The Texas Supreme Court recently held that North Cypress Medical Center Operating Co., Ltd. cannot keep secret its private insurance and public payer reimbursement rates in litigation brought by an uninsured patient who alleges that she was overcharged for treatment. In re North Cypress Medical Center Operating Co., Ltd., No. 16-0851 (Tex. 2018) (majority opinion available here). In a 6-3 decision, the Court denied North Cypress’ petition for writ of mandamus and rejected the hospital’s argument that its reimbursement rates were irrelevant to whether its charges to an uninsured patient were reasonable.
The majority opinion held that it “defies logic” to conclude that the reimbursement rates paid by insurers and government payers “have nothing to do with the reasonableness of charges” for uninsured patients, particularly because insurance and government reimbursements “comprise the bulk of a hospital’s income for services rendered.” While noting that such rates will not conclusively establish what constitutes a “reasonable and regular rate[,]” the Court held that such information is “at least relevant to what constitutes a reasonable charge.” The Court also rejected the hospital’s argument that the rates were confidential and proprietary, noting that the contracts could be produced pursuant to a protective order.
Texas’ high court left room for other courts to depart from its relevance finding, however. In acknowledging that not all courts agree on the relevance of such information, the Court cited Parnell v. Madonna Rehabilitation Hospital, Inc., in which the Nebraska Supreme Court held that reimbursement rates were irrelevant to whether the hospital’s charges were appropriate. The North Cypress majority distinguished this case by noting that the statute at issue in Parnell allowed the hospital to recoup its “usual and customary” charges, while the Texas statute expressly required that those charges be “reasonable.”
The dissent, authored by Chief Justice Hecht (available here), opined that “[i]t is unreasonable to limit a hospital to charging an uninsured patient insurer-negotiated reimbursement rates.” It observed that each patient, whether insured or not, is charged the same rate for services. The discounted reimbursement rates reflect the benefits that can be offered by a private insurer or a government payer – that is, “a predictable volume of business or ease of [collecting] payment[.]” Because an uninsured patient cannot confer similar benefits on the hospital, the dissent reasoned that the negotiated reimbursement rates should not be used to determine whether the hospital’s charges to the uninsured patient were reasonable. Instead, both sets of rates – that is, the list rate charged to uninsured patients, and the reimbursement rates negotiated with insurers and government payers – can be “reasonable charges under the circumstances.”
The North Cypress opinion will no doubt encourage future uninsured plaintiffs to seek discovery into hospitals’ negotiated reimbursement rates. A familiarity with each state’s hospital lien statutes – and specifically, whether they include a “reasonableness” requirement – will be necessary for hospital counsel to appropriately respond or object to such requests. It is also likely that the Court’s ruling regarding the relevance of contracted rates will be applied to other types of litigation involving the reasonableness of providers’ charges, potentially eroding the confidentiality objections to producing this information in those disputes.