HOSPITAL CHARGING STRUCTURE SURVIVES CHALLENGES IN THE IOWA COURTS

Butts et al. v. Iowa Health System and Central Iowa Hospital Corp., Iowa Court of Appeals, No. 13-1034 (filed March 11, 2015)

Complaints about hospital and medical costs and bills are legion. This week the Iowa Court of Appeals decided a case challenging hospital billing practices and their impact on uninsured, private paying patients. While Iowa Court of Appeals decisions cannot be cited as legal authority unless or until approved for publication by the Iowa Supreme Court, the Appeals Court’s discussion and conclusions in this case may be instructive.

Plaintiffs were uninsured, private paying patients who had received hospital care at Iowa Methodist Medical Center (IMMC) in Des Moines. The plaintiffs filed their action against Iowa Health System (IHS) and the Central Iowa Hospital Corporation; IMMC (as well as Iowa Lutheran Hospital and Methodist West) is operated by the Central Iowa Hospital Corporation which, in turn, is an IHS subsidiary. As private pay or self-pay patients, the plaintiffs were billed directly for the care and medical services they received at IMMC; two of the patients paid their bills in full, one made no payments, and the fourth continued to make regularly scheduled payments.

The crux of the plaintiffs’ complaint was what they called the hospital’s “two-tiered pricing scheme,” resulting in what they alleged were unreasonable rates charged to uninsured patients in comparison to charges for services received by patients who are insured. The plaintiffs, among other things, claimed hospital breach of contract and violations of Iowa’s Consumer Fraud Act.

The plaintiffs had filed a motion asking the district court to convert their case into a class action lawsuit. They defined the class to include all Iowa residents from year 2000 to the present who were billed (or against whom collection efforts were made) for hospital services by or on behalf of any hospital or facility owned, operated, or managed by IHS or Central Iowa Hospital Corporation and who were uninsured at the time they were patients in the hospital. The district court determined that the class was overly broad and denied the plaintiffs’ motion for failure to satisfy legal requirements for class certification. The Iowa Court of Appeals agreed, particularly noting that the reasonableness or unreasonableness of a billing charge received by an uninsured patient must be measured against facts peculiar to each such patient, including the services they received and actual charges imposed upon them. “The management of the proposed class suit would pose unusual difficulties and would be impractical and inefficient, thereby rendering the class vehicle inappropriate.”

Moving on to the plaintiffs’ allegations, the Court of Appeals first looked to the facts. Each hospital in the IHS system utilizes a hospital-specific “Chargemaster” computer file containing rate information for that hospital’s procedures, services, supplies, and medications. Patients are billed or charged based upon the hospital-specific Chargemaster rates, but not all patients pay the same amount for the same service. Many health insurers negotiate amounts they will pay; government programs like Medicare and Medicaid have fee schedules establishing amounts they will pay for each hospital service; and uninsured patients sometimes qualify for and receive financial assistance and other discounts. IHS’ Des Moines hospitals showed that from 2000-2010, their charges to self-paying patients totaled $202 million, of which those uninsured patients paid $17 million due to discounts, write-offs, and uncollected debt.

To support their breach of contract claim, the plaintiffs looked to an agreement each had signed stipulating that they would pay for their medical care according to the hospital’s “regular rates and terms.” This terminology, they claimed, constitutes an indefinite, open-ended pricing term requiring determinations of reasonableness by the court. Neither the district court nor the Court of Appeals agreed. “As a general rule, where there is an agreement to pay for medical services in accord with the hospital’s regular rates and terms, the contract is not indefinite,” the Appeals Court concluded. Earlier, in its findings of fact, the Court noted that patients can, and sometimes do, request hospital Chargemaster rate information.

The Court of Appeals, like the district court, also found no merit to the plaintiffs’ allegations of hospital violation of Iowa’s Consumer Fraud Act, Iowa Code chapter 714H. That law sets forth processes for filing private causes of action for consumer fraud. However, as the Court found, section 714H.4 specifically excludes hospital services from its reach.

In closing, the Court of Appeals cited with favor to statements made by a federal court in deciding a case similar to this one. “This action seeks judicial intervention in a political morass,” the federal court said. It is not for the courts to determine what a reasonable charge is for each hospital service. “For a court to presume to address these problems would be rushing in where angels fear to tread.” In these types of cases, plaintiffs are asking the courts “put simply, to solve the problems of the American health care system, problems that the political branches of both the federal and state governments and the efforts of the private sector have, thus far, been unable to resolve.”

Plaintiffs in this case could seek further review by the Iowa Supreme Court. The decisions of the district court and the Iowa Court of Appeals, however, leave little reason to suspect that different factual findings and conclusions of law would be reached by the Iowa Supreme Court.  Nonetheless, more yet may come from the Iowa courts on this matter.