Am. Hosp. Ass'n v. Azar

Decision Date23 June 2020
Docket NumberCivil Action No. 1:19-cv-03619 (CJN)
Citation468 F.Supp.3d 372
Parties The AMERICAN HOSPITAL ASSOCIATION, et al., Plaintiffs, v. Alex M. AZAR II, Secretary of Health and Human Services, Defendant.
CourtU.S. District Court — District of Columbia

Kyle Mitchell Druding, Susan Margaret Cook, Catherine Emily Stetson, Hogan Lovells US LLP, Washington, DC, for Plaintiffs.

Michael Hendry Baer, U.S. Department of Justice, Washington, DC, for Defendant.


CARL J. NICHOLS, United States District Judge

The Affordable Care Act requires each hospital operating within the United States to establish and make public "a list of the hospital's standard charges for items and services provided by the hospital." 42 U.S.C. § 300gg-18(e) (2018). In November 2019, the Centers for Medicare and Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), issued a final rule defining "standard charges," delineating hospitals’ publication requirements, and laying out an enforcement scheme. Plaintiffs contend that the final rule exceeds the agency's statutory authority, violates the First Amendment, and is arbitrary and capricious under the Administrative Procedure Act. For the reasons discussed below, the Court rejects those challenges, denies PlaintiffsMotion for Summary Judgment, ECF No. 13, and grants Defendant's Motion for Summary Judgment, ECF No. 19.

I. Background

"The impenetrability of hospital bills is legendary." AR 4766.1 Dubbed an "arcane art[ ]," id. , and "mystifying," AR 262, hospital billing has been the target of regulations at the state and federal level for years. In 2006, the Bush administration called for greater price transparency in federal health care programs to make "data on Medicare hospital payment rates and quality more accessible to the public." AR 5266; see also AR 4778. And many states have required "hospitals to publish their full price lists (chargemasters) or prices of most commonly used services." AR 5266.

In 2010, as part of the Affordable Care Act, Congress enacted section 2718 of the Public Health Service Act. See Patient Protection and Affordable Care Act, Pub. L. No. 111-148 § 10101(f), 124 Stat. 119, 887 (2010). Entitled "Bringing down the cost of health care coverage," and as most relevant here, the statute mandates that

[e]ach hospital operating within the United States shall for each year establish (and update) and make public (in accordance with guidelines developed by the Secretary) a list of the hospital's standard charges for items and services provided by the hospital , including for diagnosis-related groups established under section 1395ww(d)(4) of this title.

42 U.S.C. § 300gg-18(e) (emphasis added). In 2014, CMS "remind[ed] hospitals of their obligation to comply with" this provision, 79 Fed. Reg. 27,978, 28,169 (proposed May 15, 2014) ; 79 Fed. Reg. 49,854, 50,146 (Aug. 22, 2014), and pointed to its implementation guidelines, which provided that "hospitals either make public a list of their standard charges (whether that be the chargemaster itself or in another form of their choice), or their policies for allowing the public to view a list of those charges in response to an inquiry." 79 Fed. Reg. at 50,146.

Hospitals were thus able to comply with section 2718(e) by making public something called a chargemaster, which is a document maintained by each hospital that contains a list of prices for "each [individual] item and procedure offered," AR 4768. See 84 Fed. Reg. 65,524, 65,539 (Nov. 27, 2019). Each item and procedure (which may number in the thousands) is usually assigned a billable procedure code and typically corresponds to a description and dollar amount. Id. ; see also AR 5154–55. Chargemasters, and the dollar amounts associated with the listed items and procedures, are considered a critical "accounting tool" that hospitals rely on as a starting point in negotiating reimbursement payments, especially with third-party private payers. AR 5159–60; see also AR 6735–36. But chargemaster rates are highly inflated and often "bear little resemblance" to the actual payment tendered to a hospital by a patient or third-party provider (private insurance companies or Medicare and Medicaid). AR 4769.2 In fact, one study found that "[o]n average, insurers and patients paid hospitals [only] about 38% " of the amounts on chargemasters. Id. (emphasis added) (citation omitted).

