Facility fees – designed originally to compensate hospitals for “stand-by” capacity required for emergency departments and inpatient services – are increasingly added to bills for diagnostic testing and other routine services and are raising health care costs. One state employee health plan’s claims show that facility fees charged for COVID-19 testing conducted in outpatient hospital settings ranged from $53 to $150 per test — culminating in $344,589 in additional costs over several months.
In late June, the US District Court for the District of Columbia upheld the Department of Health and Human Services’ (HHS) 2019 transparency rule that requires hospitals to make public five standard charges, including their chargemaster rates and rates paid by private payers by Jan. 1, 2021.
A coalition of hospital groups and hospital systems sued HHS to stop implementation of the rule late last year, arguing the agency had exceeded its statutory authority by requiring and enforcing the provision. The group also claimed the rule violated the First Amendment by compelling hospitals to disclose charges that would confuse patients and burden hospitals.
In his ruling, Judge Carl J. Nichols stated, “The publication of charges will allow the agency [HHS] to further its interest of informing patients about the cost of care, which will in turn advance its other interest — bringing down the cost of health care.”
This ruling supports states’ efforts to achieve hospital price transparency. A report issued by the Pioneer Institute in May 2020 found that only six states require providers, health plans, or both to give consumers cost estimates and pricing information. The majority of states (33) have no health care price transparency laws and only 11 states currently require price estimates, and only in certain cases, such as if a consumer is uninsured.
In an effort to bring down the cost of health care coverage, the Affordable Care Act (ACA) mandates that hospitals establish and make public a list of the hospital’s standard charges for items and services provided by the hospital, including diagnosis-related groups (DRGs). The law also instructs the HHS Secretary to develop guidelines for hospitals to fulfill this statutory requirement. The law provides the Secretary with the authority to promulgate regulations to enforce this provision, but does not specify any enforcement mechanism.
The first concerted effort by HHS to issue guidelines that required hospitals to publish their standard charges was in its Medicare Inpatient Prospective Payment System (IPPS) rules for FFY 2015. That rule reiterated ACA’s mandate, reminding hospitals of their obligation under the law to publish their standard charges, but left the details of how to implement the provision up to the providers themselves. Hospitals could simply publish their chargemaster rates or take another tack, but were left with very broad discretion. In the absence of enforcement language, hospitals largely ignored the provision.
In June 2019, President Trump issued an Executive Order aimed at increasing access to meaningful information on health care prices and quality, thereby encouraging patients to become active market participants and improving the efficiency of the health care marketplace, with the goal of improving both price and value. The order directed the HHS Secretary to propose regulations to implement the ACA’s price transparency provisions that required hospitals to publicly post standard charge information.
HHS responded by issuing a proposed rule in August 2019, which fleshed out the agency’s guidance provided in the 2015 IPPS rules, providing definitions of key terms such as “charges,” laying out what must be reported and how, and, importantly, adding an enforcement provision to encourage compliance. The rule was finally adopted in November 2019, and is now scheduled to become effective January 2021. It includes the definition of standard charges “to mean the regular rate established by the hospital for an item or service provided to a specific group of paying patients.”
The rule defines standard charges to include:
- Gross charge: The chargemaster rate with no discount.
- Payer-specific negotiated charges: The charges that a hospital has negotiated with a third-party payer, such as insurance carriers, third-party administrators, Medicare, and Medicaid, etc.
- Discounted cash price: The price paid by an individual who pays in cash.
- De-identified minimum and maximum charges: The highest and lowest charges that a hospital has negotiated with all third-party payers, allowing consumers to measure their third-party coverage or allowing an uninsured patient to negotiate payment with a hospital.
In addition, a hospital must publish the last three standard charges listed above for 300 shoppable services, which are services that can be scheduled in advance. Seventy of these services are to be specified by the Centers for Medicare & Medicaid Services (CMS) and the remaining 230 are to be chosen by the hospital. The rule includes a penalty of $300 per day for noncompliance.
The Legal Challenge
Finalization of the rule spurred an immediate legal challenge by the hospital industry. The American Hospital Association (AHA), the Association of American Medical Colleges, the National Children’s Hospital Association, the Federation of American Hospitals, and several hospitals and hospital systems filed suit against HHS arguing that by compelling hospitals to make public their negotiated rates, HHS had exceeded its statutory authority and violated the First Amendment rights of hospitals in its promulgation of the rule. The US District Court, however, rejected all of the plaintiffs’ claims.
