Court Opinion

ID: 9782082
Source: CourtListenerOpinion
Date Created: 2023-08-30 17:58:36.933938+00
Date Added: 2024-06-11T12:14:35.085795
License: Public Domain

*154KESSLER, Presiding Judge,
concurring in part and dissenting in part:
¶ 29 I respectfully dissent in part and concur in part. I believe the superior court and the majority err by holding that Banner’s respective chargemaster rates on file with DHS (“the filed rates”) were incorporated into the Condition of Admission forms (“COAs”) that did not explicitly refer to those rates. Additionally, while I agree that the filed rates were properly incorporated into those COAs that referred to the filed rates, I believe that the majority and the superior court err by declining to address whether those rates are unconscionable contract terms. I would reverse the court’s order of summary judgment and remand for: (1) a determination of reasonable price terms for the COAs that do not refer to the filed rates; and (2) findings of fact and conclusions of law as to whether the filed rates were unconscionable price terms in those COAs that refer to the filed rates.
DISCUSSION
¶ 30 This case concerns a group of plaintiffs who are insured by MSIC and who were patients or whose dependents were patients at various Banner hospitals. Many, but not all, signed COAs after they or their dependents arrived at or were transported to urgent care or emergency facilities with pressing medical conditions. All of the individual plaintiffs stated by affidavit that no Banner representative explained the COAs to them at the time they were asked to sign.
¶ 31 A proper analysis of this case requires division of the individual plaintiffs into two groups. One group of plaintiffs signed COAs prepared by Banner stating they would pay their accounts, but not explicitly stating what the rate of charge would be. The other group of plaintiffs signed COAs explicitly stating that the charges would correspond with the filed rates.
I. COAs Not Referring To Filed Rates: Arizona’s Rate Filing Scheme
¶32 I agree with the majority that the filed rates were incorporated as price terms in those COAs that referred specifically to the filed rates. I disagree with the majority’s conclusion that the filed rates were incorporated as a matter of law into those COAs that did not refer to the filed rates. A close examination of the statutory and regulatory scheme upon which the majority relies leads to a contrary conclusion.5
¶ 33 A valid statute is automatically incorporated into any contract, regardless of whether the contract specifically refers to it. Higginbottom v. State, 203 Ariz. 139, 142, ¶ 11, 51 P.3d 972, 975 (App.2002). Thus, the language of a contract should always be construed in light of existing statutes and laws, and when the language of the contract is incompatible with that law, the law governs. Id. Before applying a statute to a contract, courts should determine its meaning in order to effectuate the intent of the legislature. Id. at ¶ 13.
¶ 34 If the legislature or the Department of Health Services (“DHS”) had established statutes and/or regulations that proscribed the rates chargeable at hospitals, those rates would have been incorporated into the COAs under the above principles. The statutory scheme upon which the majority relies, however, does not do so, and therefore provides no price term to incorporate into the COAs. Nor do common law principles cited to by the majority permit the incorporation of the filed rates into these COAs.
¶ 35 Title 36, Chapter 4, Article 3 (“Article 3”) of the Arizona Revised Statutes6 is titled, “Review of Rates, Rules and Regulations.” Under that Article, a hospital may not en*155gage in business unless there is a filed schedule of its rates and charges, as well as any rules pertaining to those rates, with the DHS director. A.R.S. § 36-436(A) (2003). The DHS director is then required to review and publish information on those charges. A.R.S. § 36-436(B) & (C). A hospital may not increase a rate until the rate has been filed and reviewed by the DHS director, and any proposed reduction in rates must be filed with the DHS director “for informational purposes” before the reduced rate goes into effect. A.R.S. § 36-436.02. DHS regulations enacted pursuant to Article 3 specify the time, place, and manner by which a hospital must file its schedule of charges with the director, but do not indicate any method of substantive review the director should take concerning those schedules. See A.A.C. R911-201 et seq. & R9-11-301 et seq. As Banner conceded, there are no provisions in either Article 3 or its corollary regulations under which the director may reject or augment a hospital’s filed rates.
