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Bitter Pills, Paying Till It Hurts, and University of Virginia Medical Center v. Wickizer: A Look at the Law Behind a Compelling Narrative

Bitter Pills, Paying Till It Hurts, and University of Virginia Medical Center v. Wickizer: A Look at the Law Behind a Compelling Narrative

Picture of Jackson Williams
Photo by Flickr: Clyde Robinson: Scales of Justice
Photo by Flickr: Clyde Robinson: Scales of Justice

In a recent , and in her new book, An American Sickness, Elisabeth Rosenthal tells the story of Wanda Wickizer, who in 2013, while uninsured, experienced a subarachnoid hemorrhage. After treatment at the University of Virginia Medical Center, Wickizer was billed $285,507.58 and faced a lawsuit to collect that amount. Rosenthal walks her readers through how such bills are drawn up, with a deep dive into hospitals’ opaque coding practices. Fortunately for Wickizer, medical billing experts came forward to demystify and challenge the calculation of her bill. An attorney offered his services pro bono to contest the collection lawsuit. The lawsuit was ultimately settled before trial on confidential terms, and Rosenthal does not address the legal issues involved. Such a discussion would have detracted from Rosenthal’s compelling narrative, but I think it is worthwhile to circle back for a look at the law governing Wickizer’s case. 

The court cases ordinarily discussed in a health care blog involve precedent-setting decisions with national implications. Why discuss a medical collection case that settled for an unknown amount? Because it was prepared for trial with the assistance of defense counsel and expert witnesses, meaning that several significant legal issues—seldom considered in the uncontested, default-judgment scenario that usually prevails in medical collections—were thought through by attorneys and influenced the settlement terms. An experienced lawyer can surmise that the case settled for around the $85,000 figure that Wickizer’s attorneys offered. How and why that occurred has implications for some salient health policy issues, including surprise medical bills, consumers’ perceived need for health insurance, and optimal benefit design.

Inside a Medical Collection Case: the Difference Between “Charges” and “Reasonable Value”

Providers bear the burden of proof in a medical collection case, but they seldom need to meet it because few consumers are able to contest a case at trial. Ordinarily consumers will pay bills (or some discounted portion) to avoid a black mark on their credit report; fail to respond to a summons, which results in a default judgment; or declare bankruptcy.

Providers are lucky they don’t have to put on evidence because it’s not easy. Their first hurdle is getting the bills into evidence. The provider’s counsel must authenticate, or “lay the foundation” for a medical bill.  In Illinois, where I practiced law, this requires calling a witness from the hospital billing department to testify in person that the amount of the bill is reasonable. Other states, including Virginia, are more liberal in permitting the provider to submit an affidavit from a billing staffer. However, the consumer’s lawyer can subpoena that staffer to be cross-examined on how the bill was drawn up. As Rosenthal’s reporting makes clear, the coding that results in the bill can raise questions of accuracy, transparency, and good faith. A hospital that wishes to keep its chargemaster and coding practices confidential would have no desire to submit them to courtroom scrutiny, especially by a team of insiders like the one assisting Wickizer.

But the toughest hurdle for the hospital would have been meeting the legal requirement that the bills represent the “reasonable value” of services. In cases like Wickizer’s, in which the patient had no opportunity to agree on a price, courts apply an “implied contract” analysis and set a price equivalent to that prevailing in the market. That will generally be the “usual, customary and reasonable” amount accepted by providers—see the cases and . While hospital chargemaster prices have received much press attention, notably from and , courts are unwilling to enforce charges unless the patient has some notice of the amounts. Wickizer’s experts estimated the hospital’s input costs of treating her at $60,000; with the national average commercial reimbursement-to-costs ratio around 140%, $85,000 is a fair guess of the market price.

Health Policy Lesson #1: In a court showdown over “surprise medical bills,” providers would likely lose. Indeed, in recent cases in , , , and where consumers fought back against balance bills, the consumers prevailed. While it’s not possible for every consumer to demand a trial, I’ve for collective action by insurers, regulators, and consumers to curb balance billing by invoking the implied contract doctrine described above.

The Role of Exemptions, Consumers’ First Line of Defense Against Catastrophic Medical Costs

The other reason we can surmise that Wikhizer got a bill reduction was the protected status of her income and assets. Each state’s law designates exemptions from debt collection. These are probably best known for being asserted in a bankruptcy liquidation, but they also apply when a creditor seeks to collect on a judgment through garnishment of wages or attachment of property.

Wickhizer had two large assets that would have been attractive to the hospital’s lawyers: a “retirement account” containing $100,000 in proceeds from her late husband’s life insurance policy, and real estate worth $90,000. The retirement account money was certainly off-limits to the hospital. If the funds were properly dedicated to retirement savings under the tax laws, they were exempt from attachment under federal law; if not, life insurance proceeds are exempt under Virginia law.

Consumers are able to protect some of their home equity through a homestead exemption. In Virginia this exemption is ordinarily limited to $5,000, but for widows the exemption is $20,000. Thus, the most the hospital could capture from forced sale of the property was $70,000.

Wickhizer was not able to work after accident so her income consisted of about $2,000 per month in Social Security Survivor’s benefits—exempt from garnishment under federal law—and rental income from the now-encumbered real estate. Upon returning to work, the amount of wages that could be garnished from her pay would be limited to 25% of net pay, or less if her pay was at or near the federal minimum wage.

In sum, the most the hospital could have expected to collect in the short term was $70,000, and further periodic payments were contingent on Wickizer’s ability to move on from low-wage clerical jobs and resume her previous occupation, bookkeeper.

To be sure, Wickizer’s situation is atypical for two reasons: Most Americans’ chief asset is their residence, not a rental property; and most states’ homestead exemptions only protect a debtor’s principal residence, but Virginia, while having one of the nation’s stingiest exemptions, does not limit it to a residence.

Health Policy Lesson #2: The asset-protection value of catastrophic health insurance coverage varies greatly according to an individual consumer’s financial situation and home state. Only 37% of Americans have sufficient savings to cover a $500-1,000 medical bill, which is unfortunate, but it also means that as many as 62% of Americans do not have savings accounts available for creditors to attach. 34% of Americans have no home to threaten. 21 states have homestead exemptions in excess of the median home equity of a 55-64 year-old American (that’s $97,000), insulating a great many of those states’ homeowners from loss of their homes due to a medical bill. A few states have unlimited homestead exemptions. As a Virginian, Wickizer had a lot to lose by being uninsured, but a Texan or Floridian who owns a home is not vulnerable to its loss. One wonders if consumers in these states would find health insurance products to be of greater value if they offered more upfront coverage, e.g., for chronic conditions, in exchange for less coverage of catastrophic costs that arguably benefits hospitals as much or more than the consumer. 

Many other states, like Virginia, have woefully inadequate exemptions. The goal of universal coverage is to socialize the cost of illness, and while health insurance is surely the most elegant way of accomplishing that goal, it’s worth noting there are other means of pursuing it. For instance, Louisiana has a $35,000 homestead exemption, but the exemption is uncapped in cases of catastrophic illness.

Wanda Wickizer’s story is a reminder that while various insurance coverage, quality, and payment issues come and go, centuries-old legal principles still underlie our health care system, and health policymaking occurs in their shadow.

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