Shedding more light on hospital bills, part I

Last week, federal
district court judge Carl Nichols handed the Trump administration a rare legal
victory in its continuing efforts to change the Affordable Care Act (ACA)
through newer rulemaking and regulatory revisions. The court rejected a legal
challenge to a final rule issued in November 2019 that requires hospitals to
make public a list of their standard charges for items and services they

The ruling illustrates the continuing tension between health care legislating and administrative rule making. In this case, the administration combined better lawyering with a more popular policy goal to demonstrate the plasticity of inexact aspirational language left behind by one congress that another presidential administration could mold differently.

The Trump White House
and the Center for Medicare and Medicaid Services (CMS) took advantage of loose
language in the ACA’s statutory text of 2010 in order to advance its own policy
goals of greater information transparency, consumer choice, and price
competition in health care. Clever use of the leeway provided by administrative
law allowed its attorneys to reinterpret the ambiguity produced by legislators
who often pass complex, unfinished provisions that aim high rhetorically
but lack clear instructions for implementation.

The Obama
administration had many other stronger policy priorities and pressing political
problems involving the ACA than this one. However, the Trump administration in
2018 seized the opportunity to reinterpret the meaning of “standard charges” to
advance its own policy objectives. The efforts were augmented by an executive
order of President Trump in June 2019 that aimed at informing patients about actual
prices, to the extent consistent with applicable law. 

The hospital industry
and its allies mounted vigorous opposition to this rulemaking initiative,
ultimately capped by the lawsuit behind last week’s ruling (American
Hospital Association v. Azar
was filed in December 2019). Its key argument
was that the final rule exceeded the statutory authority of CMS. Hospital
industry lawyers argued that the ACA’s publication requirement for standard
rates applied only to so-called “chargemaster” rates and not other, more
relevant, negotiated rates as well.

The George Washington Medical Center is seen in Washington, September 11, 2019. REUTERS/Al Drago

However, Judge Nichols
noted that chargemaster rates essentially attach highly inflated dollar amounts
to individual items on long lists of hospital-based items and procedures. These
exercises in creative accounting often bear little resemblance to the actual
payments tendered to a hospital by patients or other third-party payers.  

In crafting a new rule
to implement the standard charges requirement, CMS instead defined five
different categories of standard charges, related to the regular rates charged
to a specific group of paying patients. They included:

  • Gross chargemaster
    charges for uninsured and out-of-network patients, 
  • Discounted prices for
    cash payers, 
  • Negotiated charges for
    members of a specific insurance plan, and 
  • De-identified minimum
    and maximum negotiated charges among all third-party payers (for insured
    patients analyzing their insurers’ performance in negotiating and promoting
    value choices).

The underlying reality
is that, given the “exceptionally unique” (if not perverse) nature of hospital
pricing, there actually are no “standard” charges at all that apply to a
majority (or even a substantial plurality) of patients. However, the CMS
categories are somewhat closer to what might be relevant and actionable for
decision making than artificial chargemaster rates that apply to far less than
10 percent of all patients, at best.

Judge Nichols
evaluated this issue under the often regulation-friendly standards of the Chevron
doctrine for administrative rulemaking. Was it unambiguous under the statute
that “standard charges” are chargemaster rates? Far from it. The ACA
provision’s inclusion of a requirement to make public also the rates for
bundled services in diagnostic related groups clinched this issue for Stage 1 Chevron
review purposes. 

By including rates
negotiated with third-party payers as among those “standard” rates, was the
agency’s alternative reading of the statutory requirement reasonable (Chevron
Stage 2 review)? Close enough for government work. This construction at least
was the only one that included amounts paid by most patients for hospital items
and services. It also was linked to the ACA’s statutory goal of bringing down
the cost of health care coverage.

Hospital industry attorneys
also raised First Amendment objections to the new rule, arguing that it imposed
an affirmative obligation on hospitals to speak and was more than regulation of
commercial speech or directed at advertising. Hence, it should be subject to
strict scrutiny. Judge Nichols dismissed these claims, in categorizing the
hospital rate publication rule as more like a disclosure requirement that did
not chill protected speech. It thus met the lesser standard of reasonableness
scrutiny under Zauderer. Similarly,
another objection that the rule was arbitrary and capricious fell short.

So, the new rule is not unlawful. But did we learn anything more from this latest exercise, and will it overcome the elasticity of long-standing health industry practices? Part II is next.