Hospital Price Transparency: Penalties Potentially Much Higher Than Hospitals Anticipate

Jan 11, 2021

By Angela Sorbelli, J.D., LL.M, MBA, CHC

Within the IPPS policy guidance, CMS has finalized an initiative requiring hospitals report payer-specific negotiated charges.

Effective January 1, 2021, any hospital operating in the United States is required to provide clear and accessible pricing information about the services they provide to patients in two ways:

  • A comprehensive machine-readable file that includes all items and services should be included on the Medicare Cost Report for cost periods ending January 1, 2021; and
  • A publicly available consumer-friendly list of 300 “shoppable” services (or as many as the hospital provides if less than 300) including discounted cash prices, payer-specific negotiated charges, and minimum and maximum de-identified negotiated charges.
CMS has indicated that beginning in FY 2024, the agency will be using this collected data in a new market-based methodology to set the MS-DRG relative weights used in determining Medicare payment rates for inpatient hospital stays.

No Waivers - No Exceptions

Providers should be prepared to comply with the new reporting requirement since there is no provision that addresses waivers or hardship exemptions. CMS has further reaffirmed it believes it provided hospitals with sufficient time to collect and display the standard charge information as required under the Rule. CMS has made available, to both hospital providers and public consumers, several resources to help ensure compliance with this new requirement, which are accessible on the CMS.gov website.

What Needs to Be Disclosed

The negotiated charges that need to be public would be the payer-specific negotiated charges for service packages that hospitals are already required to make public under the requirements finalized in the 2019 Hospital Price Transparency Final Rule. CMS anticipates that the additional reporting requirements will not result in excessive administrative burden. CMS has estimated the average annual administrative burden per hospital will be approximately 20 hours (5 hours for recordkeeping and 15 hours for reporting).

CMS has confirmed that for the purposes of complying with the Hospital Transparency Final Rule, there are 5 types of standard charges that must be made public:

  1. The gross charge (the charge for an individual item or service that is reflected on a hospital’s chargemaster, absent any discounts);
  2. The discounted cash price (the charge that applies to an individual who pays cash, or cash equivalent, for a hospital item or service);
  3. The payer-specific negotiated charge (the charge that a hospital has negotiated with a third-party payer for an item or service);
  4. The de-identified minimum negotiated charge (the lowest charge that a hospital has negotiated with all third-party payers for an item or service); and
  5. The de-identified maximum negotiated charge (the highest charge that a hospital has negotiated with all third-party payers for an item or service).

For the purposes of compliance, CMS requires price transparency for all individual items and services that are:

  • provided to a patient during an inpatient admission
  • provided to a patient during an outpatient department visit
  • provided by both employed physicians and non-physician practitioners.

Services provided by physician and/or non-physician practitioners not employed by the hospital are excluded from the Rule.

It is important to note that the information required on the Medicare cost report includes the rates of the payer-specific negotiated charges for every MS-DRG that the hospital has negotiated with their Medicare Advantage Organizations (MAOs). Hospitals that do not negotiate payment rates and only receive non-negotiated payments for services would be exempt from this provision. Also notable, the requirement to publicly disclose negotiated payer-specific charges not only applies to MAOs, but also includes Medicaid Managed Care Organizations and other Medicaid managed care plans, including state-negotiated contracts. Despite contractual provisions that might prohibit public disclosure of terms, CMS has emphasized the exception that is typically included in contracts which defers to Federal laws that may require such disclosures.

Operational Considerations

Although CMS has offered an estimate of the administrative burden anticipated from this reporting requirement, there are a number of considerations hospitals should contemplate:

  • Ensure you are able to comply with the Rule. 
  • Prepare to communicate the value of the items and services during patient cost of care discussions. Avoid letting the patient leave with only the cost information, make sure they understand the bigger picture of the overall patient care experience.
  • Review and renegotiate contracts now to better balance hospital strategy. Proactively addressing contract terms will help mitigate patients opting for more affordable competitor options.
  • Consider the Rule as an opportunity rather than a burden. Patient expectations about healthcare are ever-changing, and the Price Transparency Rule offers hospitals a forum to engage the patients in constructive discussions about those expectations.

For additional considerations and tools, CMS has released the following quick reference guide for providers: CMS Hospital Price Transparency Checklist.

Penalties for Non-Compliance

Do not look for any loopholes here, because CMS has confirmed they will be monitoring compliance with this Final Rule through various channels, including direct complaints, data analysis and by auditing hospital websites. Non-compliance could lead to CMS requiring a Corrective Action Plan (CAP) from the hospital, imposing civil monetary penalties not in excess of $300 per day and publishing the non-compliance and penalties on a dedicated CMS website.

The potential for audit exposure, data scrutiny and monetary penalties are not the only axes CMS is willing to wield. In addition to the outlined penalties for non-compliance with this requirement, CMS has tied provider Medicare payments to full compliance with this reporting requirement through the statutory requirements of the Social Security Act, sections 1815(a) and 1833(e), which states: “(N)o Medicare payments will be made to a provider unless it has furnished the information, as may be requested by the Secretary, to determine the amount of payments due the provider under the Medicare program.”[1] This has always been a recourse for CMS, so the threat is not necessarily new, but never before has the Agency embedded this reminder so explicitly in a Final Rule. The warning is very real and has very serious financial implications. Thus, we encourage all providers to consider how you can effectively meet this new requirement.

Additional information regarding provider compliance and detailed CMS guidance can be found within the CMS Hospital Price Transparency FAQ document.

[1] 85 FR 58877

Questions? Comments? Observations? Please email Angela Sorbelli, J.D., LL.M, MBA, CHC

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