Philip Greenspun’s Weblog

News on one of my pet topics, the ability of hospitals to hit the unwary with bills for 5-10X what a service actually costs (i.e., what 95 percent of customers pay via insurance)… “She Was Told Surgery Would Cost About $1,300. Then the Bill Came: $229,000.” (NYT, May 21):

When Lisa Melody French needed back surgery after a car accident, she went to a hospital near her home outside Denver, which reviewed her insurance information and told her she would be personally responsible for paying about $1,337.

But after the surgery, the hospital claimed that it had “misread” her insurance card and that she was, in fact, an out-of-network patient, court papers said. As a result, Centura Health, which operated the hospital, billed her $229,112.13. When she didn’t pay, Centura sued her.

“I was scared about it,” said Ms. French, 60, a clerk at a trucking company, who eventually filed for bankruptcy. “I didn’t understand because I kind of relied on the hospital and my insurance company to work out what I needed to pay.”

This week, after a yearslong legal battle, the Colorado Supreme Court ruled that Ms. French did not have to pay nearly $230,000 for the spinal fusion surgery she underwent at St. Anthony North Hospital in Westminster, Colo., in 2014.

It took 8 years of litigation to shut down the conventional scam for this particular patient. How come?

Before her surgery, Ms. French signed two service agreements promising to pay “all charges of the hospital.”

Centura asserted that, because Ms. French was an out-of-network patient, those service agreements required her to pay the full rates, listed in a giant health system database known as a chargemaster — a catalog of the cost of every procedure and medical supply Centura provided.

In Centura’s view, the service agreements “were unambiguous and French’s agreement to pay ‘all charges’ ‘could only mean’ the predetermined rates set by Centura’s chargemaster,” the court said.

But the court found that Ms. French wasn’t responsible for paying those rates because she didn’t know the chargemaster even existed and hadn’t agreed to its terms.

Justice Gabriel pointed out that courts and commentators have noted that hospital chargemasters have become “increasingly arbitrary and, over time, have lost any direct connection to hospitals’ actual cost, reflecting, instead, inflated rates set to produce a targeted amount of profit for the hospitals after factoring in discounts negotiated with private and governmental insurers.”

“They have no basis in reality,” said Gerard F. Anderson, a professor of health policy and management and a professor of international health at Johns Hopkins University Bloomberg School of Public Health.

“The hospital cannot explain to anyone why they charge the prices they charge,” he said. “They are not based on costs. They are not based on accounting principles. They are fictitious instruments created by somebody in the hospitals.”

I still can’t figure out how the hospital’s behavior, despite being conventional nationwide, was ever considered legal in any state. It wouldn’t work for a car dealer to not tell a customer in advance how much a brake repair was going to cost and then charge that particular customer 5-10X what everyone else pays.

Some detail from the opinion:

Based on its understanding of the information that French had provided, Centura estimated that her surgeries would cost $57,601.77 and that after French’s insurance payment, she would personally be responsible for $1,336.90 of that amount.

Thereafter, and notwithstanding the fact that Centura had told French that her surgeries would cost $57,601.77 and that she would personally be responsible for $1,336.90 of that amount, Centura billed French $229,112.13, reflecting its full chargemaster rates. Centura did so because it determined that it had misread French’s insurance card and that she was, in fact, an out-of-network patient. Centura calculated the amount due after subtracting from the total charges the payment from French’s insurer of $73,597.35 and French’s payment of $1,000.00 (thus, the total amount that Centura charged was over $300,000.00, notwithstanding its pre-procedure estimate that the surgeries would cost $57,601.77)

The hospital’s victimization of this lady was far worse than the NYT article reports, in other words. Her insurance company actually paid the hospital more than the originally estimated fair cost of the services provided. But the hospital decided that it had found a clever opening to go after the patient for $229,000 extra.