Case Information
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA THE AMERICAN HOSPITAL
ASSOCIATION, et al.,
Plaintiffs ,
v. Civil Action No. 1:19-cv-03619 (CJN) ALEX M. AZAR II, Secretary of Health and
Human Services,
Defendant .
MEMORANDUM OPINION
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 Plaintiffs’ Motion 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. 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. 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. 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
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), https://www.whitehouse.gov/presidential-actions/executive-order-improving-price-quality- transparency-american-healthcare-put-patients-first. 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.
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”) 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 require disclosures of specific negotiated charges, id. at 65,537–38, or to require the publication of information they believed to constitute trade secrets, id. at 65,543. Hospitals were especially skeptical that the disclosures would lead to lower costs or would benefit consumers because the disclosed charges often will not represent patients’ actual out-of-pocket costs. See id. at 65,527–28 . And hospitals expressed concerns regarding the compliance burden, which could ultimately “get in the way of providers spending time with patients.” Id. at 65,529.
Commenters also engaged with the agency on its proposed definition of “standard charges.” Some offered alternative definitions, recommending, for example, the use of regional and market averages of negotiated rates instead of the specific rates themselves. See id. at 65,554. Patient advocates, however, expressed that the use of averages or medians would not provide individual consumers with data relevant to them and would instead cause confusion. Id. Several commenters indicated that the most useful information would be the payer-specific negotiated charges in conjunction with de-identified minimum and maximum negotiated charges, which can provide patients with a more extensive understanding of hospital charges. Id. at 65,553–55.
CMS ultimately severed the Proposed Rule from the rule on Medicare payment systems
and issued as a stand-alone rule the Price Transparency Requirements for Hospitals to Make
Standard Charges Public, 84 Fed. Reg. 65,524 (Nov. 27, 2019) (to be codified at 45 C.F.R.
subch. E) (the “Final Rule” or “Rule”). Mem. in Supp. of Pls.’ Mot. for Summ. J. (“Pls.’
Mot.”) at 9, ECF No. 13-1; Def.’s Mot. at 7–8. The Rule finalized CMS’s proposed definition of
standard changes “to mean the regular rate established by the hospital for an item or service
provided to a specific group of paying patients.”
The final rule therefore requires hospitals to publish five types of “standard charges.”
First, a hospital must publish for each item or service its “gross charge,” which is “the charge . . .
that is reflected on a hospital’s chargemaster, absent any discounts.”
Id.
at 65,541;
45 C.F.R. § 180.20. Gross charges appear as the first charge on an explanation of benefits.
Second, a hospital must publish its “discounted cash price,” which is the “charge that
applies to an individual who pays cash (or cash equivalent) for a hospital item or service.”
Id.
at 65,553; 45 C.F.R. § 180.20. According to the agency, this information benefits two types of
self-pay consumers: uninsured patients and patients who may have some coverage, but due to
various factors, will still need to absorb the full cost of certain services.
Third, a hospital must publish its payer-specific negotiated charges, which are “the
charge[s] that a hospital has negotiated with a third-party payer for an item or service.”
Id.
at 65,555; 45 C.F.R. § 180.20. Charges can vary based on the insurance provider, and thus the
standard charges for these patients are the “usual or common rate for the members of” “a specific
plan through a specific insurer.”
Finally, hospitals must publish de-identified minimum and maximum charges, which are the highest and lowest charges that a hospital has negotiated with all third-party payers for an item or service but are not linked to the particular third-party payer. See id. at 65,554; 45 C.F.R. § 180.20. CMS stated that this information would allow insured patients to analyze their insurers’ abilities to negotiate effectively and “promote value choices in obtaining a healthcare insurance product.” 84 Fed . Reg. at 65,555. Uninsured patients could also use the ranges to negotiate with hospitals for a reduced rate from the inflated gross charges. See id.
Each hospital is therefore required to publish a list containing the foregoing types of five
charges for all of its “items and services” (which are defined as “all items and services, including
individual items and services and service packages, that could be provided by a hospital to a
patient in connection with an inpatient admission or an outpatient department visit for which the
hospital has established a standard charge”).
Id.
; 45 C.F.R. § 180.20. Hospitals must also
publish “public payer-specific negotiated charges[,] . . . discounted cash prices, the de-identified
minimum negotiated charge, and the de-identified maximum negotiated charge, for 300
‘shoppable services,’” which are services that can be scheduled by a health care consumer in
advance.
CMS also concluded that under section 2718(b)(3), it was authorized to develop an
enforcement scheme, which would include first providing a written warning to the hospital, then
requesting a corrective action plan, and finally, imposing and publicizing a civil monetary
penalty.
See
The Final Rule is scheduled to go into effect on January 1, 2021. 45 C.F.R. § 180.50. On December 4, 2019, Plaintiffs American Hospital Association, Association of American Medical Colleges, Federation of American Hospitals, National Association of Children’s Hospitals, Memorial Community Hospital and Health System, Providence Health System doing business as Providence Holy Cross Medical Center, and Bothwell Regional Health Center, filed suit, alleging that the agency exceeded its statutory authority under the Administrative Procedure Act (APA), 5 U.S.C. § 706(2)(C) (2018), Compl. ¶¶ 79–85; that the Rule violates the First Amendment, Compl. ¶¶ 86–94; and that the Rule is arbitrary and capricious, also in violation of the APA, § 706(2)(A), Compl. ¶¶ 95–101. Plaintiffs and Defendants cross-moved for summary judgment, ECF Nos. 13, 19, and these motions are now ripe for decision.
