The New Hospital Price Transparency Rule Is Clouded With Flaws

The rule is a good idea, but essentially unworkable.

The Centers for Medicare and Medicaid Services (“CMS”) published a new rule that, as of January 1, 2019, all hospitals are required to “make public a list of their standard charges [for all items and services] via the Internet . . . and to update this information at least annually, or more often as appropriate.” This so-called “Hospital Price Transparency Rule” is a key part of CMS’s priority to create “a patient-centered healthcare system.”  The overall goal is to give consumers better access to hospital prices so they can compare them and make more-informed choices about which hospital they use.  The hospital industry generally agrees that the requirement is a good idea, in concept. Hospitals have nonetheless been almost universal in their criticism that the rule, in its current form, is more flawed than helpful.

The Hospital Price Transparency Rule is the published version of a requirement originally published in The Public Health Services Act, which was enacted December 31, 2018 as part of the Affordable Care Act. Oddly enough, hospitals were already required to make lists of their charges publicly available under Section 1886(d)(4)  of the Social Security Act, which is the legal foundation for the Medicare and Medicaid programs.  The new rule’s January 1, 2019 compliance date is a result of CMS including the requirement in the Fiscal Year 2019 Inpatient Prospective Payment System (“IPPS”) Final Rule,  which is CMS’s annual publication of the amounts they will pay providers (via Medicare) for an individual patient’s treatment based on their “diagnosis and severity of illness.”  In plain terms, the IPPS is the list of pre-determined flat rates that CMS will pay a hospital based an individual patient’s medical diagnosis and the severity of their unique illness.

The hospital industry’s criticisms of the price transparency rule are not unfounded, nor does CMS deny that the rule has its flaws.  First of all, the rule requires hospital to publish their “charges.”  Even more, the rule requires hospitals to publish their lists of charges for each service they offer, and every item they use.  Within the hospital industry, these lists are commonly referred to as a “Chargemaster.”  In a NBC News Article, NBC News medical contributor Dr. Natalie Azar equated hospital charges to a “list price,” much like the “manufacturer’s retail price” on a car.  She also stated that “almost no one pays the charges indicated on the price list.”

The hospital industry contends that hospitals’ charges are unlikely to help the average consumer understand how much a hospital procedure or service will actually cost.  Hospitals are also concerned that the charges may only confuse the average patient, most of whom do not understand medical terminology.   In a letter to CMS Administrator Seema Verma, Thomas P. Nickles, Executive Vice President of the American Hospital Association, stated that the “most relevant information is their potential out-of-pocket costs for a given service or course of treatment.”  Nickles also stated in his letter that because “more than 90 percent of individuals in the U.S. have health [insurance]” the insurance companies are best equipped to let their customers know the amount of their “cost-sharing obligations” for a service.   In the context of health insurance, “cost sharing” is usually some combination of a patient’s co-pay, deductibles, and the out-of-pocket requirements of their individual insurance policy or plan.

Hospitals across the country are choosing to comply with the new rule, but they also understand its limitations, and the potential for confusion among their patients.  For instance, UNC Health Care includes the following disclaimer on its website, just above the links to its charge lists: “the unit charge listed here is unlikely to be the amount that you see on a bill if you are a patient at UNC Health Care.  Due to various agreements we have in place with insurers, Medicare and Medicaid, this may not be the final price incurred.”   The UNC website has links to the lists of charges for each item and service they offer, at each of their facilities.  Their website also includes the lists of the charges for all CMS Diagnosis Related Groups (“DRG”) offered at each of their facilities (DRGs are the CMS term for its pre-determined diagnosis-based payments).  Further complicating the issue, as just one example, UNC Rex’s chargemaster list  has 13,488 individual entries and includes things like “GRAFT ZENITH ALPHA THORACIC PROXI COMP ZTA-P-40-16,,$43400.00.”   If an average healthcare consumer wants to know what that means, they will probably need to ask a hospital billing specialist.


CMS Administrator Seema Verma went so far as to acknowledge this flaw in a press call when she stated that “we recognize that at this time, it doesn’t give patients all the information they need. For example, it doesn’t include the additional discounts that insurance companies may have negotiated, and we’re working through these challenges towards the goal of patients shopping based on out-of-pocket costs and quality so that they will have the information they need at the right time to make valued decisions.”  This, hospitals claim, will only increase confusion and add to the burden on them, because their billing staff has to contact a patient’s insurance company to determine the patient’s exact out-of-pocket cost for each item on the charge lists.

In response to these criticisms, CMS Administrator Seema Verma stated in a press call that “as people are paying more for their healthcare, they’re demanding more. They want quality and price transparency.  This is just a response to the needs of patients.” Verma also stated in the same call that “through the new rules, and possible healthcare price initiatives in the future, CMS aims to make healthcare more like a retail experience when it comes to price and quality shopping.”  Verma also stood firm on CMS’s position that the new rule is an “important first step” in lowering healthcare costs because, in CMS’s view, if healthcare consumers know what the services cost, they will compare prices and competition will drive prices down.

Overall, the new rule may be good for healthcare consumers, eventually.  In its current form, it has some serious flaws.  Even CMS’s Administrator Verma acknowledges that “we (CMS) have to do more. We have to not only increase price transparency, but also recognize that the solution is not as simple as just revealing prices.”  For now, the Hospital Price Transparency Rule leaves hospitals with a requirement that they publish lists which almost no one can understand on their own. This may not matter for hospitals and their patients though, because even though the hospitals are required to publish the otherwise undiscernible lists, CMS has no ability to enforce the requirement.


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About Rob Johnston (3 Articles)
Rob is a third-year law student who served as a Staff Writer for the Campbell Law Observer. Originally from Syracuse, New York, Rob and his family now live in South Carolina. Rob received his Bachelor’s degree in Healthcare Management from Appalachian State University, a Master in Health Administration from the Medical University of South Carolina, and a Master of Jurisprudence in Health Law from the Loyola University Chicago School of Law. Before law school, Rob held leadership positions in the healthcare industry, including at a large health system, where he developed the compliance and legal services functions. He also held a regional leadership position with a national home health provider before co-founding a company that developed distribution channels for medical device start-ups. The summer after his 1L year, Rob was a Summer Associate with Nexsen Pruet’s Healthcare Practice in Columbia, South Carolina. He has also externed at the North Carolina Healthcare Association. Rob is interested in healthcare regulatory law and healthcare transactions.
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