Some legal experts say contract law could provide consumers another avenue to challenge unexpected hospital bills.

This article first appeared December 19, 2018 on Kaiser Health News.

By Julie Appleby

Joaquin Lopez had emergency gallbladder surgery after rushing to an ER last year. He has been haggling with Baptist Memorial Hospital in Memphis over what he owes ever since.

The 37-year-old college professor was hit with a nearly $8,000 bill from the out-of-network hospital — that was after the $11,000 he and his insurer had already paid.

Consumers are increasingly vulnerable to such so-called balance bills, which represent the difference between what insurers pay and hospitals' list prices. List prices can be several times higher than what they accept from Medicare or in-network insurers.

Congress is considering bipartisan legislation to limit balance billing. But some legal scholars say that patients should already be protected against some of the highest, surprise charges under long-standing conventions of contract law.

That's because contract law rests on the centuries-old concept of "mutual assent," in which both sides agree to a price before services are rendered, said Barak Richman, a law professor at Duke University.

Thus, many states require, and consumers expect, written estimates for a range of services before the work is done — whether by mechanics and plumbers or lawyers and financial planners.

But patients rarely know upfront how much their medical care will cost, and hospitals generally provide little or no information.

While consumers are obligated to pay something, the question is how much? Hospitals generally bill out-of-network care at list prices, their highest charges.

Without an explicit price upfront, contract law would require medical providers to charge only "average or market prices," Richman said.

In several recent cases, for example in New York and Colorado, courts have stepped in to mediate cases where a patient received a big balance bill from an out-of-network provider. They ordered hospitals to accept amounts far closer to what they agree to from in-network private insurers or Medicare.

"This is the amount they are legally entitled to collect," said Richman.

Lopez's bill came after he sought help at the emergency room following excruciating abdominal pain. Sent home with pain medication, he awoke hours later to a phone call from the hospital: Come back! A review of his tests showed he needed surgery. He didn't stop to ask if the hospital was in his network, or for a cost estimate.

So, in an example like that, is there mutual assent?

Hospitals say yes, that signed admission forms, which include a promise to pay, constitute mutual assent, even if there was no price disclosed.

No, counters Richman. If a tax preparer provided no upfront estimate, he could not suddenly bill a client for $10,000 if the going rate for the service was $1,000 or less. The higher fee would never hold up in court of law, since there was no "mutual assent" about price.

But what, if anything, should Lopez offer to pay? What is reasonable or average in a system where the price of a hip replacement can range from $15,000 to $150,000, or a blood test can be $5 to $500?

Based on the hospital's list prices, Lopez's bill came to nearly $21,000. Insurer Cigna, using a formula it said is similar to what Medicare uses, said the maximum it would cover was $11,160. It paid 80 percent of that lower amount, and Lopez paid the remainder. Baptist hospital is billing Lopez for nearly $8,000 more, saying it wants the full charges.

"I'm an economist," said Lopez, who teaches at the University of Memphis. "I understand how abusive these practices are. There is not a single market price."

Indeed. Healthcare Bluebook, a consumer website that uses claims data to estimate costs , shows gall bladder surgery in Memphis costs as little as $14,000, but could be tens of thousands more, with a "fair price" of about $18,000 — which is generally less than full billed charges, but more than in-network insurers would pay.

That complexity — and the cost of hiring an attorney — have made legal challenges to medical bills on the basis of contract law relatively scarce.

Also, "it's not a well-settled area of the law," said Hall.

Even though hospitals have lost some cases, their arguments have also found traction.

The Virginia Supreme Court last year ruled in favor of a hospital, saying admission paperwork patient Glenn Dennis signed in the emergency room was a valid contract. The hospital had sued him over an $84,000 bill for his out-of-network care.

Still, the court left open the key question of just how much of that Dennis owed, sending that back to a lower court. That court previously ruled that Dennis owed only about $500 on top of the $27,255 his health insurer had paid. That reflected a discount the hospital commonly gave uninsured patients, the circuit court judge wrote. The two sides are still working on a settlement.

For those caught up in the disputes, determining a fair price is hard.

