Taking Surprise Medical Bills To Court Under the Theory of “Mutual Assent”

Lambert here: Not a bad idea, if you can afford a lawyer and the tax on time.

By Julie Appleby, Kaiser Health News. Originally published at Kaiser Health News.

Joaquin Lopez had emergency gallbladder surgery after rushing to an ER last year. He has been haggling with Baptist Memorial Hospital in Memphis over what he owes ever since.

The 37-year-old college professor was hit with a nearly $8,000 bill from the out-of-network hospital — that was after the $11,000 he and his insurer had already paid.

Consumers are increasingly vulnerable to such so-called balance bills, which represent the difference between what insurers pay and hospitals’ list prices. List prices can be several times higher than what they accept from Medicare or in-network insurers.

Congress is considering bipartisan legislation to limit balance billing. But some legal scholars say that patients should already be protected against some of the highest, surprise charges under long-standing conventions of contract law.

That’s because contract law rests on the centuries-old concept of “mutual assent,” in which both sides agree to a price before services are rendered, said Barak Richman, a law professor at Duke University.

Thus, many states require, and consumers expect, written estimates for a range of services before the work is done — whether by mechanics and plumbers or lawyers and financial planners.

But patients rarely know upfront how much their medical care will cost, and hospitals generally provide little or no information.

While consumers are obligated to pay something, the question is how much? Hospitals generally bill out-of-network care at list prices, their highest charges.

Without an explicit price upfront, contract law would require medical providers to charge only “average or market prices,” Richman said.

In several recent cases, for example in New York and Colorado, courts have stepped in to mediate cases where a patient received a big balance bill from an out-of-network provider. They ordered hospitals to accept amounts far closer to what they agree to from in-network private insurers or Medicare.

“This is the amount they are legally entitled to collect,” said Richman.

Lopez’s bill came after he sought help at the emergency room following excruciating abdominal pain. Sent home with pain medication, he awoke hours later to a phone call from the hospital: Come back! A review of his tests showed he needed surgery. He didn’t stop to ask if the hospital was in his network, or for a cost estimate.

So, in an example like that, is there mutual assent?

Hospitals say yes, that signed admission forms, which include a promise to pay, constitute mutual assent, even if there was no price disclosed.

No, counters Richman. If a tax preparer provided no upfront estimate, he could not suddenly bill a client for $10,000 if the going rate for the service was $1,000 or less. The higher fee would never hold up in court of law, since there was no “mutual assent” about price.

But what, if anything, should Lopez offer to pay? What is reasonable or average in a system where the price of a hip replacement can range from $15,000 to $150,000, or a blood test can be $5 to $500?

Based on the hospital’s list prices, Lopez’s bill came to nearly $21,000. Insurer Cigna, using a formula it said is similar to what Medicare uses, said the maximum it would cover was $11,160. It paid 80 percent of that lower amount, and Lopez paid the remainder. Baptist hospital is billing Lopez for nearly $8,000 more, saying it wants the full charges.

“I’m an economist,” said Lopez, who teaches at the University of Memphis. “I understand how abusive these practices are. There is not a single market price.”

Indeed. Healthcare Bluebook, a consumer website that uses claims data to estimate costs , shows gall bladder surgery in Memphis costs as little as $14,000, but could be tens of thousands more, with a “fair price” of about $18,000 — which is generally less than full billed charges, but more than in-network insurers would pay.

That complexity — and the cost of hiring an attorney — have made legal challenges to medical bills on the basis of contract law relatively scarce.

Also, “it’s not a well-settled area of the law,” said Hall.

Even though hospitals have lost some cases, their arguments have also found traction.

The Virginia Supreme Court last year ruled in favor of a hospital, saying admission paperwork patient Glenn Dennis signed in the emergency room was a valid contract. The hospital had sued him over an $84,000 bill for his out-of-network care.

Still, the court left open the key question of just how much of that Dennis owed, sending that back to a lower court. That court previously ruled that Dennis owed only about $500 on top of the $27,255 his health insurer had paid. That reflected a discount the hospital commonly gave uninsured patients, the circuit court judge wrote. The two sides are still working on a settlement.

For those caught up in the disputes, determining a fair price is hard.

“That’s where courts struggle, creating health care prices,” said Mark Hall, director of the Health Law and Policy Program at Wake Forest Forest University, who backs the contract law protection theory.

One way is to look at what hospitals accept for in-network care from private insurers. But hospitals generally object to releasing that, saying it’s a trade secret.

A 2017 Texas Supreme Court ruling has, at least for now, broken through this position. It said that hospitals in some legal disputes must disclose those in-network rates they allow in-network insurers to pay.

“Hospitals are really trying to prevent this sort of thing because they are uncomfortable having someone ask them to justify [their charges],” said George Nation, a law professor at Lehigh University in Pennsylvania, who filed a court brief in the Texas case on behalf of the patient’s argument.

In June, the hospital involved in the dispute asked for a rehearing, saying such disclosure would weaken its bargaining power. Several other hospitals are backing its request, illustrating the broad concern.

Lopez has hired a lawyer to fight his bill.

Consumers in some states might have legal backup under balance-billing laws. But rules vary, often don’t apply to all types of insurance and may cover only emergency medical treatment costs.

Tennessee’s law, which went into effect in July, requires hospitals to notify patients of estimated costs and that they could receive balance bills.

After getting a balance bill, consumers should attempt to negotiate a reduced amount, said Wendy Netter Epstein, a health law professor at DePaul University College of Law. Online lookup tools like Healthcare Bluebook or Fair Health can provide estimates of average costs for procedures.

Lopez said he offered to pay 20 percent of the disputed amount, but it has not — so far — been accepted.

Baptist Memorial Hospital encourages patients to file appeals and, if a better offer is made by the insurer, “we accept it and dismiss the patient’s balance,” said David Elliott, vice president of managed care and CEO of Baptist Health Services Group, in an emailed statement.

Lopez has appealed twice to insurer Cigna to cover more of the bill —without success.

For now, his lawyer has written to the hospital, disputing that Lopez owes more than was already paid by the insurer. The letter said Lopez planned to avail himself of any protection under state or federal law.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.