that "standard" implies that hospitals have both "non-standard" and "irregular charges," or that there are additional charges for hospital items and services beyond the ones reflected on a hospital's chargemaster.27 The Court also explained that Section 2718(e) specifically states that a hospital's publicly posted list should include diagnosis-related groups (DRGs) and that it is "undisputed" that the costs associated with DRGs are not included on a hospital's chargemaster.28 The Court then explained that "this alone" suggests that "standard charges" must mean something beyond what is included on the chargemaster.29
The U.S. District Court also found that the Final Rule did not violate the First Amendment because the government is permitted to compel speech when doing so is reasonably related to a public interest. Furthermore, the Court explained that in the case of the Final Rule it advances public interest because it provides healthcare consumers with factual price information to help facilitate informed decisions and it will eventually help to lower healthcare costs.30 Finally, the Court held that under Section 2718(b)(3) that CMS was empowered to impose civil monetary penalties for failures to comply with the Final Rule's publication requirements.31
In response, the Plaintiffs filed a notice of appeal to the U.S. District Court's decision, and on October 15, 2020, the United States Court of Appeals for the District of Columbia heard oral arguments. From the questions asked and tone of the oral arguments, it appears that the judges for the Court of Appeals are unconvinced that the Final Rule is unconstitutional and that hospitals cannot pin down the cost of hospital items and services for a service such as an X-Ray before a patient steps foot in a hospital.32
Despite the fact that a new administration could possibly bring in regulatory changes and the pending decision in the Court of Appeals case, hospitals should be in compliance on January 1, 2021. With the final price transparency rule related to healthcare payors being finalized on October 29, 2020, publicly posting charge information appears to be a cost containing strategy that is supported by the federal government and one that is likely to continue in the years to come.33 Hospitals should, therefore, have a strategy on how they will remain in compliance and annually update their standard charge information moving forward.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
Companies have been publicly reporting on their financial performance for over a hundred years. However, they are increasingly having to make public non-financial disclosures relating to sustainability and environmental, social and governance (ESG) matters as a result of rules, laws and regulations issued by stock exchanges, governments and regulators worldwide.
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