II. Legal Standard
In a motion for summary judgment seeking review of a final agency action, “[t]he ‘entire
case’ on review is a question of law,” and there is “no real distinction between questions
presented in a Rule 12(b)(6) motion to dismiss and motion for summary judgment
.
”
Am.
Bioscience, Inc. v. Thompson
,
III. Analysis
A. Statutory Authority Plaintiffs contend that the Final Rule exceeds CMS’s statutory authority. “Standard charges,” Plaintiffs contend, is an unambiguous term that can only refer to a hospital’s chargemaster charges, and the term cannot be stretched to apply to custom negotiated charges with third-party payers. See Pls.’ Mot. at 12–13. For its part, the agency disputes that “standard charges” refers to chargemaster rates and maintains that its interpretation, which accounts for the rates that are actually paid and the different types of patients and payers in the market, is either the best reading of the statute, or at minimum, a reasonable one. Def.’s Mot. at 2.
Under the well-known framework articulated in
Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc.
,
1. Chevron Step One
Standard Charges. The analysis begins, as always, with the text. Section 2718(e) requires each hospital to “establish (and update) and make public . . . 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). The statute does not define “standard charges,” nor does the term appear elsewhere in the Affordable Care Act.
Plaintiffs nonetheless argue that “standard charges” unambiguously means “chargemaster
charges.” Relying principally on several judicial decisions (including unpublished ones),
Plaintiffs argue that, in the hospital industry, “standard charges” has long meant “chargemaster
charges” and that “Congress is presumed to have been aware of” and thus adopted that
longstanding definition. Pls.’ Mot. at 12 (citing
Morissette v. United States
,
The presumption that Congress has adopted a particular meaning of a word or phrase
attaches to “terms of art in which are accumulated the legal tradition and meaning of centuries of
practice.”
Morissette
,
Perhaps more importantly, had Congress intended to require the publication of just a hospital’s chargemaster or chargemaster rates, it could easily have done so by using the term “chargemaster” in section 2718(e). Def.’s Mot. at 15. “Chargemaster usage dates back to the mid-20th century,” [8] and as recently as 2008, a Congressional Research Service report on health care price transparency described the role of the chargemaster in hospital billing (including the attenuated relationship between chargemaster prices and actual payments), see, e.g. , AR 4769–80. If anything, then, “ chargemaster ” is a term of art in the health care market, [9] and the fact that Congress chose not to use that term is strong evidence that “standard charges” does not mean (or at least that it does not unambiguously mean) only “chargemaster charges.”
Plaintiffs’ argument that “standard charges” necessarily means “chargemaster rates” is
also inconsistent with the statute’s use of the term “standard,” which even Plaintiffs admit means
“usual, common, or customary.” Pls.’ Mot. at 11–12 (citing Dictionary.com (2019)
(“serving as a basis of weight, measure, value, comparison, or judgment”); Merriam-Webster
(2019) (“regularly and widely used, available, or supplied”); Oxford English Dictionary (2019)
(“[h]aving the prescribed or normal size, amount, power, degree of quality, etc.”); Black’s Law
Dictionary (11th ed. 2019) (“A model accepted as correct by custom, consent, or authority.”). It
is undisputed that chargemaster rates are not the amounts paid on behalf of
90%
percent of
hospitals’ patients, and thus it is hard to see how they can be considered usual, common, or
customary.
See
inconsistent with the use of the term “establish” in the statute, which requires hospitals to “establish . . . a list of . . . standard charges.” The plain meaning of “establish” is “to bring into existence” or “to bring about, effect.” Establish , Merriam-Webster (2020), https://www.merriam-webster.com/dictionary/establish. The implication is that a list of “standard charges” did not exist at the time of the statute’s enactment because hospitals were mandated to bring them about. Lists of chargemaster prices, however, have long existed. (2017), https://www.ajmc.com/journals/issue/2017/2017-vol23-n4/battling-the-chargemaster-a- simple-remedy-to-balance-billing-for-unavoidable-out-of-network-care (cited at 84 Fed. Reg. at 65,538 n.45).
Plaintiffs’ answer to this, although not well-developed, appears to be that the term
“charge” is itself a term of art in the health care market.
See
Pls.’ Reply at 3–4. Plaintiffs’
argument seems to be that in this market at least, each item or service has a “charge” that is
something like the undiscounted amount that the hospital associates with that item or service.
See id.
(citing AR 6733). The hospital includes that amount on all of its bills, even though it is
usually not the amount the hospital expects to be paid, especially in connection with patients who
are insured or who are paying cash.
See
But this argument does not appear to clear up any ambiguity. The word “charge” means
“the price demanded for something.” Pls.’ Reply at 3 n.2 (citing Merriam-Webster). Yet
chargemaster rates are rarely demanded for payment—again, chargemaster rates are paid for
only about 10% of hospital patients, making them anything but the “standard” price demanded
for a hospital’s services. Plaintiffs also endorse the CMS Medicare Provider Reimbursement
Manual’s definition of charges: the “regular rates established by the provider.” May 7, 2020
Hr’g Tr. at 10–12 (citing CMS Medicare Provider Reimbursement Manual § 2202.4). But if that
definition were adopted, then the statute would require the publication of hospitals’ “standard”
“regular rates,” rendering the term “standard” superfluous. It is, of course, a “cardinal principle
of statutory construction that courts must give effect, if possible, to every clause and word of a
statute,” and thus this Court “must give independent meaning” to both “standard” and “charge.”
