Hospitals Went to Court to Keep Their Prices Secret, and They Lost

Imagine a car lot that sues the government for the right to keep the sticker off the windshield. The dealer's lawyers argue that posting the price would confuse customers, burden the business and possibly violate the Constitution. Then the dealer is surprised when everyone asks what he is hiding.

That is close to the story of American Hospital Association v. Azar, and it is not a hypothetical. The nation's hospital industry went to federal court to stop the government from making hospitals publish what they charge. The hospitals lost in the district court, and they lost again on appeal. This post tells that story, explains why the courts ruled as they did, and argues that the result is not just good law but good economics.

The terms, defined

Two phrases will carry the argument, and the whole fight turns on the difference between them.

The chargemaster is a hospital's internal list of prices for every item and service it provides, from an aspirin to an operating-room hour. Chargemaster prices are often called "list prices" or "gross charges." They are set by the hospital, and almost nobody pays them. They function like the price printed on a hotel room's back-of-the-door card: a number to start from, and a number to discount.

The negotiated rate is what a particular insurer has agreed to pay a particular hospital for a particular service. It is the price that actually changes hands for most insured patients, and it differs from insurer to insurer, sometimes by multiples, for the identical procedure in the identical building.

A patient who sees only the chargemaster knows a number that rarely applies to him. A patient who sees the negotiated rates, and the cash price a hospital will take from someone paying without insurance, knows what care will cost. The fight in court was over which of these hospitals must disclose.

What the rule required

Congress put a requirement in the Affordable Care Act of 2010. The statute, now codified in the Public Health Service Act, told each hospital to make public a list of its "standard charges" for items and services, and to update it annually. For years the agency that runs Medicare, the Centers for Medicare and Medicaid Services, or CMS, read that requirement narrowly. Beginning in 2019, its guidance told hospitals to post their chargemasters online. Hospitals complied in the way a teenager cleans a room, technically and unhelpfully, by posting huge spreadsheets of codes and numbers that no patient could interpret.

In 2019, CMS issued a rule that went further. It was published in November 2019 as a companion to the hospital outpatient payment rule for calendar year 2020, and it took effect on January 1, 2021. The rule had two main pieces.

1. Hospitals had to post a machine-readable file of all their standard charges, including the gross charges, the cash price for people paying without insurance, the payer-specific negotiated charges, and the minimum and maximum negotiated amounts.
2. Hospitals had to present, in a consumer-friendly display, the prices for a set of "shoppable services," meaning services a patient can schedule in advance, such as imaging and joint replacement, in plain language.

The rule meant, for the first time, that a patient could in principle see what his own insurer had agreed to pay for an MRI at one hospital and at the one across town. In a normal market, that is called a price list. In health care, it was treated as an assault.

The lawsuit

The American Hospital Association, joined by several hospital systems and other hospital groups, sued the Department of Health and Human Services in federal court in Washington. The case is American Hospital Association v. Azar, named for Alex Azar, who was then Secretary of Health and Human Services, and it was decided by the district court in 2020 and by the D.C. Circuit in December of that year. The hospitals made three arguments.

One. The statute did not authorize it. The law required "standard charges." The hospitals said that phrase meant the chargemaster list, and no more. Negotiated rates, they argued, were private commercial terms between a hospital and an insurer, not "standard charges" at all. On that reading, CMS had stretched a modest statute into a sweeping mandate.

Two. The rule was arbitrary and capricious. Under the Administrative Procedure Act, an agency must explain its choices and may not act without reasoned decision-making. The hospitals said CMS had not justified the burden or the benefit.

Three. It violated the First Amendment. Requiring a business to publish its confidential negotiated prices, the hospitals said, was compelled speech, and it forced them to disclose commercially sensitive information that would help their competitors and chill their bargaining.

Take the objections seriously, as a serious reader would. The first is a real question of statutory interpretation, and conservatives, who argue the text controls, should want an agency to prove its reading from the words. The third protects a principle we hold dear: government should not conscript private citizens to speak. If the hospitals had been asked to say something false, or to endorse a government message, the argument would have force.

