Article by George A. Nation III
This article focuses on two specific problems caused by the pernicious pricing, billing and payment practices used by U.S. hospitals. First, many accident victims lose the benefit of their health insurance due to unethical profit seeking behavior by hospitals. Second, personal injury judgements are greatly inflated by the fraudulent nature of hospital pricing.
The pricing, billing and payment system used by hospitals in the U.S. is opaque, counter-intuitive, complex, and deceitful. This system is based on a price list called a Charge Description Master or CDM, which lists extremely high prices (5 to 10 times or more than the usual amount the hospital receives and accepts as payment).
CDM prices are exorbitant because the hospital plans to greatly discount them in negotiations with commercial health insurance companies. Hospitals don't expect to recover their CDM prices, but when they see an opportunity, they pursue it aggressively and relentlessly.
One such opportunity is presented by patients injured in an accident that is another person’s fault. For example, patients injured in an auto accident. Hospitals refer to these patient’s as TPL (third party liability) patients and train admissions staff to identify TPL patients.
Hospitals refuse to submit the medical bills of TPL patients to the patient’s health insurance company, even if the insurer is in the hospital’s network, because the hospital sees an opportunity to collect its inflated CDM fees from the other driver’s auto insurance. That is, the hospital has agreed to accept a much lower negotiated price from the patient’s in-network health insurer, but not from the other driver’s auto insurer, so the hospital demands its grossly inflated CDM price from the other driver’s auto insurer. This practice creates a huge windfall for the hospital.
This causes a number of problems including increasing the cost of auto insurance, and often leaving the TPL patients who were victims unable to recover anything for their non-medical losses, such as property damage, lost work etc. This is because the hospital’s bill when based on CDM prices usually exceeds the liability limit of the other driver’s auto insurance.
In addition, some patients also use the deceitful CDM-based system (usually with the advice of their personal injury attorney) to greatly inflate their damages in tort cases involving financially strong defendants like businesses.
A person injured by the conduct of another may recover two types of damages, economic damages (property damage, medical expenses, etc.) which can be easily measured, and non-economic damages (such as pain and suffering) which are very difficult to measure.
Many judges and attorneys base non-economic damages on economic damages. For example, a common rule of thumb is that non-economic damages should be no more than 10 times economic damages.
By artificially inflating medical expenses, plaintiffs may increase their non-economic damages by a factor of 10. Personal injury attorneys often recommend medical providers that treat patients at grossly inflated CDM prices on a “lien basis”, which means payment is not due until the patient recovers from the other driver. This is exactly what hospitals are doing by refusing to use an TPL patient’s health insurance. This practice unnecessarily increases expenses for businesses and in turn increases prices for everyone.
These problems can be stopped by putting an end to the pernicious CDM pricing, billing and payment system. Courts and legislators should recognize that patients are never obligated to pay grossly excessive CDM prices, rather patients are obligated to pay only the reasonable value of the medical care they receive. Once this is understood, the problems discussed above go away.
Courts can easily determine the reasonable value of health care simply by averaging the highest and lowest prices the hospital has negotiated with commercial insurers. Since January 2021, these negotiated prices must be published by hospitals and thus should be readily available to courts. If a particular hospital has not provided this information, then the court should simply use 125% of the Medicare fee for service price as the reasonable value.
About the Authors
George A. Nation III. Professor of Law and Business, Lehigh University.
Citation
95 Tul. L. Rev. 937 (2021)