Williams v. Taylor
,
There is yet another problem with Plaintiffs’ interpretation. The statute’s use of the term
“standard” certainly implies that hospitals also have non-standard or irregular charges, but
Plaintiffs have resisted this implication, contending that they have only one set of charges: those
reflected in their chargemasters.
See, e.g.
, Br. of Amici Curiae Thirty-Seven State Hospital
Associations in Supp. of Pls.’ Mot. for Summ. J. (“Br. of 37 State Hospital Associations”) at 15
(“[T]he ‘chargemaster’ remains a hospital’s
only
universal list of charges for services.”),
ECF No. 25-1; AR 1768–69 (asserting “hospitals
charge
every patient the same”);
cf. DiCarlo
v. St. Mary Hosp
.,
Diagnosis-Related Groups. Finally, Plaintiffs’ interpretation that “standard charges” are chargemaster charges is inconsistent with the requirement that hospitals publish “a list of the . . . 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). To understand why requires a brief understanding of diagnosis-related groups (“DRGs”) and the evolution of their usage. A DRG is part of a payment methodology essential to Medicare reimbursement. See AR 4769; AR 5285–86. In contrast to retrospective methods of payment, under the DRG methodology, hospitals and insurers agree in advance on a flat-fee reimbursement for inpatient care; “[u]pon each hospital discharge, all of the diagnoses, procedures, complications[,] co-morbidities, and other patient characteristics are coded” and assigned to medical-severity DRG groups. AR 5285. To simplify: Medicare reimburses hospitals through “bundled” payments for certain inpatient treatments, and a hospital’s reimbursement for a particular patient does not vary based on certain supplies or medication amounts used, such as how many pain pills or bags of IV fluid the patient requires (assuming relevant predefined factors were unaffected). Def.’s Mot. at 12–13. Commercial insurers have followed suit, see AR 5285, relying on Medicare’s list of DRGs but using different reimbursement formulas, particularly because they can extract additional discounts from hospitals, see AR 4769.
A DRG combines the relevant items and services into a single charge, which is not listed on a chargemaster. Def.’s Mot. at 13. And in the context of private insurers, the DRG charge is generally the product of negotiations. As a result, the agency contends, the statute’s requirement that the list of standard charges include those for DRGs is, at a minimum, inconsistent with Plaintiffs’ argument that “standard charges” unambiguously means chargemaster charges. See Def.’s Mot. at 12–14.
The Court agrees. The statute requires each hospital to post “a list of [their] standard
charges for items and services provided by the hospital,
including
for diagnosis-related groups.”
42 U.S.C. § 300gg-18(e) (emphasis added). But it is undisputed that the costs or bundled
charges associated with DRGs do not appear on a chargemaster, which only lists the prices of
individual items and services.
Although section 2718(e) references the DRGs established
by
Medicare, it does not limit
the “items or services” to those provided
to
Medicare patients. As noted above, third-party
payers use the Medicare DRGs to negotiate their own DRGs and bundled packages that are
coded differently than DRGs, and which also may be priced differently than Medicare rates.
See
* * *
For the foregoing reasons, Plaintiffs’ argument that “standard charges” unambiguously means “chargemaster charges” is unpersuasive. But that does not resolve the statutory question, as under Chevron step two, CMS’s interpretation must still be reasonable.
2. Chevron Step Two
The agency explained when it promulgated its Rule that there is no “singular ‘standard’
that applies to all identifiable groups of patients,” and thus it attempted to define what is
“standard” by reference to different patient subsets.
As discussed above, Plaintiffs argue that the statute unambiguously requires the publication of only one category of information—the chargemaster rates (gross charges). But with respect to Chevron step two (that is, once the Court has decided that the statute is ambiguous), Plaintiffs’ principal argument is that it is an unreasonable interpretation to require publication of payer-negotiated charges. See, e.g. , Pls.’ Mot. at 11, 13, 15; see also May 7, 2020 Hr’g Tr. at 15 (admitting that if the statute is ambiguous, the question of whether a requirement to publish discounted cash prices is reasonable is a “closer question”). Plaintiffs argue that for not disturb the Medicare reimbursement scheme and simply addresses pricing transparency to the public at large. In fact, section 2718(e) refers only to section 1395ww(d)(4), while discussions of outlier payments are in section 1395ww(d)(5). The agency argues that its construction, which requires the disclosure of prices for the “vast
majority of patients” and gives effect to the DRG clause, is the best reading of the statute. Def.’s
Mot. at 10–11. But it also recognizes that the Court need not decide that issue,
id.
