By Asher McGuffin, Staff Member
Everyone knows healthcare is expensive, but a growing number of patients are in for a shock when they see their medical bills. Health insurance companies usually control costs by negotiating prices with hospitals in advance, creating a network of covered providers, but many of these in-network hospitals conceal that some doctors or services are not included in negotiated agreements. As a result, even after receiving care at in-network hospitals, patients can be billed dramatically more than expected and patients are sometimes billed for care they did not even know they would receive. This practice, known as “surprise billing” or “balance billing,” allows healthcare providers to avoid price controls and dramatically increase costs on even the most price-conscious patients. Surprise billing has ballooned in recent years, contributing to medical care recently surpassing housing as the largest monthly expense for the average American family.
Hospitals, doctors, and even patients have traditionally assumed that surprise bills are legal and enforceable. Many doctors celebrated last December when a bi-partisan bill to stop surprise billing was defeated in the Senate. But patients, health insurance plans, and even employers are fighting back in the courts and many of them are winning. Traditional contract law is rooted in mutual agreements, but surprise bills are, by definition, unilateral and unforeseen – which makes enforcing them an uphill battle. Below, I discuss some legal issues with surprise billing which courts have addressed recently.
Hospitals’ Generic Contracts May Lack a Definite Price
One hurdle healthcare providers can face in enforcing balance bills is proving that the patient agreed to pay what the provider alleges. Although hospitals and other healthcare providers routinely require that patients sign contracts agreeing to pay their medical bills, almost every hospital keeps their rates secret. As a tactic for negotiating with insurance companies, healthcare providers maintain secret “charge masters” with exaggerated prices so they can offer discounts to insurance companies who on average pay less than 40% of the charge master rate. Instead, patients are asked to agree to pay the “usual and customary charges” of the hospital. If a hospital later goes to court to try to make a patient pay charge master rates, they must persuade the court that the patient agreed to pay several times what other patients paid for the same care.
Patients often argue that no binding contract was ever formed because the parties never agreed on an essential term: the price. Even if an enforceable contract was formed, the court may provide the missing price term or allow the jury to interpret the contract and decide whether the patient agreed to pay the hospital’s charge master price or the more typical price that insurance companies or Medicare pay. Most states have held that vague agreements with hospitals definitely and unambiguously refer to that hospital’s charge master rates. However, most commentators agree this is inconsistent with common law contract principles. If the charge master rates truly are a trade secret, as hospitals contend, how can a patient agree to pay it in advance? If charge master rates keep rising faster than actual costs, we can probably expect more states to readopt common law contract rules for hospital agreements to pay.
When There is No Contract, Prices Must be Reasonable and Customary
Most surprise bills stand on very different footing than routine hospital bills. Whereas hospitals make at least a cursory attempt to negotiate payment with a patient before providing services, most surprise bills come from doctors who deliberately avoided any agreement with the patient before giving medical care. This practice, known as drive-by doctoring, occurs when a doctor working in a hospital chooses to bill separately instead of working directly for the hospital and refuses to negotiate in-network rates with insurance companies. Independently billing doctors can then conceal this fact from patients or even operate on patients without their knowledge, leaving patients surprised when they receive extraordinary bills in the mail. Drive-by doctors may charge 20 to 40 times what the hospital they work in bills for the same services. Most patients pay all or most of these bills, but when a patient refuses to pay the full bill, drive-by doctors can find it difficult to enforce their claim in court.
Because drive-by doctors deliberately avoid contracts with their patients, their only cause of action is the equitable remedy of quantum meruit. Quantum meruit allows a plaintiff to get paid for services rendered under an expectation of payment but without a contract, as if they had negotiated a contract in advance. For this fictional contract negotiation, the patient is treated as if they were under no compulsion to agree and had full knowledge of all pertinent facts. As a result, drive-by-doctor bears the burden to prove that the amount of the bill is reasonable and reflects the customary, fair market value of the care performed. On the other hand, patients can use a wide array of evidence to show that a doctor’s bill was not reasonable or customary, including prior bills and accounts, Medicare rates, and other providers’ rates.
In one illustrative case in 2014, the Court of Appeals of California reversed a jury verdict that would have given Children’s Hospital Central California $6,615,502 resulting from quantum meruit for emergency medical treatment because the trial court improperly excluded evidence that the hospital routinely negotiated lower rates and accepted lower payment from patients. Similarly, in 2018, the Supreme Court of Texas affirmed a trial court’s order compelling a medical provider to produce insurance contracts and Medicare payment rates because they were relevant to show what the provider’s reasonable and customary rates were. When presented with evidence of typical prices, juries are likely to limit drive-by doctors to those typical insurance or Medicare rates.
