In oral arguments on Tuesday, the justices of the Colorado Supreme Court grappled with questions about hospital price transparency in a case that shines a spotlight on the “chargemaster” — an obscure and seemingly inscrutable character in the drama of America’s healthcare affordability crisis.
At the heart of the case is a billing dispute between Lisa French and St. Anthony North Health Campus north of Denver, which is run by Centura Health. French had elective spinal fusion surgery at the hospital in 2014. Before the surgery, the hospital gave French an estimate for the procedures stating she would likely owe about $1,336 after her insurance paid its share.
Prior to admission, French signed a hospital services agreement requiring her to pay “all charges of the Hospital” not covered by her insurance. She paid the hospital $1,000 upfront, had the surgery and stayed at the hospital for five nights — one night longer than planned. Then she got a bill for more than $303,000.
The bill was based on the hospital’s chargemaster rates. A chargemaster is a list of a hospital’s “sticker prices” for its services. The chargemaster rates don’t reflect any discounts a hospital has negotiated with insurance providers, and most patients end up paying far less than the sticker price.
French’s insurer, ELAP Services, ended up paying about $73,600 of the bill, leaving her on the hook for more than $229,000. French didn’t pay and the hospital sued, leading to a jury trial. In a pretrial motion, the hospital asked the court to declare that the phrase “all charges of the Hospital” in its services agreement unambiguously referred to its chargemaster rates. The trial court denied the motion.
The jury found French had breached her agreement with the hospital. Because the court had found “all charges” was ambiguous, the jury was instructed to interpret the term and concluded it meant the “reasonable value of the goods and services.” The jury concluded French owed the hospital $766.74 — not the six-figure sum the hospital said.
French’s relief was short-lived. The Colorado Court of Appeals reversed, agreeing with the hospital that most jurisdictions have interpreted contracts like the one French signed as unambiguously incorporating a hospital’s chargemaster rates.
However, as attorney Ted Lavender argued to the state Supreme Court on March 8, the document French signed doesn’t refer to a chargemaster. Nor was French ever allowed to see the chargemaster, which the hospital claims is confidential and proprietary, Lavender said, adding that the price list was never produced during discovery. “So the hospital asked that there be an incorporation by reference to a document that is secret, that is not produced, that has never been a part of this record in this case,” he said.
The justices asked Lavender to describe what an unambiguous contract might look like. Would it be enough to refer to the chargemaster if the patient was not allowed to see the price list? “I think that would still not be a valid contract,” Lavender said, adding that “if you’re going to have a contract with something that’s foreign to one of the parties, then you don’t have a contract.”
Even if the document had been available to French, Lavender said, the chargemaster is “incomprehensible” to the average person. “So an incorporation merely of the chargemaster, I think, is also insufficient,” Lavender said. St. Anthony North’s attorney later stated that the hospital’s chargemaster contains tens of thousands of lines in a spreadsheet — a fact some of the justices repeated to illustrate how unwieldy the document would be for a typical patient.
Hospitals are now required to publicly post a list of their standard rates for all services under a Centers for Medicare and Medicaid Services price transparency rule that took effect in 2021. Justice William Hood questioned whether, under the new price transparency rule, it would be enough to incorporate the chargemaster by reference in the contract.
“Presumably, it’s still so expansive that it would be bewildering to most people who tried to read it,” Hood said. “There are just so many things that could come up during the course of any major surgery that … you never know which way things are going to go. Does it become kind of a hollow exercise, because nobody’s going to bother to read all that stuff anyway?”
When pushed again about what would make the hospital agreement sufficient, Lavender said there should be a reference to an actual price — no matter how inflated. “If I’m going to charge you specific X dollars to do something, that is a valid contract,” he said, “no matter if I’m charging someone else … Y dollars to do the exact same thing.”
Attorney Michael McConnell, representing the hospital, argued that type of contract is not possible in the healthcare industry. “Going into a hospital for a surgery is not a product, it’s a process,” McConnell said. “It’s a complicated process.” The hospital can’t predict in advance which procedures or supplies might be needed for a given patient, he said.
Justice Richard Gabriel pushed back. “When I bring my car in for service, they don’t know what’s wrong with it, either. But they investigate it, and then they call me and they say, ‘You need a new this or new that. And here’s how much it costs,’” he said. French knew in advance what type of procedure she was having, Gabriel added, so why couldn’t the hospital give her some idea of how much she would owe?
Justice Melissa Hart pointed out that the hospital had provided an estimate to French. “They did calculate what they thought this was going to cost and tell her that, so it seems false to me that they can’t do it,” she said. “Of course, they can’t predict with absolute certainty. In this case, she had the extra night stay in the hospital — and she paid for that.” According to French’s petition for certiorari, she was only charged about $430 for the extra time in the hospital.
McConnell said the estimate was based on the incorrect assumption that French’s insurance was in-network with the hospital. The contract’s price term requires patients to pay all charges not paid by insurance, he said, and patients are responsible for understanding their own insurance. He added that French’s employer gave a PowerPoint presentation explaining that her insurance provider didn’t have in-network contracts with any hospital. “The responsibility of understanding whether she was in or out of network is not on the hospital. It’s on her,” McConnell said.
“It seems to me a little ironic that you’re faulting her for a mistake that the hospital itself made,” Justice Carlos Samour responded, adding that “the hospital took her medical card, her insurance card and thought she was in-network. And you’re faulting her for believing the same thing, for making the same mistake.”
McConnell countered that an estimate is not a contract. Hart asked whether the estimate isn’t important to consider when deciding if there was mutual agreement to the contract. “Part of the picture that we have to look at is that she was told by the hospital that she would have to pay $1,336,” Hart said. “It doesn’t mean it’s part of the contract, but it’s part of understanding what she could have been agreeing to.”
McConnell pointed to French’s testimony during trial, in which she testified that she hadn’t read the services agreement, though she signed it three times. When French read the contract at trial, he said, she said she understood it meant she was responsible for whatever the insurance didn’t pay. “I would submit that is mutual assent,” McConnell said.
“So is it a blank check?” Gabriel asked, later adding that “they could have charged her a billion dollars and your position is she’s bound because she agreed — all charges means all charges.”
McConnell said that patients who cannot pay may apply for financial aid, which French didn’t do. He added that French was never going to be responsible for paying any judgment — her insurance would be. Gabriel responded that the judgment would be in French’s name and could affect her credit.
Samour asked why the hospital couldn’t just disclose the chargemaster rates for a given procedure in each services agreement, as Lavender had suggested. McConnell said the hospital has already updated its services agreement to incorporate by reference the chargemaster, which is now publicly available.
“Is this court going to say that it’s impossible to generate an enforceable contract unless every patient is given an estimate, which then is nothing more than an estimate?” McConnell asked. “All kinds of things could happen after that, and the way that hospitals work across the country has to fundamentally change.”