             IN THE COURT OF APPEALS OF TENNESSEE
                         AT NASHVILLE
                                                           FILED
                                                            August 27, 1999
JANE DOE and her husband                   )
JOHN DOE, on their behalf,                 )              Cecil Crowson, Jr.
and on behalf of all other persons         )             Appellate Court Clerk
similarly situated,                        )
                                           )
      Plaintiffs/Appellees,                )   Appeal No.
                                           )   01-A-01-9806-CV-00306
VS.                                        )
                                           )   Davidson Circuit
HCA HEALTH SERVICES OF                     )   No. 92C-2041
TENNESSEE, INC., d/b/a                     )
HCA DONELSON HOSPITAL,                     )
                                           )
      Defendant/Appellant.                 )


       APPEALED FROM THE CIRCUIT COURT OF DAVIDSON COUNTY
                    AT NASHVILLE, TENNESSEE

            THE HONORABLE HAMILTON V. GAYDEN, JR., JUDGE


G. GORDON BONNYMAN, JR.
203 Second Avenue, North
Nashville, Tennessee 37201

RALPH I. KNOWLES
1355 Peachtree Street
Atlanta, Georgia 30309

JOHN A. DAY
KATHRYN BARNETT
150 Fourth Avenue, North
Nashville, Tennessee 37219
      Attorneys for Plaintiffs/Appellees

H. LEE BARFIELD, II
JAMES O. BASS, JR.
ROBERT E. COOPER, JR.
E. CLIFTON KNOWLES
2700 First American Center
Nashville, Tennessee 37238-2700
      Attorneys for Defendant/Appellant


                          AFFIRMED AND REMANDED


                                                     BEN H. CANTRELL,
                                                     PRESIDING JUDGE, M.S.

CONCUR:
CAIN, J.
COTTRELL, J.
                                OPINION
                  This deceptively simple contract question may be like the cloud “about

the size of a man’s hand”1 that produced a great storm. At issue is whether a patient’s

promise to pay a hospital’s “charges” incorporates by reference the hospital’s secret,

proprietary list maintained for billing purposes. The Circuit Court of Davidson County

held that the promise did incorporate the list by reference, but held, nevertheless, that

the charges had to be reasonable. We concur in the result reached by the trial court

but on a different basis. Therefore we affirm.



                                                I.



                  Jane Doe sought admission to a Donelson hospital for a medical

procedure. She was covered by insurance through her husband’s employer, and she

signed a form, furnished by the hospital, pertaining to the payment of her bill. We

reproduce it here in its entirety:

                  I certify that the information given by me is correct. I
                  hereby authorize payment to HCA Donelson Hospital
                  insurance benefits herein specified and otherwise payable
                  to me but not to exceed the total charges for this hospital
                  confinement. In applying for payment of [sic] under Title
                  XVIII or Title XIX of the Social Security Act, I request
                  payment of authorized benefits to be made on my behalf.
                  I understand I am financially responsible to the hospital
                  for charges not covered by this authorization. I further
                  assume responsibility for payment of reasonable
                  attorney/and/or collection fees in the event such costs are
                  incurred in the collection of this debt.



                  Ms. Doe’s insurance paid its share of the bill and the hospital billed her

for the balance of $1,346.21. Ms. Doe and her husband asked for time to pay the

balance, but after six months, the hospital turned the account over to a collection

agency. The Does sued the hospital for a declaratory judgment that the hospital

breached its contract with them by demanding unreasonable charges for its goods




       1
           I Kings 18:44 (The Living Bible).

                                               -2-
and services.2 The complaint also sought to represent a class of plaintiffs similarly

situated.



                 The hospital filed an answer denying the material allegations of the

complaint and a counter-claim for the unpaid bill. The parties warily circled one

another for over four years.              During that period the court did enter an order

conditionally allowing the action to be maintained as a class action. Finally, the

hospital moved for summary judgment on the ground that the “charges” Ms. Doe

agreed to pay on her admission referred to the hospital’s “charge master,” a

confidential list of the charges made by the hospital for all its goods and services.



