The US Court of Appeals for the District of Columbia Circuit Tuesday upheld a rule requiring greater transparency in the prices hospitals negotiate with insurers and third-party payers. 

Over 90 percent of US patients rely on insurers and other third-party payers to pay for hospital services. Insurance companies have contracts with hospitals and pay negotiated prices, which are determined through mixed methodologies. However, patients usually only find out what each hospital service costs after the visit, either from a hospital bill or their insurance company’s “Explanation of Benefits.”

This lack of transparency contributed to an “upward spending trajectory” in healthcare, which Congress tried to amend by adding section 2718 with the Affordable Care Act in 2010. As part of the Affordable Care Act (ACA), hospitals are required to make public a list of charges in accordance with guidelines set by the Secretary of Health and Human Services. The secretary issued a rule that defined these “standard charges” to include the prices that the hospital charges insurers, which the American Hospital Association challenged.

The hospital association argued that the rule’s interpretation of standard charges violated section 2718(e) of the ACA, the Administrative Procedure Act (APA), and the First Amendment. The district court granted summary judgment to the secretary.

On appeal, the circuit court affirmed. The court found that the ACA permitted the secretary to require the disclosure of negotiated rates, and that the secretary had the authority to require hospitals to make the information public. The secretary also was permitted to require hospitals to disclose the information in multiple ways.

The hospital association also argued that the administrative burden was excessive and that it was “impracticable, and often impossible” to comply with the rule. However, the court held that the rule requires “disclosure of base rates for an item or service, not the adjusted or final payment” the hospital ultimately receives. The main purpose of the rule is to “shift to hospitals some of the burden that patients currently bear” in “navigating a non-transparent hospital-care system.”

Finding that none of the hospital association’s arguments had merit, the court affirmed summary judgment for the secretary. The rule is scheduled to take effect on January 1.