Justifying the Charge Master

The price of health care in America is a complex and controversial topic. Many agree that we pay too much for the health care we receive but there is little agreement on what exactly should be done about it. A recent study attempts to provide a simple solution based in the novel application of the legal code. The authors suggest using existing contract law to argue that hospitals do not have the authority to collect fees as listed in a given hospital’s “chargemaster.” While intriguing and potentially narrowly applicable, their argument fails to take into account the complex realities of the existing laws governing healthcare.

The argument Richman and his colleagues present is appealing to consumers and lawmakers alike – it doesn’t require any sweeping new legislation and seems to protect the individual from the “bad guys” in hospital C-suites who are charging what seems like exorbitant amounts for medications like ibuprofen. They argue that with every service provided, the hospital and the patient are effectively creating a contract, which requires both parties to reach an agreement regarding services and payment. Under the premise that the chargemaster prices are not realistic representations of what a patient and physician would actually agree to if given the choice, they argue that collecting these charges cannot be justified.

But this reasoning falls apart in some circumstances, especially in the setting of emergency care. Because emergency physicians and other clinicians are obligated under EMTALA to assess, stabilize, and treat anyone who comes to an emergency department regardless of their insurance status or ability to pay, the physician does not provide the “mutual assent” that the authors claim is central to their argument. Touching briefly upon EMTALA as a source of complication in their analysis, the authors state that “providers are instead entitled to a price ‘that would be agreed upon by a willing buyer and a willing seller negotiating at arm’s length’.”

But by definition, EMTALA precludes the option of being a “willing seller,” meaning that while the contract law application described seems like an elegant fix to surprise billing, it is not applicable to all medical settings and is therefore not the magic bullet it claims to be.

This Policy Prescriptions® review is written by Rebecca Raven as part of our collaboration with the Health Policy Journal Club at Baylor College of Medicine where she is a medical student.

Abstract

OBJECTIVES: To develop an effective legal mechanism to combat chargemaster abuses and to facilitate price transparency.

STUDY DESIGN: Applying legal doctrines to out-of-network (OON) billing disputes.

METHODS: We reviewed rudimentary contract law and examined the law’s handling of contracts where prices have not been specified in advance. These cases are the controlling authority to guide courts, handling of surprise and OON billing problems. We then compared legal remedies that correct OON billing abuses to prevailing legislative and regulatory approaches.

RESULTS: Our analysis suggests that providers have no legal authority to collect chargemaster rates from surprise and OON billing abuses. A proper application of contract law can end such abuses and would facilitate superior pricing incentives to other strategies designed to end balance billing disputes.

CONCLUSIONS: Chargemaster rates on uninsured and OON patients impose significant financial burdens on the vulnerable, distort medical prices, and inflate healthcare costs. Applying rudimentary contract law to these practices offers a solution that is simpler and more effective than other administrative and legislative schemes recently adopted in several states. It will prevent providers from hiding behind a convoluted hospital pricing system, encourage the development of attractive narrow-network insurance products, and shield urgently sick individuals from the dread of medical predation. Patients and payers should know that they are under no obligation to pay surprise bills containing chargemaster rates, and state attorneys general can use the law to prevent providers from pursuing chargemaster-related collection efforts against patients.

PMID: 28554214

Richman, BD, et al. Am J Manag Care. 2017; 23 (4): e100-e105.