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Our Take: One court says hospitals must disclose prices; another court says drug companies don’t have to

Jun 29, 2020

Last Tuesday, a federal judge dismissed a legal challenge filed by the American Hospital Association (AHA), other hospital groups, and health systems regarding CMS’ rule that will require hospitals to disclose rates they negotiate with commercial insurers, Reuters reported. The rule is scheduled to take effect Jan. 1.

U.S. District Court Judge Carl Nichols was not persuaded by the various arguments the plaintiffs made in their filing and noted in his ruling that they “are essentially attacking transparency measures generally, which are intended to enable consumers to make informed decisions.”

In a statement posted on its website, the AHA said it plans to appeal the decision on an expedited basis, given that the timeline for a normal appellate review would likely extend beyond the rule’s anticipated start date.

In related news, a U.S. appeals court upheld a lower court’s decision in favor of Merck, Eli Lilly, Amgen, and the Association of National Advertisers in a case against the Department of Health and Human Services (HHS) regarding the rule finalized last year that would have required the disclosure of drug prices in TV ads.

The panel ruled that HHS did not have the statutory authority to create the rule. Judge Amit Mehta wrote that “HHS cannot do more than what Congress has authorized.”

In the written opinion, the court supported the drug companies’ argument that consumers could be confused by the inclusion of high list prices in the ads — which most people do not pay — and might be deterred from seeking treatment if they thought they would have to pay the list price.

Our Take:  There seem to be several parallels between the two cases, but of course that doesn’t mean the outcomes will be similar. Read on and you’ll see what we mean.

HHS first proposed having hospitals publicly disclose their negotiated rates in mid-2019. Nearly a year later, it looks like HHS might get its wish.

HHS Secretary Alex Azar called the ruling a “big court victory.” We’ll see if the appellate court issues a stay. If not, hospitals will soon need to start preparing to report the various prices the rule requires to be made public. That could require a herculean effort. More about that in a bit.

The legal argument in the hospitals’ case appears to hinge on the definition of “standard charges.” In their complaint, the plaintiffs said the Affordable Care Act only allows CMS to mandate the posting of standard charges — which they said refers to “a hospital’s usual or customary chargemaster charges,” such as those for a billable procedure or drug. They said the payer-specific negotiated charges referred to in the final rule “are anything but ‘standard.’”

In light of this, they said, CMS is overstepping its authority by forcing hospitals to publish privately negotiated rates. They went so far as to state that the rule violates the First Amendment “because it mandates speech in a manner that fails to directly advance a substantial government interest.” The government interest they’re referring to is CMS’ intended goal of providing transparency to patients regarding their out-of-pocket costs. In the court filing, the plaintiffs claim that “by the agency’s own admission, it fails to achieve its stated goal.”

(Incidentally, the drug companies also argued that the rule requiring disclosure of prices in TV ads violated the First Amendment, and the court agreed.)

The CMS rule also requires hospitals to publicly disclose in a “consumer-friendly manner” five types of pricing information: gross charges, payer-specific negotiated charges, discounted cash prices, de-identified minimum negotiated charges, and de-identified maximum negotiated charges — for every item and service the hospitals provide. They must also publish negotiated charges and other information for 300 “shoppable” services (i.e., services that consumers can compare prices for before they need them).

The point that some of those categories of pricing information could be deemed not “standard” is only part of the plaintiffs’ argument against implementing the rule. They stated in the complaint that the disclosure mandate will “exacerbate patient confusion” and will “undermine the Government’s stated interest in transparency.” They said if patients incorrectly assume that the negotiated rates are their out-of-pocket costs, they could be discouraged from seeking care — similar to the argument the drug companies made against including list prices for drugs in TV ads.

As we mentioned earlier, complying with this mandate isn’t something that hospitals can do overnight, or even in a few weeks. As the plaintiffs noted in the complaint, having to compile and publish such an enormous amount of highly specific information “will mean diverting existing personnel from other priority tasks or hiring new personnel to determine how to capture and display data from dozens, hundreds, or even potentially thousands of commercial health plans.” For larger health systems, they said, “it could take an entire new department of personnel.”

In the AHA’s statement in response to the judge’s ruling, AHA General Counsel Melinda Hatton said, “The proposal does nothing to help patients understand their out-of-pocket costs. It also imposes significant burdens on hospitals at a time when resources are stretched thin and need to be devoted to patient care. Hospitals and health systems have consistently supported efforts to provide patients with information about the costs of their medical care. This is not the right way to achieve this important goal.”

The plaintiffs also asked the court to intervene because publishing “troves of plan-specific negotiated-rates data that are both highly confidential and commercially sensitive” would create significant and unjustified burdens on hospitals in their future negotiations with health insurers and on the health care system overall.