, because
under step two of
Chevron
, the Court need only determine whether the “agency’s definition [of
‘standard charges’] is ‘based on a permissible construction of the statute, which requires only
that its construction be a reasonable one,”
Serono Labs., Inc. v. Shalala
,
It is a close call whether the agency reasonably interpreted “standard charges” to include
rates negotiated with third-party payers. After all, the more charges published for any one item
or service, the less any one of those charges can be considered “usual” or “customary.” But in
this exceptionally unique market, the Court cannot conclude that CMS’s interpretation is
unreasonable. It is undisputed that different groups (or sub-groups) of patients have different
economic relationships with both hospitals and third-party payers; that some patients have no
third-party coverage; and that the amounts paid to hospitals for items and services differ across
those various patient groups. The agency’s decision to define “standard charges” based on the
different patient groups is thus a reasonable construction that accounts for the peculiar dynamics
of the health care industry. For self-pay patients, for example, “standard charges” are typically
the gross charges or discounted cash prices. But such patients make up far less than 50% of the
market, and for the remaining patients, there simply is no single “standard charge.” Instead,
amounts paid to hospitals for patients with third-party coverage depend not only on the specific
insurer or plan, but also on various other factors, including patients’ particular insurance plans.
See
Plaintiffs’ attempts to analogize charges in the hospital billing to prices in other industries only highlight the uniqueness of this market. See Pls.’ Reply at 3–4. For instance, Plaintiffs use menu prices to argue that the Rule requires publication of non-standard rates. They argue that a restaurant’s menu price for a sandwich is the standard charge; if the restaurant offered to supply hundreds of sandwiches for a discounted price at a certain event, those prices would not be standard. See id. This analogy seems inapt here. In the restaurant context, the price on the menu is the amount most customers will pay, with discounts being the exception. The situation is flipped in the hospital market, where the listed prices (i.e., the chargemaster rates) are paid by only about 10% of patients—and are substantially higher than the amounts insurers actually pay. Richman, supra , at e101. And unlike the modest discounts that restaurants (or sellers in other industries) may offer, hospital “discounts” are significantly more than the actual payment rendered, several times over. One study found that hospitals may inflate the costs in the chargemaster “more than fourfold” and that some services can “have charge-to-cost ratios of almost 30.” [15]
In sum, the agency’s definition cannot be considered “manifestly contrary to the statute,”
Chevron
,
For similar reasons, the agency’s construction requiring the publication of privately
negotiated DRG rates also does not render it unreasonable. As noted above, Plaintiffs argue that,
even assuming “standard charges” can mean paid rates, the DRG clause only applies to payments
by Medicare, not private insurers.
See
Pls.’ Reply at 7–9. But Medicare reimbursement for
DRGs are set through a formula that is part of the agency’s annual rulemaking for Medicare’s
inpatient prospective payment system,
see, e.g.
,
id.
;
As for the de-identified minimum and maximum charges, the agency’s decision to
include them as “standard charges” is also reasonable. After all, these charges are a subset of
payer-negotiated charges and supplement the list by providing a range of the highest and lowest
charges that a hospital has negotiated with all third-party payers for an item or service.
See
To be sure, there may have been other reasonable interpretations of the statute. The
Court is “mindful[, however,] that [its] role is not to determine . . . the most reasonable
interpretation of the statute, but to make sure that the [agency’s] interpretation is reasonable, that
is, ‘rational and consistent with the statute.’”
S. Calif. Edison Co. v. FERC
,
Plaintiffs make a final argument against the agency’s interpretation by resisting
altogether the application of the
Chevron
framework. In their view, the agency’s interpretation
warrants no deference because the Final Rule emerged not as a product of the agency’s expertise
but as a response to the President’s executive order, which “prescribed the very definition of
‘standard charges’ that the agency adopted.” Pls.’ Reply at 10;
see also
Pls.’ Mot. at 14. The
executive order, however, mandated only that the agency
propose
a rule that included standard
charges. Def.’s Mot. at 22. And importantly, CMS had been exploring new definitions for
“standard charges” well before the President’s order.
See
3. Penalties
Plaintiffs argue separately that the statute does not empower CMS to impose penalties for failures to comply with the publication requirements. Pls.’ Mot. at 16–19. Section 2718(b)(3), from which CMS draws its authority, reads: “The Secretary shall promulgate regulations for enforcing the provisions of this section and may provide for appropriate penalties .” (emphasis added). Despite this express language, Plaintiffs contend that the word “section” is a scrivener’s error, and that Congress authorized the Secretary to enforce only subsections (a) and (b). See Pls.’ Mot. at 16–19. Pointing to the ACA’s “complex” legislative process, Plaintiffs argue that when the enforcement provision was first drafted, it was intended to apply to the medical loss ratio (“MLR”) provisions (subsections 2718 (a), (b)) only, and that the provision requiring the publishing of standard charges, on the other hand, had no such enforcement authorization. Id. at 16–17. The provisions were eventually consolidated, but according to Plaintiffs, the enforcement provision was never intended to reach the “standard charges” subsection. See id. at 18–19.
