The Alabama Supremes Decertify Class Because Damages Require Individualized Inquiry
Too often courts and litigants spout the canard that damages issues do not preclude class certification. But where damages cannot be calculated by the easy application of a standardized formula, and instead involve a complicated, multi-faceted individualized inquiry, the unmanageability of damages issues can defeat class certification. A recent decision from the Alabama Supremes highlights this point.
In Eufaula Hospital Corp. v. Lawrence, 2009 WL 2903459 (Ala. Sept. 11, 2009), the trial court had certified a class action of people who had visited the defendant's emergency room and were categorized as "self pay" patients. These patients, who were uninsured and not covered by governmental programs like Medicare or Medicaid, had signed an admission contract providing that they obligated themselves "to pay the account of the Facility in accordance with the regular rates and terms of the Facility." Plaintiffs alleged that this was a contract with an undefined price term, and that Alabama law required that the price implied by law must reflect the "reasonable value" of the services. Plaintiffs argued that they were overcharged because the defendant charged them the rack rate (or "chargemaster rate") for services rendered, which was more than the hospital's cost and more than the hospital received for the same procedures performed on patients who were insured or covered by government programs. Plaintiffs sued for breach of contract, unjust enrichment, and injunctive relief. The trial court had certified the class under Rule 23(b)(2) and (b)(3).
The Alabama Supreme Court reiterated that trial courts faced with class certification decisions must engage in a rigorous analysis of whether the elements of Rule 23 are met. The defendant had challenged the trial court's conclusion that the "reasonable charge" could be calculated on a classwide basis. Plaintiffs' expert had looked at the compensation formulas employed by the three largest third-party payors: Medicare, Medicaid, and Blue Cross. Using those amounts, the expert concluded that a reasonable charge would be 115% of the hospital's actual cost for the procedure.
The Alabama Supreme Court observed that the class members themselves were not treated uniformly by the defendant:
[M]any self-pay or uninsured patients are offered discounts on their bills, including prompt-pay discounts and charity discounts, or the debts are settled for a lesser amount. Also, many patients never pay their bills, and some debts are turned over to collection agencies.
Id. at *9.
Moreover, after analyzing a series of decisions from other states, the court recognized that ascertaining the "reasonable charge" for services would require an individualized inquiry and cannot be addressed by the plaintiffs' proposed one-size-fits-all formula:
Under Alabama law, a determination of a reasonable charge for medical services in this case will require an examination of the circumstances of the charges for the services, the customs in the medical-service community, the price a willing provider would take for its services, and the price a recipient of those services would pay. The testimony by the defendants as to the normal rates charged by them will be relevant, as well as testimony concerning "the [defendants'] internal factors [and] the similar charges of other hospitals in the community." We agree that such determinations are "necessarily an individual inquiry that will depend on the specific circumstances of each class member, the time frame in which care was provided, and both [the defendant's] and other hospitals' costs at that time." Finally, the defendants' acceptance of lower payments from Blue Cross, Medicare, and Medicaid stem "from legal and contractual requirements that applied solely to those classes of patients," and is not necessarily based on market factors or, as both [plaintiffs' and defendants' experts] acknowledged, on the actual costs of the services provided. Thus, reliance on the rates paid by those entities may not be the baseline on which to calculate a reasonable charge for the medical services rendered.
Id. at *14 (citations omitted).
The court thus concluded that the individualized issues inherent in calculating a reasonable charge overwhelmed class cohesiveness and rendered certification under Rule 23(b)(2) and (b)(3) inappropriate.
"Too often courts and litigants spout the canard that damages issues do not preclude class certification."
Hey, I resemble that remark.
Alabama is not the only court system that is antagonistic towards class actions. I recently blogged about two 7th Circuit cases that put more shackles on Rule 23. See http://lawrules.squarespace.com/ (Sept. 14 post).