468 F.Supp.3d 372
D.D.C.2020Background
- The Affordable Care Act (42 U.S.C. § 300gg-18(e)) requires each U.S. hospital to "establish (and update) and make public . . . a list of the hospital’s standard charges for items and services." CMS promulgated a standalone Price Transparency Final Rule in Nov. 2019 (effective Jan. 1, 2021).
- The Final Rule requires hospitals to publish five categories of ‘‘standard charges’’ for all items/services: gross (chargemaster) charges; discounted cash prices; payer-specific negotiated charges; and de-identified minimum and maximum negotiated charges. It also requires consumer-friendly disclosure for 300 shoppable services.
- CMS developed the rule after prior guidance, public comment, and a White House executive order; it also adopted an enforcement scheme under § 2718(b)(3) (warnings, corrective plans, civil monetary penalties).
- Plaintiffs (American Hospital Association and others) sued, arguing the Rule exceeds statutory authority, violates the First Amendment (compelled speech), and is arbitrary and capricious under the APA. Cross-motions for summary judgment were filed.
- The court reviewed the administrative record and applied Chevron for statutory interpretation, Zauderer/Central Hudson frameworks for First Amendment review of compelled commercial disclosures, and the State Farm arbitrary-and-capricious standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope of "standard charges"—does it unambiguously mean only chargemaster rates? | "Standard charges" unambiguously means chargemaster (gross) rates. | Term is ambiguous; context (DRGs, market realities) supports broader reading. | Ambiguous under Chevron Step 1; not limited to chargemaster. |
| Inclusion of payer-specific negotiated rates and other categories (Chevron Step 2) | Including negotiated rates and ranges is unreasonable and inconsistent with statute and with "standard." | Reasonable to define "standard" by patient subgroups (self-pay vs. insured) and include negotiated/DRG rates to reflect amounts actually paid. | CMS’s multi-category definition is a permissible, reasonable construction under Chevron Step 2. |
| Authority to impose penalties under § 2718(b)(3) | Enforcement language was a drafting error intended only for MLR subsections; Congress didn’t authorize penalties for § 2718(e). | Plain text authorizes enforcement of the entire section and permits penalties; nothing in legislative history negates that. | § 2718(b)(3) authorizes the Secretary to promulgate enforcement regs, including penalties, for the section as written. |
| First Amendment — compelled speech (standard of review) | The Rule compels hospitals to speak and is not commercial advertising; strict scrutiny applies and the Rule fails any test. | The disclosures are commercial speech/disclosures about terms of sale; Zauderer (or Central Hudson) governs and the Rule survives. | Zauderer applies (compelled commercial disclosures); CMS’s objectives are substantial and the Rule is reasonably related to them. |
| Arbitrary & capricious (APA) | Rule will confuse patients, impose disproportionate compliance costs, and may produce anti-competitive effects—CMS failed to adequately justify. | CMS relied on record evidence, considered comments, acknowledged uncertainty, and reasonably concluded benefits outweigh burdens. | Not arbitrary or capricious: CMS examined the record, explained its choices, and made reasonable predictive judgments. |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (framework for deference to reasonable agency statutory interpretations)
- Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626 (1985) (permissive standard for compelled commercial disclosures)
- Central Hudson Gas & Elec. Corp. v. Public Service Comm'n, 447 U.S. 557 (1980) (intermediate-scrutiny test for commercial speech restrictions)
- Am. Meat Inst. v. U.S. Dep't of Agric., 760 F.3d 18 (D.C. Cir. 2014) (en banc) (Zauderer may extend beyond deception contexts)
- Nat'l Ass'n of Manufacturers v. SEC, 800 F.3d 518 (D.C. Cir. 2015) (limits Zauderer where disclosures are unconnected to point-of-sale labeling)
- Spirit Airlines, Inc. v. Dep't of Transp., 687 F.3d 403 (D.C. Cir. 2012) (price advertising as commercial speech; Zauderer may apply)
- Expressions Hair Design v. Schneiderman, 137 S. Ct. 1144 (2017) (price-display regulations can implicate First Amendment)
- Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (Administrative Procedure Act arbitrary-and-capricious review standard)