The legal case has largely turned on the question of how the Administration defined “standard charges” in its rulemaking. The plaintiffs’ primary position was that the term “standard charges” in the statute unambiguously meant chargemaster rates and that the agency had no authority to interpret the term to mean anything else.
The judge concluded that standard charges did not unambiguously refer to chargemaster rates, writing, “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.”
Industry plaintiffs also claimed that the rule violated the hospitals’ First Amendment rights in the following ways:
- It would force them to publish proprietary information;
- The impact of that compelled speech would be to impermissibly chill negotiations with insurers; and
- It would not achieve the goal of the rule, which is to inform patients of cost of care.
The judge held that to the extent that publication of charges qualifies as a form of expression, it was commercial speech and the final rule was a permissible regulation of commercial speech. He went on to assert that the fact that the charges can be revealed to consumers (discussed in the record through explanation of benefits and state databases) undermined the assertion that negotiated rates constituted trade secrets. The court concluded that the possibility that the nature of negotiations with insurers might change was too attenuated from the publication of rates to consider them to be unconstitutional.
The hospital groups also argued that if the agency’s interests were to inform patients about the costs of care, the better way to do so would be to publish patients’ expected out-of-pocket-costs. While Judge Nichols agreed to a certain extent that standard charges as defined by the Administration would not necessarily be a calculation of every patient’s out-of-pocket costs, he underscored that some information was better than no information at all, and having a useful estimate of expenses, if not the actual out-of-pocket costs, was helpful, adding that the range of rates to be published would give patients sufficient information to make such estimates.
The court alluded to a variety of instances that required knowledge about health care prices beyond copays:
- Some patients who are insured have high deductible plans;
- Some insured patients may choose to pay for out-of-network care directly; and
- Others may choose to weigh whether paying in cash or through an insurer is more affordable.
Thus, having the variety of charges listed publicly as outlined in the rule would assist patients in making informed choices about cost of care. The court also found that it was reasonable to conclude that price transparency could decrease health care costs based on the evidence presented in the administrative record.
The plaintiffs have quickly signaled they will seek an expedited appeal on the ruling, stating the proposal imposes significant burdens on hospitals, and the decision was premised on an erroneous definition of standard charges referenced in current law. The AHA continues to claim the rule does nothing to help patients understand their out-of-pocket costs.
States with existing laws governing hospital and health system financial transparency or an interest in developing them may benefit from following the ruling as federal regulation or case law will influence the starting point for hospital price transparency efforts at the state level. State departments of Insurance may also find the case relevant as publication of negotiated rates could inform insurer rate review procedures and requirements, especially those related to rate components based on hospital services or hospital/insurer contracting.
State budget writers will also want to follow this matter. A large portion of a state’s budget is directed to hospital spending through Medicaid programs, state employee health plans, correctional facilities, workers’ compensation programs, and more. As states work through budget and fiscal issues during the looming economic downturn, an understanding and comparison of hospital prices will become even more important and vital. This will also be true as states continue to pursue total cost-of-care cost growth benchmarks and global hospital budgets as mechanisms to stabilize health care costs.
If the District Court decision stands, it represents a step forward for hospital price transparency by making meaningful price information more accessible to consumers. If overturned, it leaves the task of driving the issue of hospital transparency to the states.
The National Academy for State Health Policy’s Center for Health System Costs plans to release a hospital financial transparency package this summer for states to use as they continue to work to lower health care costs and maintain sufficient access to care in these difficult times.
By Christina Cousart
Updated June 24, 2019
During the 2019 legislative session, states have continued to advance protections for consumers against surprise medical balance bills – charges for unexpected, out-of-network medical care. To date, four new states have enacted multi-pronged policies that prohibit balance bills, institute a process for providers and carriers to resolve billing disputes, and foster pricing transparency between providers, carriers, and consumers to avoid situations that lead to balance bills. Texas also approved legislation strengthening its existing consumer protections. Here are highlights of the new legislation.
|Colorado (HB 1174)||Nevada (AB 469)||New Mexico (SB 337)||Texas (SB 1264; HB 2041)||Washington (HB 1065)|
|Balance billing protections|
|Holds consumers harmless||✓||✓||✓||✓*||✓|
Prohibition in case of emergencies
Prohibition in case of out-of-network (OON) services delivered at an in-network facility
Applicable providers/ facilities
|Person who is licensed or otherwise authorized in the state to furnish health care services including:
● LaboratoryExcludes ambulance providers, but charges the insurance commissioner with setting payment methods for ambulance services.
