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December 20, 2012

Uninsured patients' promise to pay "the account" binds them to chargemaster rates

By Michelle L. Oxman, JD, LLM

A provision in a hospital's contract with uninsured patients requiring payment of "the account" not covered by public or private insurance obligated the patients to pay the undiscounted chargemaster rates (Allen v Clarian Health Partners, Inc., December 19, 2012, Rucker, R). Indiana contract law imputes an obligation to pay the reasonable value of services when the contract does not state a definite price, but the court ruled that the contract was not indefinite. The use of the term "the account" was sufficient to require payment of the chargemaster rate. Therefore, the trial court's dismissal of the complaint was appropriate, and the Court of Appeals ruling in favor of the patients was reversed.

The availability of discounted rates. Based on its chargemaster, Clarian charged Allen $15, 642 for its services. Abby Allen argued that the promise to pay "the account" was indefinite because there was no reference to the way that the charges on the account were determined. She alleged that Clarian commonly accepted much lower payments from insurers and government agencies; Clarian would have accepted about $7,300 if she had been insured. Thus, the chargemaster rates were unreasonable, she contended.

The ruling below. The Court of Appeals agreed with Allen. In a detailed opinion, the court referred to publications and testimony that stated that chargemaster rates are not based on costs or the reasonable value of the services. Because the contract did not refer to the chargemaster, the court could not find that the contract incorporated the terms of the chargemaster.

The reversal. The Indiana Supreme Court reversed. Although it had ruled in other contexts that courts could determine that the reasonable value of medical services was lower than the rates charged, those rulings did not involve the interpretation of contracts. It agreed with Clarian and other courts that the health care market was unique because the parties do not know what services will be needed when a patient is admitted. Many other courts had ruled that contracts with similar terms, such as "the charges" or "the account," were sufficiently definite to incorporate the chargemaster. It also noted that the use of chargemasters was standard industry practice; an Indiana statute defined the term and the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148) imposed a requirement that hospitals publish their chargemasters each year.

The case number is 49S02-1203-CT-140.

Jerry Garau (Garau Germane Hanley & Pennington, PC), Robert E. Burkett (Burkett Law Office) and Scott Andrew Weathers for Abby Allen. David J. Mallon, Philip A. Whistler, Brian J. Paul, Edward P. Steegmann (Ice Miller LLP) and John Laramore (Baker & Daniels, LLP) for Clarian Health Partners

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