This article has been published in "The Advocate", a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, October 2007 issue, @2007 by Steven J. Bruzonsky, Esq.
THE MEDICAL SAVINGS CASE
Banner Health v. Medical Savings Insurance Company, 1 CA-CV 05-0432, filed 8-14-07, is the first significant Arizona case with at least relevance to personal injury liens handed down in several years. In this case, Banner Health sued multiple patients and their health insurance carrier, Medical Savings Insurance Company MSIC), for the balance of the billed charges less the payments by MSIC (a non-network health insurer which didn't have any contract with Banner). Division One of the Arizona Court of Appeals upheld the trial court's granting of summary judgment to Banner on its breach of contract claim against the patients and the trial court's award of attorneys' fees against the patients.
Pertinent facts of this case are as follows: Each of the patients or their representatives signed a COA (Conditions of Admission) form before Banner provided treatment. The COA form signed by four of the patients included provision that the patient would "pay the hospital's usual and customary charges, which are those rates filed annually with the Arizona Department of Health Services - - -." The remaining three patients signed a COA form that the patient would "pay the account of the patient" but did not reference the rates filed annually with the Arizona Department of Health Services (DHS). The patients had no other contracts with Banner. After treatment, Banner billed each patient the full amount specified for the provided medical services in its Charge Description Master (CDM) filed with DHS, in accordance with A.R.S. §§ 36-436 through 36-436.03 (2003). No insurance company contracts or government programs require Banner to accept reduced payments in satisfaction of billed charges to the patients. MSIC reviewed the Banner charges and tendered payment to Banner for what MSIC determined to be "reasonable" charges that ranged from approximately 15 to 43 percent of the billed charges for the patients. Banner refused to accept payment and sued the patients and MSIC, asserting breach of contract for failure to pay.
Banner contended that it appropriately billed the patients using the CDM rates and charges on file with the DHS, and that the patients are liable for the full billed charges per the contractual COA form signed by or on behalf of each patient.
MSIC and the patients admitted that valid contracts exist between each of the patients and Banner, but contended that summary judgment should not have been granted because questions of fact exist regarding the reasonableness of the charges. MSIC and the patients argued that: (1) The price term is missing from the COAs, the amounts billed by Banner are unreasonable, and the patients should be responsible only for reasonable charges. MSIC and the patients provided deposition testimony and various documents purporting to show that Banner charges the patients over 400 percent of its cost in providing their care, sought full payment from only 2 percent of its customers, usually received only 34 percent of its billed charges from patients who received similar care to the patients in this case, and collected only 30 to 40 percent of its overall billed charges annually. (2) The COAs are unenforceable and the amounts billed are unconscionable and violate the patients' reasonable expectations. (3) The trial court erred by distinguishing and not applying LaBombard v. Samaritan Health System, 195. Ariz. 543, 991 P.2d 246 (App. 1998). LaBombard held that a genuine issue of material fact existed regarding whether the hospital's "customary charges" were the same as its billed charges for purposes of the hospital's A.R.S. §33-931 statutory lien.
Division One states the following: (1) Arizona law does not permit a hospital to reduce its filed rates and charges – and therefore its billed rates and charges – without making further filings with the DHS. A.R.S. §36-436.02(A) and (B); Ariz. Admin. Code R9-11-303(B) and R9-11-301(D). Hospitals are free to accept reduced payments in satisfaction of full billed rates. There is nothing illegal or unauthorized about hospitals contracting with insurers and government entities to accept reduced payments in satisfaction of their published rates, in return for an anticipated volume of business and prompt payments. Nor does the fact that hospitals routinely accept reduced payents on behalf of many patients mean that the published and billed rates are unreasonable. (2) It has long been the rule in Arizona that a valid statute is automatically part of any contract affected by it, even if the statute is not specifically mentioned in the contract. Because of the statutory scheme and the resultant publishing of Banner's rates and charges, there are no open or missing price terms in the COA agreement. With regard to four of the COA agreements whereby the patients expressly agreed to pay "the hospital's usual and customary charges, which are those rates filed annually with the Arizona Department of Health Services the reference to the hospital's "usual and customary charges" doesn't create any ambiguity or question of fact because such charges are defined in the COA's as the rates filed with DHS. With regard three of the COA agreements which do not expressly reference the hospital rates and charged filed with DHS, the price terms are supplied by the hospitals' filed rates and charges. Because Banner followed the statutory and regulatory procedures and Banner's rates are filed and available to the public, as a matter of law there is no violation of the patients' reasonable expectations. (3) The trial court correctly determined that LaBombard doesn't apply. The issue of "customary charges" under the lien statute is quite different from the question whether the COA agreements will be enforced using the filed CDM rates and charges. Although four of the COA agreements mention "customary charges", this phrase is specifically defined to mean the rates and charges filed with DHS, and no question arises regarding the meaning of "customary charges" in the COA agreements.
What are the implications of this decision? Division One made it clear that this decision has no effect on determining "customary charges" for A.R.S. §33-931 statutory liens. This decision arguably further establishes the full billed charges as "reasonable and necessary" charges from an evidentiary standpoint in personal injury litigation. If Medical Payments insurers attempt to reduce payment for hospital charges to what they calculate to be "reasonable", won't that be automatic bad faith (unless by chance the Medical Payments carrier has a contract with the hospital permitting reduced payment, and in my many years of practice I haven't seen that here in Arizona)?