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Challenging Inflated Medical Bills - New Texas Supreme Court Guidance on Relevance

In a recent opinion, In Re North Cypress Medical Center Operating Co., Ltd., the Texas Supreme Court allowed a Defendant to obtain information about a medical provider's insurance contracts and billing information in a dispute regarding the reasonableness of the medical provider's charges. With this holding, the Texas Supreme Court may have handed personal injury Defendants a powerful tool for investigating and challenging inflated medical bills.

Relevant Facts and Case Background

Crystal Roberts sustained bodily injuries in a June 9, 2015, automobile collision. As a result of the collision, Roberts was taken by ambulance to the emergency room at North Cypress Medical Center ("North Cypress"). The medical professionals at North Cypress treated Roberts for approximately three hours and performed "x-rays, CT scans, lab tests, and other emergency services." North Cypress billed Roberts-who was uninsured-$11,037.35 for the emergency services and filed a medical lien. Importantly, since Roberts was uninsured, North Cypress used it full billing rates or "chargemaster" rates.

The liability insurer for the at-fault driver offered to settle Roberts' entire case for $17,380.00. The liability insurer calculated that the appropriate past medical expenses were $9,404.00. Roberts attempted to negotiate a reduced medical bill from Cyprus, but an agreement could not be reached. Specifically, although North Cypress offered to reduce its bill to $8,278.31, the hospital refused to any further reduction in response to Roberts' request that the bill be reduced to $6,269.33.

After the negotiations failed, Roberts filed suit against North Cypress seeking a declaratory judgement that North Cypress's charges were unreasonable and that it's lien was invalid. North Cypress filed a counterclaim for the previously offered $8,278.31.

During discovery, Roberts sent various requests to North Cypress seeking information regarding reimbursement rates under various private insurance contracts, Medicare, and Medicaid. North Cypress objected but, after a hearing, the trial Court ordered North Cypress to produce the requested information for a narrow time-frame. North Cypress moved for reconsideration, alleging that it would suffer irreparable harm from the disclosure of its "confidential and proprietary" negotiated insurance contracts.

The trial court denied North Cypress's motion, so North Cypress filed a petition for writ of mandamus in the Court of Appeals, but the Court of Appeals denied the petition. North Cypress then sought mandamus relief with the Texas Supreme Court.

Relevance Arguments

1. North Cypress argued that its negotiated reimbursement rates with health insurance carriers were not relevant to its charges to an uninsured patient and therefore were not discoverable.

2. Roberts argued that the insurance contracts were necessary to establish whether the amounts North Cypress charged Roberts were excessive in comparison to the rates charged for the same services to other patients in the same hospital.

Holding

The Court held that the trial court did not abuse its discretion in concluding that the amounts North Cypress was willing to accept as payment for services rendered to the vast majority of its patients was relevant to the reasonableness of its charges for those same services to uninsured patients.

Why is this important?

This holding is important because it establishes that insurance contracts and reimbursement rates are discoverable when the issue is whether medical bills are reasonable. In support of its holding, the Court wrote, "considered together, reimbursements from insurers and government payers comprise the bulk of a hospitals income for services rendered. It defies logic to conclude that those payments have nothing to do with the reasonableness of charges to the small number of patients who pay directly." Thus, Defendants should now be able to utilize targeted discovery requests to obtain information about a medical provider's billing rates for the same services under contracts with private insurance companies. Over time, the Court's holding may allow Defendants to gather critical information regarding medical providers' billing practices and rates, which may be used to argue against inflated medical bills.

Many Defendants are all too familiar with inflated medical bills in Texas personal injury litigation. Under Texas law, a Plaintiff is entitled to recover reasonable and necessary medical expenses paid or incurred as a result of a Defendant's negligence See Ibrahim v. Young, 253 S.W.3d 790, 808 (Tex. App.-Eastland 2008, pet. denied) (citing Quaker Petroleum Chems. Co. v. Waldrop, 75 S.W.3d 549, 553-54 (Tex. App.-San Antonio 2002, no pet.)). In order to establish whether medical bills are "reasonable and necessary," Section 18.001 of the Texas Civil Practice and Remedies Code allows a Plaintiff to submit an Affidavit Concerning Costs and Necessity of Services from a medical provider (or records custodian) stating that the charges from said provider (or records custodian) are indeed reasonable and necessary.

Under 18.001, so long as the Plaintiff serves a copy of the affidavit stating that that "the amount a person charged for a service was reasonable at the time and place that the service was provided and that the service was necessary...," then the affidavit "is sufficient evidence to support a finding of fact by judge or jury that the amount charged was reasonable or that the service was necessary." In other words, all a Plaintiff has to do in order to show that the cost of his treatment was reasonable and necessary (and the treatment itself was reasonable and necessary) is submit an affidavit from the provider saying as much.

Once a Plaintiff submits an "18.001 affidavit," the Defendant seeking to challenge the reasonableness or necessity of charges through expert testimony must serve a proper and timely counter-affidavit . This, however, can be very expensive, and the process is chock-full of pitfalls and uncertainty. (For a full, in-depth explanation of section 18.001, controverting affidavits, and the relevant procedures and processes, see our prior blog series, 7 Things You Need to Know about ยง18.001 Affidavits.) Moreover, any attempt by Defendants to obtain information about medical billing practices of providers, historically, has been met with serious resistance from Plaintiffs and their medical providers. Engaging in these types of disputes results in expensive discovery fights with uncertain results. Now, however, Defendants have guidance from the Texas Supreme Court: contract and reimbursement rates are relevant and discoverable when the reasonableness of the charges is at issue in the suit.

Take Away

It has become common practice in Texas for medical providers to charge inflated rates knowing that recovery of the full charge is unlikely. Practically speaking, under Texas law, Plaintiffs frequently are able to submit inflated medical bills to a jury by (1) refusing to utilize their own medical insurance and (2) seeking treatment from attorney-referred physicians who will charge exorbitant rates. This is a well-known and established business practice, and the physicians know that they will almost never recover the full charges.

The Court's holding in In Re North Cypress is an additional tool in a Defendant's arsenal for investigating and challenging the reasonableness of a such charges by forcing medical providers to disclose what they would accept as payment for the same service(s) to another patient in the same location at or around the same time.

In time, Defendants may be able to utilize this new information to combat unfair billing practices and dramatically reduce inflated medical bills.

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