Updated on: July 1, 2020

Issue of Charges not a Factor in Court Decision on Price Transparency

Original story posted on: June 30, 2020

Last week, a federal court in the District of Columbia rejected arguments by the American Hospital Association (AHA) that the Price Transparency Rule slated to take effect Jan. 1, 2021 is invalid. 

While I was lucky enough to forecast that the lawsuit would fail, one can hardly gloat about successfully anticipating that the government will win litigation, since I suspect their batting average is around .900. There is a reason I don’t predict the results of litigation very often. While I wasn’t surprised by the outcome, the reason that I expected the government to win wasn’t discussed at all in the decision.   

The regulations were authorized by a section of the Patient Protection and Affordable Care Act (PPACA) now codified at 42 U.S.C. § 300gg-18(e). The law requires that “each hospital operating within the United States shall for each year establish (and update) and make public (in accordance with guidelines developed by the U.S. Department of Health and Human Services Secretary), a list of the hospital’s standard charges for items and services provided by the hospital …” 

The case rejects the three arguments raised by the AHA: that the regulation was arbitrary, that it unfairly compelled speech, in violation of the First Amendment, and finally, that it was inconsistent with the statutory requirement. That last argument focused on the idea that hospitals should merely be required to publish their chargemaster, rather than listing details about reimbursement paid by private insurers. The hospitals were arguing that details about contracts with insurance companies are secret, and sharing them will drive up prices. They also said Congress only expected a disclosure of the chargemaster.

I am surprised that the Court didn’t focus on the fact that the statute uses the term “charges,” plural. The Court’s decision spends a fair amount of time discussing how the chargemaster is a poor indication of the amount patients actually pay for hospital services. As we all know, most insurers have negotiated a reimbursement rate that represents a substantial discount from that chargemaster. The fact that the statute refers to multiple charges suggests to me that Congress understood this, and wanted hospitals to detail what they charge different payors. 

While the word “charges” didn’t factor in the decision, it is the focus of the balance of this article. The transparency regulations only apply to hospitals, but everyone reading this should understand how entering into contracts with different reimbursement rates for the same services can affect your ability to charge a patient or insurer with whom you have no contract. Absent an explicit agreement, the price for a healthcare service is determined by an implied contract. If a patient or insurer challenges your price, a judge will consider the reimbursement that the facility accepts from other patients and insurers. If your largest payors reimburse between $2,500 and $3,000 for a service, you shouldn’t expect someone without a contract to pay the list price of $5,000. 

The bottom line is that in a dispute about the reasonableness of your charges, the figure that appears on your claims is likely to be far less important than the rate paid by the majority of patients and their insurers. For that reason, I strongly encourage clients to avoid reimbursement models linked to steep discounts from billed charges. To get more information about healthcare pricing rules generally, as well as a short discussion of the transparency rule, please register for the Aug. 6 webinar.     

David M. Glaser, Esq.

David M. Glaser, Esq., is a shareholder in Fredrikson & Byron’s Health Law Group. David helps clinics, hospitals, and other healthcare entities negotiate the maze of healthcare regulations, providing advice about risk management, reimbursement, and business planning issues. He has considerable experience in healthcare regulation and litigation, including compliance, criminal and civil fraud investigations, and reimbursement disputes. David’s goal is to explain the government’s enforcement position and to analyze whether the law supports this position. David is a popular panelist on Monitor Mondays and a member of the RACmonitor editorial board.


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