Published July 6, 2020

CMS Price Transparency Final Rule — What Hospitals Need to Know to Prepare Now

Rising healthcare costs have long plagued the United States, with consumer, employer, provider, and even the federal government bearing the financial burden. But the charges and payments for certain healthcare services have not always been clear or easy to compare. A new rule set to take effect January 1, 2021, aims to address price transparency in healthcare. The Centers for Medicare & Medicaid Services’ (CMS) Price Transparency Final Rule (Final Rule, or Rule), finalized in November 2019, will require hospitals operating in the U.S. to establish, update, and make public a list of their standard charges for the items and services they provide. While ambiguities exist in the Rule, there are definitive actions hospitals should take now to prepare for the January 1 effective date.

Background

The concept of publicizing standard charges for items and services provided by a hospital was first introduced by the Affordable Care Act in 2010. Since this time, the federal government has taken a firmer stance on what exactly hospitals will be required to publish, where it will be published, and how compliance will be monitored and enforced.

For as long as healthcare costs have increased, affected entities have worked to establish policies and strategies for cost containment. An executive order signed by the President in June 2019 directed the Department of Health and Human Services to develop rules requiring hospitals to publish—in a consumer-friendly format—prices “that reflect what people actually pay for services.” The resulting Rule aims to equip healthcare consumers with pricing data, promote consumer empowerment and the ability to shop for healthcare, and, hopefully, decrease costs.

Who will be affected?

The Final Rule defines a hospital as “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.”[1] A hospital as defined by CMS is not limited to an institution enrolled in Medicare, but, for the applicability of the Rule, excludes federally owned and operated hospitals such as the Veteran’s Administration and hospitals operated by the Indian Health Service.

What is required?

In addition to the current requirement to post standard charges (chargemaster) on their websites, the Final Rule requires hospitals to publish online, in a machine-readable file, their payer-specific negotiated rates for 300 “shoppable services” and the hospital’s standard charges. Of those published services, CMS has identified 70 that must be included if the services are provided by the hospital. Additionally, the standard charges they must publish include the gross charge, payer-specific negotiated charge, discounted cash price, and the de-identified minimum and maximum negotiated charge. The Final Rule provides some context as to what and how the prices should be published, but many organizations are seeking additional clarity for achieving compliance. CMS provided definitions (outlined later, but also may be viewed in the Final Rule) surrounding what hospitals will be required to publish, including content and format.

CMS will monitor compliance by reviewing complaints that individuals or entities submit to CMS regarding hospitals’ non-compliance with the Rule. If after investigating such complaints CMS finds a hospital to be non-compliant, CMS may take additional actions against it—issuing a written warning, requesting a corrective action plan to address the non-compliance, and potentially issuing a civil monetary penalty (CMP) that would include the notice of imposition published on a CMS website. The maximum daily dollar amount for a CMP would be $300, but will be adjusted annually using a multiplier determined by the Office of Management and Budget.

Definitions

Items and Services – All items and services—including individual items and services and service packages a hospital could provide to a patient in connection with an inpatient admission or outpatient department visit—for which the hospital has established a standard charge. Examples from CMS include, but are not limited to: supplies and procedures, room and board, use of the facility and other items (facility fees), services of employed physicians and non-physician practitioners (professional charges), and any other items or services for which a hospital has established a standard charge.

Standard Charge – CMS acknowledges that a hospital may not have a “standard charge” for an item or service, as charges may vary depending on the circumstances of the consumer. Therefore, CMS has defined standard charges to mean “gross charges” and “payer-specific negotiated charges.” All of the following types of prices must be posted:

  • Gross charges – The charge for an individual item or service that is reflected on the hospital’s chargemaster. This rate does not include any discounts.
  • Payer-specific negotiated charges – The charge that the hospital has negotiated with a third-party payer for an item or service. This rate does not include the amount ultimately paid by the insurer or patient for an item or service, just the negotiated base rate. Additionally, this rate does not include non-negotiated payment rates, such as those for fee-for-service Medicare or Medicaid. Charges negotiated by third-party payer managed care plans (i.e., Medicare Advantage plans and Medicaid managed care plans, etc.) are required to be made public.
  • Discounted cash price – This rate is the discounted rate a hospital would charge individuals who pay cash, or the cash equivalent, for an individual item or service or service package. The published rate would be unrelated to any charity care or bill forgiveness that a hospital may choose or be required to apply to a particular individual’s bill.
  • De-identified minimum and maximum negotiated charge – These charges are the lowest and highest charges a hospital has negotiated with all third-party payers for an item or service. The lowest and highest de-identified negotiated charge must be published for each item or service the hospital provides.