"That's where courts struggle, creating health care prices," said Mark Hall, director of the Health Law and Policy Program at Wake Forest Forest University, who backs the contract law protection theory.

One way is to look at what hospitals accept for in-network care from private insurers. But hospitals generally object to releasing that, saying it's a trade secret.

A 2017 Texas Supreme Court ruling has, at least for now, broken through this position. It said that hospitals in some legal disputes must disclose those in-network rates they allow in-network insurers to pay.

"Hospitals are really trying to prevent this sort of thing because they are uncomfortable having someone ask them to justify [their charges]," said George Nation, a law professor at Lehigh University in Pennsylvania, who filed a court brief in the Texas case on behalf of the patient's argument.

In June, the hospital involved in the dispute asked for a rehearing, saying such disclosure would weaken its bargaining power. Several other hospitals are backing its request, illustrating the broad concern.

Lopez has hired a lawyer to fight his bill.

Consumers in some states might have legal backup under balance-billing laws. But rules vary, often don't apply to all types of insurance and may cover only emergency medical treatment costs.

Tennessee's law, which went into effect in July, requires hospitals to notify patients of estimated costs and that they could receive balance bills.

After getting a balance bill, consumers should attempt to negotiate a reduced amount, said Wendy Netter Epstein, a health law professor at DePaul University College of Law. Online lookup tools like Healthcare Bluebook or Fair Health can provide estimates of average costs for procedures.

Lopez said he offered to pay 20 percent of the disputed amount, but it has not — so far — been accepted.

Baptist Memorial Hospital encourages patients to file appeals and, if a better offer is made by the insurer, "we accept it and dismiss the patient's balance," said David Elliott, vice president of managed care and CEO of Baptist Health Services Group, in an emailed statement.

Lopez has appealed twice to insurer Cigna to cover more of the bill —without success.

For now, his lawyer has written to the hospital, disputing that Lopez owes more than was already paid by the insurer. The letter said Lopez planned to avail himself of any protection under state or federal law.

Increasing costs plus rising deductibles and copayments have driven millions who don't get a subsidy to drop their coverage or turn to insurance that's cheaper, less comprehensive, and sometimes inadequate.

This article first appeared December 14, 2018 on Kaiser Health News.

By Steven Findlay

Like millions of Americans in this final week of open enrollment for the Affordable Care Act marketplaces, Diane McCabe is shopping for health insurance.

"At my age, I can't go without it even though I'm healthy now," said McCabe, 62, a self-employed real estate agent in Luzerne County, Pa. "But the process is frustrating, and the expense significant."

That's because McCabe is one of the 5 million people who buy their own coverage and pay the full cost. Her income is too high to qualify for a government subsidy to help defray the premium.

McCabe this week settled on a $773-a-month policy that has a $4,000 deductible — the amount she'll have to pay out-of-pocket before insurance kicks in. She estimates that will account for at least 15 percent of her income in 2019.

Under the ACA, people who earn up to 400 percent of the poverty level (about $48,500 for an individual and $100,400 for a family of four in 2019) are eligible for premium subsidies. Eighty-seven percent of the 10.6 million people with ACA plans this year received a subsidy.

The financial challenge for people like McCabe has come into much sharper focus during the past year, as insurance premiums have spiked.

These increasing costs plus rising deductibles and copayments have driven millions who don't get a subsidy to drop their coverage or turn to cheaper, less comprehensive — and sometimes inadequate — insurance.

The Trump administration has highlighted the plight of the unsubsidized and said that its regulatory revamp of the health law will give consumers new, more affordable options. One of the key administration efforts is extending the use of short-term insurance plans that have lower premiums but don't provide the full benefits that the ACA requires, such as continuous coverage of preexisting conditions or maternity care.

Those plans are not eligible for subsidies now, but, under regulations the administration proposed in October, subsidies could be available starting in 2020.

Critics counter that the administration's approach runs a high risk of undermining core features of the ACA. And a legal battle over the administration's proposed new rules is likely.