“Hospitals and commercial health insurers keep the rates they privately negotiate confidential for good reason: it would undermine competition if they were required to be disclosed publicly and blunt incentives for health insurers to participate in innovative arrangements that have the potential to lower costs and increase quality,” they wrote in the complaint.

We believe there’s merit in some of these arguments, particularly the one about the substantial burden that complying with the rule would place on hospitals right now, when so many are already feeling substantially burdened. It’ll be interesting to see what happens with the appeal. In the drug pricing case, the appellate court upheld the lower court’s ruling. Will the same thing happen with this case, in which the lower court found in favor of the government instead of the plaintiffs? We wouldn’t want to bet either way.

What else you need to know

Texas Gov. Greg Abbott issued an executive order Thursday suspending elective surgeries and medical procedures in four counties — Bexar, Dallas, Harris, and Travis — to ensure that hospital beds will continue to be available for patients with COVID-19. The state is among several that have seen dramatic increases in COVID-19-related hospitalizations in the last couple of weeks. The press release announcing the order said Gov. Abbott can revise the list of counties through proclamation to address potential surges in other parts of Texas. He also suspended further reopening of the state.

Atrium Health submitted a new bid for Wilmington, N.C.-based New Hanover Regional Medical Center — this time it’s a $2 billion purchase option. As we reported last week, Atrium, Novant Health, and Duke Health have all presented bids to buy or partner with the medical center. Charlotte, N.C.-based Atrium originally proposed entering into a 40-year operating lease valued at $3.1 billion, including $2.17 billion for capital improvements, after which it would own the medical center. In the new bid, Atrium proposed buying the medical center. It would pay New Hanover County $200 million at closing and transfer the medical center’s estimated $460 million in surplus cash to the county. Atrium would then pay the county $950 million over 15 years and make a charitable donation of $250 million to address disparities of care, improve behavioral health, and eliminate opioid addiction. Atrium would also build a $120 million facility for behavioral health and addiction treatment.

Denver-based in-home care startup DispatchHealth raised $135.8 million in Series C financing led by Optum’s venture capital firm, Optum Ventures. Humana also participated in this round of funding, along with several other investors, DispatchHealth said in a press statement; this latest round brings the total DispatchHealth has raised to $216.8 million. Launched in 2013 by an emergency department physician — Dr. Mark Prather — and co-founder Kevin Riddleberger, the company now serves 19 markets in 12 states. It provides high-acuity medical care that helps patients avoid emergency department visits, in-patient stays, and being admitted to a skilled nursing facility. DispatchHealth also provides at-home extended and advanced care services. According to FierceHealthcare, DispatchHealth’s home-based visits have increased 90% since the beginning of March, relative to the same period a year ago.

Blue Shield of California unveiled its Health Reimagined plan for ‘transforming health care” last week. The company said 20 pilot programs being launched in Butte, Los Angeles, Monterey, and Sacramento counties will focus on quality-driven, value-based care and are designed to address health care inequities, as well as challenges the pandemic has brought to the forefront. The programs range from a customized telemedicine system to an Apple Watch-enabled virtual assistant that doctors can use to create electronic medical records by voice. One of the programs makes it possible to settle claims “in real-time,” while the patient is still at the doctor’s office or hospital. The company said it has been testing this claims service for months and plans to make it available statewide, to help reduce administrative burden and improve cash flow for providers that have been stressed financially during the pandemic.

CVS Health launched Ready Return, a program for employers and universities that lets them develop customized COVID-19 diagnostic testing strategies so that employees and students can return safely to the workplace and campus. The program offers both on-site testing and drive-thru testing at CVS locations, the company noted in a press statement, along with clinical consultation services and digital tools such as a dashboard for tracking testing capacity and results. Point-of-care and third-party lab diagnostic tests are included in the program, but antibody testing is not. Other program options include an onsite immunization clinic and contract tracing through third-party vendors.

Separately, CVS Health also announced last week that it is continuing to increase its own testing capacity — the company opened nearly 200 additional drive-thru test sites last week, bringing the total number of sites it has opened since May to more than 1,400. Of note, CVS said it has opened eight rapid-response community testing sites in partnership with community organizations to give uninsured and underserved populations better access to testing.

Kaiser Permanente is joining Civica Rx as a governing member and will have a seat on Civica Rx’s board of directors. Several leading health systems and philanthropies formed Civica Rx in 2018 to ensure availability and affordability of commonly used generic drugs; the organization has more than 50 health systems as members. The country’s largest nonprofit health system, Kaiser Permanente dispenses 90 million prescriptions per year. “The COVID-19 pandemic has put a spotlight on the critical need for ensuring consistent supplies of affordable, generic medications for patients, and we are proud to join with Civica Rx to help lead these efforts,” Kaiser Permanente CEO Greg Adams said in a press release announcing the affiliation.

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