Intermountain's Response to Billing Lawsuit

A lawsuit was filed against Intermountain Healthcare in 2003 alleging overbilling and breach of contract. These allegations are unfounded.

Both the trial court and Utah Court of Appeals dismissed claims of fraudulent billing or deceptive practices.

The only remaining issue is a contract issue involving the clarity of the patient agreement (which the patient signed when admitted).

The case is based on a misunderstanding of the DRG-based billing method used by Medicare and in some private-sector contracts between insurance companies and hospitals. This method is based on pre-determined rates for procedures and saves money for insurance plans and patients.

In a nutshell, in this case, the hospital was owed a DRG payment of $13,275. The insurance company was obligated to pay most of this payment, and the patient was obligated to pay a portion as coinsurance. The patient mistakenly thought that the hospital was owed only $11,395 (i.e., the “billed charges,” which do not constitute the amount actually owed.) Because Regence paid the hospital more than the billed charges, the patient erroneously concluded that she did not have to pay her coinsurance portion.

The situation is rather complicated and is explained in the following:

1. The allegations of overbilling are unfounded.

    a. There was not an overcharge in this case. This case is based on a misunderstanding of a payment method established by the federal government that is commonly used in the private healthcare field and that results in lower costs for patients and health plan members. The patient's payment obligation is never increased by use of this method.

    b. The DRG-based payment system is designed to stimulate efficiency in the delivery of care—and reductions in cost to insurers and patients—which it clearly does.

2. This issue started in 2002 when a patient received care at LDS Hospital. Her insurance company (Regence) had contracted with Intermountain to pay for the type of care she received on a DRG (Diagnosis-Related Group) basis. This payment method was created by the federal government in the early 1980s and is the payment method used by such government programs as Medicare, Medicaid, and TriCare. Its use is also prevalent in the private sector.

    a. The DRG system reimburses hospitals based on a pre-determined rate for the procedure or service. The system incentivizes hospitals to provide care efficiently: If the hospital provides care at less than the DRG rate, the hospital receives more than billed charges; if the care costs more, as it does in most cases, the hospital receives less than billed charges. Insurance companies often prefer—and insist on—the DRG-based payment method, because this method results in lower costs to the insurance company and its members. Besides lower costs, another benefit to the DRG method is that it makes the cost of care more predictable for patients and insurers.

    b. An analogy is the flat fare that taxi cab customers pay in some cities like New York when they take cabs to or from the airport. When you travel to or from the airport, the fee is $45. If you paid on the meter, the fee might be greater or less than $45 depending on the traffic—but in most cases the pre-determined rate of $45 is cheaper for the consumer. It works in a similar way for insurance companies that use DRG-based reimbursement contracts.

3. In this case, under Intermountain's contract with Regence, Intermountain was due a DRG payment of $13,275. Most of this payment was supposed to come from Regence, with the balance (in this case resulting from a coinsurance requirement) due from the patient.

    a. In this case, the DRG payment of $13,275 was higher than the billed patient charges of $11,395. This is an unusual situation, because usually the billed patient charges are higher than the DRG payment, and the hospital receives less than its charges. In this case, the hospital was reimbursed $12,310 by Regence—$965 less than the DRG amount; this $965 balance was intended to be covered by the patient's coinsurance payment. As directed by the Explanation of Benefits statement prepared by Regence, according to terms of the patient's coverage with Regence, the hospital then sent a bill to the patient for coinsurance of $986 (this included a small coinsurance amount payable to physicians). The patient did not feel that she should be required to pay the coinsurance since the insurance payment was larger than the billed charges (even though the hospital was owed the full DRG payment of $13,275).

    b. When Intermountain continued to ask for the coinsurance, the patient and her husband (who is an attorney) filed a class action lawsuit in 2003. In 2006, the trial court decided the issue in Intermountain's favor, finding that the billing was exactly consistent with the patient's insurance plan. The patient and her attorney appealed the decision. In 2007, the Utah Court of Appeals upheld the dismissal of most counts, with the exception of a claim of breach of contract, and sent the case back to District Court for further proceedings. The only remaining issue is whether the hospital breached the Patient Agreement (which the patient signed when admitted) when it attempted to collect coinsurance from the patient on the basis of the DRG payment that was owed.

On December 7, 2009, a new trial judge in the District Court granted the patient’s motion for certification of a class action. On February 22, 2010, the Utah Court of Appeals allowed the action to proceed.

4. With respect to the coinsurance bill presented to the patient in this case, her insurance company specified to Intermountain that she was responsible for paying that. The hospital billed the patient exactly as directed by her insurance company. As the trial court originally ruled, it is our position that the plaintiff's complaint is with her insurance company, rather than with the hospital.

5. Intermountain is well-known for having lower hospital charges. Interestingly, in this instance, if Intermountain had had higher charges, this issue would not have occurred.

6. It's important to note that both the trial court and court of appeals dismissed all claims of overbilling, fraud, or deceptive practices. The only remaining issue is a contract issue involving the clarity of the patient agreement (which the patient signed when admitted).

7. Again, in this case, the bill was properly processed. However, if any patients are concerned about their bills, they should contact the facility where they received treatment.