Machine-Readable File – The five types of standard charges must be published in two ways. The first is a comprehensive machine-readable file that makes public all standard charge information for all hospital items and services. The second is a consumer-friendly display of common “shoppable” services derived from the machine-readable file. CMS’ intent is for the second option to be a shorter list for consumers seeking to compare costs for common shoppable services hospital-by-hospital. The following must be included in the machine-readable file:

  • Description of each item or service (including both individual items and services and service packages)
  • The corresponding gross charge that applies to each individual item or service when provided in, as applicable, the hospital inpatient setting and outpatient department setting
  • The corresponding payer-specific negotiated charge that applies to each item or service when provided in, as applicable, the hospital inpatient setting and outpatient department setting; the name of the third-party payer must clearly be associated with the appropriate payer-specific charges
  • The corresponding de-identified minimum negotiated charge that applies to each item or service when provided in, as applicable, the hospital inpatient and outpatient department setting
  • The corresponding de-identified maximum negotiated charge that applies to each item or service when provided in, as applicable, the hospital inpatient setting and outpatient department setting
  • The corresponding discounted cash price that applies to each item or service when provided in, as applicable, the hospital inpatient setting and outpatient department setting
  • Any code used by the hospital for purposes of accounting or billing for the item of service, including but not limited to: Current Procedural Terminology (CPT) codes, Healthcare Common Procedure Coding System (HCPCS) codes, Diagnosis-Related Group (DRG) codes, National Drug Code (NDC), or other common payer identifiers

Additionally, the file must be a single digital file in a machine-readable format. A portable document format (PDF) would not meet this definition because the data contained within the PDF file cannot be easily extracted without further processing or formatting. Acceptable formats include .XML, .JSON, and .CSV formats. The file must be displayed on a publicly available website and be accessible free of charge, without a user having to establish an account or password. The naming convention for the file must be: “<ein>[2]_<hospital-name>_standardcharges.[json|xml|csv].” The file must be updated at least once in a 12-month period, and the date of the last update must be clearly indicated within the file or otherwise clearly associated with the file.

Shoppable Services – In addition to including all standard charges for all items and services in the machine-readable file, hospitals must also make public in a consumer-friendly manner their payer-specific negotiated charges for 300 common services for which consumers may have the opportunity to shop. A shoppable service is a service that can be scheduled by a healthcare consumer in advance. When the shoppable service is customarily accompanied by the provision of ancillary services, a hospital must present the shoppable service as a grouping of related services, meaning that the charge for the primary shoppable service is displayed along with the charge for ancillary services. Examples of shoppable services include certain imaging and laboratory services, medical and surgical procedures, and outpatient clinic visits.

CMS has specified 70 shoppable services for which corresponding standard charges must be made public, if a hospital provides the services. A hospital must select the additional 230 shoppable services based on the services’ utilization or billing rates in the previous year. It must take into consideration the frequency with which it provides services to the population served when determining the hospital-selected shoppable services. The hospital must publish a minimum of 300 shoppable services.

