The cost of health care in the United States is astronomical — so much so, that unpaid medical bills are the leading cause of bankruptcies. One glaring contributing factor is the fact that hospitals have free rein to set internal prices for medical services and hospital stays, which unsurprisingly leads to exorbitant bills for patients.

These internally set, highly inflated, and unregulated medical care prices are called “chargemaster rates.” Chargemaster rates are intentionally set to be well beyond the reasonable cost of care because it is understood that insurance companies will negotiate with hospitals for a better price. For this reason, insured and in-network patients do not pay anything close to chargemaster rates. But for those who are uninsured or find themselves in an unpredictable out-of-network procedure, there is no insurance company there to negotiate on their behalf. Instead, they become easy targets to sue for unpaid bills.

Melody French, a clerk at a trucking company, was one such target for Centura Health. Ms. French was admitted to a Centura Health hospital for a spinal fusion surgery and was discharged with a bill of over $300,000. Originally, the hospital had estimated that the bill would cost $56,601.77, of which she would be personally responsible for $1,336.90. But because of a mistake on the hospital’s part, it was later determined that Ms. French was out of network. After the insurance company paid some of the cost and Ms. French paid $1,000 out of pocket, the outstanding balance was $229,112.13.

Ms. French, like most Coloradans faced with a similar bill, could not afford to pay. The hospital (whose stated mission reads: “We extend the healing ministry of Christ by caring for those who are ill and by nurturing the health of the people in our communities.”) sued her.

In court, the main issue concerned whether Ms. French’s signed agreement with the hospital pre-operation to pay “all charges” for medical services meant that she agreed to pay the chargemaster rates rather than the reasonable cost of care. The trial judge allowed the jury to decide what “all charges” meant, and the jury interpreted the phrase to mean the “reasonable value of goods and services.” In the jury’s view, Ms. French was only liable for $766.74.

Unsatisfied with that number, the hospital appealed.

The Colorado Court of Appeals sided with Centura and held that the phrase “all charges” incorporates a hospital’s chargemaster rates, despite the fact that the pre-operation agreement never referred to such rates and that patients typically do not pay chargemaster prices.

In normal circumstances, a valid contract requires that the parties mutually agree to a price term. But the Court “set aside [its] misgivings” about the lack of mutual assent because of the complex nature of hospital billing and the resulting litigation that might arise if patients were responsible only for the “reasonable” value of services. The Court also emphasized that the Ms. French agreed to pay all charges and that the chargemaster rates are publicly available for her to review. What the Court left out was the reality that very few health care consumers know where to look for chargemaster prices, and fewer still are even aware that chargemaster rates exist.

After the Colorado Supreme Court agreed to hear the patient’s appeal, CCLP felt it was vital to join the Colorado Consumer Health Initiative and Colorado Legal Services in an amicus brief to shed light on the policy reasons in favor of overturning the court of appeals’ opinion. Specifically, the court of appeals’ opinion would have inevitably resulted in price discrimination against low-income individuals and people of color, both of whom are more likely to be uninsured or seek out-of-network care. The brief explains that many will be unable to pay and will fall into bankruptcy over medical costs that they may not have been able to avoid. The brief also points out that the court of appeals opinion ignores basic contract principles and thus allows hospitals to continue arbitrarily increasing the costs of services. (Read our amicus here.)

Thankfully, on May 16, 2022, the Colorado Supreme Court unanimously reversed the lower court’s opinion, holding that Ms. French could not agree to a price term that was never disclosed to her. The Court also noted that Centura had refused to even turn over the chargemaster during the course of the litigation. However, even if the hospital had disclosed the chargemaster, it would have been impossible for Ms. French to interpret the tens of thousands of codes within it. It was therefore appropriate for the jury to determine the reasonable cost of care.

The result of this case is certainly a victory for advocates fighting against predatory hospital billing practices. But patients should remain vigilant about any reference to chargemasters in hospital agreements that could result from the French opinion. Though we are pleased with the outcome of the case, the fight for fair medical billing continues to be an uphill challenge.

Read more about French v Centura Health in the New York Times and Washington Post.