"The subsidy structure is unquestionably a problem," said Chris Sloan, a director at Avalere Health, a policy and research think tank in Washington, D.C. "It's a cruel reality for those above the income cutoffs. But it's not clear that the administration's actions are the best solution."

Opponents of the Trump administration's proposals contend they could lead young, healthy people to abandon ACA coverage and choose less comprehensive and expensive coverage — leaving more older and sicker people in the exchanges. That would result in steadily increasing costs for those plans, and could eventually destabilize the ACA marketplaces, policy analysts say.

Overall, about 4.4 million fewer people who buy coverage on their own were insured in 2018 compared to 2015, a decline from 18.8 to 14.4 million. Most of the decline occurred among people who don't get subsidies.

On And Off Insurance

Cameron and Lori Llewellyn, of Dover, Del., have found insurance just too expensive.

In June 2017, Lori left a job that provided the family with good health coverage. She wanted to start her own business — a clothing boutique. Cameron is a self-employed construction contractor.

The Llewellyns tried to enroll in a plan through the ACA exchange in the summer of 2017. But Cameron's income was too high to qualify for a subsidy. On the open market, they were quoted rates as high as $2,000 a month, with deductibles of $4,000 or more, for themselves and their 8-year-old daughter, Bryce.

They opted instead to go without coverage until the end of 2017. Then again, for this year, they ended up not qualifying for subsidies and decided to go without insurance.

"We just couldn't justify the expense, especially with that high of a deductible," Lori said. "But it wasn't a comfortable situation. We wanted coverage for all the reasons people know they need it."

For 2019, the Llewellyns are trying again. They have enrolled through the state ACA exchange in a policy with a premium of $1,286 and a $7,900 deductible, but with a subsidy that will cover the entire premium.

Spencer Ricks, 36, a self-employed attorney in Salt Lake City, is choosing a different path. He, his wife and their 3-year-old daughter bought ACA-compliant coverage in 2016. Their premium rose from around $600 in 2016 to $970 in 2017 with a $10,000 deductible.

Ricks was told his premium for 2018 for the same plan would be $1,200 with a $13,500 deductible. He pulled the plug on the family coverage and instead enrolled his wife — who was pregnant — in a plan costing $570 a month with a $5,000 deductible.

Ricks and his daughter then joined a Christian Healthcare Ministry plan costing $157 a month, with a $10,000 deductible. For 2019, Ricks is enrolling the whole family is another religious-affiliated plan, costing $529 a month with a $2,250 deductible.

But the most prevalent alternative to an ACA plan for people who don't get subsidies in 2019 is likely to be a short-term plan.

Previously available for only 90 days — primarily to bridge gaps in coverage — the Trump administration expanded that time frame to 364 days.

The plans can be bought at any time, but sales are up now because more people are shopping during the ACA's open enrollment, said Sean Malia, a senior director at eHealth, an online brokerage.

Melanie and Pete Howell, of Austin, Texas, are among eHealth's newest customers. They had an ACA plan this year costing $1,100 a month with a $7,000 deductible. It covered the couple and their two children, ages 22 and 17.

The Howells' income is too high to qualify for a subsidy. When their insurer notified them that the premium was going to $1,400 a month in 2019, they opted for a short-term plan that will cost $380 a month with a deductible of $12,500.

The plan does not cover prescription drugs, and the Howells will pay 30 percent of the costs for doctor, emergency room visits and any surgical procedures.

"This buys us some time at a much more affordable price to figure out what to do for the longer term," said Melanie Howell.

No Easy Solutions

Although both ACA critics and advocates say that addressing the high cost of coverage for non-subsidized families should be a priority, there are no easy bipartisan fixes in sight.

Many ACA supporters urge legislation that raises the threshold for subsides above 400 percent of poverty — to, say, 600 percent. But that stokes concerns of added federal spending.

A more realistic approach, for now, could be to permit states to experiment with ways to help those over the 400 percent threshold, said Sabrina Corlette, a research professor at the Georgetown University's Health Policy Institute.

For example, with federal government permission, eight states have already launched, or will in 2019, "reinsurance" programs that redeploy federal dollars to help insurers cover the costs of families with high medical expenses. The programs have kept premium costs down for both people who get subsidies and those who don't.

