Determining the Reasonableness of Medical Charges – The Quest Continues

Originally published by Sarah Scott.

Texas Supreme Court Rules Government and Insurance Billing Rates are Discoverable for Determining “Reasonableness” of Hospital Charges to Individuals

One of the biggest factors affecting the value of a personal-injury case is the amount of medical bills – hospital bills, in particular. To encourage hospitals to promptly and adequately treat accident victims who are uninsured, the Texas Legislature has granted hospitals a lien on any patient injured in “an accident that is attributed to the negligence of another person.” Tex. Prop. Code §55.002(a). These liens – which attach to any settlements or verdicts arising from these accidents – are “subject only to the right to question the reasonableness of the charges.” Bashara v. Baptist Mem’l Hosp. Sys., 685 S.W.2d 307, 309 (Tex. 1985).

With medical billing, however, “reasonableness” is not exactly straightforward. Most hospitals have a tiered charging system for their patients; those patients covered by Medicare or private insurance benefit from the collective bargaining power of the government or insurers and are charged less for medical services. Individuals not covered by insurance, on the other hand, are subjected to (often astronomically high) “chargemaster” or “list” rates. Often, hospitals end up writing off a substantial portion of these higher charges for uninsured patients who will realistically never be able to pay them.

So what happens when a hospital learns of a lawsuit where insurance is involved and refuses to reduce the amounts it charges to a plaintiff?  That was the issue facing the Texas Supreme Court in In re North Cypress Medical Center Operating Co., Ltd. No. 16-0851, 2018 WL 1974376 (Tex. April 27, 2018). Crystal Roberts was involved in an auto accident and taken to the emergency room at North Cypress Medical Center. After receiving X-rays, CT scans, and labs, she was released after three hours. Id. at *1. Since Roberts was uninsured, she was billed at the chargemaster rates, which totaled $11,037.35. Id. Roberts’ attorney tried to reduce the amount of the lien to settle the case with the at-fault driver’s insurance company; when the hospital refused to reduce the bill below $8,278.31, Roberts sued the hospital. In discovery, he asked for the hospital’s billing rates for the same services for patients who had Medicare or private insurance.

The trial court granted Roberts this discovery, and North Cypress filed a petition for a writ of mandamus. Id.at *2. North Cypress argued that information on pricing for Medicare and private insurance was not relevant to whether its pricing for uninsured individuals was reasonable. The Texas Supreme Court noted that the chargemaster prices have no connection to the prices a hospital actually expects to receive for its services – instead, the chargemaster prices are high and continuing to increase, since the higher list prices translate to higher reimbursement rates for Medicare and Medicaid. “[B]ecause of the way chargemaster pricing has evolved, the charges themselves are not dispositive of what is reasonable, irrespective of whether the patient being charged has insurance…. We fail to see how the amounts a hospital accepts as payment from most of its patients are wholly irrelevant to the reasonableness of its charges to other patients for the same services.” Id. at *4.  After noting that courts in multiple other jurisdictions had held similarly, the court denied North Cypress’ petition for mandamus and allowed the trial court order to stand.

Until North Cypress, plaintiffs had little ammunition against hospitals who sought to recover inflated liens on charges to uninsured patients. The big question now is whether defendants can take advantage of this ruling to exert pressure on plaintiffs seeking unreasonable fees to take a more realistic approach to settlements – but that, no doubt, will be the subject of future litigation.

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