Appeals court skeptical of AHA in lawsuit over HHS price transparency rule

Gavel and flag in courtroom
A trio of appellate judges were highly skeptical of the American Hospital Association's arguments to strike down a controversial rule that requires facilities to post payer-negotiated rates for certain services. (Getty/AlexStar)

A trio of appellate judges was very skeptical of the hospital industry’s arguments that a controversial price transparency rule set to go into effect in January should be struck down.

The skepticism among the three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit could foreshadow a major setback for the insurance and hospital industry’s bid to derail a rule that requires facilities to post payer-negotiated rates by Jan. 1. The American Hospital Association (AHA), which sued to strike down the rule, was appealing a lower court’s ruling that upheld the controversial rule from the Department of Health and Human Services (HHS).

The rule requires facilities to post payer-negotiated rates for 300 shoppable services. The idea is to give consumers a way to price shop among different hospitals for certain services.

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The judges, all of which were appointed by Democratic presidents, were skeptical of the AHA’s argument that HHS doesn’t have the authority to implement the rule.

HHS leaned on a part of the Affordable Care Act (ACA) that requires hospitals to post their chargemaster rates, which is the maximum cost for each service and item a hospital provides. Hospitals were required to post their chargemaster rates last year.

But the chargemaster requirement has not helped improve transparency for consumers about their out-of-pocket costs, prompting the need for another rule, said Courtney Dixon, an attorney with the Department of Justice, at the hearing.

“The evidence before the agency was quite clear that consumers were very frustrated with the status quo,” she said.

But the AHA said that HHS is stretching the meaning of the ACA statute by calling for the disclosure of payer-negotiated rates beyond the chargemaster rates. The group also argued that the statute doesn’t apply to HHS’ rule because hospitals just don’t know their rates.

“There is no question that this statute requires disclosure of knowable numbers and many negotiated rates just don’t have knowable numbers,” said Lisa Blatt, AHA’s attorney. “They rather depend on complex algorithms that would vary depending on patient care. That is simply a problem that the department never addresses.”

But the argument appeared to not sway the judges.

“What makes you think that the purpose of this statue was not to communicate information to consumers?” said Judge Merrick Garland, a Clinton appointee. “I would have thought when I saw this, this was an effort for transparency to patients.”

Blatt said that HHS has been confusing in how the prices can be listed. She said that HHS didn’t speak to how hospitals should handle bundled rates that include multiple services. The hospital would not have a single rate for every service in the bundle.

The rule says that hospitals can put "not applicable" for that service in the online list of services they must post. Blatt said this could confuse consumers and mislead them to think that the service isn’t available in their facility.

“You put a number, or you can put N/A [not applicable], which means to be that is not a service offered,” she said.

But Garland responded that consumers would likely know that only the price is not available.

“You think somebody would think that if they put N/A next to x-rays that means that their hospital doesn’t do x-rays?” he said.

The AHA and other groups have complained the rule creates a major burden on hospitals to put together the lists, creating another reason for the regulation to be struck down.

Appellate judges were skeptical of the burden arguments, though.

“Many new regulations require substantial initial investment by regulated parties,” said Judge David Tatel, a Clinton appointee. “Here the government seems to be aware of that. It did increase dramatically the amount it thought compliance would cost and extended it for a year.”

The initial proposed rule pegged the cost of compliance for hospitals at $1,000, but the final rule increased that number to $11,000.

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