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Research in Action: Texas Supreme Court Decision Cites Hospital Billing Rates Research

In April, the Justices of the Texas Supreme Court handed down a decision that could help uninsured and out-of-network patients challenge exorbitant list price hospital billing rates. Research about excessive hospital chargemaster rates conducted by George A. Nation III, professor of finance, played a role in the case and was cited several times in the Court’s majority opinion.

The plaintiff in the case had been in an automobile accident that was not her fault. She was taken to the hospital for tests and then released. Because she was uninsured, the hospital, North Cypress Medical Center, billed her at its list prices, which are known as chargemaster rates. In Texas, like many states, there is a hospital lien statute, which gives the hospital a lien against any claim that the patient has against the person responsible for causing their injuries— the other driver involved in the accident was at fault. As a result of the lien, the patient can't receive any money on their claim until the hospital is paid first. The Texas lien statute limits the amount of the lien to reasonable charges for medical services.

All hospitals maintain a charge description master also called a chargemaster that contains the list price for every good and service provided by the hospital. The list prices contained in the chargemaster are widely understood as grossly inflated. The list prices are not set to be paid; rather, they are set to be discounted in negotiations with third party payers such as commercial health insurers. However, uninsured patients and out-of-network patients do not get the benefit of a negotiated discount. In addition, when most hospitals, charitable or for-profit, see a chance to collect their exorbitant chargemaster rates, they go for it aggressively and relentlessly. For example, in the Texas case the plaintiff was in the ER for about three hours before being sent home and while there received several imaging tests and some blood work. The plaintiff was billed at chargemaster rates and the total bill came to over $11,000.

“The patient claimed that the reasonable price of her care was closer to $3,500,” said Nation. “She alleged that $3,500 is much closer to the amount that Medicare, Medicaid or a commercial insurance company would have paid the hospital for the same services—and that the hospital would have accepted that amount as full payment from those payers.”

The hospital claimed that because she was uninsured, the rates it would have accepted from government or commercial insurance companies were irrelevant to the determination of reasonable charges.

According to Nation, research shows that on average insured patients pay—and hospitals accept as full payment—just a little less than one-third of the chargemaster price. In other words, chargemaster rates are set at a whopping 300% of actual reimbursements. Nation has argued in several articles that the rates that hospitals accept from government insurers and especially commercial health insurers are relevant to determining what fair and reasonable rates are.

The two articles of Nation’s that are cited in the Court’s majority opinion are: “Determining the Fair and Reasonable Value of Medical Services: The Affordable Care Act, Government Insurers, Private Insurers and Uninsured Patients,” published in the Baylor Law Review, and “Hospital Chargemaster Insanity: Heeling the Healers,” published in Pepperdine Law Review.

“The Texas case is important because it gives uninsured patients, including those who are insured but out-of-network—and, therefore, subject to ‘balance billing’—a basis to challenge hospitals' unilaterally set and excessive chargemaster rates,” said Nation.

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