Un-FAIR Health Costs
U.S. Courts have a problem determining the reasonability of healthcare charges. This issue comes up repeatedly in personal injury suits where a plaintiff seeks to recover medical costs for injuries sustained due to the defendant’s negligence. To support their argument that the plaintiff’s medical charges are too high, the defendants bring in an expert to testify on the reasonable and customary costs of medical services. Almost all of these billing experts rely on the same database – FAIR Health. This database compiles the information of insurance company charge rates and is most typically used to set insurance reimbursement rates. Using this data, these experts have consistently argued against the reasonableness of charge data presented by plaintiffs.
What’s the problem with FAIR Health data?
The difference between the charge of medical care for an insured patient and an uninsured patient is vast enough to span an ocean. In the U.S., patients are separated into three categories: privately insured, publicly insured, and uninsured. Patients that fall under the first two categories benefit from the bargaining power of their benefactors. In the case of patients who seek medical treatment under Medicare and Medicaid, the U.S. government sets the rates that providers who accept these public insurance programs must accept for certain services.[i] Healthcare providers also accept much lower prices for services from private health insurance companies, which wield significant bargaining power in the market because of their access to potential patients. Uninsured patients – vulnerable, sick, uneducated, lone consumers in a capitalistic marketplace of secret prices and predatory practices – are incapable of negotiating favorable prices. Because “uninsured patients are protected in this Darwinian marketplace by neither insurers nor regulators, hospitals are loosed to charge what they will.”[ii] And they do. In an effort to recoup some of the costs of the “discounted” services provided to the publicly and privately insured, medical providers routinely charge the uninsured more than twice what they charge the insured.
The problem for uninsured patients in the U.S. medical marketplace is obvious, but this double standard becomes even more glaring in the context of a personal injury lawsuit. After a plaintiff is injured, defendants (almost always insurance companies), always argue that the charges that the plaintiff submits as evidence of their medical charges – almost always the prices for uninsured care – are unreasonable. To support this argument, these defendant insurance companies present an expert to testify on their findings of customary and reasonable medical charges taken directly from the FAIR Health database – a database that only includes charge data for the publicly and privately insured.
Obviously, this information doesn’t represent the reasonable and customary charge of medical care because it is not representative of the entire market. Specifically, it does not consider – at all – the rates that medical care providers charge their uninsured patients. Of course, this is precisely what large defendant companies want to benefit from – the bargaining power of powerful entities like the U.S. government and private insurance companies in the context of individual consumers. Basically, these defendants only want to reimburse plaintiffs – insured or uninsured – for what an insurance company or the government would pay for a medical service. So, not only will these uninsured patients, utterly devoid of any kind of bargaining power, be charged astronomical rates by the hospitals where they seek care, the defendants at fault for their injury will try to reimburse them as though they belonged to the class of people protected from these predatory prices.
Keep FAIR Health data out with the collateral source rule.
The collateral source rule is a good way to keep this information out of evidence. “The collateral source rule, stated simply, is that the receipt of benefits or mitigation of loss from sources other than the defendant will not operate to diminish the plaintiff’s recovery of damages.”[iii] Generally, this rule works to keep out information that an insurance company has paid part of the bill that the plaintiff presents as evidence of his accrued medical expenses – the defendant can’t benefit from the insurance companies’ contribution to the plaintiff’s medical costs. The collateral source rule works differently in the current context:
presenting FAIR Health data is a way to benefit from the assumption of an insurance contribution without presenting the actual insurance-modified medical charges. The route is different, but the destination is the same.
Two courts have excluded FAIR Health Data as violative of the collateral source rule. In Verci v. High, the Illinois appellate court addressed a case in which the defendant presented expert testimony to support their position that the plaintiff’s charged medical costs were unreasonable and uncustomary. The expert’s opinions were based entirely on information from the FAIR Health database and other databases that also rely on FAIR Health information. The Verci court held that the expert’s testimony violated the collateral source rule because FAIR Health data is most commonly used by private insurance companies to set reimbursement rates, and testimony about reimbursement rates is irrelevant and violative of the collateral source rule.
