A lawsuit challenging the ways hospitals bill patients got new life last week, which isn’t good news for Indiana University Health.

The Indiana Court of Appeals reversed a Marion Superior Court decision to dismiss a lawsuit by Abby Allen and Walter Moore, two uninsured patients who received care at IU Health North Hospital in Carmel. (At the time of their care, IU Health called itself Clarian Health.)

Both were charged IU Health’s “chargemaster” rates, charges that are set primarily as a starting point for contract negotiations with insurance companies, which then wrangle for large discounts.

It has been common for hospitals to raise their chargemaster rates substantially each year in an effort to win higher reimbursement rates from health insurers. But the practice falls hard on uninsured patients, because most hospitals give no more than a 20 percent discount to the uninsured. And some give no discount  if the patient’s income is high.

Allen was billed $15,600, even though IU would have accepted half that much if she had been insured, according to the unanimous opinion by three appeals court judges. Moore was billed $1,138, but would have paid “substantially less” if he had been insured.

When neither Allen nor Moore paid any of their bills, IU Health turned them over to a collection agency.

A key issue in the case is that IU Health specified no upfront price in the paperwork Allen and Moore signed, which pledged them to pay for the medical services. IU Health contends those documents bind its patients to pay chargemaster rates, but the court disagreed.

“There is no reference to the chargemaster rates, express or implied, in the contracts. Accordingly, the law implies a reasonable charge,” wrote Judge Edward Najam Jr. in his Oct. 12 opinion.

And IU Health’s chargemaster rates seem anything but reasonable, Najam suggested, citing a bevy of studies that note that hospital chargemasters have long since stopped bearing any relationship to the actual costs of the services rendered. Also, Najam said, IU Health’s contract never used a term like “rates” or “charges” that might have given its patients an indication that its chargemaster applied to them.

“We decline to hold that Allen and Moore agreed to pay whatever amount Clarian charged,” Najam wrote. “That would be an unreasonable, if not absurd, interpretation, and we will not interpret a contract in a manner that results in a manifest absurdity.”

Najam also noted the apparent inconsistency that IU Health regards its chargemaster rates as confidential and proprietary. “Left unanswered by Clarian is how a patient and a provider can mutually agree to an ‘unambiguous’ and ‘express’ chargemaster fee schedule that is not available to the patient,” Najam wrote.

Najam sent the case back to Marion Superior Court for reconsideration.