Another proposal would permit states more leeway to restructure the ACA subsidies to provide less help to people with high-cost health care needs and more help to those not currently eligible for subsidies.

"Letting states try things out has bipartisan support and there are mechanisms for that already in place," Corlette said. "It would seem to have the best chance of yielding something useful to help this population [the unsubsidized] for now."

California is one of only a few states that set their own minimum requirements for nursing home staffing. The new rules seem universally unpopular.

This article first appeared December 07, 2018 on Kaiser Health News.

By Barbara Feder Ostrov

More than half of California's nursing homes are asking to be exempted from new state regulations that would require them to spend more time directly caring for their patients.

The state's new staffing requirements for nursing homes, quietly passed in last year's budget bill, seem universally unpopular. Patient advocates say the new regulations don't go far enough and that residents remain at risk in poorly staffed homes. Nursing home operators say they can't hire enough staff to comply.

Under the new rules, which took effect in July but haven't yet been enforced, skilled nursing facilities must provide at least 3.5 hours of direct care per resident per day, up from 3.2 hours of care previously. That care can range from inserting a feeding tube to changing an adult diaper or helping residents with eating and bathing.

The California Department of Public Health, which oversees nursing homes, is expected to announce in late January which — if any — facilities it will exempt from the new regulations. But some patient advocates don't like the nursing homes' balking.

"We're appalled by the waiver system. It's sending the worst possible message to California nursing homes that it's OK to staff at levels that endanger residents," said Mike Connors of California Advocates for Nursing Home Reform, a consumer advocacy group.

(Check to see which California nursing homes have applied for workforce shortage waivers here and here.)

Researchers have strongly linked more nursing staff with better care, with some experts recommending from 3.8 to 4.1 hours of care per patient per day as a bare minimum for quality nursing home care. Having enough staff helps prevent falls, pressure sores and other problems that can land fragile seniors in the hospital.

A recent Kaiser Health News investigation found that for years nursing homes nationwide overstated staffing to the federal government. Now, nursing homes are required to report actual payroll records to remain eligible for Medicare and Medicaid payments.

During the first three months of 2018, 58 percent of California's skilled nursing facilities averaged at least 3.5 hours of patient care a day, according to a Kaiser Health News analysis of payroll records submitted to the federal government. That rose to 76 percent when including nursing homes where administrators also were counted.

California is one of only a few states that set their own minimum requirements for nursing home staffing. Most states abide by federal government standards requiring skilled nursing facilities that receive money from Medicare or Medicaid to have enough staff to meet residents' needs, said Robyn Grant, director of public policy and advocacy for National Consumer Voice for Quality Long-Term Care, an advocacy group.

Illinois requires nursing homes to provide a minimum of 3.8 hours of care per patient a day and the District of Columbia requires 4.1 hours, Grant said. Maine and Oklahoma take a different approach, establishing staff-to-patient ratios, rather than hours of care, for nursing homes.

Nursing home officials and their lobbyists say it's tough to find qualified nurses and assistants in California's robust economy, and they bemoan what they describe as inadequate reimbursement from Medicare and Medicaid. They also have criticized a provision of the new requirements that 2.4 of the 3.5 hours of patient care must be provided by a certified nursing assistant, rather than another nursing professional.

Nursing homes need flexibility because "not every patient is the same, not every diagnosis is the same," said Matt Robinson, legislative affairs director for the California Association of Health Facilities, an industry group. "We're not opposed to more staff. But we want quality staff. We want to make sure there's a sustainable workforce to meet that mandate, otherwise it's just an empty mandate."

Robinson said facilities are applying for waivers on a "good-faith basis." If waiver requests aren't granted, he said, nursing homes may reduce their beds or even shut down.

In Los Angeles, the 300-bed Kei-Ai Los Angeles Healthcare Center has applied for an exemption citing a "workforce shortage." But Cynthia Sakaki Sirlin, whose 86-year-old father, a veteran of the Korean War, lives there says, "I think it's wrong."

