Hospitals Required to Provide Patients With Transparent Pricing

Fennemore Craig Client Alert

Hospitals Required to Provide Patients With Transparent Pricing

The Executive Order titled “Executive Order on Improving Price and Quality Transparency in American Healthcare to Put Patients First”, was signed on June 24, 2019. Shortly afterward, the national association representing hospitals and healthcare systems filed a lawsuit attempting to invalidate the law as “arbitrary and capricious” and argued that the government does not have the right to force hospitals to disclose information that they consider “trade secrets”. They also argued that disclosing to patients the negotiated insurance prices may cause more confusion as the hospitals can charge patients different prices depending on a variety of factors. The Court disagreed and ruled in favor of the new law and now the American Hospital Association is appealing the Court’s June 23, 2020 decision1.

If the Appeals Court upholds the lower court’s decision, then patients with insurance will be provided with the negotiated prices with their carrier and patients without insurance will be provided a different price for their uninsured medical services. The requirement to disclose fees in advance of providing services seems obvious and reasonable especially when considering that approximately 2/3 of bankruptcies are caused by health care expenses according to a study by the American Journal of Medicine. The study found that medical related bankruptcies rose by 50% from 2001 to 2007 and that in 1981 only 8% of bankruptcies were caused by a serious medical issue.

The hospitals argue that the new law places an unnecessary burden on them and shifts resources away from caring for patients. Depending on the location and size of a hospital they may be able to negotiate a higher fee from an insurance carrier for a particular health care service even if that service is provided by the same hospital system at a lower price in another location. Health care professionals will often admit that their billing practices are confusing, but they argue that this is a result of the patchwork of different government programs and insurance companies that they must manage under varying federal and state requirements.

In order to comply with the new law, hospitals need to come up with a solution that addresses contractual issues with health care providers, insurance carriers and government agencies in addition to innovating their information technology and data management practices. One section of the law specifically requires that hospitals “shall increase access to de-identified claims data from taxpayer-funded healthcare programs and group health plans for researchers, innovators, providers, and entrepreneurs, in a manner that is consistent with applicable law and that ensures patient privacy and security”. The process of “de-identification” will be required to remove patient information from billing records so that these records can be used to provide pricing transparency to patients. The hospital and health care managers will likely need to create new teams of accounting, legal and information technology professionals, including programmers and data scientists, to become fully compliant.

Currently, hospitals and healthcare providers are struggling financially due to the impact of the Covid-19 pandemic. Transforming their billing and accounting practices to meet the new requirements will impose a significant economic burden by requiring them to direct significant IT, accounting, legal and management resources toward this effort. In competitive markets it is possible that a hospital system could obtain a competitive advantage by providing a more consumer friendly pricing system that delivers transparent and easy to understand cost information.

If the hospitals are successful with their appeal, it is unlikely that employers, patient advocacy groups and politicians will stop demanding more transparency into how health care services are priced. If they lose on appeal, it will be very interesting to see how and when the hospitals and health care systems are able to redesign their billing and data management practices to deliver the pricing transparency required under the law.

[1] On June 23, 2020, the United States District Court for the District of Columbia struck down a challenge to the Final Rule filed on behalf of the American Hospital Association and other groups, disagreeing with plaintiffs’ claims that CMS (an agency within the Department of Health and Human Services) exceeded its statutory authority under the Affordable Care Act, violated First Amendment rights, or was “arbitrary and capricious” under the Administrative Procedures Act. In granting summary judgment to CMS, the District Court found the lawsuit was in effect “attacking transparency measures generally, which are intended to enable consumers to make informed decisions[.]” Finding the challenge unavailing, the District Court explained, “hospitals may be affected by market changes and need to respond to a market where consumers are more empowered, but the possibility that the nature of their negotiations with insurers might change is too attenuated from the compelled disclosure to make the Rule unlawful . . . .” View the Memorandum Opinion here. While a Notice of Appeal has been filed and pushback continues from hospitals and health care systems, as of August 15, 2020, no changes have been made to the Final Rule or its effective date.

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