Interesting Medical Billing Case

Today the Indiana Court of Appeals issued an opinion in the case of Allen v. Clarian (pdf). The case involved a declaratory action for determination of the reasonableness of medical charges. The plaintiffs were uninsured patients who signed a standard contract agreeing to pay for medical services received. They received the services, then got a whopping bill. Their main complaint was that the charges were “unreasonable” for the services provided. Plaintiffs filed a complaint seeking declaratory relief — in essence, asking the court to determine what they actually owed Clarian.

The trial court dismissed the complaint as failing to state a claim. This is a decision that “even if the facts alleged in your complaint is true and you can prove them, you’re not entitled to relief of any kind through the courts.” The Court of Appeals disagreed and knocked down a couple of arguments in the process.

One argument advanced by Clarian was that the patients who disputed the amount of the bill were required to pay what they considered reasonable, then wait to see if Clarian sued them for the balance. Only then could they raise the defense that the charged price was unreasonable. The court said, no, the plaintiffs could seek a declaration of the amount due under the contract.

Another argument was that the patients did not contract to pay some ambiguous “reasonable” fee but, rather, whatever was on the hospital’s chargemaster for the services ultimately rendered to the patient. (The “chargemaster” is the comprehensive schedule of the hospital’s prices.) One problem with this is that hospitals are notoriously secretive about their chargemaster schedules. This led to a humorous observation by the Court of Appeals:

As we have already noted, Clarian contends that the chargemaster rates are “unambiguous” and “express[,] binding obligation[s]” on Allen and Moore. Appellee?s Br. at 5. But at oral argument counsel for Clarian stated that Clarian considers its chargemaster rates 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.

Essentially, this is an argument that patients have bought a pig in a poke. You owe whatever we say you owe. This isn’t quite as ridiculous as it sounds because it’s true that a lot of the time, nobody is certain about exactly what medical services will be necessary in advance of the patient receiving treatment. But, without some more or less explicit mechanism of determining what the price is going to be, the courts are going to impute an agreement to pay a “reasonable” price for the services provided.

Clarian apparently also advanced an argument that, given the nature of medical financing, requiring patients to only pay a “reasonable” fee would collapse the system. The Court of Appeals was unmoved.

That’s only a first step, getting it into court. The plaintiffs will have to enter murky water of proving what is “reasonable” and what isn’t. They also allege a putative class – so the trial court will have to rule on whether a class action can be certified. (This was not addressed at all in the Court of Appeals decision.) So, it will be interesting to see how this shakes out and if it has anything like a broader impact.


  1. says

    Doug…if I could beg a favor, keep me updated on this. It is nearly identical to the billing dispute I am having (I think I’ve mentioned it to you before), except a) I have insurance and b) They actually quoted me a price and then quadrupled it when they found out I had the aforementioned insurance.

  2. says

    I’ll definitely report if I hear anything more. I have personal and professional interests in this issue.

    You did mention it. I can’t remember — is your insurer likely to be upset about it too? It doesn’t usually work this way, but I suppose it’s theoretically possible that their agreement with your insurer is 4x what they quoted you; then it would be an interesting question whether the price they quoted your or the price they agreed to with the insurer would govern.

  3. says

    Andrew, if you have the lower quote in writing, your insurance co. should be very interested in going after an overpayment. Failure of the ins. co. to persue the overpayment would be the way I would approach your dispute…your policy is your contract with them to reimburse medical providers for care.

  4. Wilson46201 says

    A favorite nostrum from the conservative political pharmacopeia is the admonition that medical costs would be so much cheaper if only patients would shop around for a good price on medical care! It’s lazy Americans who are responsible for their soaring medical bills. Sadly, with a secret price list (chargemaster) how the heck are wise consumers expected to make informed decisions?


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