Avoiding Surprise Billing by Not Having a Network
Another approach some health insurance plans take to avoid surprise bills is to have no provider network at all. ELAP LLC is a healthcare consulting company that offers an unusual deal to companies trying to save on health insurance costs. These companies self-insure their employees’ healthcare costs and hire ELAP as their plan’s “Designated Decision Maker.” In exchange for a moderate fee, ELAP audits all the bills submitted to the plan to determine if they are reasonable compared to the provider’s actual demonstrated cost or Medicare payment schedules. If ELAP determines a bill is more than 12% above cost or more than 20% above Medicare scheduled rates, the plan pays that lesser amount instead. Because of ELAP’s audits, the health plan doesn’t need to contract with any providers in advance to control costs, eliminating surprise bills and giving plan participants complete freedom of choice and overall savings as high as 30% when compared to traditional health insurance plans.
Healthcare providers are fighting back against ELAP-managed plans by suing plan participants for the difference between the provider’s bill and what the plan pays after ELAP’s audit. As part of their agreement with the health plans, ELAP defends plan participants from these suits, at ELAP’s expense. So far ELAP has successfully defended plan participants from any additional costs by arguing for reasonable contract interpretations or quantum meruit terms as discussed above.
St. Anthony North Health Campus, a hospital near Denver, CO, sued an ELAP-managed plan participant for nearly $230,000 for an emergency spinal-fusion surgery performed after a car crash. St. Anthony had originally billed the patient $303,709, but the patient’s ELAP-managed health insurance plan paid the hospital only $75,000. The judge denied the patient summary judgement and the case went to trial in 2018. After hearing the evidence, the jury found that the patient had a contract with St. Anthony, but that the contract could not reasonably be interpreted as an agreement to pay over $300,000 for a surgery that cost the hospital a mere $31,655.05. Instead, the jury held the patient responsible for only an extra $766.74, mostly for underpaying her copay. In a similar case in 2012, the U.S. District Court for the Western District of Georgia granted summary judgement to an ELAP plan participant.
So far ELAP has defended more than 700,000 billing disputes with hospitals, of which an ELAP spokesman said all had resulted in a favorable settlement or a legal victory for ELAP. Some healthcare providers have tried suing ELAP or ELAP-managed plans directly, arguing causes including tortious interference with contracts and fraud. Most of these suits were dismissed for failure to state a claim, and it appears none have led to an adverse judgement against ELAP. If ELAP’s success in court continues, it may challenge conventional healthcare billing as we know it.
Conclusion
As these recent cases show, surprise bills are not as easy to enforce as hospitals and doctors once thought. Instead, when patients challenge their bills, these cases frequently go before judges and juries who find this practice unfair and therefore unenforceable. ELAP’s so far undefeated record in court is a testament to what can happen when patients fight back against unfair billing in an organized way. Even if Congress continues to do nothing, we can expect that courts will continue to provide a just and effective solution to one of healthcare’s most egregious practices.
Sources
George A. Nation III, Healthcare and the Balance-Billing Problem: the Solution is the Common Law of Contracts and Strengthening the Free Market for Healthcare, 61 Vill. L. Rev. 153 (2016).
Daryl M. Berke, Note and Recent Case Development: Drive-by-Doctoring: Contractual Issues and Regulatory Solutions to Increase Patient Protection from Surprise Medical Bills, 42 Am. J. L. and Med. 170 (2016).
Children’s Hosp. Cent. Cal. v. Blue Cross of Cal., 226 Cal. App. 4th 1260, 1274, 172 Cal. Rptr. 3d 861, 872 (2014).
In re N. Cypress Med. Ctr. Operating Co., 2018 Tex. LEXIS 1148 (2018).
https://revcycleintelligence.com/news/hhs-defends-hospital-price-transparency-rule-to-judge
https://www.nytimes.com/2014/09/21/us/drive-by-doctoring-surprise-medical-bills.html
https://www.nytimes.com/2019/12/17/upshot/surprise-billing-democrats-2020.html
https://www.healthleadersmedia.com/finance/healthcare-spending-20-gdp-thats-economy-wide-problem
https://khn.org/news/radical-approach-to-huge-hospital-bills-set-your-own-price/
Asher McGuffin is a 3L evening student at Suffolk University Law School and a staff member of the Journal of Health and Biomedical Law. By day, Asher works full-time at Troutman Pepper as a Technical Specialist in their IP Litigation group, where he specializes in patent infringement cases and Section 337 Investigations before the U.S. International Trade Commission. Before law school Asher studied Electrical and Computer Engineering at Rice University, where he researched autonomous vehicles, and at Boston University, where he researched guided wave optics. Between graduate school and law school Asher worked at LyteLoop, a startup company developing state-of-the-art optical data storage technology utilizing light in constant motion.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHBL or Suffolk University Law School.