Each year hospitals and health systems, physician groups, and other health care providers engage in M&A activity — over 100 deals each year, on average. Almost all of these transactions result in the exchange and analysis of proprietary rate information prior to consummation.

Rate information disclosure in an acquisition process is simple, happens quickly, and generally follows a pattern, as follows:

• A party being acquired will post its rate card information and contracts to a data room, where the acquiring party can access the information.
• The acquiring party will assess the rates compared to market level health insurance reimbursement, or to the acquiring entity’s actual rates.
• This assessment will often be done by a third party firm. This assessment will inform the final purchase price, or at a minimum, inform go-forward decisions around capitalization and revenue growth opportunities

In the context of a merger or acquisition, rate information is generally disclosed in a time efficient manner. While it may take additional effort from finance executives, it is neither impossible nor prohibitive to produce. Further, the ability of third party firms to quickly assess the disclosed negotiated rate information and create go-forward financial models is well established.

The Supreme Court has emphasized that “[s]o long as we preserve a predominantly free enterprise economy, the allocation of our resources in large measure will be made through numerous private economic decisions.” Virginia Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 765 (1976). It is thus “a matter of public interest that those decisions, in the aggregate, be intelligent and well informed.” Id. “To this end, the free flow of commercial information is indispensable.” Id. (emphasis added); see also Snyder v. Phelps, 131 S. Ct. 1207, 1215 (2011) (First Amendment reflects “a profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide open”).

In Virginia Board of Pharmacy, the Supreme Court struck down as unconstitutional a state law that prohibited pharmacists from advertising the prices of prescription drugs. As the Court explained, the suppression of information about health care prices “hits the hardest … the poor, the sick, and particularly the aged,” who spend a significant part of their income on health care but “are the least able to learn … where their scarce dollars are best spent.” 425 U.S. at 763. The Court emphasized that, given the “striking” variations in the cost of different prescription drugs, “information as to who is charging what [is] more than a convenience,” and “could mean the alleviation of physical pain or the enjoyment of basic necessities.” Id. at 763-64. At a more general level, there is a powerful public interest in “the free flow of commercial information.” Id. at 764. The Court thus concluded that any attempts to stifle the publication of information about prices would violate the First Amendment. See also Bates v. State Bar of Arizona, 433 U.S. 350 (1977) (holding that state’s prohibition on attorneys advertising their fees violated First Amendment); 44 Liquormart v. State of Rhode Island, 517 U.S. 484 (1996) (holding that ban on price advertising for alcoholic beverages violated First Amendment).

Just as the Supreme Court has struck down laws that seek to prohibit the disclosure of information about prices or costs, it has also upheld laws that seek to promote public access to pricing information. In the landmark case of Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), the Court rejected a First Amendment challenge to an Ohio regulation that required attorneys to disclose in their advertisements certain information about their fee arrangements. As the Court explained, there are “material differences between disclosure requirements and outright prohibitions on speech.” Id. at 650. A price-disclosure requirement does not “prevent” anyone from “conveying information to the public”; instead, it merely “require[s] them to provide somewhat more information than they might otherwise be inclined to present.” Id. The Supreme Court thus applied a rule under which the relevant First Amendment rights “are adequately protected as long as disclosure requirements are reasonably related to the State’s interest in preventing deception of consumers.” Id. at 651. Applying that standard, the Court upheld an Ohio law that required attorneys to disclose in their advertisements if clients in contingent-fee cases could be forced to pay costs following an unsuccessful suit. Id. at 652.

Price transparency rules are common in other industries, and—consistent with the Supreme Court’s decision in Zauderer—those laws have never been found to violate the First Amendment. For example, to enable comparison shopping, the Department of Transportation requires airlines to prominently advertise the all-in price of a ticket that shows what the customer will actually pay—i.e., the fare charged by the airline plus all applicable taxes and fees. The U.S. Court of Appeals for the D.C. Circuit rejected a First Amendment challenge to that price-transparency regulation, holding that it was merely “a disclosure requirement rather than an affirmative limitation on speech.” Spirit Airlines v. Dep’t of Transp., 687 F.3d 403, 412-13 (D.C. Cir. 2012). As the court explained, “the Airfare Advertising Rule does not prohibit airlines from saying anything; it just requires them to disclose the total, final price and to make it the most prominent figure in their advertisements.” Id. at 414. In short, the rule did not violate the First Amendment because it “is aimed at providing accurate information, not restricting it.” Id. (emphasis added).

Similarly, the Federal Trade Commission has promulgated a “Funeral Rule” that imposes extensive price-transparency rules on providers of funeral-related goods and services. See Final Rule, Funeral Industry Practices, 47 Fed. Reg. 42,260 (Sept. 24, 1982). A key provision of that rule requires funeral providers to give their customers an itemized price list that displays “standardized price information” for each available service, thereby “enabl[ing] consumers to weigh the costs and benefits both of the various alternatives to a traditional funeral and of the individual items which they might select for use with a traditional funeral.” Id. at 42,272. The concerns that led to the adoption of the Funeral Rule apply with full force in the health care context: both situations involve expensive, often one-time transactions that are necessarily undertaken during a stressful and emotional time for the consumer. No court has ever so much as suggested that the Funeral Rule’s disclosure requirements violate the First Amendment, and the same underlying interests would justify price-transparency regulations in the health care context as well.

