Key Takeaways From the Gray v. Dignity Health Decision

Health Highlights

On October 13, 2021, the California Court of Appeal, 1st District in San Francisco issued its opinion in Gray v. Dignity Health, 2021 WL 4771982. In a published decision that will likely control the outcome in at least six other cases pending in California courts, the Court of Appeal affirmed the dismissal of a purported class action seeking to hold hospitals liable for not disclosing to emergency room patients that they would be charged fees for accessing the emergency rooms, above and beyond charges for the particular services rendered. The Court of Appeal made it clear that a hospital has no duty to disclose emergency room fees prior to treating patients in the emergency room and that compliance with the price disclosure obligations imposed by state and federal law is sufficient for hospitals to avoid liability.

Factual Background

The decision arose from a lawsuit filed by Gordon Gray, a patient who received emergency services in the emergency room (ER) of St. Mary Medical Center, a hospital owned and operated by Dignity Health, California’s largest multihospital system operator. Gray did not have a life-threatening condition (his treatment in the ER was for the lancing of a boil). Gray signed the hospital’s Conditions of Admission form, agreeing that he was responsible for “any amounts due to the Hospital under the law” to the extent not paid by his insurer. He received a hospital bill for $4,112.04, which included a charge for “ER Level 2” in the amount of $1,552.00. Such ER fees are standard in the industry—virtually all hospitals charge them—and represent a charge for being seen and screened in the emergency room, in addition to charges for the particular treatment rendered. After payments by Gray’s insurer and adjustments, the total amount owed by Gray was $879.19.

Rather than pay, Gray sued Dignity Health in a class action seeking to represent all emergency room patients at all Dignity Health emergency rooms statewide. Gray alleged that the hospital had violated a duty to disclose to him, in advance of rendering any treatment, that he would be charged an ER fee in addition to the charges for the specific treatment. He claimed he and other emergency room patients were entitled to know in advance that they would be charged emergency room fees so that they could evaluate the cost and decide to instead seek treatment in a less costly setting, such as an urgent care clinic or a regular doctor’s office during office hours. Gray alleged that the hospital’s failure to disclose the fee in advance violated the Unfair Competition Law and the Consumers Legal Remedies Act. He sought an injunction and declaratory relief requiring Dignity Health hospitals to disclose to all patients presenting at their emergency rooms that their bills would include a fee for being treated in the emergency room.

Dignity Health moved to dismiss the complaint on the pleadings (called a demurrer in California state court), arguing that the hospital had no legal duty to disclose the ER fees and was subject to—and had fully complied with—specific obligations of price disclosure required by a series of California statutes known as the Payers’ Bill of Rights, enacted to increase pricing transparency. Specifically, the California Health and Safety Code requires every California hospital to make public its charge description master (or “chargemaster”), a comprehensive list of the hospital’s gross charges for every service and item provided by the hospital. The chargemaster must be posted on the hospital’s website and/or made available at the hospital, with conspicuous signage informing patients of how to access it. The hospital also must submit its chargemaster, along with a list of its 25 most common outpatient procedures and their average charges, to the hospital regulatory agency, the Office of Statewide Health Planning and Development (OSHPD), which posts the information on its own public website. The ER fee charged to Gray was disclosed on both lists. And the hospital had fully complied with these disclosure obligations, and Gray did not allege otherwise. The California Legislature also has imposed on hospitals a specific duty to provide written price estimates upon the request of noninsured, nonemergency patients. Gray was insured, he was an emergency patient and he had made no request.

Dignity Health argued that it could not be liable for failing to make the disclosure as Gray alleged because no law required such a disclosure and because Dignity Health complied with its statutory disclosure obligations. In addition, it argued that federal and state laws prohibit hospitals from discussing cost with emergency room patients prior to stabilizing them. The duty Gray wanted the court to impose would conflict with those rules.

The trial court granted Dignity Health’s motion to dismiss without leave to amend and dismissed the case, finding that Dignity Health had complied with its disclosure duties.

The Gray Decision

The Court of Appeal affirmed the trial court’s dismissal. In a published opinion—meaning that the opinion is citable precedent and binds California trial courts—the court made detailed rulings in Dignity Health’s favor on numerous points.

