It’s Time for Hospitals to Prepare for Price Transparency


In November 2019, pursuant to an Executive Order issued by President Trump in June 2019, the Centers for Medicare & Medicaid Services (CMS) published a Final Rule that is aimed at making hospital pricing for common services more transparent and more accessible for patient consumers. The Final Rule implements Section 2718(e) of the Public Health Service Act and goes into effect January 1, 2021,[1] which means the time has come for hospitals to prepare for compliance. While currently hospitals are required to make their “chargemaster” publically available online, the Final Rule mandates that hospitals must publish and annually update the “standard charges” for 300 “shoppable services” in a reader-friendly file. The below overview hits the highlights of these changes effective January 1, 2021:

What hospitals are required to comply with the new transparency rule?

All hospitals. The Final Rule broadly applies to all entities licensed (or approved for licensure) by a State or local applicable law as a hospital, regardless of whether the hospital participates in the Medicare program.

What charges must be published?

Hospitals must publish their “standard charges.” Importantly, the Final Rule expands the definition of “standard charge” to address several common and identifiable categories of paying patients, with charges for the following categories of paying patients to be published:

  • Gross charge: The regular rate reflected on the hospital’s chargemaster, without taking into account any discounts.
  • Payer-specific negotiated charge: The base rate or charge the hospital has negotiated with third parties for an item or service. Charges may vary based on insurance providers, so hospitals should publish the “usual or common rate” for members of a specific plan through a specific insurer.
  • Discounted cash price: The charge that would apply to individuals who pay cash or cash equivalent, unrelated to charity care or bill forgiveness. If the hospital does not offer self-pay discounts, the undiscounted gross charge may be displayed.
  • De-identified minimum negotiated charge: The lowest charge negotiated with all third-party payors for an item or service, without identifying the payer.
  • De-Identified maximum negotiated charge: The highest charge negotiated with all third-party payors for an item or service, without identifying the payer.

What are “shoppable services?”

  • The Final Rule defines “shoppable services” as those services that can be scheduled by a patient in advance. In line with a consumer-driven focus, the Final Rule requires that for those shoppable services that are customarily accompanied by ancillary services, the shoppable service must be presented as a grouping of all related charges.
  • The Final Rule adopts 70 shoppable services identified by CMS that must be included if the services are provided by the hospital. The remaining 230 selected for display must take into account the utilization and frequency with which that service is provided to its patient population. The types of charges include, for example, imaging or lab services, medical and surgical procedures, and clinic charges.

What format must be used to publish charges?

  • The charges must be published in two ways: (1) a “comprehensive machine-readable file” making all standard charge information available to the public; and (2) a consumer-friendly display that generates from the machine-readable file.
  • CMS has clarified the data elements and format of both types of files that must be made public. To view details on the content and format of what must be published, view the Final Rule here.

What penalties apply for non-compliance?

  • CMS will monitor hospital compliance through evaluation of complaints received by individuals or entities (e., community policing), as well as self-initiated audits of hospital websites.
  • Penalties for noncompliance include written warnings, imposition of corrective action plans (CAP), and the possibility of civil monetary penalties (CMP) for material violations, which would be publicized on a CMS website. According to the Final Rule, CMS contemplates opportunities to come into compliance will be offered to noncompliant hospitals before imposition of a CMP.

[1] On June 23, 2020, the United States District Court for the District of Columbia struck down a challenge to the Final Rule filed on behalf of the American Hospital Association and other groups, disagreeing with plaintiffs’ claims that CMS (an agency within the Department of Health and Human Services) exceeded its statutory authority under the Affordable Care Act, violated First Amendment rights, or was “arbitrary and capricious” under the Administrative Procedures Act. In granting summary judgment to CMS, the District Court found the lawsuit was in effect “attacking transparency measures generally, which are intended to enable consumers to make informed decisions[.]” Finding the challenge unavailing, the District Courte explained, “[h]ospitals may be affected by market changes and need to respond to a market where consumers are more empowered, but the possibility that the nature of their negotiations with insurers might change is too attenuated from the compelled disclosure to make the Rule unlawful . . . .” View the Memorandum Opinion here. While a Notice of Appeal has been filed and pushback continues from hospitals and health care systems, as of August 15, 2020, no changes have been made to the Final Rule or its effective date.

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