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CMS Dishes Out First Penalties for Hospital Price Transparency Violations

by | Sep 15, 2022

After the price transparency rules took effect in January 2021, CMS finally issued the first penalties for violations.

Hospital non-compliance with the price transparency rules that took effect January 1, 2021 was probably the worst kept secret in the healthcare world. Now, after repeated warnings, the Centers for Medicare & Medicaid Services (CMS) is finally taking enforcement action.

The Price Transparency Rule

The CMS hospital price transparency rule requires hospitals to publish their “standard charges” for both gross charges and payer-specific negotiated charges for all items and services. Pricing information must also be available on the internet in a machine-readable file and include information such as common billing or accounting codes used by the hospital, along with a description of the particular item or service. The pricing information must be presented in a “consumer friendly” way using “plain language” and include payer-specific negotiated charges for common “shoppable” services. The options:

  • A machine-readable file that contains standard charges for all charges and services at the hospital, including gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges; and
  • A consumer-friendly display of at least 300 shoppable services, that can be scheduled in advance, including plain-language descriptions in a searchable format. This section must also provide gross and discounted cash prices, payer specific charges, and de-identified minimum and maximum negotiated charges.

Key Definitions in the CMS Hospital Price Transparency Rule

“Shoppable services” is defined as those that can be scheduled by a healthcare consumer in advance, theoretically in the interest of shopping out the best price or deal. That includes most lab tests, as well as x-rays, outpatient visits, imaging tests, and bundled services like pre- and post-delivery care and cesarean deliveries. Hospitals must display negotiated charges for at least 300 services, including 70 selected by the CMS and 230 selected by the hospitals. Especially irksome is that those services cover inpatient and outpatient procedures offered to any and all patients, not just Medicare beneficiaries.
 
“Consumer-friendly” disclosure means making hospital charge information public in a prominent location online (or in written form upon request) that’s easily accessible, without barriers, and is searchable.
 
“Plain language.” Product and service descriptions must also be in “plain language,” with the shoppable service charges displayed and grouped with charges for any ancillary services the hospital customarily provides with the primary shoppable service. Hospitals must also update their posted pricing information at least once a year.

The Price Transparency Controversy

The theory behind transparency is that making hospitals disclose their prices in an accessible way will enable consumers to make better informed healthcare decisions. Hospitals contend that price disclosure will actually foster miscommunication and conflict with patients. They also consider the rates they negotiate with private payers to be sensitive proprietary information. Moreover, they note that the rule is administratively burdensome and costly to implement.

The American Hospital Association (AHA) vigorously fought the transparency rule almost from the moment the Department of Health and Human Services (HHS) proposed the final version in November 2019. In December 2019, the Association of American Medical Colleges, Children’s Hospital Association, and Federation of American Hospitals joined the AHA in a lawsuit challenging the rules and HHS’ statutory authority to require public disclosure of individually negotiated rates between commercial insurers and hospitals.

After losing in the federal district court, the AHA and its allies appealed to the DC Circuit. But it was to no avail. The appeal judges upheld the lower court’s ruling, finding that HHS’ rule was: i.) within the agency’s power to issue under the Affordable Care Act; and ii.) did not seek to expand, nor “otherwise affect traditional or ordinary economic regulation of commercial activity.”

Passive Resistance Breeds Active Enforcement

After agreeing to a one-year delay, HHS officially put the price transparency rule into effect on January 1, 2021. But hospitals dragged their feet, with many calculating the costs of compliance to be substantially greater than the potential penalties, which at the time were civil monetary penalties (CMPs) of up to $300 a day and more than $100,000 per year. Early studies showed that many hospitals weren’t in compliance. For example, of the 200 random hospitals analyzed for a June 2021 JAMA Internal Medicine report, 83 were found to be noncompliant with at least one of the rules’ major requirements. Of the 100 highest revenue hospitals analyzed, 75 were out of compliance with at least one requirement.

Of course, none of this was lost on HHS. CMS rolled out the enforcement heavy artillery by increasing penalties. Effective January 1, 2022, the minimum CMP for smaller hospitals (i.e., those with a bed count of 30 or fewer) was $300 per day; hospitals with more than 30 beds will be subject to a penalty of $10 per bed per day, up to a maximum of $5,500 per day. Result: A full calendar year of noncompliance would now cost a hospital at least $109,500 and as much as $2,007,500.

After months of warnings, CMS finally took action in June by dishing out CMPs to a pair of Georgia health system hospitals for failing to update their websites or reply to agency warning letters. And it wasn’t just a slap on the wrist:

  • $880,180 in CMPs against Northside Hospital Atlanta
  • $214,320 in CMPs against Northside Hospital Cherokee

"This enforcement action affirms the Biden-Harris Administration’s commitment to making health care pricing information accessible to people across the country and we are committed to ensuring that consumers have the information they need to make fully informed decisions regarding their healthcare,” according to an agency statement.

The Georgia hospitals haven’t yet said whether they plan to appeal the penalty amount. But one thing seems sure: There will be more CMPs to come. In April, CMS began issuing warning letters asking noncompliant hospitals to submit a corrective action plan for their websites. As of June, CMS had issued warning letters to 352 hospitals, of which 157 remain noncompliant, according to an agency spokesperson.

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