June 13, 2014:
An appellate court decision Tuesday in Fresno could have wide-ranging effects on hospitals and health plans in California.
The Fifth District Court of Appeals ruled that hospitals can no longer expect to get reimbursement from health plans in amounts well in excess of the actual value of services provided to plan members.
Overturning a trial court decision two years ago, the appeals court ordered a new trial in Children’s Hospital Central California v. Blue Cross of California to establish damages that reflect the “reasonable value” of services, not the high prices included on hospital “chargemasters” that almost nobody pays.
“This ruling will absolutely change the landscape between hospitals and heath plans in litigation going forward,” said Dan Baxter, a litigation partner in the Sacramento law firm Wilke, Fleury, Hoffelt, Gould & Birney LLP and one of the trial lawyers that represented Blue Cross in the case. “It’s a clear cut California case we didn’t have until now — finally — that says in no uncertain terms you can consider a full body of information, not just billed charges.”
Glenn Solomon, a Los Angeles attorney for the Madera-based children’s hospital, said the decision “will be bad for all patients in California and the health care system in general.” Counsel is reviewing the decision and considering all options, he said, including a petition for review by the California Supreme Court.
The court battle is over the rates health plans must pay for services. Generally, plans negotiate contracts with hospitals and doctors to provide care for their members. Rates are discounted due to volume — and kept closely guarded for competitive reasons.
This case involves post-stabilization emergency medical services provided by the hospital to Medi-Cal beneficiaries enrolled in a Blue Cross managed-care plan. Children’s Hospital and Blue Cross had a contract that set rates for services, but were unable to reach agreement on a new one in 2007. They eventually had a deal, but there was a 10-month period with no contract.
The hospital was still required to provide emergency care to Blue Cross patients without a contact due to state and federal law. Emergency care includes stabilization services, which were also provided. But when the hospital billed Blue Cross for the care — without a contract — it billed full charges listed on what hospitals call the “chargemaster.”
These amounts include cost-shifting from unprofitable programs to recoup money from better payors like commercial health plans: the notorious $10 aspirin and the like. Health plans and government programs typically pay a discounted contract rate, so almost nobody pays these inflated charges. In 2007 and 2008, less than 5 percent of payors at the hospital did.
Yet Children’s Hospital demanded full billed charges of $10.8 million for post-stabilization services provided to 896 Blue Cross members during the contract hiatus. Blue Cross paid about $4.2 million based on the Medi-Cal rates paid by the government. Children’s Hospital sued.
The jury awarded the hospital $6.6 million, the difference between the full billed charges and the $4.2 million Blue Cross had paid. Blue Cross filed an appeal.
The appellate court ruled Tuesday that “fees usually charged” does not mean “payments accepted.” For all hospitals, billed charges are “the highest amounts that are ever received for services,” the decision states.
In conclusion, the court ruled the hospital “rarely received payment based on its published chargemaster rates. Thus, in determining the reasonable value of the post-stabilization services, the full range of fees is relevant. The scope of the rates accepted or paid to (the) hospital by other payors indicates the value of those services in the marketplace.”
The appeals court found the trial court erred in not allowing Blue Cross to present evidence of the reasonable value of services provided by the hospital. The court ordered the case retried and awarded Blue Cross its appeal costs.
“The way it was, the jury had no choice but to (agree with) the hospital,” Baxter said. “The problem is almost nobody pays those rates. Is that reasonable and customary? I’d say the answer is no.”
The problem with the ruling is that it could mean health plans get contract rates without a contract, Solomon said.
“If a health plan can get the benefit of contracted rates without actually engaging in a contract themselves, there’s less incentive for them to enter into a contract in the first place,” he said. “That’s not just bad for hospitals. It’s bad for all of California.”