On May 10, 2012, the Indiana Supreme Court heard arguments in a case that could profoundly alter hospitals’ billing practices. The case, Abby Allen and Walter Moore v. Clarian Health Partners, Inc., arises from hospitals’ common practice of billing uninsured patients inflated “charge master” rates for hospital services. Uninsured patients are the only patients who pay the charge master rates. Insured patients and patients covered by Medicare or Medicaid receive the same services at rates steeply discounted from the charge master rates.
The charge master rates are charged pursuant to a contract which patients are required to sign in order to receive services from the hospital. Under the contract, the hospital agrees to provide the necessary services and the patient agrees to “guarantee payment of the account.” However, the contract does not specify the price to be paid for the services to be rendered.
Jerry Garau of Garau Germano Hanley & Pennington, P.C., argued the case on behalf of the patients in the supreme court. The patients’ position is that because the contracts do not specify a price for the services to be provided, Indiana law requires a reasonable price for the services to be implied. Because the hospital charged the uninsured patients an unreasonable price for the services it provided to them, the hospital was in breach of the implied term requiring a reasonable price. The patients argued that the substantially discounted prices charged to insured and Medicare and Medicaid (patients who make up 90% of the hospital’s patient population) were compelling evidence of the unreasonableness of the charge master rates charged to the uninsured patients.
The case before the supreme court was initially dismissed by the trial court. However, the Indiana Court of Appeals reversed that decision, finding that Indiana law had long required that a reasonable price is implied when a contract failed to specify a price for services to be rendered. The court of appeals also relied heavily on the Indiana Supreme Court’s decision in Stanley v. Walker. In that decision, the supreme court noted that the charge master rates bear little or no relation to the value of the services provided by hospitals.
The court of appeals’ decision was a significant victory for Indiana’s uninsured patients, a victory which could be snatched away by the Indiana Supreme Court. The issue before the court is whether the contracts used by the hospitals require the hospitals to charge reasonable prices, or whether the contracts are licenses for hospitals to gouge their uninsured patients. A decision from the supreme court should be arriving within the next several months.