Article by George A. Nation III
Health care contracts (HCCs) are contracts between individual patients and hospitals or health systems for the sale of necessary health care. They are typically presented to patients upon admission to the hospital or outpatient facility and contain many complex and one-sided provisions favoring the hospital, such as a promise to pay the hospital's exorbitant list prices. In many ways HCCs are typical consumer contracts. For example, HCCs are standard form contracts of adhesion that consist of lists of one-sided terms and conditions drafted unilaterally by hospital attorneys; all provisions are written to advantage the hospital. All patients are required to sign the same form HCC, and there is no opportunity for individual patients to negotiate any of its terms. HCCs, like most consumer contracts, are offered to patients on a “take it or leave it” basis. The terms of these contracts are dictated by the stronger party, the hospital, and patients' only choice is to sign or be turned away.
An important difference between the broader consumer context and contracting for health care is that sometimes consumers have a real choice to walk away, and patients do not. A consumer, in some cases, may be able to choose to walk away and contract for a similar good or service on different terms with another seller. However, often consumers have only a choice to do without the good or service completely because all sellers offer the same form contract. When the goods or services concerned are practical necessities like tires for an automobile, banking services, or phone service, that is not a practical choice. In these cases, consumer contracts are properly referred to as contracts of adhesion or adhesive contracts. An adhesive contract is one in which one party has no real choice but to sign whatever document the other party demands, regardless of the terms it contains. HCCs are always adhesive contracts.
It is important to note that patients can, in some cases, provide meaningful assent in the health care context. For example, patients often make a real choice in choosing their doctor, or, after discussing medical options, choosing which of the available procedures to pursue. But patients do not exercise any choice related to signing HCCs. HCCs are signed after patients have chosen their doctor and procedure, and often after the patient has begun the process of receiving care. At this point, patients seeking necessary health care have no real choice to walk away, and thus, HCCs are really presented to patients on simply a “take it” basis.
Patients lack real choice and the ability to negotiate with the hospital in part due to the nature of necessary health care. That is, the patient needs the care and does not have a reasonable choice to forgo it. However, the real problem with HCCs is not caused by the lack of patient choice or the patient's inability to negotiate. In fact, the solution suggested here, implied-in-fact contracts or quasi-contracts, are not based directly on choice or the ability to negotiate.
The real problem with HCCs is the absolute power that hospitals have over the terms of HCCs, and this absolute power has, predictably, resulted in HCCs that are grossly unfair to patients. The result is that HCCs contain harsh, unreasonable, and unfair terms that no patient properly informed and exercising a free choice would ever agree to. Moreover, hospitals know this, yet they go on pretending that HCCs are knowingly and voluntarily agreed to by the patient.
The harsh terms contained in HCCs create an important problem for patients because, infuriatingly, many courts treat HCCs as enforceable contracts, when in fact they are unenforceable because they lack mutual assent. As a result, patients are treated unfairly. Too many courts entertain an erroneous legal fiction, based on a misapplication or misunderstanding of the objective theory of contracts and its objective intent test, that when a patient signs an HCC, an enforceable contract is created. The overarching point of this Article is that an enforceable contract does not result from a patient signing an HCC because, as explained below, a reasonable person in the position of the hospital would not think that the patient was expressing mutual assent to the HCC by signing it.
There is a contract between the hospital and patient, but it is not based on the HCC. It is either an implied-in-fact contract based on the actions of the parties or a quasi-contract enforced to prevent unjust enrichment. Moreover, it consists not of the harsh and unfair terms found in the HCC, but of the reasonable terms provided by the common law. I have written about the unfairness of the HCC terms elsewhere and do not wish to repeat that work here.
Rather, this Article builds on that work by offering an analysis of the reason courts have mistakenly treated HCCs as enforceable contracts when it seems so obvious that mutual assent, the most fundamental requirement for the creation of a contract, is missing. In addition, this Article suggests that the common law, via the proper application of the concept of objective intent, provides a solution to address this problem. Specifically, when the objective intent test is properly applied, the HCCs typically used by hospitals will be found to lack mutual assent notwithstanding the patient's signature, and will be, therefore, unenforceable.
While this Article focuses on HCCs, the framework offered here for the proper application of objective intent to HCCs fits into a broader context of consumer contracts. The same analysis suggested here could be used to restore meaningful mutual assent to consumer contracts, free contract law from its capture by big business, and stop its use as a tool of exploitation.
Large areas of contract law continue to be under siege as courts mistakenly treat standardized lists of one-sided terms and conditions that unilaterally dictate terms to consumers and weaker commercial counterparties as contracts. In fact, no mutual assent exists and therefore no contract exists in these situations. Freedom of contract is the freedom to enter into an agreement based on mutually agreed upon terms. It does not, and should not, include the freedom of stronger parties to unilaterally dictate harsh terms and use courts to enforce these terms based on a sham expression of mutual assent.
The interest in and the abuses associated with standardized form contracts has been gaining steam since the middle of the twentieth century. The recent advent of pseudo or mutant contracting models has often been enabled by the digital revolution and the ease of creating long online hyperlinked lists of terms and conditions. These changes have greatly expanded, accelerated, and intensified this siege until “mutual assent” in the consumer or patient context has become a bad joke, and real mutual assent, the linchpin of contract law, has been replaced by a fraudulent lip service to the once distinguishing requirement. This same sad tale is reflected in the terms of HCCs and in the way that many courts erroneously treat HCCs as enforceable contracts.
This Article proceeds with some brief contract law background and notes the importance of the distinction between standard form contracts and negotiated contracts. Part III provides an analysis of the objective theory of contracts, the misapplication of which seems to be the main reason courts are mistaking HCCs and other one-sided consumer contracts for real contracts. Part IV uses a recent case to illustrate the application of objective intent to HCCs. Part V discusses the impact of the analysis suggested here on the rights and obligations of patients and hospitals. The final Part concludes.
About the Author
George A. Nation III. Professor of Law & Business at Lehigh University.
Citation
99 Tul. L. Rev. 985