Justices grill both sides in IU Health case

The five justices on the Indiana Supreme Court asked feisty questions of both sides in the case in which two Indiana University Health patients have argued that hospital “chargemaster” rates are unreasonable.

Much of the nearly 45 minutes of arguments and questioning on May 10 involved the justices and the lawyers for both parties trying unsuccessfully to apply various scenarios from the retail world of commerce to health care pricing.

Car dealerships, landscape crews and other retailers were invoked hypothetically to try to reason through why IU Health could claim that uninsured patients Abby Allen and Walter Moore had contractually agreed to pay any and all charges it assessed them—even without naming a price or referring to a price guide.

“Where in the world can a patient know what standard is going to be applied?” acting Chief Justice Brent Dickson asked Jon Laramore, the attorney representing IU Health.

But Laramore said in the world of health care, those models don’t really apply—because hospitals constantly use profitable lines of service to support unprofitable ones, such as neonatal intensive care units. Also, hospitals face unfunded federal mandates, such as the requirement to stabilize all patients—regardless of their ability to pay—before transferring them to any other medical facility.

“Providers have to think of their prices in a different way [than retailers],” Laramore told the justices. He added, “It’s a complicated process.”

Meanwhile, Jerry Garau, the attorney representing Allen and Moore, had the difficult case of arguing how his clients had not breached their contracts with IU Health by failing to pay any of their bills. Allen was billed more than $15,600; Moore was billed $1,138.

The justices pressed him on how IU Health could name a price in its contracts with Allen and Moore—both of whom came to the IU Health North emergency room in Carmel—when it could not know in advance what treatment they would require or even their insurance status.

“What would you suggest that the hospital do when somebody checks in and they’re uninsured," asked the court’s newest justice, Mark Massa. "Are they to give them the manual of every possible, conceivable operation or procedure that might befall them?”

Garau’s answer? IU Health’s billing of Allen and Moore was invalid because their contracts failed to disclose a price, but even more so because IU Health failed to assess a reasonable price.

“There had to be something in the contract that would allow a reasonable consumer to ascertain the price,” Garau said, adding later, “If the price isn’t going to be disclosed, there is an obligation that the price be reasonable.”

Laramore countered that IU Health charged Allen and Moore standard prices, based on IU Health’s “chargemaster” price list. They just were not given the discounts the hospital system has negotiated with health insurance companies.

The trouble is that hospitals have aggressively hiked those chargemaster rates over the past decade more as a negotiating tactic with health insurers than to reflect the true costs of providing care.

Therefore, Garau argued, Allen and Moore should be given the chance to have a jury compare their bills against the typical payments for the services they received, to determine if they were indeed reasonable.

“What a hospital charges to 90 percent of its patients is certainly relevant,” Garau said.

IU Health won the first round in this 2-year-old fight when a Marion Superior Court judge dismissed the patients’ lawsuit. But after a state appeals court judge reversed that decision in October, ordering the case back to the county level, IU Health appealed to the state’s highest court.

If Allen's and Moore’s case is allowed to go to trial, it will be significant because their attorneys have promised to seek class-action status on behalf of all uninsured IU Health patients back to the year 2000. And they have their eyes on the patients of other Indiana hospitals, too.

IU Health now gives a standard 40 percent discount off its chargemaster prices to uninsured patients, but the discount was 20 percent until last year.

IU Health’s 20 hospitals around the state provide a significant amount of unpaid care each year, noted its spokeswoman Lauren Cislak. In 2011, IU Health provided nearly $122 million in free or reduced-price care to low-income patients.

IU Health’s revenue in 2011 totaled more than $4 billion.