In the Hospital Sick Male Patient Sleeps on the Bed. Heart Rate Monitor Equipment is on His Finger.

A woman is not liable for paying a nearly quarter-million-dollar medical bill after her surgery because she neither knew about nor agreed to the hospital's secret pricing list, the Colorado Supreme Court ruled on Monday.

Under longstanding contract law, Lisa Melody French could not have consented to pay the price listed in the "chargemaster" because her hospital did not disclose it to her. Further, nothing prevented that disclosure from happening pre-surgery, wrote Justice Richard L. Gabriel in a decision criticizing predatory billing practices in the health care industry.

"Moreover, as courts and commentators have observed, hospital chargemasters have become increasingly arbitrary and, over time, have lost any direct connection to hospitals’ actual costs, reflecting, instead, inflated rates set to produce a targeted amount of profit for the hospitals after factoring in discounts negotiated with private and governmental insurers," he wrote in the May 16 opinion.

Barak Richman, a professor of law and business administration at Duke University, applauded the decision. He said the ruling would not prevent hospitals from making emergency decisions for patients, but rather ensure that patients give their informed consent first before incurring charges.

"I'm hopeful this opinion will have a widespread effect that will help patients being exploited by chargemaster prices," Richman explained. "Perhaps more important, it will bring price transparency and price competition to the marketplace. One reason prices are going up is that chargemaster prices are hidden. And if you have a regime where prices have to be disclosed in advance, that injects a lot more information into the marketplace, and patients and consumers can respond to that."

French underwent spinal surgery in 2014 at St. Anthony North Hospital in Westminster. The hospital, part of Centura Health Corporation, originally estimated French would owe roughly $1,337, but complications during surgery escalated her share of the cost to $229,112.

While French had signed an agreement saying she would pay "all charges of the hospital" not covered by her insurance, an Adams County jury interpreted that phrase to mean the reasonable value of the services, not the price the hospital set unilaterally in its chargemaster. The jury decided French only owed $767.

A three-judge panel for the Court of Appeals subsequently overturned the jury's verdict, prompting French to appeal to the Supreme Court.

Although Judge Terry Fox, who authored the appeals court's opinion, noted that "hospitals cannot always accurately predict what services a patient will ultimately require," the Supreme Court justices were skeptical of that claim.

"When I bring my car for service, they don't know what's wrong with it, either. But they investigate it and they call me and say you need a new this or a new that and this is what it will cost," said Gabriel during oral arguments in March.

"Your mechanic isn't a physician," retorted Michael T. McConnell, the attorney for Centura Health. "Obviously, you feel that is the way it ought to be. It is not the way it is."

French's case attracted the attention of multiple industry and nonprofit groups. The Self Insurance Institute of America, Inc., writing in support of French, decried hospitals that "bludgeon" payers into accepting inflated chargemaster rates that are neither disclosed nor represent the true cost of services. Other health systems backed Centura Health, saying it was justifiable for hospitals to charge some patients more to compensate for low reimbursement rates from government insurance programs.

The spinal surgery bill ended up being significantly higher than the original estimate because Centura Health had mistakenly believed French's insurance was in network. The hospital attempted to excuse its error by saying it had no responsibility to "understand the patient's insurance better than the patient does," McConnell argued.

During the litigation, it came to light that Centura Health's chargemaster was a database of 50,000 codes that the corporation declined to release because it was reportedly a "trade secret." An expert witness for French estimated that her procedure actually cost around $70,000, and Centura Health had made a profit based on what French and her insurer had paid to date.

The Supreme Court concluded there was no mutual agreement between French and Centura Health about the meaning of "all charges." The principles of contract law meant French could not be responsible for paying chargemaster rates when a clear reference to the chargemaster was absent.

"(I)f a charge for hospital services is not included in a hospital-patient contract, then we believe that a jury is fully capable of determining the reasonable value of the services provided," Gabriel wrote.

He added that even if Centura Health previously gave French access to the chargemaster, the hospital had conceded its 50,000 codes would have been incomprehensible. 

At the end of 2020, Congress approved the No Surprises Act, which took effect in 2022 and prohibits surprise out-of-network bills for emergency and some non-emergency medical services. Gerard Anderson, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health, said that hospitals in his experience typically end up accepting reasonable payments because their chargemaster has little bearing on the true cost of service.

"It would be like going into Walmart and someone saying, 'You need this, this and this' and putting it into your basket. There's no prices associated with any of the items and then a month later, you get a bill from Walmart," he said. "That's what the hospital marketplace looks like."

The attorneys for French and a spokesperson for Centura Health did not immediately respond to a request for comment.

The case is French v. Centura Health Corporation et al.

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