On November 15, 2019, the Centers for Medicare & Medicaid Services (CMS) finalized a rule requiring hospitals to make public a list of standard charges for items and services provided by such hospitals (the Rule). (The unpublished version of this Rule is currently available here, and set to be published in the Federal Register on November 27, 2019.)  This much anticipated regulation, which will be codified at 45 CFR Part 180, implements Section 2718(e) of the Public Health Service Act, and  was issued in connection with President Trump’s June 2019 Executive Order on Improving Price and Quality Transparency in American Healthcare to Put Patients First.

CMS also announced a related proposed rule that would impose similar transparency requirements on health plans. This proposed rule is currently available on the Department of Health and Human Services website.

The theory behind the price transparency rules is that helping patients and healthcare consumers become better informed about the costs of various items and services will increase market competition and eventually drive down the cost of healthcare.  Whether the cost reductions will actually occur remains to be seen, and legal challenges are expected to be filed by the hospital industry to delay, block or alter implementation of the Rule.

In the meantime, hospitals should become familiar with the Rule’s requirements to ensure they can comply with these standards by the Rule’s effective date.  As described further below, starting January 1, 2021, hospitals will be required to disclose:

  • A file displaying five types of standard charges for each item and service provided by the hospital.
  • A consumer-friendly list of 300 shoppable services provided by the hospital that describes certain standard charges for those services and any associated ancillary services.

As defined by the Rule, items and services include individual products or services and service packages, such as diagnostic-related groups (DRGs) and bundled items and procedures for which a single charge has been established. Examples of items and services are supplies, procedures, room and board, facility fees, services of employed physicians and non-physician practitioners (generally reflected as professional charges), and other items or services for which a hospital has established a charge. Services rendered by non-employed physicians and non-physician practitioners are not considered “items and services.”

Does the Rule Apply?

The Rule applies to all hospitals, except for federally owned or operated facilities. CMS has broadly defined hospital to mean an institution in any state that is licensed as a hospital pursuant to state or local laws or that meets applicable standards for licensure according to the state licensure agency. Other facility types, such as ambulatory surgical centers, are not subject to this Rule.

What is Required of Hospitals?

Machine-Readable File with Standard Charges: Hospitals must publish a single, machine-readable file listing five types of standard charges for all items and services provided in an inpatient and outpatient department setting.

Standard charges include the following:

  1. The gross charge. This means the rates, without discounts, for items and services listed on a hospital’s chargemaster.
  2. The discounted cash price. This refers to the price hospitals charge self-pay individuals that pay for items and services in cash (or a cash equivalent).
  3. The payor-specific negotiated charges. This refers to the rates negotiated with third party payors, not including Medicare or Medicaid fee-for-service. For example, negotiated charges may be those listed in payor contracts or associated rate sheets for items and services reimbursed through a health plan. These charges must be disclosed in a manner that identifies the third party payor and plan name associated with the charges.
  4. The de-identified minimum negotiated charges. This means the lowest negotiated charge for an item or service across all third party payors and plans. These charges may be displayed without reference to the applicable third party payor or plan.
  5. The de-identified maximum negotiated charges. This means the highest negotiated charge for an item or service across all third party payor and plans. These charges may be displayed without reference to the applicable third party payor or plan.

Consumer-Friendly List of Shoppable Services: The Rule also requires hospitals to publish a consumer-friendly list of charges for a limited set of shoppable services, or those services that may be scheduled by a healthcare consumer in advance. The list must contain standard charges for at least 300 shoppable services, including 70 shoppable services specifically identified by CMS in the Rule. See Table 3 of the Rule. Within the list, hospitals must include charges for any ancillary items and services the hospital customarily provides in conjunction with the primary shoppable service. Ancillary services may include, but are not limited to, laboratory, radiology, drugs, procedure room fees, therapy services, hospital fees, room and board, and charges for employed professional services. The list of shoppable services must include the following:

  1. A plain-language description of each shoppable service.
  2. An indicator when one or more of the CMS-specified shoppable services are not offered by the hospital.
  3. The accounting or billing code for each shoppable service, such as a CPT code, HCPCS code, or DRG.
  4. The payor-specific negotiated charge (as defined above) for each shoppable service and any ancillary services.
  5. The de-identified minimum and maximum negotiating charge (as defined above) for each shoppable service and any ancillary services.
  6. The discounted cash price (as defined above) that applies to each shoppable service and any ancillary services.
  7. The location where the shoppable service is provided.

How Must Hospitals Make Price Information Available?

For the machine-readable file, hospitals must publish all five types of standard charges for all items and services provided by the hospitals.  A machine-readable file is one that may be imported or read into a computer system for further processing, but does not include a PDF document.

The file must be published on a publicly available website, and the standard charge information must be prominently displayed.  The hospital location to which the charges apply must be clearly identified. Hospital locations using a different set of standard charges than other locations operating under the same hospital license must separately publish a list of standard charges. Further, the list must be easily accessible, which CMS interprets as free of charge, accessible without a user account and password, and without requiring the submission of any personal identifying information. Hospitals will be required to update the standard charge information at least once annually, indicating the date of the most recent update within the file.

The list of shoppable services must be published online in the same accessible manner as the machine-readable file. While this list is required to be “consumer-friendly,” CMS has not specified specific requirements for form.  CMS has, however, indicated that an internet-based price estimator tool that allows users to obtain an estimated cost of services will satisfy the shoppable list requirement if it is prominently displayed on the hospital’s website and meets the accessibility requirements discussed above.

What are the Penalties for Non-Compliance?

CMS has the authority to monitor hospital compliance with the Rule by conducting audits and reviewing complaints from individuals and entities.  CMS may issue warning letters, request corrective action plans, or impose a penalty of up to $300 per day of noncompliance.  This penalty amount will be adjusted from year to year by using the Office of Management and Budget’s cost-of-living multiplier for annual civil monetary penalty adjustments.  Hospitals may appeal the imposition of civil monetary penalties through a hearing before an Administrative Law Judge.

What’s Next for Hospitals?

Hospitals have until January 1, 2021 to comply with the Rule’s requirements.  Prior to the Rule’s effective date, hospitals must still comply with existing CMS guidance requiring hospitals to make public their gross charges for items and services as found in the chargemaster online in a machine-readable format.

If you have questions about how the price transparency rule will affect your business, please contact one of the authors or any member of our healthcare practice.