Why the hospitals lost

The courts held that the rule stood. The district court ruled against the hospitals in June 2020, and the D.C. Circuit affirmed in December 2020, a few weeks before the rule's effective date. I will give the reasoning in the terms I am sure of and flag the rest.

On the statute, the courts accepted CMS's reading that "standard charges" is broad enough to cover what a hospital actually charges particular payers. The word "standard" does not mean "gross." A hospital's standard charge to a given insurer is a standard charge, whatever the label on the spreadsheet. If Congress had wanted only the chargemaster, it could have said "chargemaster," and the term had been part of the industry's vocabulary for decades. The statute told the agency to make prices public, and it left the agency the room to decide which prices mattered.

On the First Amendment, the courts treated the rule as the disclosure of purely factual, commercial information, which the law reviews more leniently than it reviews a mandate to express an opinion. A hospital that must post what it charges is not asked to endorse anything. It is asked to state a fact about its own business, in the same way a restaurant lists prices and a gas station posts what it charges per gallon. A price is a fact, and a seller can be required to state it.

On the claim that the rule was arbitrary, the agency had explained its reasoning at length. A rule that rests on a stated policy judgment, that patients cannot make choices without prices, is not arbitrary because the regulated industry disagrees with it.

One honest caution. The case was decided in 2020, in the era when courts routinely deferred to a reasonable agency reading of an ambiguous statute. That doctrine, called Chevron deference, was overruled in Loper Bright Enterprises v. Raimondo in 2024, and I explain its history in Chevron Began as a Win for Reagan's EPA, Which Makes Its Fall So Ironic. Conservatives who cheered that decision should ask whether the transparency rule survives on the text alone, without deference. I think it does. "Standard charges" is a phrase an ordinary reader would apply to the amount a hospital customarily charges a given payer, and a court asked to read it fresh, with no thumb on the scale for the agency, has good reason to reach the same result. But the question is fair, and the readers who press it are doing the work of a constitutional citizen.

What a secret price does to a market

Set the law aside and look at what the hospitals were defending.

A market is a mechanism for discovering prices. The buyer sees a price, compares it with the value of the thing, compares it with other sellers, and decides. The seller sees the buyer's choices and adjusts. Out of millions of those little decisions comes a price system that tells everyone what is scarce and what is plentiful. Friedrich Hayek's argument, made in 1945, was that prices carry knowledge no planner could gather. Take away the price and you take away the knowledge.

Now watch what happens when the buyer learns the price after the sale. A patient has a scan. The hospital bills the insurer an amount from its chargemaster. The insurer pays a discounted rate it negotiated in secret. The patient receives an explanation of benefits weeks later that says "this is not a bill," followed by a bill. At no point could he compare. At no point could he walk away. A system in which the customer learns the price after he has consumed the product is not a market with a few flaws. It is the absence of a market.

Here are the consequences, stated as numbered claims, so you can test each one.

1. Hidden prices protect the highest-priced seller. When the price is a secret, the seller who charges more than his neighbor faces no pressure. Light is the only force that has ever disciplined a monopoly's cousin.
2. Large variation survives. If the same procedure in the same city costs vastly different amounts depending on the building, and nobody can see it, patients and employers cannot reward the cheaper hospital. The price of an MRI is not a law of nature, and publishing it is what lets people discover that.
3. The insured patient is shielded and also blinded. A copay hides the real price from the patient, and the patient then has no reason to ask. Employers and insurers, who do see the numbers, are often bound by contracts that restrict what they may disclose. The only party who cannot see the price is the one asked to choose.
4. The uninsured and self-pay patient pays most. A person without coverage who is handed a chargemaster rate is, in effect, the only customer paying the ticket price. Disclosure of cash prices gives that person a number to negotiate against.