In Belcher v. Kelly (2021 U.S. Dist. LEXIS 2419), the U.S. District Court for the District of Colorado came to a similar conclusion. Relying on precedent from the Colorado Supreme Court, the Belcher court adopted the rule that the introduction of insurance rates for the purposes of determining the reasonable value of medical services violates the collateral source rule because it “carries with it the unjustifiable risk that the jury will infer the existence of a collateral source –most commonly an insurer – from the evidence, and thereby improperly diminish the plaintiff’s award.”[iv] The court held that introducing FAIR Health data is akin to introducing the lower insured rates because it would work to reduce the plaintiff’s recovery based on the inference of collateral contributions and is therefore violative of the collateral source rule. “Thus, any fee schedule derived from Fair Health’s data represents a healthcare provider’s estimate of what an insurance company is likely to reimburse, which is not necessarily coextensive with the reasonable value of those services. Viewed in that light, the introduction of this evidence would indeed appear to violate the collateral source rule.” [v]
Keep FAIR Health data out with a Daubert challenge.
Because FAIR Health-based opinion must be presented through an expert, a Daubert challenge based on the sufficiency of the FAIR Health Data is also a great way to keep these opinions out. The same cases cited above, Verci and Belcher, are instructive in this regard as well.
In Verci v. High, the court held that the FAIR Health data was not sufficient to determine the reasonableness and the plaintiff’s medical charges because the information comes from insurance companies, not healthcare providers. Because the FAIR Health data only comes from insurance companies, the information lacks the rates that medical providers charge to uninsured patients. Id. The court stressed that the exclusion of the rates that providers charge to uninsured patients has unfairly skewed the information, resulting in unrealistically low charge data because “[p]hysicians charge uninsured patients, on average, more than twice what they charge insurers.” Id. The court held that, in order to determine the reasonableness of medical charges, the rates charged to uninsured patients would also have to be considered, because all patients are not insured and the defendant cannot benefit from the inference that a plaintiff is insured. The court held that “[b]ecause the FAIR Health database does not include amounts charged to uninsured patients, it is not a true representation of what medical providers charge.” The court held that the data was insufficient because uninsured rates were not charged.
The Belcher court also emphasized that “FAIR Health’s data represents only the limited universe of what healthcare providers have billed to insurance companies.” Id. at 7-8. The Belcher court held that the expert’s FAIR Health-based opinions were irrelevant for determining the reasonable value of medical costs because they were not sufficiently tied to the facts of the case. “The question the jury here must answer is not what it might be reasonable to bill some hypothetical (insured) patient before he is seen by a physician, but rather whether the expenses [the plaintiff] actually incurred were reasonable and necessary in the circumstances which confronted his doctors at the time he sought their care.” [vi]
[i] Wal-Mart Stores, Inc. v. Crossgrove, 276 P.3d 562, 566-67, 2012 CO 31 (Colo. 2012) (internal citation and punctuation omitted).
[ii] See Mark A. Hall & Carl E. Schneider, Patients as Consumers: Courts, Contracts, and the New Medical Marketplace, 106 Mich. L.Rev. 643, 663 (2008).
[iii] Stephens v. Castano-Castano, 346 Ga. App. 284, 290, 814 S.E.2d 434, 439 (2018) (internal citation and punctuation omitted).
[iv] Belcher v. Kelly, Civil Action No. 19-cv-03367-REB-NYW, 2021 U.S. Dist. LEXIS 2419, at *7 (D. Colo. Jan. 6, 2021) (quoting Wal-Mart Stores, Inc. v. Crossgrove, 276 P.3d 562, 566-67, 2012 CO 31 (Colo. 2012))
[v] Belcher v. Kelly, 2021 U.S. Dist. LEXIS 2419, at *7 (D. Colo. Jan. 6, 2021).
[vi] Belcher v. Kelly, 2021 U.S. Dist. LEXIS 2419, at *10-11 (citation and internal quotation marks omitted) (emphasis added).