                 The trial judge held that the use of the charge master did not violate the

Consumer Protection Act, did not amount to bad faith, and was not a breach of

contract. In a footnote the court also held:

                        The Court finds that the contract is not an open
                 price contract, but a contract incorporating a price term by
                 reference. Such contracts are valid: “If a promise
                 indefinite as to price is capable of being made certain by
                 an objective standard through extrinsic facts, it will be
                 enforced.” Williston on Contracts §4:27; Vanderbilt v.
                 Everett, No. 93C-2126. This does not, however, dispose
                 of the issue of the reasonableness of the charges
                 contained on the charge master, nor does it address the
                 issue regarding the role of third party payors in
                 establishing a meeting of the minds.



                 The court went on to say:

                        These issues, the practical necessity of
                 maintaining a Charge Master list of over 7,000 items and
                 services as a separate document from a patient/hospital
                 contract, assignment of benefits, guarantee of payment,
                 etc. underscores and illustrates the uniqueness of the
                 field of hospital/health care endeavors when viewed
                 through the lens of conventional contract law. Hospitals
                 are concerned with delivering critical care to diverse and
                 disparate types of patients and types of situations. This
                 duty is given great weight by the court in addressing the


        2
          The complaint also alleged that the hosp ital violated the T ennes see C onsum er Protec tion Act,
Tenn. Code Ann. § 47-18 -101, et. se q.; that the co ntract with the hospital was an adhesion contract; and
that the hospital had violated a duty of good faith and fair dealing. All the various theories are based on
the allegation that the hospital’s charges are unreasonable.

                                                   -3-
                  parameters of what kind of evidence may be considered
                  in arriving at a test of whether the prices of items or
                  services are unreasonable, arrived at in bad faith, or are
                  unconscionable. This ongoing duty of critical care is also
                  being considered by the Court in so far as the class action
                  designation is concerned, and the way damages, if any,
                  are to be computed.

                         Simultaneous to delivery of this critical-care service
                  to the public is the notion that the patients should not
                  have to pay more than is reasonable under the
                  circumstances. And the hospital should not be allowed to
                  reap the benefit of an unfair bargain. In determining what
                  is unreasonable or unconscionable or in bad faith, there
                  are many considerations to be taken into account,
                  assuredly some of which the court is yet to be made
                  aware of. Nevertheless, the fact that a toothbrush costs
                  substantially more at this defendant’s Summit hospital is
                  not evidence in and of itself that there exists an
                  unreasonable or unconscionable price or that the price
                  was arrived at in bad faith. The evidence will reflect
                  where the price is reasonable.

                         In this case, reasonableness may be shown by a
                  combination of factors, including but not limited to, the
                  overall profitability of the hospital, the inflating effect of
                  indigent care, and the effect on competition of third party
                  payors, i.e., insurance companies, having a much leaner
                  financial obligation than it appears to the average
                  person/patient, resulting in increased cost of services to
                  the patient.



                  It seems to us that the court applied a hospital exception to the general

law of contracts.         While finding that the contract incorporated a price term by

reference (presumably the charge master), the court, nevertheless, held that the

hospital’s charges had to be reasonable.3 The hospital urges us to return to orthodoxy

and hold that once the court finds that the charge master was incorporated by

reference, the inquiry is over.4

                                                      II.



         3
          The court was not breaking new ground in this approach. In Mercy Hosp ital v. Carr, 297 So.2d
598 (Fla. 3d DCA 19 74), the writing signed by the patien t said that all ch arges a re in acco rdance with
existing standard and current rates as set forth in regular schedules which are available for inspection
and review. Finding that this language created a contract, the court, nevertheless said (without citation)
that the patient was not bound by the charges put in the contract “as he is entitled to question the
reasonableness thereof.” 2 97 So.2 d at 599. See als o Payn e v. H umana Hospital Orange Park , 661
So.2d 1239 (Fla. DCA 1995).

