In a decision that is good news for California hospitals, the California Court of Appeal invalidated class certification when a San Diego-based hospital system proved that the only way to determine the members of an uninsured patient class was to review more than 120,000 patient records. In Hale v. Sharp Healthcare, the California Court of Appeal, Fourth Appellate District affirmed the trial court’s order decertifying a class of uninsured patients claiming unfair billing practices. In its decision filed November 19, 2014, and certified for publication on December 5, 2014, the Hale Court not only found Sharp Healthcare (Sharp) persuasively showed that a patient class could not be reasonably ascertained, but also that the billing practices applied to the uninsured patients varied such that diverse individual, rather than common, issues prevailed.

Dagmar Hale claimed that Sharp charged her and other uninsured patients higher rates for emergency services than rates billed to patients with private insurance or government plans. The trial court initially certified the class, and Sharp conducted discovery of putative class members. In its motion to the trial court to decertify the class, Sharp submitted evidence that all emergency room patients are initially billed at “Chargemaster” rates, but often a patient’s insurance status is not determined until after the patient receives treatment. Also, a patient initially listed as “uninsured” or “self-pay” often will receive coverage through government financial assistance or private programs. Sharp also proved that self-pay patients, on average, paid less to Sharp than other payors. Of 10 sample class members, Sharp showed that two uninsured patients paid nothing for multiple emergency room visits, third parties paid two patients’ bills, and the other six obtained negotiated discounted rates from Sharp ranging from 20 to 90 percent. The trial court granted Sharp’s motion to decertify the class, and Hale appealed.

Finding no abuse of discretion that would justify reversal of the trial court’s findings, the Court of Appeal noted that the initial class definition included those receiving emergent care, but not covered by insurance at the time of treatment. Yet, this class description failed to consider Sharp’s evidence that those patients’ insurance status often changed after the initial admission. Sharp demonstrated that there was no reasonable way to ascertain actual class members without an individualized analysis of the patient records. Indeed, Sharp created a computer program in an attempt to identify uninsured patients meeting the class definition, but the results were over-inclusive. Because Sharp could not, and was not required to, determine the final status of a patient’s obligation to pay without a painstaking and costly individual analysis, the Court of Appeal upheld the decision to decertify the class.

As to the lack of predominance of common issues of law and fact, the Court of Appeal found that the same roadblocks to ascertaining the class also showed that individual, rather than common, issues of fact dominated. Carefully noting that the action did not involve individual issues regarding the amount of damages, the Court observed that the issues involved precluded common proof of the fact of damage as to a potential class member.

This decision provides comfort to health care providers that may not regularly update their records to reflect the actual payer status of patients initially admitted for emergency treatment. Even so, Sharp unfortunately was required to defend the case and conduct discovery in order to prove that emergency room patients initially identified as uninsured often received benefits and were not charged higher rates than covered patients. To avoid similar costs, health care providers should weigh the costs and benefits of updating such records.