In raising First Amendment objections to price transparency regulations, critics have pointed to cases such as R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205 (D.C. Cir. 2012), Am. Meat Institute v. USDA, 760 F.3d 18 (D.C. Cir. 2014) (en banc), and Am. Beverage Ass’n v. City & Cnty. of San Francisco, 916 F.3d 749 (9th Cir. 2019) (en banc). But none of those cases casts doubt on the constitutionality of price disclosure requirements. For example, in American Meat Institute, the D.C. Circuit rejected a First Amendment challenge to the Department of Agriculture’s country-of-origin labeling requirements for food products, holding that the rules were permissible under Zauderer because they merely sought to ensure that consumers had accurate information about the products they were purchasing. And, although the same court in R.J. Reynolds had struck down as unconstitutional a requirement that cigarette companies put graphic images of smoking-related health conditions on their packages, the D.C. Circuit overruled key aspects of that decision in American Meat Institute. See 760 F.3d at 22-23. The court held that the government had a legitimate interest not only in preventing deception but also in ensuring that consumers had accurate information upon which they could base their purchasing decisions. Id. at 22-25.

The Ninth Circuit’s decision in American Beverage Association is also readily distinguishable. That case did not involve disclosure rules regarding prices. Instead, it involved a San Francisco ordinance that forced soft-drink makers to include government-written warnings in their advertisements about the alleged health effects of their beverages. Because San Francisco required the warnings to occupy at least 20% of the space of the advertisements—thereby commandeering a significant portion of the companies’ message—the court found that these regulations were “unduly burdensome when balanced against [the] likely burden on protected speech.” 916 F.3d at 757. But that reasoning would have no application to regulations that merely required disclosure of prices.

The Supreme Court has rejected this “highly paternalistic approach” to the First Amendment. Virginia Bd. of Pharmacy, 425 U.S. at 770. Rather than assuming that consumers will be confused by too much information, the First Amendment assumes “that people will perceive their own best interests if only they are well enough informed, and that the best means to that end is to open the channels of communication rather than to close them.” Id. As between “the dangers of suppressing information” or “the dangers of its misuse if it is freely available,” the First Amendment counsels in favor of openness and transparency. Id. In sum, the government has no legitimate interest in any policy that “rests in large measure on the advantages of [the public] being kept in ignorance.” Id. at 769.

Any self-imposed gag orders or confidentiality clauses in private contracts pose no obstacle to federal price-transparency regulations. All private contracts “must necessarily be regarded as having been made subject to the possibility that, at some future time, Congress might so exert its whole constitutional power in regulating interstate commerce as to render that agreement unenforceable, or to impair its value.” Louisville N. & R. Co. v. Mottley, 219 U.S. 467, 482 (1911). That is, “contracts must be understood as made in reference to the possible exercise of the rightful authority of the government, and no obligation of a contract can extend to the defeat of legitimate government authority.” Id. The Supreme Court has emphasized that it would be “inconceivable” that the federal government’s authority “may be hampered or restricted to any extent by contracts previously made between individuals or corporations.” Id. In short, “[p]arties cannot remove their transactions from the reach of dominant constitutional power by making contracts about them.” Norman v. Baltimore & O. R. Co., 294 U.S. 240, 308 (1935).

The Supreme Court has applied those general principles in countless contexts. In Norman, the Court held that “gold clauses” in private contracts were invalid to the extent they interfered with federal power to regulate the currency and establish a monetary system. Id. at 311. Similarly, a contract between a shipper and a common carrier for transportation at certain rates is invalid if federal regulators have prescribed different rates, even if the rates were lawful when the contracts were made. Id. at 308; see also New York v. United States, 257 U.S. 591, 600-01 (1922); United States v. Village of Hubbard, 266 U.S. 474, 477 (1925); Armour Packing Co. v. United States, 209 U.S. 56, 80-82 (1908). And, in the antitrust context, “no previous contracts or combinations can prevent the application of the Sherman Act to compel the discontinuation of illegal combinations.” United States v. Southern Pac. Co., 259 U.S. 214, 234-35 (1922).

These cases foreclose any suggestion that federal price-transparency regulations could be evaded through private confidentiality clauses or gag orders. Federal regulations carry the same “force of law” as federal statutes, and federal agencies have the power to promulgate “binding legal rules” pursuant to their statutory grants of authority. See Mayo Foundation for Medical Educ. & Research v. United States, 562 U.S. 44, 57 (2011). Price transparency regulations would thus supersede and take precedence over any contractual provisions to the contrary.

Finally, the Constitution’s Contract Clause is also inapplicable here. In certain circumstances, that Clause prohibits any “Law impairing the Obligation of Contracts.” U.S. Const., art. I, § 10, cl. 1. But the Contract Clause, by its express terms, applies only to the States; it does not impose any limits on the federal government’s ability to abrogate contractual provisions.

For years, prices for health care services have risen faster than nearly any other goods or services purchased by American consumers. It thus strains credulity to think that maintaining the status quo of secret prices is somehow needed to keep prices in check. Quite the opposite: the health care system desperately needs more price transparency, to enable consumers to make fully informed decisions in their own best interests.

Gasoline stations, airlines, retailers, and countless other businesses prominently advertise their prices—notwithstanding the potential for collusion or coordination—so there is no reason to believe that disclosure of health care prices will lead to rampant collusion.

Collusion and price-fixing are criminal violations of the federal antitrust laws, so if collusion did exist, it could be addressed by the FTC, DOJ, and private litigants through the Sherman Act or FTC Act—just as in all other industries.

There is no legitimate government interest in keeping consumers in the dark merely because they might be confused or overwhelmed by too much information. Rather than assuming that consumers will be confused by too much information, our Constitution assumes “that people will perceive their own best interests if only they are well enough informed, and that the best means to that end is to open the channels of communication rather than to close them.” Virginia Bd. of Pharmacy, 425 U.S. at 770. In Virginia Board of Pharmacy, the Supreme Court struck down under the First Amendment a state law that barred pharmacists from advertising their prices. The Court reasoned that the government has no legitimate interest in any policy that “rests in large measure on the advantages of [the public] being kept in ignorance.” Id. at 769.