The language authorizing the Secretary to impose penalties does indeed appear in a
strange location in the section—subsection (b)(3), in a section ranging from (a) to (e). Even so,
subsection (b)(3) expressly provides that in enforcing the
section
, the Secretary may impose
penalties. And although the “standard charges” provision did not have an enforcement provision
early on in the drafting process, Plaintiffs point to nothing in the legislative process that indicates
Congress did not want the Secretary to enforce section 2718(e) once Congress saw fit to combine
the MLR and standard charges provisions into one section. It can hardly be said that authorizing
the Secretary to impose penalties to enforce the entire section is “demonstrably at odds with the
intentions” of Congress. Def.’s Mot at 25 (citing
Demarest v. Manspeaker
,
Plaintiffs insist that reading the statute to permit the Secretary to enforce the entire section and “provide for appropriate penalties” would lead to an “absurd result” because it would authorize the Secretary to penalize the National Association of Insurance Commissioners. Pls.’ Mot. at 18; Pls.’ Reply at 14 (citation omitted). But the statute is permissive, and an over- inclusive permissive provision is certainly not unthinkable. See Def.’s Mot. at 27 (citation omitted). To the extent Plaintiffs are concerned about the Secretary penalizing the representative of separate State sovereigns, Pls.’ Mot. at 18–19, the enforcement provision itself is limited to the imposition of appropriate penalties. In short, while the enforcement provision may have an awkward placement, its plain language forecloses Plaintiffs’ argument.
B. First Amendment
Plaintiffs mount an independent attack on the Final Rule, contending that it compels
speech in violation of the First Amendment. The Parties dispute whether the Rule should be
subject to strict scrutiny, or, if it regulates commercial speech, which of the standards addressing
commercial speech should apply: the more deferential one under
Zauderer v. Office of
Disciplinary Counsel of Supreme Court of Ohio
,
1. Standard of Review
As for the standard of review, Plaintiffs argue that the Rule is not directed at commercial
speech because it does not regulate advertising and because it “imposes an affirmative obligation
on hospitals to speak” and, as a result, is subject to strict scrutiny. Pls.’ Mot at 19–21. Plaintiffs’
half-hearted argument here relies on several inapposite cases that applied strict scrutiny where
the government sought to regulate communicative content or target a specific message or
speaker. Pls.’ Mot. at 19 (citing
Nat’l Inst. of Family & Life Advocates v. Becerra
,
Relying on
Spirit Airlines, Inc. v. Dep’t of Transp.
, Plaintiffs argue that commercial
speech is limited to “proposing a commercial transaction.” Pls.’ Mot. at 20 (citing 687 F.3d
403, 412 (D.C. Cir. 2012) (upholding airfare advertising rules)). But the Court in
Spirit Airlines
was weighing whether price advertising was
merely
proposing a commercial transaction; to the
extent it was, advertising regulations triggered only the level of scrutiny applicable to
commercial speech.
including business corporations—“ha[ve] the right to tailor the[ir] speech” and that such a right
“applies not only to expressions of value, opinion, or endorsement, but equally to statements of
fact the speaker would rather avoid.”
But even if strict scrutiny does not apply, is the Final Rule subject to intermediate
scrutiny under
Central Hudson
or the “reasonable” standard under
Zauderer
? The D.C. Circuit
once explained that “where laws are ‘directed at misleading commercial speech,’ and where they
‘impose a disclosure requirement rather than an affirmative limitation on speech,’
Zauderer
, not
Central Hudson
, applies.”
Spirit Airlines,
Plaintiffs argue that
AMI
should be read in light of
National Association of
Manufacturers v. SEC
(“
NAM
”),
Here, in contrast, the Final Rule requires the publication of the payments that hospitals
receive for their items and services for differently situated patients; that information does not
contain any expressive component similar to
NAM
. And this information—unlike the
NAM
compelled disclosure which was “unconnected” to labeling at the point of sale, 800 F.3d
at 522—is directly relevant to “the terms . . . under which the services will be available,”
AMI
,
The application of
Zauderer
here is also consistent with more recent cases. In
National
Institute of Family & Life Advocates
, for instance, the Court refused to apply
Zauderer
to a rule
requiring pregnancy clinics to conspicuously post notices informing women of the existence of
abortion procedures, holding such a requirement was “not limited to ‘purely factual and
uncontroversial information about the terms under which . . . services will be available.’”
And recently, cases that have examined regulations touching on the display of prices have
suggested that, to the extent that price regulations implicate the First Amendment,
Zauderer
may
be the appropriate standard so long as the regulation does not impede a message the speaker
would like to convey. In
Expressions Hair Design v. Schneiderman
, for example, the Supreme
Court held that a New York law banning merchants from imposing a surcharge for the use of a
credit card was a speech regulation.
The Court therefore holds that
Zauderer
applies here, and the Final Rule must therefore
be reasonably related to the agency’s interests and cannot be so unjustified or unduly
burdensome that it chills protected speech.
See United States v. Philip Morris USA Inc.
,
2. Zauderer
Plaintiffs do not appear to dispute that the agency’s asserted interest in increasing transparency is substantial. Instead, they argue that the Rule is unjustified because the publication of hundreds of prices will “confuse” patients and “frustrate . . . [their] decision- making.” Pls.’ Mot. at 27. They further contend that the regulation is unduly burdensome. Id.
The agency has explained it has two interests: “providing consumers with factual price
information to facilitate more informed health care decisions” and “lowering healthcare costs.”
Def.’s Mot. at 32 (citing
While it is true that the published charges may not be the out-of-pocket costs for all
patients, this does not mean that the disclosures are so incomplete that they are no longer “purely
factual and uncontroversial.” Pls.’ Mot. at 26 (quoting
Zauderer
,
Plaintiffs argue that requiring insurers to publish patients’ out-of-pocket costs would be
more useful to patients and point to an ongoing rulemaking that would require just that.