         4
         The hospital also relies on a 1995 trial court dec ision, Vande rbilt Univers ity v. Evere tt, No. 93C-
2126 (Davidson County). In that case, the agreement referred to the hospital’s “regular charges.” The
court held that the reference was to the hospital’s “charge description master,” a list of more than 35,000
items, whose charges were adjusted on an annual basis. The Evere tt case is not before us for review,
and the tria l court’s de cision is ob viously not bind ing on this c ourt.

                                                     -4-
              We agree that the question before us concerns an orthodox contract

principle, but we disagree as to the effect of the written promise signed by Ms. Doe.

The parties do not disagree about the principle. Ms. Doe concedes that the modern

view of contract formation includes the following:

              Certainty with regard to promises does not have to be
              apparent from the promise itself, so long as the promise
              contains a reference to some document, transaction or
              other extrinsic facts from which its meaning may be made
              clear.

Richard A. Lord, Williston on Contracts § 4:27 (Fourth Ed. 1990).            See also

Restatement (2d) Contracts § 33 Comment (a) (1981). Most of the authorities cited

by both parties stand for that principle. See Litsinger Sign Co. v. American Sign Co.,

227 N.E.2d 609 (Ohio 1967); Cobble Hill Nursing Home, Inc. v. Henry & Warren

Corp., 548 N.E.2d 203 (N.Y. 1989); Benevento v. RJR Nabisco, Inc., No. 89-6266,

1993 WL 126424, at *5 (S.D.N.Y. April 1, 1993); Williston on Contracts § 4:27; Corbin

on Contracts § 4.4 (Revised Ed. 1993); Farnsworth on Contracts § 3.8c.



              The question, however, is whether in this case the agreement referred

to such extrinsic matters. As we read the promise in the form Ms. Doe signed there

is no reference to any “document, transaction or other extrinsic fact” to which

reference could be made to ascertain the amount she promised to pay. Her promise

was to pay “charges not covered by this authorization.”



              The hospital’s contention that the term “charges” refers to the charge

master begs for an examination of what the charge master is. It is a list, maintained

by the hospital’s chief financial officer, containing 295 pages of over 7,000 items. The

list is secret and never shown to patients. It is adjusted on a weekly basis based in

part upon the hospital’s financial condition. When it is updated, the earlier version of

the charge master is not preserved or archived. The prices to the hospital are marked

up by a mathematical formula -- designed to produce a targeted amount of profit for

the hospital. Patients are not charged according to the list at the time they enter the



                                         -5-
hospital, nor at the time the goods or services are furnished, but at the time the bill is

compiled.



              We do not think the charge master offers an independent, objective, or

verifiable means of determining the amount of the charges Ms. Doe agreed to pay,

and therefore we do not believe that it became part of her agreement. Having made

that determination, we now have the option of declaring the contract (or at least the

portion involving uncovered charges) unenforceable, because it lacks an essential

term. Jamestown on Signal v. First Federal S & L, 807 S.W.2d 559 (Tenn. App.

1990). However, we are reluctant to do so, because Ms. Doe has not advocated such

an action. Further, the law does not favor the destruction of contracts, particularly

when one of the parties has performed his part. Minor v. Minor, 863 S.W.2d 51

(Tenn. App. 1993).



              We therefore adopt the same conclusion the trial court did and we agree

that the plaintiff is only obligated to pay charges that are reasonable. At the same

time, we do not wish to imply that we favor the rule apparently adopted by the Florida

court that a hospital bill must always be “reasonable.” The reason is that such a rule

would ultimately place the burden of determining reasonableness on the courts, rather

than on individuals who possess knowledge and expertise in the increasingly arcane

world of medical costs. We believe rather, that in the absence of a patient’s assent

to an independent, objective and verifiable price term in the contract, a promise to pay

fair value for the goods or services furnished is implied.



              The order denying summary judgment to the hospital on the issue

discussed herein is affirmed and the cause is remanded to the Circuit Court of

Davidson County for further proceedings. Tax the costs on appeal to the appellant.




                                          -6-
                                _________________________________
                                BEN H. CANTRELL,
                                PRESIDING JUDGE, M.S.



CONCUR:




_____________________________
WILLIAM B. CAIN, JUDGE




_____________________________
PATRICIA J. COTTRELL, JUDGE




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