A federal judge sided with the Trump administration Tuesday, saying that HHS can force hospitals to reveal the prices they negotiate with insurers.
U.S. District Judge Carl Nichols in Washington D.C. wrote that HHS had the right to issue the rule because it considered the concerns of providers and payers, acknowledged conflicting information and explained its decision.
"The agency fulfilled its duty to examine the evidence before it and connect it to the final rule," Nichols said. "That the agency's proposed solutions may not have been to plaintiff's (hospital's) satisfaction does not render the rule the rule arbitrary and capricious," he wrote in his opinion.
The rule is supposed to go into effect January 1.
During oral arguments last month, the American Hospital Association claimed the rule would violate hospitals' First Amendment rights and that CMS exceeded its power under the Affordable Care Act. Hospitals argued that Congress only gave HHS the authority to require hospitals to disclose their chargemasters when it used the phrase "standard charges."
But Nichols was unpersuaded, writing that "had Congress intended to require the publication of just a hospital's chargemaster or chargemaster rates, it could easily have done so by using the term 'chargemaster'" instead of standard charges, as it had done elsewhere in the ACA.
"It is undisputed that chargemaster rates are not the amounts paid on behalf of 90% of hospitals' patients, and thus it is hard to see how they can be considered usual, common or customary," Nichols wrote.
Nichols said it was "a close call" whether it was reasonable for CMS to interpret standard charges to include rates negotiated with insurers since "the more charges published for any one item or service, the less any one of those charges can be considered 'usual' or 'customary.' "
The AHA lambasted the ruling, saying the judge "premised on the erroneous conclusion that the 'standard charges' referenced in current law can be interpreted to include rates negotiated with third-party payers. While the court ruled that this was a close call, that conclusion clearly does not reflect the experience of hospitals and health care systems."
According to the opinion, the agency's interpretation was reasonable given the convoluted relationships among insured patients, hospitals and insurers.
Hospitals' "attempts to analogize charges in the hospital billing to prices in other industries only highlight the uniqueness of this market," he said. "It is reasonable for the agency to have construed the statute to require the publication of charges that would impact the largest group of patients."
The AHA had argued that HHS erred when it proposed the rule because it stemmed from an executive order put forth by President Donald Trump. That argument didn't hold water with the judge because the agency had been working on the issue long before the president got involved.
Likewise, Nichols said hospitals didn't demonstrate the rule would violate their First Amendment rights because their claim that it would compel them to speak didn't meet any available legal standard.
He also didn't buy hospitals' claim that publishing payer-specific negotiated rates would chill negotiations between payers and providers since the rule only requires the final agreed-upon price to be published.
"Plaintiffs are essentially attacking transparency measures generally, which are intended to enable consumers to make informed decisions; naturally, once consumers have certain information, their purchasing habits may change, and suppliers of items and services may have to adapt accordingly," Nichols wrote.
Hospitals had argued that healthcare costs could increase if the rule went into effect because it might limit their ability to negotiate with payers, citing evidence from the Danish concrete industry. But Nichols said it was reasonable for the agency to rely on its experience with price transparency and traditional economic analysis suggesting "that informed customers would put pressure on providers to lower costs and increase the quality of care."
HHS didn't prove the rule would be successful, but the evidence it marshaled was "more persuasive than a decades-old case study involving Danish ready-mixed concrete contracts and research predating the transparency measures promulgated at the state level," the judge wrote.
The AHA said it would appeal the decision and ask for the case to be reviewed quickly.