See
Pls.’ Reply at 18–19. But
Zauderer
(like
Central Hudson
) does not require a perfect fit, only a
reasonable one. Plaintiffs also ignore that the Rule enables patients to compare discounted cash
prices with negotiated rates to determine which option is the most affordable.
See
Def.’s Reply
at 21 (citing
Plaintiffs focus on the logistical and financial burdens of compliance with the Rule. But
the question of whether a regulation is “unduly burdensome” looks to whether
speech
is
burdened or chilled. Def.’s Reply at 21;
Zauderer
,
Plaintiffs argue that the publication of payer-specific negotiated rates will chill
negotiations between hospitals and insurers.
[23]
Pls.’ Reply at 26. But the Rule requires only the
publication of the final agreed-upon price—which is also provided to each patient in the
insurance-provided explanation of benefits—and not any information about the negotiations
themselves.
[24]
Plaintiffs are essentially attacking transparency measures generally, which are
intended to enable consumers to make informed decisions; naturally, once consumers have
certain information, their purchasing habits may change, and suppliers of items and services may
have to adapt accordingly. (This was implicit in
AMI
, which recognized that consumers wanted
country-of-origin labels and that the mandate was spurred in part by “buy American” interests.
AMI
,
This brings us to Plaintiffs’ final argument here: that the Rule could actually result in
anti-competitive consequences and cause costs to increase, which would obviously be contrary to
the agency’s asserted interest of bringing down health care costs. Pls.’ Reply at 17–18. Whereas
Central Hudson
requires the government to show that its regulation “directly and materially
advance[s] the asserted governmental interest[,] . . .
Zauderer
employs ‘less exacting scrutiny.’”
Cigar Ass’n of Am. v. FDA
,
Here, the agency relies on general economic principles and specific price studies in
support of its theory that price transparency could decrease health care costs.
See
Def.’s Mot.
at 33–34; Def.’s Reply at 20. Traditional economic analysis suggested to the agency that
informed customers would put pressure on providers to lower costs and increase the quality of
care.
To be sure, the evidence in the record is not definitive. As Plaintiffs argue, some studies
caution that increased price transparency may result in anti-competitive effects. Pls.’ Reply at 17
(citations omitted). But CMS concluded that similar measures in Maine and New Hampshire
have resulted in
increased
competition.
In sum, the weight of evidence here satisfies Zauderer , and the Rule is therefore constitutional.
C. Arbitrary and Capricious
Plaintiffs’ final claim is that the Rule is arbitrary and capricious, and they largely echo their First Amendment arguments: that there is a disconnect between the Rule and the agency’s goal of improving patients’ decision-making and that the Rule “imposes a disproportionately large cost” on the hospitals. Pls.’ Mot. at 27–28
Under the arbitrary and capricious standard, the scope of judicial review is deferential
and narrow.
Nat’l Ass’n of Home Builders v. Defs. of Wildlife
,
Plaintiffs first contest CMS’s conclusion that information about third-party negotiated rates will provide meaningful information to patients about their own out-of-pocket costs. According to Plaintiffs, that information will instead confuse patients and might deter them from (holding that SEC’s mineral disclosure rule violated First Amendment because SEC could not quantify any benefits to show that the rule alleviated the targeted humanitarian issues and where one commissioner noted the rulemaking “lack[ed] any analysis of whether the benefits will materialize”).
seeking care if they assume a higher negotiated rate correlates with higher out-of-pocket costs. Pls.’ Mot. at 28; see also Br. of Chamber of Commerce at 21, ECF No. 26-1 (“[D]isclosure of negotiated reimbursement rates may . . . deter patients from obtaining medical care that they need, if individuals fail to recognize that their own financial exposure is much lower than the negotiated reimbursement rate that the insurer pays the hospital.” (citing Sheetal M. Kircher et al., Opaque Results of Federal Price Transparency Rules and State-Based Alternatives , 15 J. Oncology Prac. 463, 463 (2019), https://ascopubs.org/doi/pdf/10.1200/JOP.19.00354)).
But the agency considered this argument and concluded that, on the whole, the Rule furthers the government’s dual interests of informing patients and lowering the costs of health care. Def.’s Mot. at 32–37. For some patients—those who are self-pay and those willing to pay cash—the published information will tell them their out-of-pocket costs, 84 Fed. Reg. at 65,528, 65,553, a fact Plaintiffs do not appear to contest. And more generally, these and other patients (and third-party analysis groups) will be able to make comparisons among and between the hospitals by reference to the amounts that different hospitals are paid for similar items or services.
Because the agency is exercising its predictive judgment in assessing the effects of price
transparency, it needed only to “acknowledge factual uncertainties and identify the
considerations it found persuasive.”
Maryland v. EPA,
Moreover, CMS reasonably concluded that the publication of just chargemaster rates
suffers from the same deficiencies Plaintiffs claim are associated with the publication of
negotiated rates. Although chargemaster rates have been public for some time, consumers
remain “exceptionally frustrated at the lack of publicly available data to help ease [the burden of
understanding the costs of care].”
