On December 29, 2020, the United States Court of Appeals for the District of Columbia Circuit upheld the Centers for Medicare and Medicaid Services (CMS) price transparency final rule. The final rule requires that hospitals now make public their standard charges – the charges for patients, insurers, and federal and state governments – for three hundred services.
The American Hospital Association (AHA) and others sued the Department of Health and Human Services (HHS), arguing that the final rule’s interpretation of “standard charges” to include actual negotiated rates between hospitals and insurers violates Section 2718(e) of the Public Health Service Act, the Administrative Procedure Act (APA), and the First Amendment. They argued that “standard charges” should include only the hospital’s list price, even if few consumers actually pay that list price and the insurers typically view that price as a “jumping off point.”
Following the initial pleadings, both HHS and AHA filed for summary judgment. United States District Court for the District of Columbia granted HHS’ Motion for Summary Judgment, finding that while “hospitals may be affected by market changes and need to respond to a market where consumers are more empowered,” that alone is not a reason to “make the rule unlawful.” The court at that time also found that the final rule was legal under the Public Health Service Act.
The Court of Appeals rejected that argument, saying that “viewed in its entirety, however, section 2718(e) is best interpreted as requiring disclosure of more than list prices” and that if they were to adopt AHA’s interpretation – which is only to require the hospitals to disclose the already-public Medicare charges – it would not only be “redundant of the Medicare statute’s requirement that the Secretary make all Medicare charges public, but also conflicts with the rest of section 2718(e), which requires disclosure of each hospital’s charges, not charges set by the Secretary.”
The AHA also argued that the Secretary failed to adequately address the difficulties hospitals face in compiling the information the rule requires, overestimated the rule’s benefits, and changed the interpretation of “standard charges” without adequate explanation. The Court of Appeals acknowledged its limited role in reversing the Agency’s decision and found that HHS did review the relevant data and articulated a satisfactory explanation for the action, and therefore, the final rule would not be overturned on that basis.
Turning to the argument that the final rule violates the First Amendment, the Court noted that such an argument was “squarely barred” by Supreme Court precedent that found disclosure schemes are permitted “as long as [they] are reasonably related to the State’s interest in preventing deception of consumers” and “are not unduly burdensome…by chilling protected commercial speech.” The Court of Appeals in t his case noted that the information the rule requires hospitals to disclose—rates negotiated with insurers and formalized in their contracts—is “factual and uncontroversial” and directly relevant to “the terms under which [hospitals’] services will be available” to consumers and that while the rule may require disclosure of “more information than [hospitals] might otherwise be inclined to present,” it does not impose an “outright prohibition[] on speech.”
The Court of Appeals concluded by affirming the district court’s summary judgment granted to HHS. The final rule went into effect on January 1, 2021.