On May 16, 2022, the Colorado Supreme Court issued an opinion that serves as a cautionary tale for health care providers hoping to bill patients at chargemaster rates. The court’s decision in French v. Centura Health turned on the meaning of the phrase “all charges of the Hospital,” as set forth in the hospital service agreement (HSA) signed by Ms. French. Centura argued that the phrase “unambiguously refers to a hospital’s chargemaster rates.” Ms. French countered that she had never even heard of the chargemaster.

The court sympathized with Ms. French. It concluded that the lack of any reference to the chargemaster in the HSA left a void, which the trial court jury properly filled in with its estimation of “the reasonable value of Centura’s services . . . .” That estimation ended up being about $227,000 less than the amount Centura had billed.

The Context of the Decision

The French decision comes at a challenging time for health care providers. A recent Kaufman Hall report notes that 2022 has started in the red for the average health system. High expenses, driven by staffing shortages that necessitated the use of traveling nurses and other professionals during the COVID pandemic, are combining with low surgery volumes to push operating margins lower—often into negative territory. At the same time, the government and the public are pressing health care providers for more transparency and reasonableness when it comes to pricing.

This call to action is not surprising, given the country’s unique health care financing challenges. Study after study has shown that the United States has the highest health care costs, on both an overall and per capita basis, of any industrialized country in the world. Medical expenses continue to top the list of America’s leading bankruptcy causes. And the “Great Resignation” has thousands scrambling to find replacements for the employer-provided health insurance plans that they left behind.

Tragically, individuals with no insurance or poor insurance may not only be the most vulnerable to medical debt; they may also be the most susceptible to high medical prices. The reason is that health systems and hospitals offer fewer and lower discounts to uninsured and out-of-network patients. In fact, Centura initially informed the plaintiff, Ms. French, that her surgery bills would amount to about $58,000. When it later realized that Ms. French was an out-of-network patient, Centura revised its pricing to reflect its chargemaster (read: full fare) rates. The resulting bill that was sent to Ms. French was about $229,000. 

French v. Centura Health is Not a ‘No Surprises Act’ Case

It would be easy to read headlines about the French decision and conclude that Centura failed to comply with the No Surprises Act. This federal law, which became effective January 1, 2022, protects health plan beneficiaries from surprise medical bills arising from most emergency services, and most services rendered by out-of-network providers at in-network facilities. But French v. Centura Health is not a No Surprises Act case. It is also not a medical negligence case, although Centura admits to having initially misread Ms. French’s insurance card and given her a faulty estimate of costs. It is not even a price transparency case in a strict sense. For example, Ms. French did not argue that Centura Health failed to post its charges online in a readable format, as required by the Hospital Price Transparency rules that went into effect on January 1, 2021.  

Instead, French v. Centura Health is a contract case. The central legal question is whether a hospital’s HSA can be deemed to incorporate the hospital’s chargemaster, even when it makes no reference to the chargemaster. The court answered no. It explained that “for contract terms outside the four corners of a contract to be incorporated by reference into the contract, the terms to be incorporated generally must be clearly and expressly identified.” It went on to point out that the “chargemaster was not referenced in any way—even obliquely—in any of the HSAs (or in the Patient Bill of Rights forms) that French signed.”   

Takeaways for Health Care Providers

Health care providers might deduce from the French v. Centura Health decision that they need to include references to their chargemasters in their HSAs. Such a reference might inform patients that, unless their insurer or payer has negotiated better pricing, they will be charged the amounts set forth in the provider’s chargemaster. Providers might even note in their HSAs that their chargemasters are “incorporated by reference.”

The risk with this approach is that it may open the door to increased scrutiny of the chargemaster. But some might concede that this battle has already been lost. While many courts uphold the view that the chargemaster contains confidential and proprietary information, price transparency legislation is increasingly giving payers and patients the information they need to compare prices between providers.

Another key takeaway for providers is that the pricing estimates they provide to patients must be as accurate as possible. It is common for providers to warn patients that unexpected events can cause their actual costs to exceed their estimated costs of care. But even robust disclaimers cannot soften the blow of unanticipated charges that force patients to decide between paying their medical bills and putting food on the table. As French v. Centura Health demonstrates, health care providers who estimate one price and charge another stand to lose in both the court of public opinion and the court of law.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.