Hospitals must include the following corresponding data elements when displaying the three types of standard charges for its list of shoppable services:

  • A plain-language description of each shoppable service
  • An indicator when one or more of the 70 CMS-specified shoppable services are not offered by the hospital
  • The payer-specific negotiated charge that apples to each shoppable service (and to each corresponding ancillary service, as applicable), clearly associated with the name of the third-party payer and plan
  • The discounted cash price that applies to each shoppable service; if the hospital does not offer a discounted cash price for one or more of the shoppable services, the hospital must list its undiscounted gross charge
  • The de-identified minimum negotiated charge that applies to each shoppable service (and to each corresponding ancillary service, as applicable)
  • The de-identified maximum negotiated charge that applies to each shoppable service (and to each corresponding ancillary service, as applicable)
  • The location at which the shoppable service is provided, including whether the posted payer-specific negotiated charge for that location applies to the provision of that service in the inpatient setting, the outpatient department setting, or both
  • Any primary code used by the hospital for purposes of accounting or billing for the shoppable service, including, as applicable, the CPT code, the HCPCS code, the DRG, or other common service billing code; PYA notes that, as outlined in section II.F.3 of this Final Rule, hospitals may use, as applicable, an appropriate payer-specific billing code (for example, an APR-DRG code) in place of certain MS-DRG codes (e.g., 216, 460, 470, 473, and 743) included in the list of shoppable services

A hospital retains flexibility for best displaying its standard charge data and proposed associated data elements to the public in a consumer-friendly manner online, so long as the online information is easily accessible to the public. Hospitals with price estimator tools could be considered as having accomplished the intended goal, but hospitals are still required to publish all standard charges in a machine-readable file consistent with the finalized requirements.

Debate

The ambiguity of the Final Rule places increased responsibility on hospitals to determine what standard charges and shoppable services should be published. Hospitals have voiced concern that this task is complex and time and resource intensive.

Also, the American Hospital Association (AHA) and six other provider groups and health systems asked the U.S. District Court to throw out the Final Rule, contending that the sudden availability of pricing information may hinder consumers in accessing appropriate medical care. Additionally, the hospital trade associations are challenging the section of the Public Health Services Act—the act that CMS cites as its authority for issuing the Price Transparency Final Rule—saying it is not expansive enough to require hospitals to include payer-specific negotiated rates. The argument is that disclosing potentially commercially sensitive negotiated prices will place a burden on hospitals and health systems without providing a benefit to consumers. An additional point of contention is that the intent of the executive order was for transparency of the true costs of services, not negotiated rates.

CMS contends that the Final Rule stands on sound legal footing. On June 23, 2020, a federal judge in Washington, D.C., dismissed the legal challenge from the AHA; however, AHA has filed a Notice of Appeal. As of the date this article was written, no changes have been made to the Final Rule or its effective date, despite continuing push-back from hospitals and health systems.

The issue of containing rising healthcare costs has been a point of emphasis among the most recent federal administrations. This bi-partisan issue has resulted in various efforts to increase price transparency among healthcare providers as a means to drive down unnecessary expenses for consumers. The concept of price transparency is not new and will likely continue to be a topic of discussion for the healthcare industry going forward.

While some hospitals may consider the CMP a meager cost and will choose not to comply, this penalty could increase over time as the push for transparency increases. Further, as a continued focus for recent federal administrations, there will likely be increasing efforts to promote transparency within the healthcare industry. Staying on the cutting edge of these requirements will be critical for hospitals to ensure compliance is achieved.

PYA notes that the intent of the executive order was to increase price transparency for consumers. The Final Rule calls for hospitals to publish their standard charges. Charges, with the exception of the discounted cash price, are typically not paid by the consumer. There are numerous factors that affect a consumer’s price for healthcare services, including, but not limited to the presence and type of patient health insurance, whether the patient is in-network or out-of-network for their insurance plan, the type of insurance plan (i.e., high-deductible, Health Maintenance Organization, Preferred Provider Organization, etc.), and the insurance plan benefits. All of these factors, and many others, affect the price the consumer ultimately pays. Requiring hospitals to post standard charges is a complex process that does not translate to a direct increase in price transparency for healthcare consumers. While hospitals posting charges increases the ability for consumers to compare healthcare charges, it does not increase the ability of consumers to compare healthcare prices.

While there is always a potential for additional appeals and changes in legislation related to content and final date, presently hospitals must prepare for the January 1, 2021, effective date or risk facing the CMP. If you have questions related to the CMS Price Transparency Final Rule, or need assistance with evaluating how your organization will comply with this Rule, contact one of our PYA professionals below at (800) 270-9629.

[1] 84 Fed Reg. 65524.

[2] Employer Identification Number.

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