Transparency lawsuit comes as no surprise

By Kyle Sherseth, nThrive Vice President, Advisory Services | Posted: 12/09/2019

nThrive price transparency and patient solutions

In a show of solidarity, four major health care associations and three hospitals sued the Department of Health and Human Services on December 4, claiming that disclosure of negotiated payor contract rates is unlawful. The lawsuit claims this information has traditionally been considered proprietary and should therefore remain private.

Such legal action was virtually assured with passage of last month’s controversial price transparency ruling by the Centers for Medicare and Medicaid Services (CMS), which calls for making payor contract rates public despite significant industry push back (read my blog summarizing the ruling details).

How did we get here?

When the Affordable Care Act gave CMS the right to force hospitals to show their “standard charges,” it essentially changed the rules of engagement. In November, CMS took this a step further, redefining what standard charges mean. Based on the current price transparency health care ruling, which is set to go into effect on January 1, 2021, standard charges now include gross charges, as well as negotiated reimbursement rates, self-pay discounted cash prices and minimum/maximum negotiated rates. The lawsuit maintains that these rates are by no means standard, as they differ for every payor and are not standard at all.

Does CMS have the right to re-define what standard charges mean? This is the crux of the argument we may see fought out in court – with an outcome that is anybody’s guess.

Too much information

The lawsuit also contends that posting negotiated rates violates the First Amendment because it “mandates speech in a manner that fails to advance a substantial government interest” and does not serve the purpose that CMS price transparency hopes to achieve. In fact, they argue, the regulation creates more confusion and hinders the goal of giving patients the ability to estimate their out of pocket costs.

How will it confuse patients? Will it negatively impact patient satisfaction? Is it simply too much information?

While the goal is to help patients understand their out-of-pocket costs, doing the calculation requires so many steps most patients aren’t likely to compute it accurately. For instance, the first step is to determine what charges are likely to be incurred during a given hospital stay, followed by applying the reimbursement rate for the charges. Adding these up, the next step is to include the co-pay to the total amount. For example, if a patient has a 20% co-pay, he/she would need to add up the full reimbursement amount and apply this to determine the out-of-pocket cost, a service most patients expect hospitals to provide. On top of this, a myriad of other questions must be considered. Have deductibles been met? What is your plan’s annual out of pocket cap? Is your specific plan in-network or out-of-network?

Even if the most industrious patients attempt the calculations themselves, they’d be hard pressed to determine accurate reimbursements for every line in the Charge Description Master, as the information may not exist if hospital payment is based on a packaged DRG or a case rate. For many of the payor reimbursement structures there is simply no way to post this information at the chargemaster-level for patients to pull, which brings us to the next point in the lawsuit.

Unduly burdening the hospital

It is a huge amount of work for hospitals to add this level of information, especially if it is not useful for patients who attempt to flex the data. The lawsuit submits that asking for this level of specificity not only is superfluous but unduly burdens hospitals and health care organizations.

The ruling leaves many aspects open to interpretation and it is unclear what will constitute being “in compliance” with the regulation to avoid the monetary penalty. Clients are already asking for guidance on the gray areas and our recommendation is to make decisions about what will be posted and create concrete policies and procedures to back it up, but this again falls short of the ruling’s intent and is only about defending what is publicly posted. The other and best alternative is to deploy a patient-facing estimator, which will likely take less time to implement and exempts organizations from the “300 shoppable services” requirement. However, if the requirement to post negotiated rates stands, organizations will still need to determine how to incorporate negotiated reimbursement rates into their Charge Description Master for online access.

Decreased Competition

The lawsuit also argues that the current ruling eliminates the ability for hospitals to negotiate with insurance companies and decreases incentives for insurers to participate in innovative payment models that could lower cost and increase quality. The ruling could actually have a negative effect and drive prices higher as hospitals push insurance companies to offer rate parity with competitors. While CMS has acknowledged this is concern and cites studies suggesting it won’t happen, the lawsuit nevertheless claims it is a risk.

Accepting responsibility

While suing the federal government is a bold step to push back on the current price transparency legislation, it should be noted that the action by no means indicates an unwillingness on the part of the health care industry to become more transparent. During the comment period, numerous alternatives were brought forward to provide patients with accurate out-of-pocket cost estimates. CMS did listen on online estimation, which exempts hospitals from the 300 shoppable services requirement if they deploy an automated, patient-facing estimator. The lawsuit makes it clear that health care associations and hospitals continue to stand ready to work with CMS to develop patient-friendly strategies that achieve the stated goal of allowing patients to more effectively shop for their care.

When the dust clears from litigation, could we see a similar exemption on negotiated rates for medical organizations that implement automated estimation capabilities? This would be the ideal outcome, as  automated estimators achieve the goal CMS hopes for without disclosing negotiated rates, enabling patients to determine their out-of-pocket costs prior to service so they can make more informed decisions about their care.

Go for best practice

Regardless of the outcome, our best advice to health care organizations and hospitals is to go for best practice. Hospitals that provide the best customer service, including an online patient facing estimator, will certainly come out ahead. You’ll not only minimize the risk that patients will try to figure out their out-of-pocket costs based on your Charge Description Master; you’ll have a tool in place that provides this information freely. Ultimately, this will improve communications with patients and increase patient satisfaction, which is ideal.

While the current lawsuit could impact the ruling’s effective date, we urge you to resist the temptation to “wait and see” before taking action to improve price transparency. By building in improvements, such as patient-facing estimation technology, you’ll get more value out of it than just the “shoppable services” exemption. By being pro-active, you’ll also be improving patient satisfaction as well as your competitive position, which helps grow revenue throughout the continuum care.

Get started today

To learn more on how nThrive can help your hospital or health care organization improve price transparency, contact us at or call us at (678) 323-2500 to speak with an nThrive expert.