Howell Update: Class Certification Denied in Action Seeking Declaratory Relief that Hospital “Chargemaster” Rates are Unreasonable

<em>Howell</em> Update: Class Certification Denied in Action Seeking Declaratory Relief that Hospital “Chargemaster” Rates are Unreasonable

Tyson & Mendes argued and won the landmark Supreme Court decision of Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal. 4th 541, which held that a personal injury plaintiff is limited to recovering the lesser of what is actually paid or the reasonable value of medical services, rather than what a healthcare provider has billed the plaintiff for the services.  A recently published decision reinforces the importance of this rule and the huge discrepancy between billed vs. paid amounts. Artur Hefczyc v. Rady Children’s Hospital-San Diego, 2017 WL 5507854 (filed 11/17/17 and certified for publication). In this case, a plaintiff sought declaratory relief (on behalf of a proposed class) to establish that (among other things) a hospital was only authorized to charge self-pay patients for the reasonable value of its services, and that it was not permitted to bill based on a master list of itemized charge rates. The Court declined to issue the relief because it found the issues were inappropriate for class action litigation.

Overview of Hefczyc

This case involved an appeal from an order denying a request for class certification in his lawsuit against Rady Children’s Hospital-San Diego (Rady). On behalf of the proposed class, Plaintiff/Appellant Arthur Hefczyc sought declaratory relief to establish Rady’s form contract for ER patients authorized Rady to charge only for the reasonable value of its services. This would mean Rady was not authorized to bill self-pay patients based on its master list of itemized charge rates, commonly referred to as the “Chargemaster” schedule of rates. Hefczyc alleged this list was “artificial” and “grossly inflated.”

On appeal, Hefczyc argued that since the complaint sought only declaratory relief, he was not required to establish the existence of the factors normally required for class certification: “ascertainability,” “predominance,” and “superiority.” The Court of Appeal disagreed and affirmed the trial court’s order denying the class certification.


Hefczyz’s minor child was treated at Rady’s emergency room.  Hefczyc had no insurance or other outside source of payment for the ER visit, and thus was a “self-pay” guarantor of his child’s financial obligation to Rady. The total amount that Rady billed to Hefczyc for the visit was $9,831.34.  According to Hefczyc, this bill was based on “Chargemaster” rates that Rady developed. A “Chargemaster” is a spreadsheet which includes code numbers, descriptions and gross charges for the thousands of items that are provided to patients. It provides a convenient reference point for negotiating contracts and pricing schedules with commercial insurance carriers and non-emergency care patients seeking elective treatment and service, but is not, according to Hefczyc, a pricing schedule which patients are expected to pay.[1]

When a patient seeks care in Rady’s ER, all guarantors of the patient are required by Rady to sign an agreement titled “Conditions of Treatment/Admission” (the COTA). The COTA states, “Hospital charges will be in accordance with the Hospital’s regular rates and terms.” According to Hefczyz, each patient is requested to sign the COTA regardless of whether the patient is a Medicaid, privately insured, HMO or self-pay patient. He alleged the actual pricing terms that determine reimbursement rates of the hospital vary by category of patient and depend on “governmental regulations and privately negotiated contracts.” However, unlike other categories of patients, self-pay patients were billed at the Chargemaster rates, which were “artificially inflated” and “unconscionable.” According to Hefczyc, the fact all patients were subject to the same pricing guarantee, despite the fact that each category of patient was charged differently, showed the term “regular rates and terms” was inherently vague, ambiguous and meaningless. Hefczyc argued because the COTA contained no pricing term for self-pay patients that could be made certain, applicable law implied a contractual obligation to pay the reasonable value of the services and treatment rendered, and Rady was authorized to charge guarantors of self-pay patients no more than that reasonable value.

Hefczyc brought the action on behalf of himself and a class which he defined as “the guarantors of all persons who within the last four years, had one or more ‘eligible patient hospital visits’ to Rady’s emergency ER.” He sought a declaration with respect to payment obligations to Rady, specifically finding that the COTA contained an ‘open price’ term and did not permit Rady to bill self-pay ER patients based on Chargemaster rates, as well as a declaration these self-pay patients would be liable to Rady for no more than the reasonable value of the treatment/services provided. The Complaint alleged while a declaratory judgment would not, in itself, determine the reasonable value of the medical services rendered, it would allow a patient to dispute Rady’s unreasonable demands and provide the ability to negotiate an appropriate payment amount and reasonable payment terms.

Under California class certification criteria, the trial court concluded class certification was inappropriate here. The Court of Appeal agreed. Most of the opinion was dedicated to a discussion of the requirements for class certification.  One of these such requirements is “predominance of common issues” among the proposed class of persons. Lockheed Martin Corp. v. Superior Court (2003) 29 Cal.4th 1096, 1108.  In analyzing whether this requirement has been met, “the court must examine the allegations of the complaint and supporting declarations… and consider whether the legal and factual issues they present are such that their resolution in a single class proceeding would be both desirable and feasible.” Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021-1022. The Court here felt the declaratory relief sought by Hefczyc was far more complicated than interpreting a single contract provision.

Specifically, the Court found declaratory relief sought (a declaration that the COTA either “does not permit” or does not “allow” Rady to bill at Chargemaster rates) actually would require  the Court to decide whether the Chargemaster rates represent the reasonable value of Rady’s services. This was not an issue amenable to class treatment. The Court looked to other cases were plaintiffs sought to certify a class to challenge the reasonableness of Chargemaster rates, and noted that courts have recognized that reasonableness is an issue that requires individual determination on a case-by-case basis, rather than presenting a common question suitable for class determination. Hale v. Sharp Healthcare (2014) 232 Cal.App.4th 50, 61-67; Kendall v. Scripps Health (2017) 16 Cal.App.5th 553, 573. The reasonableness of Rady’s Chargemaster rates is a highly individualized and fact-intensive inquiry, unique to each class member.

Takeaways from Hefczyc

In this opinion, the Court reinforced that the reasonable value of medical services is a complicated issue requiring individual determination on a case-by-case basis, rather than presenting a common question suitable for class determination.

[1] The Supreme Court explained in Howell that a Chargemaster is a ‘uniform schedule of charges represented by the hospital as its gross billed charge for a given service or item, regardless of payer type.’ Hospitals are required to make their Chargemasters public and to file them with the Office of Statewide Health Planning and Development. (Health & Saf. Code §§ 1339.51, subds. (a)(1), (b)(1), (b)(3); 1339.55, subd. (a); Howell, 52 Cal.4th 541, 561, fn. 7.) By regulation, hospitals “offering emergency and/or outpatient services” are required to “make available, upon request of a patient, a schedule of hospital charges. (Cal. Code Regs., tit. 22, § 70717, subd. (b).) Further, “In California, medical providers are expressly authorized to offer the uninsured discounts, and hospitals in particular are required to maintain a discounted payment policy for patients with high medical costs who are at or below 350% of the federal poverty level. (Bus & Prof. Code § 657, subd. (c); Health & Saf. Code, § 127405, subd. (a)(1)(A); Howell at 561.) Rady explained that based on the operation of these statutes, all patients are initially billed at the Chargemaster rates, the non-discounted rates for services, and then some individuals receive discounts depending on factors such as whether they are insured.

Keep Reading

More by this author