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Division One just handed down Banner Health v. Medical Savings Ins. Co., a terrible opinion which deals with whether a hospital can charge a patient and its “non-network insurer” full billed amounts historically paid by only two percent of all patients. The answer, for now, is yes in a two-to-one decision.

Incidentally, by “non-network insurer,” I mean to refer to an insurer who has no agreement with the hospital – i.e., in this case Medical Savings Ins. Co. did not have an agreement with Banner Health. This scenario – i.e, someone who has insurance with a company who has no agreement with a specific medical provider – is probably more common than most people realize. In addition, although the case does not directly mention uninsured patients, the decision impacts them most of all.

Anyway, the majority held that the rate schedule filed with DHS is incorporated into Conditions of Admission (“COA”) agreements, signed by the patients, regardless of whether the COAs refer to this rate schedule, because the statutory scheme for capping hospital rates is made part of the contract by operation of law (i.e., some of the challenged COAs referred to published DHS rates, and some did not). Likewise, the majority held that, as a matter of law, these published rates were neither unconscionable nor did they violate a patient’s reasonable expectations because they were adopted pursuant to a scheme “sanctioned by a legislatively-created process.”

Unfortunately, Judge Kessler was not able to convince his colleagues of his much more enlightened view (he, by the way, is a former medical malpractice lawyer with a great deal of experience in handling issues related to healthcare administration). He wrote a very good dissent, explaining that the purpose of the publication statute is to limit the amount of rates charged by hospitals and to promote competition among healthcare providers, not to regulate hospital charges. Judge Kessler explained:

To state that they are the only rates chargeable under the law not only misconstrues the effect of the statute, but also its purpose. The legislature had no intent to create a schedule of rates by which the hospitals must operate. Its intent was exactly the opposite: to deregulate the cost of healthcare and allow for private forces to assume that responsibility.

Judge Kessler correctly noted that the statutory scheme was not designed to pass upon the reasonableness of hospital rates whatsoever. He observed that “[i]t is merely a publication vehicle meant to facilitate free market forces within the healthcare field.” Thus, since it is a “publication vehicle” without any substantive mandate or oversight, even if such a “scheme” was read into the COAs, one cannot take the next leap and impose the subsequent published rates into COAs that do not even refer to the published rates. Judge Kessler is right.

Next, Judge Kessler points out that it was inappropriate for the Court to determine that the doctrines of unconscionably and reasonable expectations should not be considered. Since the statutory scheme is simply a “publication vehicle,” it was not possible to conclude, as the majority did, that the rates were “sanctioned by a legislatively-created process.” Yet, with respect to the COAs referencing the DHS rates, Judge Kessler indicated his view that there could not be a reasonable expectations challenge because of the specific reference. Still, he did not indicate his reasonable expectations view of those COAs that did not specifically refer to the DHS rates and, presumably, he would permit a reasonable expectations challenge to those COAs.

Notwithstanding all of this, Judge Kessler said all of the COAs were subject to unconscionably review and that the trial court erred in failing to consider whether the rates were unconscionable. As Judge Kessler explained:

MSIC and the patients argued the price terms of the COAs were unconscionable. In support of this argument, the patients or their representatives who signed the COAs presented affidavits stating that they signed the COAs in emergency situations, while they were under stress caused by their medical conditions or the medical conditions of their dependents. Several of the patients stated in their affidavits that the COAs were not explained to them by the hospital personnel when they signed them, and that they believed that signing the COAs was a prerequisite to treatment. Furthermore, MSIC submitted the deposition of Banner’s Vice President of Finance, indicating that the cost-to-charge ratio for some medical treatments at Banner hospitals was as low as 19.77%.

These facts raise at least the specter of unconscionability as to the price terms in the COAs.

Yet, Judge Kessler observed the trial court and majority failed to consider this evidence. Indeed, the trial court applied the wrong standard, holding that “[t]here are no facts presented that support the claim that the rates were unreasonable,” and Judge Kessler stated that “[u]nreasonability, however, is not the benchmark of unconscionability.”

Judge Kessler also had several other astute observations. For example, in reference to whether patients where reasonably supposed to anticipate or understand the “576 pages of single-spaced” rates filed with DHS, he said such thinking was so unrealistic as to be “the modern day equivalent of the information given persons entering Dante Alighieri’s vision of purgatory.” He also shot down the hospital’s “doomsday argument that the entire health care system will be undermined” if courts were allowed to evaluate the unconscionability of rates, noting “Banner conceded that it collects the filed rates from only approximately two percent of its patients.”

So, in my opinion, this is quite a blow to patients who are uninsured or who happen to have insurance with the “wrong company” (i.e., one who has not contract with a healthcare provider). Those patients, which are always those who can least afford to be paying full-freight, are going to be devastated by this decision.

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