¶ 36 This has not always been the statutory scheme for the filing of scheduled rates. What is now Article 3 was initially enacted in 1971. Laws 1971 Ch. 196 § 2. At that time, the statute required the director to publish information about how the rates and charges related to operating costs, financial conditions, occupancy rates, and services provided. Id. In 1973, the legislature added that the guidelines for establishing rates and charges should relate to the AHA Statement on Financial Requirements of Healthcare Institutions. Laws 1973 Ch. 127 § 5.
¶37 In 1982, the legislature established the Healthcare Cost and Regulation Committee for the purpose of making “recommendations regarding changes in state laws and regulations necessary to achieve greater competition in the healthcare industry and the containment of costs through the operation of the market rather than government regulation.” Laws 1982 eh. 315 § 6. That committee met from 1982-1983 to discuss promoting the free market operation of the healthcare industry. See Minutes of the Health Care Cost and Regulation Committee, December 20, 1982; Health Care Cost Containment Issue Papers; Minutes of the Health Care Cost and Regulation Committee, Subcommittee A, April 11,1983 & May 9, 1983; Minutes of the Health Care Cost and Regulation Committee, Subcommittee B, May 2, 1983. In particular, the committee focused on deregulation of hospital operations and increasing publication of comparative hospital rates so that the hospitals would operate like competitive, for-profit businesses. Id.
¶ 38 The legislature responded by passing legislation instructing the director to publish semi-annual comparative reports of hospital charges. Laws 1983 eh. 266 sec. 2. Ultimately, in 1994, the legislature removed the director’s duties to review the hospitals’ rates under the AHA guidelines and to publish a comparison between the hospitals’ filed rates and their operating expenses. Laws 1994 ch. 115.
¶ 39 The history of Article 3 reveals a trajectory of increased deregulation and reliance on market conditions and private action to control the price of healthcare. The director was initially vested with the power and the duty to conduct a substantive review of the rates against objective guidelines and to publish a qualitative analysis of those rates, but ultimately was divested of this power in favor of letting the industry regulate itself in the area of pricing. As Banner’s System Vice President of Finance aptly described, Arizona is not a rate review state, but a filing state; the price rates for hospitals are controlled by a mixture of factors, including: public perception, desire not to have the highest rates compared with other like hospitals, physician input, and “market basket comparisons.” Pursuant to legislative intent, the cost of healthcare in Arizona is driven not by government regulation, but by market forces.
¶40 Thus, the filing system intentionally contains no substantive legislative or administrative mandate as to the cost of healthcare in any hospital. It is merely a publication vehicle meant to facilitate free market forces within the healthcare field. In light of this, it is particularly salient that, while hospitals need only notify the director of rate decreases for informational purposes, they may not effect a rate increase until that increase has *156been filed and reviewed by the director. Nowhere in the statutory or regulatory scheme does it state that hospitals may not charge a rate lower than the published rate, for such a requirement would not comport with the market behavior the legislature has sought to encourage. Because “nobody wants to be at the top of the list” of published rate increases for the sake of public perception, as Banner’s System Vice President of Finance pointed out, the legislature has decided to control healthcare costs through the free market by publishing the highest present chargeable cost. As Banner observed, the escalation of healthcare costs is supposed to be kept in check when the highest possible rate of charge is subject to public and market scrutiny.7
¶ 41 The filed rates, then, are the highest rates a hospital could charge a patient for its services, published for the purpose of encouraging competition among healthcare institutions. To state that they are the only rates chargeable under the law not only misconstrues the effect of the statute, but also its purpose. The legislature had no intent to create a schedule of rates by which the hospitals must operate. Its intent was exactly the opposite: to deregulate the cost of healthcare and allow for private forces to assume that responsibility. The filed rates are no legal mandate on the healthcare industry, and therefore are not automatically incorporated into the COAs as price terms by operation of law.
¶ 42 The majority also relies upon the Restatement (Second) of Contracts to contend that a patient who signs a COA not referring to the filed rates is still bound by those rates because he is just like a customer calling a grocer, ordering a ten-pound bag of flour and thus agreeing implicitly to pay whatever the current price charged for that product. Supra, ¶ 18, quoting from Restatement (Second) of Contracts § 4 cmt. a, Ulus. 1 (1981). That analogy fails, however, for two reasons. First, that illustration in the Restatement is not provided to show what the terms of the contract are, but only that the customer has entered into a contract. Id., cmt. 1 (stating that an assent and intent to contract may be manifested by words or other conduct). Neither the patients nor MSIC claims that there was no agreement for the hospital to provide and the patients to accept healthcare services.
