This article discusses the application of contract law principles to the relationship between hospitals and patients to determine how much patients owe for the health care they receive. For patients who are covered by in-network health insurance the exact nature of the contract created with the hospital usually is not relevant to the patient’s financial obligation because the patient’s contract with the hospital is superseded by the contract between the patient’s health insurer and the hospital. Nevertheless, even in-network patients are financially impacted, via increased insurance premiums, by the contract analysis discussed here, and for the increasing number of patients who are self-pay the contract entered into with the hospital will determine the amount that the patient is obligated to pay. Self-pay patients include patients who have insurance but are receiving care out-of-network or have socalled high-deductible plans, which do not apply until the deductible has been met, and uninsured patients. As networks become narrower the number of self-pay patients increases dramatically. Moreover, the ability of hospitals to threaten to bill out-of-network patients for exorbitant list prices forces insurers to agree to excessive payments for in-network hospitals, thereby driving up premiums for in-network patients.

Contract law determines the financial relationship between self-pay patients and providers. For example, depending on the facts and circumstances surrounding a patient’s admission to the hospital, the patient’s financial obligation may be determined by an express contract, if an admission type agreement is signed and found to be enforceable, an implied-in-fact contract, based on the conduct of the parties, or a quasi-contract, sometimes called an implied-in-law contract, if the patient was unable to contract because, for example, the patient was unconscious when admitted.

Self-pay patients, who enter the hospital through the emergency department, simply lack capacity to contract due to the rushed, stressful and tension-laden emergency circumstances. As a result, most contracts signed by or on behalf of patients in the emergency department are not enforceable and the obligation of these patients to pay for the medical care they have received is based quasi contract. With respect to patients who enter the hospital other than through the emergency department, the admission agreement they sign is an adhesion contract presented on a take-it-or-leave-it basis that does not contain an actual price but only an ambiguous price formula tied to the hospital’s list prices. As a result, even in a non-emergency context where the patient may be capable of giving assent, true assent by the patient is lacking, and the courts must closely scrutinize such contracts for violations of public policy such as unfair price terms. A hospital’s exercise of its prodigious bargaining power to extract a promise from a self-pay patient to pay exorbitant billed charges or list prices is an example of an unfair term that courts should refuse to enforce.

Thus, notwithstanding the type of contract created in a particular case, this article concludes that the proper application of contract law principles dictates that patients are usually required to pay no more than the reasonable market-based value of the health care they receive. The determination of reasonable value is based on the market value—the average actual reimbursement the hospital receives for the care in question—and not on the hospitals unilaterally-set list price or billed charge.



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