Can Hospitals be Sued for Excessive Markups on Medications and Devices?

Steven Brill’s TIME MAGAZINE blockbuster article, Bitter Pill: Why Medical Bills are Killing Us, uncovers the CHARGEMASTER: a publicly undisclosed pricelist accountable for what we see in hospital bills. What we see there doesn’t look good: it includes acetaminophen sold for $1.50 a tablet (you can buy 100 of those for the same price at Amazon); $77 for a box of sterile gauze pads (Amazon’s prices vary between $6 and $11); $18 for a single diabetes test strip (sold for 54 cents by Amazon); $108 for antibacterial Bacitracin ointment (Amazon’s prices vary between $2.50 and $6.50); and so forth. Charges for stay, scans, surgeries, canes, and wheelchairs skyrocket as well.

The American Hospital Association (AHA) rejects Brill’s analysis. According to AHA, the chargemaster aggregates the hospital’s overall costs on delivering quality care to patients: “In order to take medications in a hospital, even over-the-counter medicines, they must be prescribed by a doctor (a little bit of cost for the doctor), that order gets transmitted to the pharmacy (a little more cost), the order gets filled by a pharmacist or pharmacy tech who retrieves just one Tylenol pill and individually packages that one pill (still more cost), the pill gets transported from the pharmacy to the nursing unit where the patient resides (a little more cost), then the pill is retrieved by a registered nurse who personally gives the pill to the patient and then must document the administration of that pill in the patient medication administration record (a little more cost). All of this process to give a patient a single dose of Tylenol in a hospital bed [must also be] in compliance with all pertaining regulations (a little more cost).”

This post will not try to resolve the Tylenol Debate. Nor will it say anything about the government as a plausible substitute for the eccentric chargemaster. Instead, I will raise a legal question: Can patients sue hospitals for excessive markups on medications and devices?

My answer to this question is a qualified YES.

Entrepreneurial and business aspects of running a hospital fall under states’ consumer protection laws (Brookins v. Mote, 292 P.3d 347 (Mont. 2012)). Those aspects certainly include billing (Jaramillo v. Morris, 750 P.2d 1301, 1304 (Wash. App. 1988); Ambach v. French, 216 P.3d 405 (Wash. 2009)).

The key question here is whether an excessive markup on medications and devices amounts to deceit or an unfair trade practice. If it does, the hospital would be in violation of the relevant state consumer protection law.

This might happen to hospitals whose billing practices—to which patients gave no informed consent—are particularly aggressive. Those hospitals might face class action suits and the prospect of paying treble damages. They also may be stripped of the special protections given to defendants in medical malpractice suits (that include shortened limitations and repose periods for filing suits, caps on damages, and charitable immunities). For my account of the competition between medical malpractice and consumer protection rules, click here.

Brill and other participants in the Tylenol Debate call on the government to start regulating hospital prices.

My short advice to hospitals: get rid of unconscionable markups forthwith.

Alex Stein is a Professor of Law at Cardozo Law School. His specialty areas are Evidence, Medical Malpractice, Torts and Economic Analysis of Law in general. This blog originally appeared in Harvard Law School Petrie-Flom Center’s blog project, Bill of Health.

3 replies »

  1. I had a bad year a few weeks back. I was in the hospital three times in one year. One was for may 4 year old, but I could had bill coming from every direction. Some doctors/ labs didn’t bother to submit to my insurance. They sent me to collection before I even recovered. I had so many bill from some many people I could not manage them all. 3 years later I’m still trying to get to the bottom of it. Why isn’t there a law or an effort to get hospital stay to have a single bill?

  2. Hospitals are idiots for submitting itemized bills, and I do not mind seeing them punished for this.

    In America, we seem to rely on lawsuits to advance consumer protection, because we are too cowardly to impose price controls that exist in every other industrial nation.

    Whenever one unwinds a huge medical claim, about 40% of the cost comes from drugs and devices, and 50% of the cost comes from the hospital’s
    bloated “facility fees.” The doctors and specialty personnel get virtually the crumbs.

    Bob Hertz, The Health Care Crusade

  3. In our lawyer-driven society, I find it hard to believe (read: statistically improbable) that this idea has not been put to the test already and repeatedly. I am guessing the situation is more complicated than it first appears. Or is it just that all the class action attorneys are otherwise occupied suing other topics. Any lawyerly opinions?