Business Law

Business Law News 2015, Issue 2

In the Absence of Agreement: California Courts Define Pricing for Non-contracted Medical Services

David D. Johnson1

David D. Johnson is a health law attorney in the San Francisco office of Crowell & Moring, LLP. He focuses on health care litigation and regulatory counseling. Mr. Johnson graduated from the University of Texas at Austin School of Law. Prior to law school, he worked as a C.P.A.

Americans are accustomed to dealing based on the principles of contract, in which the buyer and the seller agree in advance on the price that will be paid for goods and services. Not so for medical services.

In many cases, there is no meeting of the minds on the extent or price of medical services before they are performed. Many providers, such as physicians and pharmacies, do not publish price lists. Since 2003, California has required most hospitals to publish their price lists, called "chargemasters,"2but hospital chargemasters can contain 15,000-20,000 prices for different services and describe services using technical terms beyond the ken of the average consumer.3 Since the early 1980s, a vast gap has emerged between the list prices and actual prices paid for hospital services. A 2006 study found that the gap between charges and actual payments was 255% and growing rapidly.4 A 2013 study similarly found that hospitals on average billed Medicare 377% of what they were actually reimbursed.5

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