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Litigating Medical Charges In Personal Injury Claims After North Cypress

A synopsis of this landmark case and its potential impact.

May 2, 2018

By: Christopher C. Sisk and John R. Robinson

Litigating Medical Charges In Personal Injury Claims After North Cypress

In Re N. Cypress Med. Ctr. Operating Co., Ltd., No. 16-0851, 2018 WL 1974376, 2018 Tex. LEXIS 346 (Tex. April 27, 2018).

On April 27, 2018, the Supreme Court of Texas issued its decision in In Re North Cypress Medical Center Operating Co., Ltd.  In a 6-3 decision, the majority held that the trial court did not abuse its discretion in compelling the hospital to produce information regarding its reimbursement rates from private insurers and governmental programs for the services it provided to the patient.  This information included Negotiated Rate Contracts entered into between the hospital and health insurance carriers, annual Medicare Cost Reports, and Medicare and Medicaid reimbursement rates.

The case, filed by Crystal Roberts, concerns the reasonableness of the amount claimed by North Cypress Medical Center (“North Cypress”) in a hospital lien filed as a result of an automobile accident occurring on June 9, 2015.  An ambulance transported Roberts to North Cypress, where she received medical treatment, including x-rays; CT scans; lab tests; and other emergency services.  North Cypress then filed a lien in accordance with the Texas Hospital Lien statute.  Because Roberts was uninsured, North Cypress claimed it was owed the full chargemaster rates of $11,037.35, without reduction, for the services provided.  

After settling with the at-fault driver, Roberts unsuccessfully attempted to negotiate with North Cypress for a reduction in the lien amount.  As a result, she filed suit against North Cypress seeking to invalidate the hospital lien on the grounds that North Cypress’s charges were unreasonable.  During the course of discovery, Roberts sought to obtain certain information from North Cypress concerning the amount the facility typically received in exchange for services similar to those provided to Roberts, including all the hospital’s contracts regarding negotiated or reduced rates for the hospital services provided, the hospital’s annual Medicare Cost Reports for 2011 to 2015, the Medicare reimbursement rate for the services provided to Roberts, and the Medicaid reimbursement rate for the services provided to Roberts.  North Cypress objected to the discovery requests and filed a Motion for Protective Order.  In response, Roberts filed a Motion to Compel.  The trial court granted Roberts’ Motion to Compel, and the 14th Court of Appeals denied mandamus.  As a result, North Cypress requested that the Supreme Court of Texas consider the issue. 

The supreme court, while declining to determine whether the rates charged by North Cypress were reasonable or provide a roadmap for making such a determination, held that the amount a “hospital is willing to accept from the vast majority of its patients as payment in full for such services . . . are at least relevant to what constitutes a reasonable charge.”  North Cypress, 2018 WL 1974376 at *2.  Thus, because the hospital’s right to recovery under chapter 55 of the Texas Property Code is limited to reasonable and necessary services, the court held that Roberts was entitled to obtain substantial information concerning the amount North Cypress normally received from other providers for the work performed.  Id. at *5–7. (citing Tex. Prop. Code §55.004; Bashara v. Baptist Mem’l Hosp. Sys., 685 S.W.2d 307, 309 (Tex. 1985); Daughters of Charity Health Servs. of Waco v. Linnstaedter, 226 S.W.3d 409, 411 (Tex. 2007).

In reaching its decision, the court revisited the “two-tiered” healthcare billing structure described in Haygood v. De Escabedo.  356 S.W.3d 390, 393 (Tex. 2012).  Balking at the recent evolution in chargemaster pricing, wherein healthcare providers set their chargemaster rates as high as possible in order to increase their reimbursement rates, the court stated “the [chargemaster] charges themselves are not dispositive of what is reasonable, irrespective of whether the patient being charged has insurance . . . . We fail to see how the amounts a hospital accepts as payment from most of its patients are wholly irrelevant to the reasonableness of its charges to other patients for the same services.”  North Cypress, 2018 WL 1974376 at *10.  However, rather than explicitly determine what constitutes a reasonable charge, the court chose only to opine that a “potential connection” exists between reimbursement rates and the reasonableness of the billed charges.  Id. at *15, 17.

It is also interesting to note that the majority addressed the dissent’s[1] position that this holding contradicts the court’s decision in In re National Lloyds Insurance Co., 352 S.W.3d 794, 810–12 (Tex. 2017).  North Cypress, 2018 WL 1974376 at *16–17; *19–29 (J. Hecht, dissenting).  The court distinguished North Cypress from In re Lloyds by comparing attorneys’ fees to medical charges.  Id.  The majority determined that the “fundamental” variations the court determined are inherently present when attempting to compare attorneys’ fees did not apply in the case at issue because Roberts sought discovery relating to the amounts North Cypress accepted as payment for the exact same services provided to other patients, harmonizing the two cases.  Id.

Although the court declined to comment on how to determine a reasonable charge[2], its decision that Negotiated Rate Contracts; Medicare and Medicaid rates; and the cost to provide the service at issue are relevant to determining whether the amount charged is reasonable could further limit the recovery available to uninsured plaintiffs or those who seek to artificially increase the amount paid and incurred either by opting to receive treatment at an out-of-network facility or failing to utilize their insurance coverage.  Because Haygood limits plaintiffs’ recovery for medical expenses in personal injury to the reasonable expenses paid or incurred for necessary medical care, the Texas Supreme Court’s decision in North Cypress may make it more worthwhile for defendants to argue that the amount charged by the healthcare provider for the services is unreasonable.  Such an argument may substantially reduce the plaintiff’s economic damages, as chargemaster rates typically ranges from two to eight times what the hospital normally accepts as payment from a third-party insurer or governmental payor.  George A. Nation, III, Obscene Contracts: The Doctrine of Unconscionability and Hospital Billing of the Uninsured, 94 Ky. L. J. 101, 104 (2005–2006).

Although hospitals and other medical providers were, and remain, loath to present information concerning their Negotiated Rate Contracts and Medicare Cost Reports to outside parties, North Cypress restricts their ability to refuse to produce this information when the reasonableness of the billed charges is at issue.  Furthermore, this strategy places the plaintiff in the unenviable position of either making a judicial admission that the chargemaster rates billed by the hospital are reasonable or agreeing that his recovery related to medical expenses should be reduced.  See Tex. R. Civ. P. 41.0105 (paid or incurred statute).  See also, Haygood, 356 S.W.3d at 391.

As a result of North Cypress, it may now be prudent for attorneys defending personal injury cases involving a plaintiff who appears to be uninsured or out-of-network to propound a deposition on written questions and subpoena duces tecum on all healthcare providers which provided treatment requesting information related to their Medicare cost reports and the amount paid by third-party insurers and government programs for the same services provided to the plaintiff.  However, all requests should be accompanied by a confidentiality and non-disclosure agreement.

 

[1] J. Hecht, joined by J. Green and J. Guzman, authored the dissent

[2] The dissent proposes that a reasonable charge would be what the hospital at issue, and perhaps other similarly situated hospitals, regularly charge similarly situated patients.