¶ 43 Second, that analogy is factually faulty. This is not a situation in which a customer calls a retailer and asks for a specific product, impliedly agreeing to pay a current price. The filed rates in this case consisted of 576 pages of single-spaced services and products, many of which are meaningless to anyone until the service is provided. For example, the hospital’s filed rates included $2,140 if a patient needed a “shaft femoral 15.0cm,” but $1,968 if he needed a “shaft femoral VFEMS70SP.” A patient coming to his local hospital is not going to tell the doctor or admitting person that he wants a “shaft femoral 15.0cm”; he only wants to be diagnosed and hopefully cured of his condition. Unlike a customer calling his local grocer for a ten-pound bag of flour, most often a patient has no idea exactly what services and products he might need after being admitted to the hospital. Thus, he is not ordering a specific product. Nor is he agreeing to pay a “current rate” for all such products and services unless the COA says so. To hold a patient has implicitly agreed to pay any one or more of 576 pages of single-spaced impenetrable filed rates simply by stating he would pay his hospital account is the modern day equivalent of the information given persons entering Dante Alighieri’s vision of purgatory.8
¶ 44 I would therefore hold that the filed rates do not constitute a price term incorporated into the COAs that do not refer directly to them. Those COAs that do not refer to the filed rates, or any rate of charges, lack *157price terms.9 The superior court’s ruling stated that all of the COAs included the filed rates as their price terms. Unlike the majority, I would hold that the court erred in this finding, and would remand for proceedings to determine a reasonable price term. See AROK Const. Co. v. Indian Const. Services, 174 Ariz. 291, 298, 848 P.2d 870, 877 (App.1993) (when price term omitted from contract, court may look to extrinsic evidence to supply term).
¶ 45 A similar result was reached in Doe v. HCA Health Services of Tennessee, Inc., 46 S.W.3d 191 (Tenn.2001). In Doe, the hospital did not refer to its chargemaster rates in the assignment of benefits it required the patient to sign. 46 S.W.3d at 194. Rather, the assignment merely stated that the patient would be “financially responsible to the hospital for charges not covered by this authorization”. Id. The Tennessee Supreme Court held that, by failing to refer to the charge-master rates in the agreement, the price term was left open. 46 S.W.3d at 197. The court then held that, given that indefiniteness, a court would have to determine the price term by the quasi-contractual remedy of quantum meruit, that is, the reasonable value of the services provided. 46 S.W.3d at 197-99.10 Doe is one approach courts have taken to resolving disputed hospital charges when the legislative branch has not occupied the field. Leah Snyder Batchis, Can Lawsuits Help the Uninsured Access Affordable Hospital Care? Potential Theories for Uninsured Patient Plaintiffs, 78 Temp. L.Rev. 493, 521-38 (2005).
II. COAs Referring to Filed Rates: Equitable Defenses to Enforcement
¶ 46 Even when the filed rates are incorporated as a price term to the contracts, these terms are not immune to equitable defenses to contract. MSIC and the patients argued before both the superior court and this Court that the price terms of the contracts violated the parties’ reasonable expectations and were unconscionable. Neither the superior court nor the majority has addressed these arguments in any substance.
¶47 The majority reasons that we are precluded from passing on whether the price terms in the contracts exceed the reasonable expectations of the parties or are unconscionable because they are “sanctioned by a legislatively-created process.” As noted above, I disagree with the majority’s characterization of the rate filing scheme. It is a publication scheme designed to foster free market competition, rather than a regulatory scheme designed to influence the rates charged for healthcare.
