CMS Intensifies Hospital Price Transparency

 

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Analysis by: Kelly Emrick, DHSc., PhD., MBA

The Centers for Medicare & Medicaid Services (CMS), in a guidance document dated May 22, 2025, has issued significant updates to enhance hospital price transparency. This action directly implements the President's Executive Order 14221, "Making America Healthy Again by Empowering Patients with Clear, Accurate, and Actionable Healthcare Pricing Information." The updated guidance indicates a movement towards more detailed, usable, and truly transparent hospital pricing data, building upon a series of regulations, particularly the CY 2024 Outpatient Prospective Payment System (OPPS)/Ambulatory Surgical Center (ASC) final rule. The primary focus of this latest directive is to shift hospital disclosures from estimates and placeholders to definitive, calculable dollar amounts within their machine-readable files (MRFs). This addresses a crucial gap where previous flexibility, although initially practical, ultimately diminished the usefulness of the disclosed data for consumers, researchers, and other stakeholders looking to compare costs or comprehend actual financial obligations. Two primary mandates emerge as essentials from this CMS update:

1. Mandatory Encoding of Derivable Dollar Amounts: The guidance unequivocally states that hospitals must encode a standard charge dollar amount in the MRF if it can be calculated. This extends to amounts negotiated for specific items/services, base rates for service packages, and even standard charges derived from percentages of known fee schedules. CMS explicitly expects hospitals to perform these calculations for payer-specific negotiated charges under standard contracting methodologies like "case rate," "fee schedule," or "per diem," and encode the resulting dollar amount. This marks a shift from simply indicating a methodology to requiring the financial outcome of that methodology to be published. For scenarios where a payer-specific negotiated charge is a percentage of a fee schedule unavailable to the hospital, the guidance still requires encoding an "estimated allowed amount" and providing contextual notes.
2. Discontinuation of "Nine 9s" and Refined Calculation of "Estimated Allowed Amount": Perhaps the most impactful operational change is the directive for hospitals to discontinue encoding "999999999" (nine 9s) as a placeholder for the estimated allowed amount data element in the MRF. CMS observed, through analysis of MRF files (citing a February 2025 study of 68 large acute care hospitals where 63% used this placeholder and 38% used it for over 90% of values), that this practice was far more prevalent than anticipated, rendering large swathes of data non-comparable and opaque. Instead, the guidance mandates a new approach for calculating the "estimated allowed amount." This amount, defined as "the average dollar amount that the hospital has historically received from a third-party payer for an item or service," must now be derived from electronic remittance advice (ERA / EDI 835) transaction data from items or services rendered within the 12 months before posting the file. CMS provides specific scenarios: If a negotiated percentage/algorithm was used for only part of the 12-month look-back period, the average should be based only on that time. Suppose an item/service negotiated as a percentage/algorithm was used once or twice in the 12 months. In that case, the hospital should encode the average of those charges, noting "one or more instances." In addition, if an item/service negotiated as a percentage/algorithm was not used within the 12 months, in that case, the hospital must encode a value in dollars and cents reflecting their "expectation of what the charge would be," and note "zero instances." This effectively closes the loophole of using "nine 9s" for new services or rarely used, complex contract terms.

This guidance is the latest step in an evolutionary regulatory journey that began with the Public Health Service Act Section 2718(e) and has been progressively refined through various OPPS/ASC final rules (CY 2020, CY 2022, and CY 2024). The CY 2024 rule had already laid the groundwork for standardizing charge displays and strengthening enforcement. This May 2025 update operationalizes those principles with greater specificity, particularly for the MRF, foundational for data aggregators, researchers, and transparency tool developers.

The implications for hospitals are significant. They will encounter increased analytical burdens to calculate and continually update these dollar amounts, requiring a robust data infrastructure and potentially renegotiated workflows with payers to ensure access to essential fee schedule information where possible. The requirement to state an "expectation" for charges with no 12-month history introduces a new element of prospective estimation that must be justifiable. While challenges in implementation and enforcement will undoubtedly persist, particularly regarding the "expectation" for novel services and the complexities of diverse payer contracts, this guidance highlights a federal commitment to making hospital pricing less of a "black box." It aligns with broader policy goals of reducing healthcare cost opacity and empowering patient choice, forming a key component of the administration's health policy agenda. The success of this initiative will ultimately depend on rigorous hospital compliance and CMS's continued vigilance in monitoring and enforcing these refined standards.

Source Information: cms.gov/files/document/updated-hpt-guidance-encoding-allowed-amounts.pdf