The same fog hangs over drugs, where middlemen negotiate rebates the patient never sees, as Pharmacy Benefit Managers, the Middlemen You Never Hired, Explained explains, and over the whole practice of buying care blind, which A Shopper's Playbook for Getting a Real Price Before a Medical Procedure answers one phone call at a time. And where an agency reads a statute broadly, The Major Questions Doctrine Explained, From Tobacco to the Power Plants sets the limit.

None of this is an accusation against the people who work in hospitals. Nurses, technicians and doctors are not the ones who designed the billing system, and most of them dislike it. The target is an arrangement in which a price is a secret that only the powerful share.

The other side's best point

Here is the argument for secrecy, put as its defenders would put it. Negotiated rates are confidential for a reason. If every hospital can see what its rivals accept, the argument goes, the discounts may drift toward uniformity or even toward the highest price, and insurers lose their leverage. In some markets, prices that become transparent have risen rather than fallen, because sellers who were charging less have learned they could charge more. Economists have warned about this possibility in other industries, and it is not a silly worry.

The rebuttal has three points. One: the risk is genuine, and it counsels watching the results and adjusting the rule, not hiding the prices. Two: the buyer in this market is not just an insurer. It is the patient, the employer who funds the plan, and the self-pay family, and none of them can bargain at all if they cannot see the number. A bargaining advantage for a middleman is not the same as a benefit to the patient. Three: the proper response to the risk of collusion is vigorous antitrust enforcement, which this Republic has had since the Sherman Act of 1890, not a regime of secrecy that gives sellers a pass.

What the courts did not decide

Be clear about the limit of the holding. The courts held that the agency had the authority to issue the rule and that it passed First Amendment review. They did not hold that every hospital would comply, and they did not claim that publication solves the cost problem. Compliance has been uneven, and CMS has had to press for compliance to get data that patients can use. A posted file is only worth something if it is complete, accurate and readable, and that is an enforcement job.

Nor does the case settle where the line is between a mandated disclosure and compelled speech. A future rule that required a business to post an opinion, or a moral judgment, would be a different case. The ruling is narrow, and it is right because it is narrow: prices are facts, and a seller can be required to state facts about what he sells.

The Founding connection

The Founders had a word for what a transparent price protects, and it was liberty of contract. A free person decides what to buy, from whom, on what terms. A person cannot exercise that liberty blind. The Constitution's Commerce Clause, in Article I, Section 8, gives Congress power to regulate commerce among the several states, and the hospitals sued over a rule that, whatever its other flaws, tried to put a buyer on equal footing with a seller. The old common-law ideal of the honest market, with open weights and measures and a fair price posted in the square, has deep roots. The Founders' generation grew up with it.

It is worth noting how rare it is for conservatives and consumer advocates to be on the same side of a regulatory fight. The usual conservative worry about a federal rule is that it adds cost and hands power to an agency. The price transparency rule does something different. It takes information that the sellers hold and gives it to the buyers, so the government's role is to equip a market rather than to replace it. If government must do something in health care, helping a buyer see a price is a far better job for it than setting the price.

The case in brief

1. A market requires that the buyer learn the price before the purchase, and in hospital care he usually learns it afterward.
2. The 2019 CMS rule, effective January 1, 2021, required hospitals to post their standard charges, including payer-specific negotiated rates and cash prices, in a machine-readable file and a consumer-friendly display of shoppable services.
3. In American Hospital Association v. Azar, the district court and the D.C. Circuit (2020) rejected the hospitals' statutory, administrative and First Amendment challenges, treating a price as a fact a seller may be required to state.
4. The case came in the Chevron era, and conservatives should test the rule on the statute's text alone. It passes that test too.
5. The danger of price convergence is real and calls for antitrust vigilance and rule adjustments, not secrecy. Transparency without enforcement is a poster on a wall.

What you can do: look up your own hospital's posted price file or its price estimator, compare one service you know across two hospitals, and if the file is missing or unreadable, report it to your state attorney general's office or to CMS, which enforces the rule.