*158¶ 48 While courts will not interfere with a proper application of a statute by an exercise of their equitable powers when “the legislature has clearly spoken by statute on a substantive matter within its domain,” Hobson v. Mid-Century Ins. Co., 199 Ariz. 525, 531, ¶ 20, 19 P.3d 1241, 1247 (App.2001), that principle does not apply to this case. The legislature has not clearly precluded judicial determination of whether those terms exceed patients’ reasonable expectations or are unconscionable. As noted above, the statute creates a procedure for the publication of price terms. It does not, however, state that the rates published are reasonable or conscionable, nor should we extrapolate any such imprimatur from the publication procedure. See Kiley v. Jennings, Strouss & Salmon, 187 Ariz. 136, 141, 927 P.2d 796, 801 (App.1996) (‘We will not supply meaning not enunciated in the statute.”).
¶ 49 Thus, there is nothing of substance to prevent this Court or the superior court from addressing whether the price terms exceeded the patients’ reasonable expectations or were unconscionable. Absent any such clear legislative preclusion, courts should do what they do everyday — apply well-established principles of law and equity to the facts before them, for, as our supreme court has noted:
The judicial power is not dependent on the legislative branch. The judicial mandate, intended to secure equal and substantial justice under the rule of law, is delegated to the judiciary by the constitution, not the legislature. The preamble would limit the mandate by restricting the judicial power-a constitutional power sometimes neglected in the unpredictable maelstrom of partisan politics.
Cronin v. Sheldon, 195 Ariz. 531, 538, ¶ 31, 991 P.2d 231, 238 (1999).
¶ 50 The contracts in this case were clearly contracts of adhesion. See Broemmer v. Abortion Services of Phoenix, Ltd., 173 Ariz. 148, 151, 840 P.2d 1013, 1016 (1992). Contracts of adhesion are generally fully enforceable according to their terms. Id. Courts will not, however, enforce a contract or a term of a contract if the contract or term exceeds a party’s reasonable expectations. Id. Additionally, as a matter of equity, the courts will not enforce a contract or a term thereof if it is unconscionable. Id.
¶ 51 According to the “reasonable expectation” rule, while a party is typically bound by the terms of an adhesion contract even when they do not know the details of the terms of the contract, they are not bound by the unknown terms of the contract that are beyond the range of reasonable expectation. Darner Motor Sales, Inc. v. Universal Underwriters Ins. Co., 140 Ariz. 383, 391, 682 P.2d 388, 396 (1984). A term may be deemed to exceed the party’s reasonable expectation when the party enforcing the term has reason to believe the party against whom the agreement is enforced would not have accepted the agreement had he or she known the agreement contained that term. Id. at 392, 682 P.2d at 397. In determining whether a party enforcing an agreement had reason to believe the term exceeded the other party’s reasonable expectations, courts may examine factors including: whether the term is bizarre or oppressive, whether the term eviscerates non-standard terms specifically agreed to, whether the term eliminates the dominant propose of the contract, whether the other party had an opportunity to read the term, and whether the term is illegible or otherwise hidden from view. Id.
¶ 52 With regard to those COAs containing explicit references to the hospitals’ filed rates, the balance of the circumstances surrounding those agreements indicates those price terms did not exceed the reasonable expectation of the parties. The COAs were essentially agreements to pay, and the references to the filed rates as the charges to be paid were an integral term of those agreements. Thus, the reference to the filed rates was in fact coextensive with the dominant agreement in the COAs, and certainly did not eviscerate the dominant purpose of the COAs. Although the patients have stated that they did not expect to be charged excessive rates, none of the parties who signed COAs containing specific references to the filed rates stated that they did not expect to be charged the filed rates as indicated in the COA. Thus, the use of the filed rates as the price term in the COAs referring explicitly to *159the filed rates did not exceed the parties’ reasonable expectations.
¶ 53 This does not end the inquiry, though. Courts may refuse to enforce a term within a party’s reasonable expectations if that term is unconscionable. Broemmer, 173 Ariz. at 151, 840 P.2d at 1016. A contract or term therein may be procedurally unconscionable — wrong in the bargaining process-or substantively unconscionable — wrong in the contract terms per se. Phoenix Baptist Hosp. & Medical Center, Inc. v. Aiken, 179 Ariz. 289, 293, 877 P.2d 1345, 1349 (App.1994). A contract may be deemed procedurally unconscionable when it is entered into hastily and/or in an emergency situation, when its terms are not explained at the time it is signed, and when the document does not call attention to terms to be enforced against the signing party. See id. at 294, 877 P.2d at 1350. Indications of substantive unconscionability include gross disparity in the values exchanged, unduly oppressive terms, and overall imbalance in the rights and protections of the parties. Restatement (Second) of Contracts § 208 (1981).