In 2018, CMS announced that, effective January 1, 2019, it was updating its guidelines to require hospitals to post their standard charges online in a machine-readable format and update the information annually. See 83 Fed. Reg. 20,164, 20,549 (proposed May 7, 2018) ; 83 Fed. Reg. 41,144, 41,686 –88 (Aug. 17, 2018). CMS emphasized that regardless of format, the list should contain the charges as reflected in the hospital's chargemaster. 83 Fed. Reg. at 41,686 –88. At the same time, CMS expressed concern that chargemaster "data are not helpful to patients for determining what they are likely to pay for a particular service or hospital stay." Id. at 41,686. CMS indicated it was contemplating taking additional actions to increase transparency and to help patients compare charges and understand the financial impact of hospital visits. See id. ; see also 83 Fed. Reg. at 20,549. Throughout 2018, CMS solicited public comments on the definition of standard charges under section 2718(e), as well as the types of information that would be most relevant to patients. 83 Fed. Reg. at 20,549. CMS specifically sought comments on whether a chargemaster functions as the best measure of a hospital's "standard charges" or if a hospital's "standard charges" should instead be defined as a type of average or median rate—for instance, the average rate for items on the chargemaster, average discounts off the chargemaster, or average contracted rates. Id. And, for what appears to be the first time, CMS requested comments on how to enforce section 2718(e), including whether monetary penalties should be imposed on hospitals for failing to comply. See id.

On June 24, 2019, the President issued an executive order related to "informing patients about actual prices." Exec. Order No. 13877, Improving Price and Quality Transparency in American Healthcare to Put Patients First, 84 Fed. Reg. 30,849 (June 24, 2019), The order directed the Secretary of HHS to "propose a regulation, consistent with applicable law, requir[ing] hospitals to publicly post standard charge information, including charges and information based on negotiated rates and for common or shoppable items and services," in easy-to-understand formats so as to "inform[ ] patients about actual prices." Id. at 30,850.

In August, the HHS Secretary and CMS Administrator issued CMS's annual notice of proposed rulemaking. 84 Fed. Reg. 39,398 (Aug. 9, 2019) (the "Proposed Rule"); see also Compl. ¶ 29, ECF No. 1; Def.’s Mot. for Summ. J. ("Def.’s Mot.") at 7, ECF No. 19. Consistent with the executive order, the Proposed Rule addressed, among other issues, hospitals’ obligations under section 2718(e) to publish their standard charges. 84 Fed. Reg. at 39,571, 39,574. Citing the related FY 2019 proposed rule, requests for information, and listening sessions, CMS expressed its concern about a persistent lack of pricing transparency in the health care market and signaled a shift away from its prior positions. See id. at 39,574. The agency stressed that its review of comments from 2018 showed that "simply put, hospitals do not offer all consumers a single ‘standard charge’ for the items and services they furnish." Id. at 39,577. In the agency's view, in the health care market, a "standard charge ... varies depending on the circumstances particular to the consumer." Id.

The agency proposed a new definition for "standard charges" that would account for two identifiable groups of hospital patients: those who are self-pay and those who have third-party payer coverage (i.e., health insurance). Id. at 39,578. Self-pay patients normally pay either chargemaster rates ("gross charges") or discounted cash prices. See id. Third-party payers, in contrast, pay rates that vary based on fee-for-service ("FFS")3 arrangements or privately negotiated rates and discounts, which often apply to "service packages" (bundles of services). See id. at 39,576 –79. Approximately 90% of hospital patients "rely on a third-party payer to cover a portion or all of the cost of health care items and services, including a portion or all of the cost of items and services provided by hospitals." Id. at 39,579. Under the proposed rule, "standard charges" would be defined as "gross charges" and "payer-specific negotiated charges," corresponding to the charges paid by the two primary patient-groups. Id. at 39,578 –80.

The agency received comments from a variety of stakeholders, including patients, patient advocates, hospitals and health systems, private insurers, health benefits consultants, health information technology organizations, and academic institutions. Id. at 65,527. The majority of commenters praised the move toward transparency and the agency's general objectives, but commenters varied on whether the proposed rule furthered those objectives. See id.

Individual consumers generally lauded the agency's proposals. They shared their experiences dealing with the opaqueness of health care billing and expressed frustrations at the inability to anticipate costs before receiving treatment at a hospital. Id. Some commenters hailed the proposed rule, remarking that "knowledge of healthcare pricing in advance would benefit consumers and empower them to make lower cost choices." Id.

Hospital and insurer organizations and advocacy groups, on the other hand, objected to the Rule on a number of grounds. Many disputed that the agency had the statutory authority to...

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    • Mondaq United States
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    ...because the Rule, among other things, unfairly forced hospitals to disclose trade secret information. See Am. Hosp. Ass'n v. Azar, 468 F. Supp. 3d 372, 374 (D.D.C. 2020), aff'd, 983 F.3d 528 (D.C. Cir. On appeal, the AHA took issue with the requirement that hospitals disclose their negotiat......
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    • September 13, 2021
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