Colorado Supreme Court Rules in Favor of FW Client, Rejecting a Hospital's Attempt to Enforce A Large Surgery Bill in French v. Centura Health

May 17, 2022

By: Paul R. Janda

Regardless of their unique practices and problems, businesses need the ability to confidently enter binding agreements—whether with suppliers, customers, or their own employees—and to know that should a disagreement arise regarding the meaning of a contract, courts will apply predictable rules. 

Fairfield and Woods recently represented the Self-Insurance Institute of America and the Colorado Business Group on Health as amici in support of petitioner Lisa French, who challenged a ruling by the Colorado court of appeals that would have left her responsible for a $303,709.48 bill after her hospital had told her she would only owe $1,336.90 for a necessary spinal surgery. She was covered by her employer’s self-insured health plan, which was designed to reduce costs by reimbursing hospitals based on the actual cost of the services plus a fair profit (called a “reference-based” plan). This differs from a traditional “network” plan where hospitals force insurers to negotiate inflated rates in advance without regard to cost. 

The hospital misread Ms. French’s insurance card and told her she was “in network” and would only owe $1,336.90. After Ms. French went home, the hospital discovered its error and argued that because she had signed a boilerplate service agreement agreeing to pay “all charges,” she was responsible for the full “chargemaster” rate—taken from more than 50,000 line items that almost no patient or insurer pays or can even understand. Even though Ms. French’s health plan paid the hospital nearly $75,000.00—more than the hospital’s own “in-network” rates—the hospital sued Ms. French for the $229,112.13 “balance bill.” 

The trial court found that because the service agreement did not mention the “chargemaster” (or any price at all) it did not contain a price term. Thus, under long-standing contract law, it asked a Colorado jury to determine what charges were reasonable. The jury found that Ms. French owed only an additional $766.74, or in other words, that the plan’s previous payment was rather reasonable.

The hospital appealed. Relying on cases from other jurisdictions with different facts, the court of appeals focused on policy rather than the plain language of the service agreement and found that the term “all charges” unambiguously incorporated the full “chargemaster” rate because (1) hospitals cannot always know in advance what treatment a patient will need, (2) the “chargemaster” included predetermined prices (even if nobody could read them), (3) the healthcare system is “complex,” and (4) Ms. French could have known more about the risk of a balance bill had she ignored the hospital’s representations and done independent research about what costs she might face. Accordingly, it found that despite the missing term and the hospital’s own error, Ms. French was liable for the full $303,709.48. 

Ms. French appealed to the Colorado Supreme Court. As the Court held in the matter captioned No. 20SC565, French v. Centura Health, there is no special rule of contract interpretation for healthcare services. The Supreme Court agreed with the trial court that because Ms. French had not even known about the “chargemaster” before her surgery, let alone agreed to pay its rates, the service agreement did not incorporate the “chargemaster.” Thus, it reversed the court of appeals, found that the price term was left open in the service agreement, and reinstated the jury verdict that Ms. French owed only another $766.74—not the additional ~$230k the hospital argued Ms. French should have to personally pay. This decision is the right result for Ms. French individually and also allows Colorado employers to keep benefiting from innovative self-insurance plans that both save costs and give employees more choice regarding their healthcare providers. More broadly, it affirms that businesses can count on Colorado courts to apply consistent law regardless whether the case concerns healthcare, hemp, or a newly-invented widget. 

Courts and juries can only accurately apply the law if they understand the facts—for example, what a “chargemaster” is and why it matters whether it is encompassed by the term “all charges.” Furthermore, careful legal drafting and risk assessment can avoid disputes in the first place and save the difficulty and expense of litigation.

Fairfield and Woods has deep experience not only advocating for clients in trial and appellate courts, but helping them achieve their business goals in a wide range of industries. Please contact us if you have any questions about how to make sure your form contracts fit your needs, the ramifications of any contemplated agreement, or how to handle a contract dispute.