"I don't know why they're doing this. They need more nursing staff to improve patient care, not less, the research shows that. So why are they asking for a waiver? Why is the state allowing them? That just rewards owners who are not willing to staff the homes," Sakaki Sirlin said.

Sakaki Sirlin, a nurse practitioner and a representative of Kei-Ai's family council, said that since the formerly nonprofit nursing home was purchased by a real estate developer in 2016, she has noticed more staff turnover. She worries that her father, a wheelchair user who can't feed himself, won't get the care he needs. Representatives from Kei-Ai did not respond to a request for comment.

There are nearly 100,000 certified nursing assistants in California, according to federal labor data. Patient advocates say many CNAs choose not to work for nursing homes because of the comparatively low pay and tough workload.

"If they paid them better, they'd have plenty of staff," even in remote parts of California, said Suzi Fregeau, long-term care program manager in Humboldt and Del Norte counties. The mean hourly wage for certified nursing assistants in California was $16.13 in 2017, according to federal labor data.

Some of the California homes seeking exemptions have been repeatedly cited by the state's Department of Public Health for inadequate staffing that led to patient harm. Among them are homes owned by Shlomo Rechnitz, who reportedly controls 1 in 14 nursing home beds in California. He has faced numerous federal and state probes of understaffing and quality problems at his homes.

The CEO of one of Rechnitz's nursing home management companies said in a written statement that several homes submitted "patient needs" waiver requests on their own with data provided by the company. "All of these facilities prioritize the needs of their patients above all else and these facilities have a stellar history of complying with applicable staffing requirements," said David Silver, CEO of Rockport Administrative Services LLC.

"What we're seeing is that the facilities that already are understaffed — the facilities for which we do get complaints — are the ones asking for waivers," said Joe Rodrigues, the state's long-term care ombudsman. "We're not supportive of those requests."

A third of all pharmaceutical spending in the U.S. will be on so-called rare-disease medicines in 2020, leading many to wonder whether the Orphan Drug Act may have overcorrected.

This article first appeared November 30, 2018 on Kaiser Health News.

By Sarah Jane Tribble and Sydney Lupkin

The Food and Drug Administration has failed to ensure that drugs given prized rare-disease status meet the intent of a 35-year-old law, federal officials revealed in a report Friday.

The Government Accountability Office, which spent more than a year investigating the FDA's orphan drug program, said "challenges continue" in the program that was created to spur development of drugs for diseases afflicting fewer than 200,000 patients.

The investigation began after a request from three high-profile Republican senators last year, in the wake of a KHN investigation. KHN found that the program was being manipulated by drugmakers to maximize profits and to protect niche markets for medicines being taken by millions.

The GAO uncovered inconsistent and often incomplete reviews early in the process of designating medicines as orphan drugs and recommended "executive action" to fix the system. In some cases, FDA reviewers failed to show they had checked how many patients could be treated by a drug being considered for orphan drug status; instead, they appeared to trust what drugmakers told them.

In response to GAO's probe, the FDA issued a statement saying it agreed with the report recommendations regarding documentation and that the agency is "streamlining our processes." The agency declined requests for interviews. In a comment included with the report, Matthew Bassett, assistant secretary for legislation at the Department of Health and Human Services, said HHS agreed with GAO's recommendations.

John Dicken, director of the GAO's health care team, said the focus of the report is "ensuring that the intent of the law is being met."

The FDA's rare-disease program began after Congress overwhelmingly passed the 1983 Orphan Drug Act to motivate pharmaceutical companies to develop drugs for people who lacked treatments for their conditions. Rare diseases had been ignored by drugmakers because treatments for them weren't expected to be profitable. The law provides fee waivers, tax incentives for research and seven years of marketing exclusivity for any drug the FDA approves as an "orphan."

The incentives, though, have proven to be more powerful and highly coveted than expected, said Avik Roy, president of the Foundation for Research on Equal Opportunity, a conservative think tank.

Many people are "starting to wonder whether or not the Orphan Drug Act over-corrected for the problem," Roy said, noting that a third of all pharmaceutical spending in the U.S. will be on so-called rare-disease medicines in 2020.