¶ 54 Unconseionability is a question for the court to determine as a matter of law. Maxwell v. Fidelity Financial Services, Inc., 184 Ariz. 82, 87, 907 P.2d 51, 56 (1995). When a party claims a contract or a term therein is unconscionable, though, the parties must have an opportunity to present evidence of the circumstances and terms of the contract, and the court must make factual findings upon which it may base its ultimate finding on the issue. Id.
¶ 55 In opposition to Banner’s motion for summary judgment, MSIC and the patients argued the price terms of the COAs were unconscionable. In support of this argument, the patients or their representatives who signed the COAs presented affidavits stating that they signed the COAs in emergency situations, while they were under stress caused by their medical conditions or the medical conditions of their dependents. Several of the patients stated in their affidavits that the COAs were not explained to them by the hospital personnel when they signed them, and that they believed that signing the COAs was a prerequisite to treatment. Furthermore, MSIC submitted the deposition of Banner’s Vice President of Finance, indicating that the cost-to-charge ratio for some medical treatments at Banner hospitals was as low as 19.77%.
¶ 56 These facts raise at least the specter of unconseionability as to the price terms in the COAs. Nonetheless, the superior court did not address the question of whether the price terms were unconscionable. After mistakenly finding the filed rates were the price terms of all the COAs, the court’s sole comment as to the enforceability of those rates was, “There are no facts presented that support the claim that the rates were unreasonable.” Umeasonability, however, is not the benchmark of unconseionability. The court conducted no findings or analysis as to the procedure in which the COAs were signed, nor is there any substantive inquiry in the ruling as to whether the price terms were grossly disparate between the parties or unduly oppressive.
¶ 57 The court’s failure to enter such findings or to make a substantive ruling on unconscionability was error. MSIC argued the price terms in the COAs were unconscionable, and presented evidence in support of that argument. Thus, the court should have determined whether those terms were unconscionable. Maxwell, 184 Ariz. at 87, 907 P.2d at 56. Whether the price terms were unconscionable was determinative of whether Banner could obtain specific performance of the price terms, or whether its remedies were limited to a claim for damages. See id. at 88, 907 P.2d at 57. I would therefore reverse the ruling of the superior court and remand for a determination of whether the price terms of the COAs were unconscionable as alleged by MSIC.
¶ 58 Banner argues against such a result by contending that allowing courts to possibly determine a “reasonable rate” would destroy the entire health care system. This argument is over-stated. In most cases hospitals can avoid litigation of price terms simply by ensuring COAs expressly reference the filed rates. In those extraordinary cases in which the filed rates might be deemed procedurally unconscionable, hospitals may take appropriate steps to minimize or avoid such a *160result, such as explaining to the patient or the person signing the COA what the agreement means. Even in those cases in which the filed rate might be deemed unconscionable, Banner’s own concessions belie its doomsday argument that the entire health care system will be undermined. Banner conceded that it collects the filed rates from only approximately two percent of its patients. This fact undermines Banner’s argument that, if it cannot charge and possibly collect its full filed rates from uninsured patients, the entire health care system will be destroyed. Indeed, hospital associations have attempted to develop formulas for reasonable rates to stem the increasing gap between the rates charged to persons not covered by any type of third-party payor contract and those who are covered, a rate one study has shown to have increased to a ratio of 2.5:1. Gerard F. Anderson, From ‘Soak the Rich’ to ‘Soak the Poor’: Recent Trends in Hospital Pricing, 26 Health Affairs-The Policy Journal of the Health Sphere 780 (2007), available at http://www. healthaffairs.org/. Hospital organizations proposing to set rates for non-covered patients hardly is an indication that charging such patients anything less than full filed rates would destroy the health care delivery system.
