Class Action Defense Cases-Colomar v. Mercy Hospital: Florida Federal Court Denies Defense Motion To Dismiss Unfair Trade Practice Class Action Based On Allegations That Hospital Charges Uninsured Patients More Than Insured Patients For The Same Services

Feb 6, 2007 | By: Michael J. Hassen

Class Action Complaint Adequately Alleges Breach of Contract and Violation Florida’s Deceptive and Unfair Trade Practices Act where Hospital Charges Uninsured Patients Significantly More for Services than it Charges Insured Patients Florida Federal Court Holds

Plaintiffs filed a putative securities class action against Mercy Hospital for breach of contract, unjust enrichment, breach of duty of good faith and fair dealing, and violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA), alleging that the hospital routinely overcharged uninsured patients for care. Colomar v. Mercy Hospital, Inc., 461 F.Supp.2d 1265, 1267 (S.D. Fla. 2007). Defense attorneys moved to dismiss the class action under Rule 12(b)(6); the district court granted the motion as to the unjust enrichment and breach of good faith and fair dealing claims, and granted the motion as to the FDUTPA claim for relief to the extent that it alleged deceptiveness by the hospital. Id. The district court requested additional briefing as to the breach of contract claim and as to the FDUTPA claim to the extent it alleged unfairness in the hospital’s billing practices, both of which were premised on allegations of “unreasonable pricing” of hospital services for uninsured patients. Id. The district court held that “[having] reviewed the [complaint] in a light most favorable to Plaintiff and drawn all reasonable inferences therefrom in Plaintiff’s favor, … the allegations of unreasonable pricing in the [complaint] meet Plaintiff’s burden of pleading claims for breach of contract and violation of FDUTPA.” Id.

The thrust of plaintiff’s complaint is that the bill she received as an uninsured patient for Mercy Hospital’s services “was inflated and unfair when compared to the rates charged to, and accepted from, patients with insurance or patients covered by Medicaid or Medicare.” Colomar, at 1268. Plaintiff originally argued that “differential pricing alone was sufficient to constitute a breach of contract because Florida law requires the amount of an open pricing contract to be reasonable”; the district court agreed that the amount must be reasonable but held that “Florida law requires more than mere allegations of differential pricing to establish unreasonableness.” Id. (citation omitted). In response, plaintiff amended her complaint to include the following details: “(1) Plaintiff was charged nearly $12,863 for medical services, while the actual costs of the services were only $2,098; (2) CHE hospitals (of which Mercy belongs) generally charge uninsured patients rates at 370% of Medicare reimbursement rates; (3) Mercy in particular charges uninsured patients rates at 450% of Medicare reimbursement rates; (4) CHE hospitals rank among the top 13% of all hospitals nationwide in charges (including both for-profit and non-profit hospitals); (5) CHE’s cost-to-charge ratio is 394%, meaning that on average CHE hospitals charge almost four times their costs to uninsured patients; (6) CHE hospitals rank in the top 10% of hospitals nationwide in terms of cost-to-charge ratio.” Id.

The district court concluded that these allegations were sufficient to defeat Mercy Hospital’s motion to dismiss. The federal court based this conclusion on several grounds. First, it found the allegation that Mercy Hospital’s charges “are in the top 13% of what all hospitals charge” sufficient to plead unreasonableness. Colomar, at 1270. As the court explained at page 1270, “In more concrete terms, if the allegations had shown that Mercy’s charges were within the 25th-75th percentile of what all hospitals charge, then the Court might be able to conclude as a matter of law that Mercy was ‘within the range’ of the overall market. But being in the nation’s top 13% is too far above the average to so conclude.” The district court also rejected defense arguments that market analysis is “the only to evaluate reasonableness.” Id., at 1270-71. Rather, while a court must have “some evidence of the market value of the services in question” in order to evaluate reasonable – as “one cannot conclude from the absolute price alone that it is unreasonable” – “a market analysis is only one of several nonexclusive means of showing that hospital charges are unreasonable.” Id. (citations omitted).

Second, the district court believed that plaintiff’s allegations concerning differential pricing defeated the motion to dismiss. Colomar, at 1271-72. The court reasoned that evidence insurance companies and government programs negotiated substantial discounts for hospital services “suggests that the value of the services charged to Plaintiff may be significantly less than what Mercy asked her to pay.” Id., at 1272. At the very least, the allegations were sufficient to entitle plaintiff to explore through discovery the reasons for the differential pricing.

Third, the allegations concerning the hospital’s internal cost structure were sufficient to defeat the motion to dismiss because the facts needed to plead the allegations with greater specificity were “largely, if not entirely, within Mercy’s possession and control.” Colomar, at 1272. In light of this, plaintiff’s allegation that she was charged more than $12,000 for services worth about $2,000 adequately supported plaintiff’s claims for relief because “the Court cannot conclude as a matter of law that charging 600% above costs is reasonable.” Id., at 1273.

Finally, the district court easily disposed of defense claims that plaintiff cannot establish damages because she paid the hospital only $1750 – less than the $2000 she alleges the hospital’s services to her were worth. Colomar, at 1273. As the court explained, “This argument is unconvincing, as it overlooks the fact that Mercy actually billed Plaintiff for the $12,863 and sent the bill to collections.” Id. Accordingly, the district court denied the motion to dismiss as to the breach of contract claim and as to the FDUTPA claim to the extent it was based on the unfairness of the hospital’s pricing structure.

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