GAO analysts examined FDA records for 148 applications submitted by drugmakers for orphan drug approval in late 2017. FDA's reviewers are supposed to apply two specific criteria — how many patients would be served and whether there is scientific evidence the drug will treat their disease.

In nearly 60 percent of the cases, the FDA reviewers did not capture regulatory history information, including "adverse actions" from other regulatory agencies. The FDA uses experienced reviewers, Dicken noted, who may already know the history of certain submitted drugs and not see the need to document it.

And 15 percent of the time FDA reviewers failed to independently verify patient estimates provided by the drugmaker.

Of the 148 records the GAO reviewed, 26 applications from manufacturers were granted orphan status even though the initial FDA staff review was missing information.

"It is tempting to think that perhaps those approvals were sort of granted routinely without sufficient scrutiny," said Bernard Munos, senior fellow at FasterCures and the Milken Institute.

By contrast, early Orphan Drug Act advocate Abbey Meyers said she was not concerned about the lack of population estimates because many rare diseases lack population studies that show how common a disease is.

Rather, Meyers said, she's "disappointed that there is no government-funded agency that is willing to finance" such research.

The GAO investigation began after Scott Gottlieb, who took over as FDA commissioner in May 2017, announced a "modernization" of the rare-disease program.

Critics have long complained that drugmakers game the FDA's approval process for orphan drugs. In January 2017, the KHN investigation, which was co-published and aired by NPR, revealed that many orphan drugs aren't entirely new and don't always start as treatments for rare diseases.

The GAO report, while not analyzing the same years, found that 38.5 percent of orphan drug approvals from 2008 to 2017 were for drugs that had been previously approved either for mass-market or rare-disease use. About 71 percent of the drugs given orphan status were intended to treat diseases affecting fewer than 100,000 people.

KHN's investigation found that popular mass-market drugs such as cholesterol blockbuster Crestor, Abilify for psychiatric conditions, cancer drug Herceptin and rheumatoid arthritis drug Humira, the best-selling medicine in the world, all won orphan approval yet were already on the market to treat common conditions.

In addition, more than 80 orphan drugs won FDA approval for more than one rare disease — or several — each one with its own bundle of rich incentives.

Genentech's Avastin, a cancer treatment approved for mass-market use in 2004, won three more orphan-designated approvals this year for the treatment of three rare forms of cancer. It now has 11 approved orphan uses in all, and exclusive protections that keep generics at bay won't run out until 2025.

Sens. Orrin Hatch (R-Utah), Chuck Grassley (R-Iowa) and Tom Cotton (R-Ark.) sent a letter in March 2017 asking the GAO to investigate the program and find out whether Congress' original intent for it was still being followed.

"Despite the success of the Orphan Drug Act, 95 percent of rare diseases still have no treatment options," Hatch said in a statement Friday. "I hope that my colleagues will utilize this [GAO] report as they work to strengthen the accomplishments of the Orphan Drug Act and encourage developers to continue their investment in this patient population." The GAO report also mentioned concerns about prices, noting that "the ability to command high prices" was one reason the rare-disease market was growing so rapidly.

The average cost per patient for an orphan drug was $147,308 in 2017 compared with $30,708 for a mass-market drug, according to a 2018 EvaluatePharma report on the 100 top-selling drugs in the United States. Celgene's chemotherapy drug Revlimid was the top-selling orphan with $5.4 billion in sales and $184,011 in revenue per patient.

"We have accepted culturally that it's OK for a company to charge high prices for [orphan] drugs," said Roy. "The end result is that a lot of these orphan drugs are $10 billion drugs, even though they are for rare diseases."

From 2008 to 2017, more than half of the drugs granted orphan status were for cancer or blood disorders, according to the GAO report. And nearly two-thirds of drugs approved in the program were given expedited review processes, such as accelerated approval or fast-track designation.

Prior to announcing Gottlieb's modernization plan, the FDA had a backlog of 138 drug applications for orphan status that had been waiting more than 120 days. The backlog was cleared in August 2017 after staff from across the agency stepped in to help.