¶ 59 Banner also contends that allowing courts to determine such rates would penalize third-party payors who had the foresight to contract discounted rates with Banner and would lead to a “race to the bottom,” as insurers and third-party payors would insist on rates even lower than those previously negotiated. I disagree. Courts possibly determining reasonable rates in those rare cases where the filed rates referenced in the COAs were unconscionable would not “penalize” third-party payors who have negotiated price terms with a hospital. A court could very well determine rates which are greater than such negotiated rates. Moreover, third-party payor contracts would still offer potential subscribers the additional benefit of the security of knowing exactly what procedures would be covered and knowing their ultimate out-of-pocket exposure for healthcare. Remanding for further proceedings on the contract price terms therefore remains appropriate.
CONCLUSION
¶ 60 I would hold that the superior court erred by finding that the filed rates were the price term for the COAs that did not explicitly refer to the filed rates. Further, I would hold that the superior court erred by failing to address whether the filed rates were an unconscionable price term, as alleged by MSIC and the patients. I would therefore reverse the court’s order of summary judgment and remand for proceedings to determine an appropriate price term for the COAs that do not refer to the filed rates, and for findings of fact and conclusions of law as to whether the filed rates are an unconscionable price term. I therefore dissent from the majority’s analysis that affirms the order of the superior court.

. The majority states that the filed rates are not read into the COAs, but only that the relevant statutes are so incorporated and that the filed rates permitted by the statutory scheme then provide any allegedly missing term. Supra, ¶¶ 15 and 18 and n. 3. This is a distinction without a difference. It is the majority’s interpretation of the statutory scheme requiring the filing of unapproved rates that leads the majority to conclude the legislature has provided the missing terms to any COA unless the patient expressly provides in a COA for another rate to apply or other rates are expressly applicable through government regulations or third-party agreements.

. A.R.S. § 36-436 et seq.

. Banner argues the statutory scheme mandates that it charge the filed rates. In so arguing, it distinguishes what it “charges,” or bills, from the amount it ultimately collects from patients. Regardless of Banner's billing and collection practices, the statutory scheme does not mandate that a hospital has to “charge” or bill only the scheduled rates filed with DHS.

. Dante Alighieri, The Divine Comedy, Purgatory, canto iii, 1. 9 (C.H. Sisson, trans., Oxford University Press 1993).

. Banner cites several out-of-state cases to support its contention that the filed rates are nonetheless incorporated by reference into those COAs. Each of those cases is distinguishable. In both Morrell v. Wellstar Health Sys., Inc., 280 Ga.App. 1, 633 S.E.2d 68 (2006), and Cox v. Athens Regional Medical Center, 279 Ga.App. 586, 631 S.E.2d 792 (2006), the Georgia Court of Appeals held that, because Georgia law mandated that hospitals provide a "simple clear” summary of hospital charges to patients to facilitate cost-effective decisions, those chargemaster rates were incorporated into the patients’ agreements to pay. 633 S.E.2d at 71-72, 631 S.E.2d at 797. Article 3 contains no such requirement for a “simple clear” summary, as its intent is geared more toward facilitating market forces than individual cost-effective decisions. Here, in contrast, one of Banner’s chargemasters, admitted into evidence, was 576 pages long and contained numerous complex descriptions of charges.
Additionally, in both cases, the agreements to pay in Morrell and Cox contained at least oblique references to price terms, whereas here there are no price terms mentioned in the COAs that do not refer to the filed rates. See Morrell, 633 S.E.2d at 71-72 ("all charges incurred”); Cox, 631 S.E.2d at 795 ("in accordance with the rates and terms of the hospital”).
The remaining cases cited, Howard v. Willis-Knighton Medical Center, 924 So.2d 1245 (La. App.2006), and Harrison v. Christus St. Patrick Hosp., 430 F.Supp.2d 591 (W.D.La.2006), are so procedurally distinguishable from this case as to have little or no substantive bearing upon the analysis here.

. The majority seeks to distinguish Doe on the grounds that the chargemaster rates were confidential and there was no statutory scheme allegedly incorporating such rates into contracts of admission. While the chargemaster rates in Doe were confidential, 46 S.W.3d at 194, that was not the basis of the court’s decision. Rather, it was the failure of the hospital to incorporate a reference to the filed rates into the agreement. 46 S.W.3d at 197. Here, the absence of any reference to the filed rates in the COAs and the lack of any statutory scheme making the filed rates the charged rates, yields the same result.