Medical Bills are Open-Price Contracts: A Victory for the Little Guy

This blog has often covered the problem of outrageous medical bills, and explored whether patients have a responsibility to pay the balance on charges that are not covered by insurance.  One common pattern is that the patient agrees to pay “all reasonable charges” when they arrive at the emergency room or other provider, and then months later receives an incomprehensible bill for seemingly outrageous amounts.  The costs of the same healthcare can vary wildly from provider to provider, even in the same locale, and there seems to be little rhyme or reason.  (This is a common refrain of Elizabeth Rosenthal’s 2017 book.)

According to very basic contract law, when the agreement between a buyer and seller does not specify the prices to be charged (aka an “open price contract”), the seller may not demand more than a “reasonable” amount.   Years ago, I was involved in nationwide litigation against non-profit hospitals, raising this theory and alleging that their billing practices contradicted their state and federal “charitable” tax exemptions, since they were driving poor people into bankruptcy and foreclosure.  That litigation had a few notable wins, when several hospital systems agreed to adopt explicit charity care policies and stop some of the more egregious practices, such as putting liens on their patients’ houses.  Some of these reforms became an industry standard and then part of the Affordable Care Act.

Overall, however, this litigation was challenging, because courts tended to hold that the reasonableness of each patient’s medical bills had to be litigated individually – often with expert witnesses and comparable data from the healthcare provider and other competitors.  With only a few thousand dollars at stake for each patient, the courts’ refusal to aggregate the litigation left many consumers without an effective recourse to challenge their unreasonable bills. Contingent-fee attorneys tend to look for larger stakes to make their investment of time and expenses worthwhile.

One father, Jeffrey Fox, reached out to share his story of how he successfully challenged his son’s medical bills, by paying off the charges to protect his credit rating, and then suing in small claims court to demand a refund.  When the healthcare provider did not show up in court, Mr. Fox marched through the basics of the open price contract theory – and also managed to dodge the voluntary payment doctrine, which can complicate a pay-first-fight-later strategy.  Mr. Fox won on a default judgment, and eventually had the joy of receiving a check back from his son’s healthcare provider, refunding the difference between the actual charges and what the judge determined would have been reasonable.  Mr. Fox has agreed to let me share his story and the documents he used to contest his claim, in case it is helpful to other patients wanting to challenge their outrageous medical bills.  (Of course, neither Mr. Fox or I are providing legal advice; your mileage may vary.)

Mr. Fox was proactive about his case, in order to protect his credit.  However, even if his bills had gone on to collection (often because the healthcare provider sells the debt), a similar strategy may be worthwhile.  If phone calls and letters do not extract a payment, the owner of a debt ultimately goes to court and gets a judgment, which will then allow them to garnish wages or seize assets.  Here again, if a patient simply shows up to court, he can demand that the debt holder actually prove the basis for their claim.  Often, indeed the debt-purchaser has shoddy documentation, and in the healthcare domain would have little basis for showing that their charges are in fact reasonable, a burden they would have to show as the claimant and plaintiff.  Thus, the case should be a slam dunk for consumers.  Unfortunately, consumers rarely actually show up (7.5% in one study), and they then suffer the default judgment.

In the broader field of consumer finance, one team at Harvard Law is working to improve the situation, creating “self-help” materials that consumer can use to file an answer and then show up to court.  The preliminary results from a pilot study are promising:  the intervention doubles the chance that a consumer will answer the claim and show up.  Whether they actually win is the next question.

To consumers, thus I say:  show up!  To researchers and policymakers, I say:  lets make this more than an anecdote so contract law actually reflects its doctrinal commitments.  We might then bring some sanity to medical prices.

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This entry was posted in Christopher Robertson, Health Care Finance, Health Care Reform, Health Law Policy, Market Design by crobertson. Bookmark the permalink.

About crobertson

Christopher Robertson is a professor at the James E. Rogers College of Law, University of Arizona, and affiliated faculty with the Petrie Flom Center for Health Care Policy, Bioethics and Biotechnology at Harvard. Robertson also leads the Regulatory Science program, a partnership with the Arizona Health Sciences Center and the Critical Path Institute. Professor Robertson's research focuses on how the law can improve decisions by individuals and institutions -- attending to informational limits, conflicting interests, and cognitive biases, especially in the domain of healthcare. Blending legal, philosophical, and empirical methods, Robertson's work has been published in the New England Journal of Medicine, New York University Law Review, Cornell Law Review, Emory Law Journal, and the Journal of Empirical Legal Studies. He has received research support from the Robert Wood Johnson Foundation, and runs the Law and Behavior Research Lab at the University of Arizona. Robertson graduated magna cum laude from Harvard Law School, where he also served as a Petrie Flom fellow and lecturer. He earned a doctorate in Philosophy at Washington University in St. Louis, where he also taught bioethics. For 2013-2014, he was a visiting professor at Harvard Law School, and will visit at NYU School of Law in 2016-2017. Robertson's legal practice has focused on complex litigation involving medical and scientific disputes.

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