|Physician or other health care practitioner who is licensed or otherwise authorized in this state to furnish any health care service; and institutions providing health care services including:
● Surgical centers for ambulatory patients
● Skilled nursing facilities
● Residential facilities for groups
● LaboratoriesEmergency facilities include hospitals or independent centers for emergency medical care
|Licensed health care professionals, hospitals, or other facilities licensed to furnish health care.Facilities include entities providing health care services including:
● Ambulatory surgical centers;
● Birth centers;
● Drug and alcohol treatment centers;
● Laboratory, diagnostic, and testing centers;
● Health provider’s offices or clinics
● Urgent care centers
● Freestanding emergency rooms
● Therapeutic health care settings
|Individual licensed under the laws of this state to practice medicine or health care facilities.Facilities include:
● Licensed ambulatory surgical centers
● Licensed chemical dependency treatment facility
● Renal dialysis facilities
● Birthing centers;
● Rural health clinics;
● Federally qualified health centers
● Freestanding imaging centers;
● Freestanding emergency medical care facilities*
|Person licensed under state law to practice health or health-related services, or an employee or agent of such a person acting in the scope of their employment.Facilities include:
● Rural health care facilities
● Psychiatric hospitals
● Nursing homes
● Community mental health center
● Kidney disease treatment centers
● Ambulatory diagnostic treatment or surgical facilities
● Drug and alcohol treatment facilities;
● Home health agencies.Carriers may not balance bill in the case of emergency services delivered by out-of-state providers.
|Billing dispute and resolution procedures|
|Reimbursement standard||For emergency services the greater of:
● In non-Denver areas:
o 105% of carrier’s median in-network rate for services provided at a similar facility in the same geographic area; or
o Median in-network rate for the same service at a similar facility in the same geographic area based on all-payer claims database (APCD) data.
● In the Denver area:
o Carrier’s median in-network rate for the same service in a similar facility in the same geographic area;
o 250% Medicare rate for the same service in a similar facility in the same geographic area; or
o Median in-network rate for the same service in a similar facility in the same geographic area based on APCD data.
For OON services at an in-network facility, the greater of:
● 108% of the previously contracted rate if the facility had been in-network within the last 12 months.● 115% of the previously contracted rate if the facility had been in-network within the last 12-24 months.● If no such contract existed, an amount the carrier determines to be fair and reasonable.For providers:If a provider had been in-network within the past 12 months:
● The previously contracted rate, if the provider terminated the contract before it was set to expire without cause;
● 108% of the previously contracted rate if the provider terminated the contract for cause;
● A fair and reasonable amount, determined by the carrier, if the carrier terminated the contract for cause;
● The previously contracted rate adjusted by the Consumer Price Index, Medical Care Component for the prior year, if neither party terminated the contract.If a provider had not been in-network in the preceding 12 months, carrier may remit whatever payment it determines.
|A 60th percentile of the allowed commercial reimbursement rate for the service performed by a provider in a similar specialty in the same geographic area.
Should not be less than 150% of 2017 Medicare rate.
A stakeholder group will convene annually to review the reimbursement rate.
|The usual and customary rate or an agreed-to rate, meaning the allowable amount as described by the applicable master benefit plan document or policy.*||Commercially reasonable amount based on similar services provided in a similar geographic area.|
|Process for arbitration||Baseball arbitration (arbiter will pick the final payment offer submitted by either the health plan or the provider/facility), if carrier and provider do not agree to initial payment.
Arbiter will consider:
|Arbiter will either require the provider to accept the payment issued by the carrier as payment in full, or to demand that the carrier remit an additional amount requested by the provider.||Mediation may be requested through the Department of Insurance.
In the case of mediation of facilities, the mediator shall determine if the amount charged by provider is excessive, and if the amount paid by the insurer is unreasonably low or not the usual and customary rate.
In the case of mediation for other providers, the mediator shall take into account whether there is gross disparity between the amount charged by the provider and how much the provider or similarly qualified providers receive for similar services. Other factors may include:*
|Baseball arbitration (arbiter will pick the final payment offer submitted by either the health plan or the provider/facility), if carrier and provider do not agree to initial payment.
Arbiter may consider:
|Data collection and reporting tools||State APCD||Benchmarking database maintained by a nonprofit organization specified by the insurance commissioner.
