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‘Fair market’ ruling chills hospitals

By Christine Jordan Sexton
2/26/2010 © Health News Florida
HMOs can pay "fair market value," less than the amount they're billed when their members get emergency treatment in hospitals outside their networks, an appellate court in Tallahassee has ruled. The eight-page decision, awaited for 13 months, could have major reverberations in Florida's health care industry, if it stands. 

The ruling, issued by a three-member panel of the First District Court of Appeal, didn't give managed-care organizations everything they wanted, but took a major bite out of hospitals' method of calculating "usual and customary" charges. It sent the case back to the lower court with instructions.

The plaintiff -- Baker County Medical Services Inc. doing business as Ed Fraser Memorial—can ask for a clarification, a rehearing or a hearing by the entire 15-member court. If the DCA denied any of those requests, the hospital could ask the Florida Supreme Court to consider the case. 
Florida Hospital Association General Counsel Bill Bell said the ruling could open the doors to “hundreds if not thousands of lawsuits” and predicted that the hospital would most likely to advantage of its legal options. 

Meanwhile, Humana spokesperson Mitch Lubitz called the ruling “a tremendous victory for consumers in Florida.” 

The appellate court did, though, reverse the lower court’s decision that managed care organizations could take Medicaid and Medicare reimbursements into consideration when determining what charges are “usual and customary” and remanded the case back to the Baker County court with further instructions.

The underlying issue in the suit stems from a disagreement over what Fraser Memorial gets  paid for treating patients of Aetna Health Management or Humana Medical Plan when they show up in the emergency department. Neither insurer has a contract with the hospital. 

The  hospital has been billing the health plans its "master" charges, or retail rate. But the plans have been reducing those charges, paying Fraser Memorial about what they pay other hospitals.

Fraser Memorial took the HMOs to court, seeking declaratory relief. But the Baker County judge decided that the HMOs did not have to pay full charges; instead, they could take into consideration not only what other hospitals pay for similar services, but also what Fraser collects from a wide variety of payers, including Medicare and Medicaid. 

Because the government programs' payments are lower -- in the case of Medicaid, far lower -- than those negotiated with private insurers, this would have had a dramatic effect on the pay rates.

The hospital appealed to the First DCA, which affirmed the Baker County decision in part. “In the context of the statute, it is clear what is called for is the fair market value of the services provided. Fair market value is the price that a willing buyer will pay and a willing seller will accept in an arm’s-length transaction.”

However, the panel disagreed with the lower court judge, Mark W. Mosley, when it came to factoring in payments from Medicare and Medicaid. Because the rates are set by government, they cannot be considered an  “arm’s-length transaction.”

The FHA's Bell said that if the ruling stands, it will create an administrative nightmare for hospitals.

“More questions have been raised than answered on the decision,” he said.

--Christine Jordan Sexton is the health care writer for Florida Tribune, a new media company in Tallahassee.  Mary Jo Melone, an independent journalist in Tampa, contributed to this report.