Banner Health v. Medical Savings Insurance Company, et. al. – 8/14/2007
Arizona Court of Appeals Division One Holds That The Rate Schedule Filed By A Hospital Pursuant to A.R.S. §§ 36-436 to -436.03 Is Incorporated Into “Conditions of Admission” Forms That Patients Sign Prior To Being Treated, Regardless of Whether the Forms Explicitly Refer To the Rate Schedule.
Seven patients (or spouses or parents of patients) received medical services at various hospital facilities operated by Banner, an Arizona non-profit corporation that owns and operates several hospitals throughout the state. Medical Savings Insurance Company (MSIC) is a health insurer that issued group health insurance to each of the patients and their families. Each patient signed a “Conditions of Admissions” (COA) form before Banner provided treatments. Four of the seven patients signed COA forms providing that:
I agree that in return for the services provided to the patient by the hospital . . . , I will pay the account of the patient . . . . I will pay the hospital’s usual and customary charges, which are those rates filed annually with the Arizona Department of Health Services . . . . It is understood that the undersigned and patient are primarily responsible for payment of patient’s bill.
The other three patients signed a COA form that similarly promised to “pay the account of the patient” and acknowledged that the signer and the patient “are primarily responsible for payment of the patient’s bill.” These three COAs, however, did not include a provision referencing “the rates filed annually with the Arizona Department of Health Services” (DHS). The COA forms constituted the only agreements between Banner and the patients regarding payment of Banner’s charges.
After treatment, Banner billed each of the patients the full amount specified for the provided medical services in its Charge Master Description that was filed with DHS in accordance with A.R.S. §§ 36-436 to -436.03. Banner has no agreements with MSIC, and no insurance company contracts or government programs require Banner to accept reduced payments in satisfaction of billed charges to the patients. MSIC, as the insurer of the patients, reviewed the charges billed by Banner using a methodology it created to “calculate the reasonableness of hospital charges and thus the reimbursement rates paid to medical providers.” MSIC then tendered payment on the seven patients’ bills that ranged from approximately 15 to 43 percent of the billed charges. Banner refused to negotiate these checks and sued the patients and MSIC asserting breach of contract for failure to pay.
Banner moved for summary judgment. Patients and MSIC argued genuine issues of fact existed because the amounts billed by Banner were unreasonable, and submitted evidence purporting to show that Banner charged the patients over 400 percent of its cost in providing their care, sought full payment from only 2 percent of its customers, and usually received only 34 percent of its billed charges from other patients who received treatment similar to that received by the patients. The trial court granted summary judgment to Banner, and MSIC and the patients appealed.
On de novo review, the Court of Appeals affirmed 2-1, holding that the rate schedule Banner filed with DHS is incorporated into the COA forms signed by the patients, regardless of whether the COAs explicitly refer to this rate schedule, because the statutory scheme for capping hospital rates is made part of the COAs “by operation of law.” The patients and MSIC had argued that a “price term” was missing from the COAs, the amounts billed by Banner were unreasonable, and the patients should be responsible only for reasonable charges. But the Court found that “[t]he COA agreements must be interpreted in light of existing Arizona statutes pertaining to hospital rates,” and Arizona has established “comprehensive procedures for the filing, review, and disclosure of hospital rates and charges.” Because of this extensive statutory scheme and “the resultant publishing of Banner’s rates and charges, there are no ‘open’ or missing price terms in the COA agreements.”
Having concluded there was no open or missing price term in the COAs, the Court “necessarily reject[ed]” the patients’ argument that a “reasonable” price term should be implied into the contracts. The majority quickly disposed of the patients’ arguments that Banner’s filed (and billed) rates were unconscionable and violated their reasonable expectations. They held that because Banner complied with the statutory process for creating and filing rates, the patients’ reasonable expectations were not violated. The Court likewise held that “as a matter of law, the billed rates and charges are not unconscionable.”
Judge Kessler dissented. He would have held that the filed rates were incorporated only into those COAs that explicitly referred to them and would have reversed and remanded for further proceedings.
As to the COAs that did not refer to the filed rates, Judge Kessler examined the legislative history of A.R.S. §§ 36-436 to -436.03 in an effort to discern the intent of the legislature. That examination led Judge Kessler to conclude that the statutes at issue “specify the time, place and manner by which a hospital must file its schedule of charges with the director, but do not indicate any method of substantive review the director should take concerning those schedules. . . . there are no provisions in [the statutes] under which the director may reject or augment a hospital’s filed rates.” Finding that the statute is “merely a publication vehicle,” but not a mechanism to objectively review rates, Judge Kessler would have held that the filed rates do not constitute a price term incorporated into the COAs that do not directly refer to them.
As to the COAs that did explicitly refer to the filed rates, Judge Kessler found even these “not immune to equitable defenses to contract.” He engaged in a substantive discussion of reasonable expectations and unconscionability and would have reversed summary judgment and remanded for proceedings to determine (1) an appropriate price term for the COAs that do not refer to filed rates and (2) finding of facts and conclusions of law as to whether the filed rates are an unconscionable price term.
Judge Gemmill authored the opinion, with Judge Orozco concurring, and Judge Kessler concurring in part and dissenting in part.