Several hospitals throughout California have been hit with putative class action lawsuits brought by counsel for uninsured patients alleging that the hospitals' charges for emergency services are unreasonably high and that the financial agreements signed by the patients requiring payment of charges are improper and not enforceable. The suits further allege that hospitals’ charges are unreasonably high and a surprise to patients. These cases are shaping up to be an important battleground over hospital chargemasters.
California’s charity/discount laws already require hospitals to offer discounts to certain low income patients when they receive emergency services; specifically patients making less than 350% of the federal poverty level. See generally Health & Saf. Code § 127405(a)(1)(A). The lawsuits by uninsured patients and their counsel are asking courts to upend the balance struck by the Legislature in the charity/discount law, and replace hospital charges with arbitrarily suggested figures by plaintiff’s counsel, or other figures to be determined by the courts. A significant difficulty presented by these lawsuits is that courts simply are not in the best position to set what should be paid for emergency services delivered in a hospital needed to save a person’s life. See Desert Healthcare Dist. v. PacifiCare, FHP, Inc. (2001) 94 Cal.App.4th 781, 795 (describing as a “perfect example of when a court of equity should abstain” a lawsuit where fashioning an appropriate remedy would have required the court to determine the appropriate level of capitation and exercise oversight in the arena of health care services plans which a state agency was responsible for regulating).
Plaintiffs argue that courts should determine what a “reasonable person” would expect to pay for emergency services, by using government and contracted rates. However, plaintiffs ignore that a “reasonable person” does not expect to receive the same discounts as those who choose to participate in large discount networks, such as commercial or government insurance products. A “reasonable person” typically would expect to pay more than those who take the time and effort to procure coverage. Plaintiffs’ also ignore that the discounts extended by hospitals to network payors come with a cost that the uninsured do not incur. For example, Medicare beneficiaries typically worked for many years, during which they and their employers are taxed, in order to create a government trust fund and later qualify to participate. Likewise, those with private insurance pay premiums themselves, and/or share the burden with employers, who may have paid the employee more if they were not paying for healthcare benefits.
Moreover, the charity/discount laws means that these lawsuits only are seeking to establish discounts for patients who are more financially well-off than 350% of the poverty level. Only a person at 100% of the poverty level is considered to be in poverty. Thus, 350% of the poverty level is 3.5 times better off than those in poverty; and these lawsuits only would benefit those uninsured who have even higher incomes. Simply put, these lawsuits seek to place the well-off uninsured in a better position than those who choose to procure health care coverage, by getting the benefits of coverage without incurring the burdens, like premiums, taxes, or years of work to qualify.
These lawsuits also ignore that the more well-off uninsured who would benefit from the relief sought all have the option to obtain insurance. Even before the Affordable Care Act created the Covered California exchange products, there were California government programs that provided insurance coverage options for people who could not qualify to buy insurance through the commercial market. This included California’s Major Risk Medical Insurance Program (MRMIP), which for many years offered insurance through private companies that contracted with the state to administer this program; and the Pre-Existing Condition Insurance Plan (PCIP), which came into effect in 2010 with funding from the federal government. More recently, effective January 1, 2014, anyone who has wanted to procure health care coverage also can purchase it on the Covered California exchange, and with government premium subsidies for anyone who makes less than 400% of the FPL. The existence of these programs means that anyone in the putative class of uninsured who these lawsuits purport to represent already made a conscious choice to remain uninsured rather than procuring the benefits of getting coverage.
These lawsuits also argue that hospitals’ charges are higher than the costs of providing the actual treatment/services. However, California courts have rejected the notion that “costs” have any relevance to determining the “reasonable” value of hospital services. Children’s Hosp. Central Cal. v. Blue Cross of Cal. (2014) 226 Cal.App.4th 1260, 1278. This makes sense because value does not depend on cost, and pretending that it does would reward inefficiency and punish efficiency. Like any business, a service provider in health care might be able to provide more value at less cost than another service provider.
California law also requires hospitals to file their chargemaster rates with OSHPD, which inherently requires that chargemasters will exist. Health & Saf. Code § 1339.55(a). Ultimately, plaintiffs seek to supplant prior legislative and judicial approval of billing chargemaster rates. These lawsuits generally allege that the specific reference to “chargemaster rates,” “regular rates” or “hospital rates” in a hospital’s Conditions of Admission contract results in an imprecise price term. However, the California Legislature has expressly referenced hospital charges and chargemasters and their use in setting charges. See Health & Saf. Code § 1339.51.
In a recent decision, the California Court of Appeals enforced a standard hospital Conditions of Admissions contract against a similar class action suit alleging unfair competition, upholding the trial court’s decision to grant the hospital’s demurrer without leave to amend. Nolte v. Cedars Sinai Medical Center (May 21, 2015) 236 Cal.App.4th 1401. In Nolte the lead plaintiff signed a standard Conditions of Admission form requiring him “to pay the account of the Hospital in accordance with the regular rates and terms of the Hospital.” Id. at 740. In sustaining the hospital’s demurrer, the trial court held that “[a]s a matter of law, Mr. Nolte consented to pay the facility fee to defendant and his pleading does not show that the contract was unconscionable or otherwise unenforceable.” Id. at 741.
The Court of Appeals reasoned that “California Health and Safety Code § 1339.51 requires the hospital to make a written or electronic copy of its charge description master (schedule of charges) available online or at the hospital location, with notices posted in the emergency department, admissions office and billing office.” Id. at 742. Ultimately, the Court of Appeals held that the contract was enforceable, explaining that the law does not give Nolte the right to have every individual charge specifically disclosed prior to the hospital issuing a bill. Id. at 744.
In an action brought against Pomona Valley Hospital Medical Center, the trial court recently granted the hospital’s demurrer to the plaintiff’s declaratory relief complaint, reasoning that the plaintiff was seeking an advisory opinion that would likely serve to invite future litigation. The Court questioned who would determine what charges are reasonable and how such a declaration would be administered assuming that the plaintiff were successful. Doster v. Pomona Valley Hospital Medical Center (Los Angeles County Superior Court, Case No. BC570211).
Another recent trial court ruling denied class certification to plaintiffs bringing a similar action. The court held that neither the plaintiff’s declaratory relief action, nor her breach of contract action provided a valid basis for class certification. Chuy v. Hospital of Barstow, Inc. (San Bernardino County Superior Court, Case No. CIVBS1200287).
Courts outside of California have faced similar questions and found that there was no unconscionability when a hospital pursues regular chargemaster rates absent a discount agreement, particularly when those rates are set and published in accordance with state law and the patient was billed the regular rates. Banner Health v. Medical Sav. Ins. Co. (Ariz.Ct.App. 2007) 216 Ariz. 146, 153. The Banner court explained that the patients “fail to take into account the public filing of the rates and [the hospital’s] compliance with the legislatively-created process for setting and filing the rates and charges.” Id.
Despite recent rulings which suggest courts may be unwilling to accept plaintiffs’ invitation to intervene, hospitals are likely to continue to face legal challenges to rate setting.
Hooper, Lundy & Bookman, P.C. has represented a number of hospitals on these and related disputes by patients and others about hospital charges. For more information please call Amanda Hayes-Kibreab or Glenn Solomon in Los Angeles at 310-551-8111, or Jennifer Hansen or Joseph LaMagna in San Diego at 619-744-7300.
 The author of this article worked on the Pomona Valley Hospital case, drafting and arguing the demurrer that was sustained by the trial court.