  • The Court of Appeal held clearly that a hospital that discloses its prices as required by state and federal law has no further obligation to inform patients in the emergency room about any particular fees.
  • The opinion is the first to address the requirements of the new federal pricing disclosure regulations issued after the events in Gray. See Medicare and Medicaid Programs: CY 2020 Hospital Outpatient PPS Policy Changes and Payment Rates and Ambulatory Surgical Center Payment System Policy Changes and Payment Rates. Price Transparency Requirements for Hospitals To Make Standard Charges Public, 84 Fed. Reg. 65524 (Nov. 27, 2019) (the “Final Rule”). The Final Rule requires hospitals to disclose not only chargemaster rates (which are gross rates, rarely paid by any payer), but also payer-specific negotiated rates and rates for cash-paying patients. The Final Rule also imposes new requirements for price disclosure with respect to certain “shoppable” services—those that, unlike emergency services, can be scheduled in advance. The new pricing disclosure requirements are “for use by consumers planning for scheduled medical treatment.” Gray, 2021 WL 4771982, at *9. In contrast, “[p]eople seek emergency medical treatment . . . for serious, and often grave, unplanned accidents or medical calamities.” Id.
  • The court recognized that requiring hospitals to inform emergency room patients of pricing information would violate federal and state laws prohibiting discussion of cost with emergency room patients prior to providing screening and stabilizing treatment. Emergency rooms must focus on providing care quickly, not on issues regarding cost. The “multi-faceted statutory and regulatory scheme reflects a strong legislative policy to ensure that emergency medical care is provided immediately to those who need it, and that billing disclosure requirements are not to stand in the way of this paramount objective.” Gray, 2021 WL 4771982, at *9 (emphasis original). Requiring advance disclosure of emergency room costs “is at odds with the spirit, if not the letter, of the hospital’s statutory and regulatory obligations with respect to providing emergency medical care.” Id. The duty Gray sought to impose “disregards the long standing regulatory environment within which emergency departments operate, which emphasizes that no one in need of emergency care should be deterred from receiving it because of cost.” Id. at *10. 
  • The court explained that the Final Rule reinforced the above conclusions. In connection with formulating the Final Rule, the Centers for Medicare & Medicaid Services made clear that the rules did not run afoul of the laws that require provision of stabilizing emergency room treatment without discussing cost. Rather, the two sets of laws can “harmoniously co-exist” because the disclosure rules “do not require that hospitals post any signage or make any statement at the emergency department regarding the cost of emergency care or any hospital policies regarding prepayment of fees or payment of co-pays and deductibles.Gray, 2021 WL 4771982, at *4.
  • Although Gray argued that many people, including Gray himself, seek treatment in an emergency room in non-life-threatening situations, the court saw no reason to tailor a disclosure duty to the particular interests of people—like Gray—who may come to the emergency room when they do not need emergency treatment at all. “Gray’s sweeping assumption that those seeking care at an emergency department can accurately diagnose whether their ailment is ‘relatively minor’ and whether they can safely transport themselves or be transported to a lower acuity facility, is unsupportable.” Gray, 2021 WL 4771982, at *10.  
  • The court held that the goal of providing emergency room patients advance price disclosure information so that they can change their minds about receiving emergency room treatment due to its cost would discourage patients from remaining in the emergency room and has “an objective antithetical to state and federal law.” Gray, 2021 WL 4771982, at *10.  

Important Takeaways From the Decision

The Gray decision reaffirms the importance of hospital pricing transparency to ensure that patients have the information to make smart health care choices and to shop around when feasible to do so. But the policies favoring rendering lifesaving treatment in the emergency room without stopping to discuss cost—particularly when to do so might deter a patient from staying and receiving necessary treatment—outweigh any potential benefit from providing pretreatment pricing information to emergency room patients.

The Gray decision is important for all California hospitals, because emergency room fees are standard charges in all emergency rooms. The complaint in Gray was one of at least seven virtually identical putative class actions filed against hospitals across the state by Gray’s lawyers. The published Gray opinion is binding precedent on the subject statewide and should put an end to these and similar lawsuits.

Gray also is the first decision to discuss the requirements of the new federal Hospital Pricing Transparency final rule. The decision therefore may be useful to hospitals defending similar lawsuits in other jurisdictions that try to extend price disclosure obligations beyond what the legislators and regulators have required.

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