Plaintiffs also argue that the agency woefully underestimated the costs of compliance,
which will outweigh any benefits of the Final Rule. Pls.’ Mot. at 27–29. But, as discussed
above, the agency did not act arbitrarily and capriciously in concluding that the Final Rule could
have substantial benefits. Nor did the agency “ignore[] the evidence bearing on the [question] of
compliance costs.” Pls.’ Mot. at 27 (citing
Butte County v. Hogen
,
When commenters disputed the agency’s assumption that the hospitals’ contracts and prices were electronically available and remarked that much of the work would need to be done manually, the agency suggested that hospitals request electronic copies of their contracts and rate sheets from third-party payers. Id. at 65,550. [27] It also proposed a complementary rule that would require insurers to post data, such as negotiated rates, in electronic form, which could benefit “less resourced hospitals” in complying with the Rule. Id. at 65,550–51. It can hardly be said hospitals’ concerns about their burden fell on deaf ears. And mindful of comments describing compliance as a “herculean task” and recognizing that a short time frame would pose challenges for certain hospitals, CMS modified its rule and delayed its effective date by a year. Id. at 65,585. That the agency’s proposed solutions may not have been to Plaintiffs’ satisfaction does not render the Rule arbitrary and capricious.
In sum, CMS considered commenters’ concerns, echoed here in Plaintiffs’ briefs, about the Rule but determined that those concerns were not persuasive. By acknowledging conflicting data and articulating which information it found most convincing, the agency fulfilled its duty to examine the evidence before it and connect it to the Final Rule.
IV. Conclusion
For the reasons set forth above, Plaintiffs’ Motion for Summary Judgment is denied, and Defendant’s Motion for Summary Judgment is granted.
DATE: June 23, 2020 CARL J. NICHOLS
United States District Judge
Notes
[1] Citations to “AR” refer to the administrative record, ECF Nos. 31, 31-1 to -3, 33-2.
[2] There appear to be numerous complex reasons for the large gap between a hospital’s chargemaster charges and the amounts it is actually paid. Chargemasters, which date back to the mid-20th century, are a relic of an old Medicare reimbursement system that disincentivized efficient care and was vulnerable to manipulation. See What Is a Chargemaster, and What Do Hospital Administrators Need to Know About It? , The George Washington Univ. Sch. of Bus. Blog (Dec. 17, 2019) [hereinafter What Is a Chargemaster? ], https://healthcaremba.gwu.edu/ blog/chargemaster-hospital-administrators-need-know (cited in Pls.’ Mot. at 4); 84 Fed. Reg. at 65,538. Additionally, market changes in the 1980s and 1990s increased the clout of third- party payers, who then contracted for lower fee schedules or negotiated rates. AR 5153. Chargemaster rates thus applied to a smaller proportion of patients. See id. This resulted in “reduced margins” and losses (in part from treating publicly insured patients and “high-cost patients”), which forced hospitals to become “aggressive ‘price setters’” and mark up their chargemaster charges. AR 5160. One consequence is that chargemaster prices now typically apply to the patients with the least bargaining power—the uninsured. AR 5158. In fact, “hospital charge and cost data show[] that uninsured and self-pay patients are charged, when confronted with the full list price, on average, about 2½ times more than what insurers pay hospitals, and about three times Medicare-allowable costs.” AR 4773.
[3] FFS rates are relevant for patients covered by Medicaid and Medicare. Medicaid FFS rates are
set by states while Medicare FFS rates are determined by CMS.
See
[4] In the interest of minimizing the burden on hospitals, CMS did not require publication of
median negotiated charges it had once considered as a possible definition of standard charges,
concluding that the ranges would be more helpful to patients.
[5] Plaintiffs question the current viability of
Chevron
deference,
see
Pls.’ Reply in Supp. of Pls.’
Mot. and Pls.’ Opp’n to Def.’s Mot (“Pls.’ Reply”) at 11, ECF No. 27, which may “preclude[]
judges from exercising [their] judgment, forcing them to abandon what they believe is ‘the best
reading of an ambiguous statute’ in favor of an agency's construction.”
Michigan v. E.P.A.
, 135
S. Ct. 2699, 2712 (2015) (Thomas, J., concurring) (citation omitted);
see also Gutierrez-Brizuela
v. Lynch
,
[6] Plaintiffs also cite CMS’s previous guidance permitting hospitals to make public the
chargemaster only, seemingly to show that this guidance reflected the common understanding
that “standard charges” referred to “chargemaster charges.” Pls.’ Mot. at 13 (citation
omitted). But that was before the agency engaged in formal notice-and-comment rulemaking
and solicited comments on how to define standard charges. Plaintiffs do not seriously contest
that the agency was bound by its initial definition.
See Chevron,
[7] Because NorthBay postdates the Affordable Care Act’s enactment, it cannot support the argument that in 2010 Congress was aware of a long-standing meaning of “standard charges.”
[8] What Is a Chargemaster? , supra note 2.
[9]
See, e.g.
,
DiCarlo v. St. Mary Hosp.
,
[11] It is not clear whether Plaintiffs and their amici agree on the definition of “charges.” When
pressed for a definition at oral argument, Plaintiffs stated that a charge is “somewhere in
between” the chargemaster rate and the amount billed, noting that it is “not the amount that the
hospital normally bills and expects to be paid, nor is it an amount that is simply a rate on the
chargemaster sheet.” May 7, 2020 Hr’g Tr. at 8:21–25. This position appears to be in some
tension with the proposition that a chargemaster contains all charges.