Enables the commissioner to require carriers to report:
|The insurance commissioner is charged with selecting an organization to maintain a benchmarking database.||Requires state APCD to establish a dataset that provider, facilities, and carrier s may use to determine reasonable rates and to resolve payment disputes.
Carriers shall provide information concerning the utilization of OON providers and cost savings yielded from the law as part of their annual rate filing.
|Provider must refund excess payments made by consumers
|Penalty for violations||✓||✓||✓*||✓|
|Must provide disclosure of potential repercussions of OON services
|● Providers||● Carriers
|Requires cost estimates to consumers
|Additional requirements:||On carriers:
● Must arrange for patient transfer within 24 hours of receiving notice that person is stable and can be transferred.On providers:
● Must send notice to carrier, no later than eight hours after person presents at an OON facility
● Must send notice to carrier that the beneficiary has stabilized and may be transferred to an in-network facility within 24 hours of stabilization
● Must make claims status information available to providers.On providers:
● Must post in a publicly accessible manner and online information about which carriers it contracts with.
● Must notify the carrier of a beneficiary’s admission within a reasonable period after stabilization.
● Any communication regarding bills, shall clearly state that the beneficiary is responsible only for in-network cost sharing amounts.
● Explanation of benefits must include information about balance billing protections; the total amount the provider may bill the enrollee under the enrollee’s health benefit plan; and an itemization of cost-sharing included in that total.* 
● Facilities must post notice that
o it may charge a facility fee
o it may charge rates comparable to a hospital emergency room
o the facility or a physician at the facility may be OON and bill separately
o Lists all the carriers it contracts with
● Facilities must provide patients with a disclosure that:*
o Lists the facility fees that may result from the visit
o Lists the carriers the facility is in-network with
o Lists other cost information such as median facility fees and observation fees.
● Prohibits facilities from using logos or language to misrepresent that it might be in an insurers network.
● Must immediately arrange for an alternate plan of treatment if an agreement on post-stabilization services cannot be reached with the emergency provider.
● Must update provider directory within 30 days after the addition or termination of a provider.On providers:
● The provider must contact the carrier within 30 minutes of stabilization before rendering further services.
● Must post online information about which carriers it contracts with.
● Must provide carriers with updated lists of non-employed providers working at the facility
*Indicates changes made by the new Texas law.
 Texas’ 2019 law amends and enhances already existing protections in the state. Changes made by the new law are noted by asterisk.
 Does not apply when: 1) Services are received at a critical access hospital; 2) A person is covered by insurance sold outside of the state; 3) Services provided more than 24 hours after notification has been provided and a person has been stabilized.
 In the case of a beneficiary who cannot reasonably access a preferred provider, the protections extend to 1) medical screening and examinations require to determine if a medical emergency exists; 2) necessary emergency services to treat and stabilize; 3) services originating in an emergency facility following stabilization; and 4) supplies related to the services rendered by that facility.
 Does not apply if the consumer affirmatively consented to receive OON services.
 Only applies when; 1) A participating provider is unavailable; 2) Medically necessary care is unavailable in the beneficiary’s network (determined by the provider in conjunction with the health plan); or 3) the patient did not consent to receive services from the OON provider.
 Does not apply in the case of a beneficiary that elects, in writing and in advance, to receive services from the out-of-network provider, or in the case that the provider does provide the enrollee with a written disclosure that they are out-of-network and provides an estimate of the projected amount the enrollee will be responsible for. Explicitly includes protections for OON services delivered by diagnostic imaging or labs.
 Prior law allowed mediation requests only in the case of claims over $500 and that were for either emergency services, or services rendered by a provider or supplier at an in-network facility.
 Refund must be issued within 60 days, or interest will accrue.
 Refund must be issued within 45 days, or interest will accrue.
 Refund must be issued within 30 days, or interest will accrue.
 Punished by a fine of not more than one thousand dollars, or by imprisonment in the county jail for not more than one year, or both.
 Insurance superintendent may impose a fine on any provider that offers an unlawful rebate or inducement to entice a person to seek OON services
 The Attorney General may bring civil action against entities that exhibit a pattern of repeatedly violating billing protections. Authorizes applicable agencies to take action against providers or facilities who violate billing protections. The Secretary of State may suspend or revoke a license, or bring civil action against entities who violate the disclosure requirements outlined under Texas law. The Department of Health may impose penalties up to $1,000 for certain violations.
