The battle over price transparency between hospitals and the Trump administration entered a new phase with the American Hospital Association (AHA) appealing a federal judge’s decision upholding the administration’s mandate that hospitals disclose their negotiated rates with insurers.
Hospitals have long opposed rules requiring them to disclose privately negotiated rates, which they consider proprietary information. When the U.S. Department of Health and Human Services (HHS) issued a rule last year, based on a presidential executive order, interpreting the Affordable Care Act’s (ACA) call for disclosing “standard charges” for items and services to include negotiated rates, AHA challenged the rule in court. The ACA provides a vague definition of standard charges, giving HHS the opportunity to fill in the blanks in a way that advances price transparency.
The Centers for Medicare and Medicaid Services (CMS), a division of HHS, said hospitals must publish list prices and post their negotiated rates with insurers, cash discount prices, and the minimum and maximum negotiated charges for 300 “shoppable” services.
In the appeal filed on July 17, the AHA and other plaintiffs argue the rule interferes with their First Amendment rights of free speech by forcing them to disclose proprietary information. Hospitals and insurers consider negotiated rates “trade secrets,” which they are reluctant to disclose. The plaintiffs also said the rule would undermine negotiations between providers and insurers.
Right to Price-Shop
U.S. District Judge Carl Nichols, a Trump appointee in the U.S. District Court for the District of Columbia, dismissed the AHA’s arguments in a June 23 summary judgement favoring HHS.
“[A]ll of the information required to be published by the Final Rule can allow patients to make pricing comparisons between hospitals,” Nichols wrote in his ruling.
Brushing aside the hospitals’ claims that the rule would undermine commercial speech, Judge Nichols embraced the idea of transparency for patients.
“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.
Nichols also dismissed the hospitals’ argument that the rule would create additional paperwork burdens and lead to price increases.
“Traditional economic analysis suggested to the agency that informed customers would put pressure on providers to lower costs and increase the quality of care,” Nichols wrote.
AHA is seeking an expedited review of the ruling. In a comment on the judge’s decision, AHA alluded to the problems hospitals are facing as a result of COVID-19.
“We are disappointed in today’s decision in favor of the administration’s flawed proposal to mandate disclosure of privately negotiated rates,” AHA said in a statement. “The proposal does nothing to help patients understand their out-of-pocket costs. It also imposes significant burdens on hospitals at a time when resources are stretched thin and need to be devoted to patient care.”
HHS Secretary Alex Azar used the backdrop of COVID-19 in praising the Judge’s decision.
“With today’s win, we will continue to deliver on the president’s promise to give patients easy access to health care prices,” said Azar in a statement. “Especially when patients are seeking needed care during a public health emergency, it is more important than ever that they have ready access to the actual prices of health care services.”
Doubts About Effects
Price transparency doesn’t always lead to the desired result, says Robert Graboyes, a senior research fellow and health care scholar at the Mercatus Center.
“Price transparency rules have their place, but they should be administered with a syringe, not with a firehose,” Graboyes said. “The inability to obtain prices before a medical procedure is a frustrating problem, but mandatory price transparency can be a cure worse than the disease. Counterintuitively, mandatory price transparency can reduce competition and push prices upward through a process called ‘tacit collusion.’”
Tacit collusion can occur when there are a small number of competitors in a market, high barriers for potential new competitors, such as certificate of need laws, and mutual knowledge of competitors’ prices. When these conditions are present, which Graboyes says is common in health care, “mandatory transparency may be all that’s required to restrict supply and push prices upward.”
If the goal is to reduce prices, “a more effective strategy will often be to knock down barriers to entry: easing licensure requirements, broadening scope of practice by non-physicians, and eliminating certificate of need requirements,” Graboyes said.