See
Br. of 37 State
Hospital Associations (“[T]he “chargemaster” remains a hospital’s
only
universal list of charges
for services.”);
cf. DiCarlo
,
[12] Plaintiffs’ and amici’s varying explanations of the DRG clause’s purpose further underscore the ambiguity here. The State Hospital Associations argue that it was intended to make clear that this subsection did not supersede the already-existing Medicare transparency requirements for DRGs. Br. of 37 State Hospital Associations at 11 n. 33. Plaintiffs and the Chamber of Commerce argue that this clause simply clarifies that certain existing reporting procedures were to be left intact as part of Medicare’s DRG reimbursement scheme, which provides for outlier payments (in connection with “costlier-than-expected care”) based on the individual items or services. Br. of Chamber of Commerce of the United States of America as Amicus Curiae in Supp. of Pls.’ Mot. for Summ. J. (“Br. of Chamber of Commerce”) at 15–17 (citing 42 C.F.R. § 412.84(g)–(h)) (other citations omitted), ECF No. 26-1; see also Pls.’ Reply at 7–8. But it is not entirely clear why Congress would have needed to address that issue in a provision that does
[14] The agency recognized that “the actual paid amounts are dependent on information that the
hospital does not have without contacting the insurer to determine the specifics of the patient’s
obligations under the patient’s contract with the insurer.”
[15] What Is a Chargemaster? , supra note 2. Further illustrating the inapplicability of the menu analogy is the following data from California in 2002: “The average chargemaster price for an appendectomy . . . was $18,229; the indigent uninsured paid $1,783, the Medicare payment was $4,805, the managed care payment $6,174, and payments by the non-indigent uninsured was $8,143.3.” AR 4772.
[16] Plaintiffs further argue that a rule that requires multiple sets of charges violates the statutory mandate that hospitals publish “a list.” Pls.’ Mot. at 13–14. The agency does not dispute that the statute mandates the publication of only a single list but rejects Plaintiffs’ suggestion that the provision forecloses the publication of multiple types of charges on that list. Def.’s Mot. at 20. The agency is right that a list can contain multiple categories, an argument reinforced by the fact that hospitals can publish their charges in a single data file. Id. Section 2718(e) expressly authorizes the Secretary to issue guidelines as to how hospitals shall establish and make public the list of standard charges, and there is nothing unreasonable about the Secretary requiring that several categories be compiled into one list that takes the form of a single date file.
[17] The D.C. Circuit recently held that a different HHS price transparency regulation exceeded the
agency’s authority.
See Merck
,
[18] For instance, subsection (c)—a subsection that was moved around from drafting to the enactment—charges the National Association of Insurance Commissioners with “establish[ing] uniform definitions of the activities reported under subsection (a),” while subsection (d) permits the “Secretary [to] adjust the rates in subsection (b).” 42 U.S.C. 300gg-18.
[19] In National Association of Manufacturers v. SEC , the D.C. Circuit stated that the Supreme Court’s decision in Hurley had stressed that outside of commercial advertising, speakers—
[20] Although Plaintiffs are concerned that the Rule’s publication requirements may prove to be confusing to patients, they admit that nothing in the Rule prevents them from adding qualifiers explaining patients’ out-of-pocket costs. May 7, 2020 Hr’g Tr. at 16–17. Plaintiffs contend that the ability to add speech “does not cure the underlying lawfulness,” id. , but a speaker’s ability to express or add a message is relevant to the question of whether Zauderer or Central Hudson applies.
[21] Plaintiffs take issue with the agency requiring the publication of too many charges while simultaneously arguing the Rule is inadequate because it omits additional information linked to patients’ specific contractual relationships with their insurers.
[22] In particular, the information can help certain patients determine whether paying the discounted cash price is more affordable than processing claims through their insurance providers.
[23] Plaintiffs argue that the government is trying to “have its cake and eat it too” by arguing that Zauderer applies beyond compelled advertising regulations without also accounting for burdens that go beyond chilling concerns. Pls.’ Reply at 26. But the agency’s position that Zauderer goes beyond advertising is rooted in the en banc D.C. Circuit’s holding in AMI . And although Plaintiffs want the “unduly burdensome” analysis to encompass more than just the chilling of speech, they cite no authority for that proposition and do not explain how far the analysis should extend, instead demanding that the government propose such a test. See id.
[24] The fact that these charges will be revealed to consumers (after a hospital procedure) severely
undermines Plaintiffs’ argument that negotiated rates constitute trade secrets, Pls.’ Mot. at
24–25.
[25] Even if
Central Hudson
applies here, the Final Rule likely satisfies it for the reasons discussed
above.
Central Hudson
’s requirement that a speech regulation be no more restrictive than
necessary appears to focus on whether speech will be burdened.
[26] Requiring the data to be maintained in a single file is consistent with the statutory mandate that hospitals publish “ a list.” § 300gg-18(e) (emphasis added). Had the agency required or even permitted numerous data files, Plaintiffs certainly would have opposed that move, arguing that publishing multiple data files was too far removed from the requirement of a single list.
[27] Hospitals’ best practices dictates that these charges already be available in contracts and their
associated rate sheets.