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DENVER (Legal Newsline) - A hospital that hit a patient with a surprise $229,000 bill for back surgery can’t collect because it didn’t spell out the potential cost in advance, the Colorado Supreme Court ruled, applying basic principles of contract law to the complicated business of healthcare billing.
“Principles of contract law can certainly be applied to hospital-patient contracts, and if a charge for hospital services is not included in a hospital-patient contract, then we believe that a jury is fully capable of determining the reasonable value of the services provided,” the state high court ruled in a May 16 decision.
Lisa Melody French went to Centura Health Initiatives Colorado’s St. Anthony North hospital on her doctor’s recommendation after a car accident injured her spine. Before being admitted she signed several documents including one estimating her surgeries would cost $57,601.27 and she would be personally responsible for $1,336.90 under her employer’s insurance policy.
The surgery went as expected but after her recovery the hospital billed French $229,112.13, saying it had misread her insurance card and discovered she was an out-of-network patient. The hospital said the bill reflected a calculation by its “chargemaster,” an internal billing system, of costs after French’s employer paid $74,000 and her $1,000 copayment.
French refused to pay the bill, so Centura sued. The hospital argued the term “all charges” in the contract she signed referred to whatever amount was calculated by its chargemaster. French requested the chargemaster as evidence but the hospital refused, saying it was “voluminous, proprietary and a trade secret.”
The trial judge ruled that since the chargemaster wasn’t referenced in the contract, it was up to the jury to decide what “all charges meant.” French’s expert said the actual cost of the surgery was roughly what she and her employer had already paid. The jury decided French must pay an additional $766.74 to settle her bill.
Centura appealed and the appeals court reversed the jury verdict, ruling “all charges” unambiguously meant the hospital’s chargemaster rates. The court justified the opinion by finding that hospitals can’t predict in advance the cost of any particular procedure and courts shouldn’t try to decide the reasonableness of healthcare charges.
The Colorado Supreme Court reversed again, citing basic contract law requiring the parties to mutually agree upon the meaning of the document they have signed. Where a contract lacks a definite price, courts must determine the reasonable value of the services provided. Contracts can incorporate outside documents by reference, the court went on, but they must be clearly and expressly identified.
“There was also no evidence she assented to the chargemaster’s terms,” the state high court ruled. “She assuredly could not assent to terms about which she had no knowledge and which were never disclosed to her.”
The court rejected comparisons to a decision by the federal Third Circuit Court of Appeals that held “all charges” incorporated a hospital’s chargemaster, saying that ruling came in a class action by patients and didn’t cite any authorities.
The court ended by observing how prevalent billing disputes have become.
“Hospital chargemasters have become increasingly arbitrary and, over time, have lost any direct connection to hospitals’ actual costs, reflecting, instead, inflated rates set to produce a targeted amount of profit for the hospitals after factoring in discounts negotiated with private and governmental insurers,” the court said.
French was represented by Ireland Stapleton Pryor & Pascoe and FisherBroyles; Centura was represented by McConnell Van Pelt. The case drew amicus briefs from the American Association of Healthcare Administrative Management, the Colorado Business Group on Health, the Self-Insurance Institute of America and other groups.