 Authorizes the Department of Health or an appropriate authority to levy fines against providers or facilities who violate these policies. Commissioner may levy a fine against carriers who violate these policies. Repeated violation may constitute unprofessional conduct and risk licensure of a provider or facility.
 If an OON provider has advanced notice that the beneficiary is OON, they must notice the beneficiary of their OON status and recommend the beneficiary contact their carrier to discuss options.
 A provider must issue a cost estimate within three days if requested by a patient.
 Carrier must provide an estimate of out-of-pocket costs for OON services upon request.
 Applicable to Health Maintenance Organizations.
The Centers for Medicare & Medicaid Services (CMS) took an important first step toward increasing the transparency of hospital finances when it required hospitals to post their charge information, effective January 2019. But, these charges are not prices paid — they are typically the starting point against which commercial payers negotiate discounts.
States with all-payer claims databases (APCDs) have an important tool that allows them to go a step further – they can analyze the differential between “charges” and “prices paid.” This is an increasingly important distinction, particularly as 90 percent of hospital marketplaces are highly concentrated. Research shows that such concentration diminishes the capacity of health plans to negotiate rates and has increased hospital costs from 20 to 40 percent without gaining improvements in efficiency or quality .
New Hampshire Comprehensive Health Care Information System’s APCD releases data that allows the comparison of the difference between what is charged by hospitals and what health plans and consumers pay. The statewide report of charges and allowed amounts for common hospital services in New Hampshire, available at the NH HealthCost website, shows how charges compare to allowed amounts. Analysis of this data, shown in the table, illustrates that the actual amount paid for a service can vary greatly from what is charged, sometimes by more than 100 percent.
|Service Category||Median Price Charged||Median Price
Allowed or Paid
|Percentage Difference between Median Price Charged and Amount Paid|
|Biopsy skin lesion||$ 189.00||$ 69.12||-173%|
|Total hip arthroplasty||$ 37,195.00||$ 20,193.17||– 84%|
|Total knee arthroplasty||$ 14,543.50||$ 5,824.55||-150%|
|Nasal endoscopy dx||$ 1,119.16||$ 437.85||-156%|
|Diagnostic colonoscopy||$ 2,553.00||$ 1,800.61||-42%|
|Fetal non-stress test||$ 369.00||$ 261.34||-41%|
|Low back disk surgery||$ 10,615.75||$ 6,559.99||-62%|
|CT head/brain w/o dye||$ 2,030.56||$ 685.86||-196%|
|Chest x-ray||$ 366.00||$ 146.95||-149%|
|X-ray exam of knee 3||$ 399.00||$ 189.53||-111%|
|MRI joint of lower extremity||$ 2,598.00||$ 1,392.21||-87%|
|Comprehensive metabolic panel||$ 86.92||$ 56.15||-55%|
|Lipid panel||$ 106.00||$ 68.44||-55%|
|Glucose blood test||$ 43.00||$ 12.44||-246%|
|Eye exam new patient||$ 264.65||$ 140.25||-89%|
|Speech/hearing therapy||$ 313.45||$ 157.70||-99%|
|Comprehensive hearing test||$ 235.00||$ 188.85||-24%|
|Cardiovascular stress test||$ 1,154.00||$ 662.88||-74%|
|Office/outpatient visit new||$ 288.50||$ 188.27||-53%|
|Emergency dept. visit||$ 2,300.00||$ 1,374.67||-67%|
Importantly, the charges and prices paid vary by procedure, hospital, and payer and the data that shows these price differences is available through APCDs. NH HealthCost and similar websites in Maine, Colorado, Massachusetts, and Washington all are valuable resources to enhance transparency by identifying the price for services and the variation of those prices within each state.
Working together, CMS and state APCDs can provide important data to fuel conversations about hospital charges and payments, and the policy issues that the data raises.
The Affordable Care Act’s amendment to section 2718(e) of the Public Health Service Act requires each hospital operating within the United States to make public a list of standard charges for items and service provided by the hospital including for diagnostic-related groups. CMS published proposed rules for FY 2015 reminding hospitals of their obligation to comply, and again for FY 2019, ultimately finalizing the rules to improve the public accessibility of charge information in a machine-readable format effective January 2019. https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-16766.pdf.
Josephine Porter is director of the University of New Hampshire’s Institute for Health Policy and Price and co-chairs the All-Payer Claims Database Council (APCD Council).
Trish Riley is executive director of the National Academy for State Health Policy.