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Hospital Price Transparency Law: Friend or Foe?

Michael Walrath, J.D.

Plaintiff lawyers and injury victims are often required to resolve hospital liens and debts which arise from an injury caused by the negligence of another. These hospital charges attach to a plaintiff’s settlement proceeds in most states.[1]

Most state statutes or county ordinances limit hospital liens to reasonable charges but fail to further define this standard of reasonableness. The common law generally limits hospital debts and liens to reasonable amounts based upon a myriad of factors including the cost incurred by the hospital in rendering the care, the average charges for identical care in the relevant community, and the average reimbursement for identical care across the entire patient population (including third party payor discounts and self-pay policies). However, the common law of contracts, which ensures such limitations, is predicated upon the price term of hospital contracts being left undefined or open. Regardless of reasonableness, a court cannot interfere to rewrite the contract if a patient agrees to a price prior to receipt of care. As courts often point out, a party cannot be judicially protected from his or her own bad bargain.

Pursuant to a new federal law that took effect on January 1, 2019, hospitals across the country are required to publish their prices online for all medical services they provide. According to Medicare:

The proposed policies in the [new] rule…further advance the agency’s priority of creating a patient-centered healthcare system by achieving greater price transparency, interoperability, and significant burden reduction so that hospitals can operate with better flexibility and patients have what they need to become active healthcare consumers.[2]

[1] See Ala. Code § 35-11-370; Alaska Stat. § 34.35.450; Ariz. Rev. Stat. Ann. § 33-931; Ark. Code Ann. § 18-46-101; Cal. Civ. Code § 3045.1; Colo. Rev. Stat. Ann. § 38-27-101; Conn. Gen. Stat. Ann. § 49-73; Del. Code Ann. tit. 25, § 4301; D.C. Code § 40-201; Ga. Code Ann. § 44-14-470; Haw. Rev. Stat. § 507-4; Idaho Code Ann. § 45-701; 770 Ill. Comp. Stat. Ann. 23/1; Ind. Code Ann. § 32-33-4-1; Iowa Code Ann. § 582; Kan. Stat. Ann. § 65-406; La. Rev. Stat. Ann. § 9:4751; Me. Rev. Stat. tit. 10, § 3411; Md. Code Ann., Com. Law § 16-601; Mass. Gen. Laws Ann. ch. 111, § 70a; Minn. Stat. § 514.68; Mo. Ann. Stat. § 430.230; Neb. Rev. Stat. Ann. §§52-401 & 52-402; Nev. Rev. Stat. Ann. § 108.590; N.H. Rev. Stat. Ann. § 448-A:1; N.J. Stat. Ann § 2a:44-35; N.M. Stat. Ann. § 48-8-1; N.Y. Lien Law § 189; N.C. Gen. Stat. Ann. § 44-49; N.D. Cent. Code Ann. § 35-18-01; Okla. Stat. Ann. tit. 42 §§43 & 44; Or. Rev. Stat. Ann. § 87.555; R.I. Gen. Laws Ann.§§9-3-4 to 9-3-8; S.D. Codified Laws § 44-12-1; Tenn. Code Ann. § 29-22-101; Tex. Prop. Code Ann. § 55.001; Utah Code Ann. § 38-7-1; Vt. Stat. Ann. tit. 18, § 2253; Va. Code Ann. § 8.01-66.2; Wash. Rev. Code Ann. § 60.44.010; Wis. Stat. Ann. § 779.80. [2] April 24, 2018 – https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2019-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-acute

Hospital Price Lists Mandated

Under the Affordable Care Act (also referred to as Obamacare), hospitals were already required to publicly release prices. However, as of January 1, 2019 they are also required to post these prices online in a downloadable format and to update them annually.  However, the required price lists will likely cause confusion as they do not match the prices paid by health insurance companies, Medicare, Medicaid, or self-pay patients who qualify for reductions. It is estimated that less than 5% of the patient population is asked to pay the full billed charges which are posted.

Furthermore, hospital price lists (often referred to as chargemaster prices) do not instruct the amount charged for procedures. Instead, charges are listed in “time units” (usually minutes or blocks of minutes) for common services such as anesthesia, operating room, recovery room, and ICU. Also listed are charges for various diagnostic tests, medications, and supplies. Therefore, unless you know how long you will spend in each department, what supplies you will use and what drugs you will be prescribed for a given procedure, the prices posted online are useless in estimating the amount of your hospital bill.

Additionally, there is concern that judges and legislators will misinterpret this purported price transparency as providing an agreed upon price term to otherwise “open-price-term” contracts signed at admission. After all, if prices are now available online by law, a contract between a patient and hospital referencing those prices as the express, agreed upon price terms could be deemed binding and definite. For example, in Maryland and Arizona hospital prices are labelled as per se reasonable because they have been reviewed by the legislature and made available to the public.[3]

Negotiating Reasonable Hospital Bills

When litigating reasonable value of a hospital lien and facing an argument that the newly published prices satisfy a missing price term, it is important to depose the person with the most knowledge of the chargemaster. During this deposition, ask one simple question: “What will be the amount of the patient’s bill based solely upon the chargemaster price list and the procedure for which the patient is being admitted?” The testifying expert should answer without reference to the itemized bill as it was unavailable at the time the admission contract was signed. Because that question cannot possibly be answered, even by the hospital’s own chargemaster expert, the price term cannot be agreed upon.

Reasonableness is a term of art. When negotiating reasonableness of a hospital bill or lien, it is important to determine the cost of care incurred by the hospital in treating the patient. Cost of care can be extrapolated from the hospital’s sworn Hospital and Hospital Health Care Complex Cost Report (Form CMS-2552-96) and applied to your client’s bill. Alternatively, Synergy can prepare a Reasonableness Report using this sworn data for use in your negotiations or our team of experts can negotiate on your client’s behalf using this vital data.

While state hospital lien statutes and the case law interpreting them vary widely, many include provisions embedding an equitable distribution of limited settlements into the law. This allows plaintiff attorneys to recover their fees and costs while ensuring a fair split of the net proceeds between the patient and the hospital. However, it is important to distinguish between a lien and the underlying debt. Most hospital lien statutes do not address the balance left due after such a distribution. In states which do not express otherwise by statute or case law, reduction of hospital debt to a reasonable amount will protect clients from balance billing of unreasonable amounts. It is important to consider these balance billing issues in the context of your individual state’s body of law.

Synergy’s Hospital Reports are available for almost any bill, from any hospital, nationwide. The turnaround time for this service is approximately five business days. Our hospital lien experts first remove all non-billable care before using the hospital’s self-reported cost data to estimate the cost of care for your client’s visit. With the estimated reasonable value now available, you can invert your argument by negotiating up from the reasonable value rather than negotiating for an illusory discount from grossly inflated full billed charges.

The Third Thursday webinar Hospital Liens – Cost Transparency, Friend or Foe?, which aired in February is now available here.

To learn more visit:  https://synergysettlements.com/mbc-home/

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