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We know about the reported inequity of indigent uninsured U.S. patients having to face sizable U.S. hospital bills while large health insurers receive heavy discounts. Congress has held numerous hearings on this issue and a number of national solutions have been proposed. A different spin on this relatively common discussion is taking place in the international arena � the Canadian traveler, cared for in a U.S. hospital, whose Canadian travel insurer is socked with a very high hospital bill because the insurer lacks the negotiating clout of its U.S. counterparts. This issue looms large as Canadian visitors are expected to increase their travel to the United States in the foreseeable future. As the number of billing disputes between Canadian insurers and U.S. hospitals grows, along with upward pressure on insurance premiums, Canadian insurers are increasing their resistance to paying the face value of U.S. hospital bills and are being dragged into more lawsuits in U.S. courts. This article will discuss prelitigation and litigation strategies being developed by Canadian insurers and additional strategies to be considered. Some 15 million residents from Canada visited the United States in 2005, more than from any other country, as reported by the U.S. Department of Commerce. See U.S. Department of Commerce, International Trade Administration, Office of Travel and Tourism, “ Forecast of International Travelers to the United States by Top Markets & World Region.” The government estimates that the number of Canadian tourists to the United States will increase by about 5% to 6% each year at least through 2010, at which time Canadian visitors should top 19 million. At the state level, Canada was, according to a commissioned report, Florida’s No. 1 source of in-bound tourists in 2004, supporting about 23,000 Florida jobs and generating about $274 million in Florida taxes as of 2002. “The Canada-Florida Economic Relationship,” prepared for the consulate general of Canada in Miami by Infoamericas, at 1, 11 (November 2004). California reported that at about the same time approximately 1 million Canadians passed through the Golden State and poured close to $650 million into the state economy. Government of Canada, State Trade Fact Sheets (2005), available at geo.international.gc.ca. Many of the Canadian visitors are “snow birds,” described by the Canadian Snowbird Association as seniors who spend 31 nights or more in a southern destination. The Canadian-Florida Economic Relationship, supra, at 4. Before traveling to the United States, Canadian citizens are encouraged by Canada’s Ministry of Health and Long Term Care to purchase travel health insurance just in case they need hospital care during their visit. Most U.S. health care costs are not covered under Canada’s health plans. The safety net of travel insurance is especially important to Canadian snowbirds, given their senior status and lengthy stays in the United States. But Canada’s health care system differs significantly from that of the United States. Canada provides universal health care through its 10 provincial governments. Each province pays for all of the health care covered under each province’s health plan. In contrast, U.S. health care involves a sometimes convoluted blend of private and public sources of payment for medical services. See Marlene Piturro, “Some Lessons To Be Learned From Canadian Health System,” Managed Care Magazine, at 1, March 2002. Overall higher costs Moreover, the cost of hospital care in the United States has been estimated to be, on average, about twice as much as in Canada. See McKinsey Global Institute, “Account for the Cost of Health Care in the United States,” at 31 (January 2007). It has been reported that the monopoly power wielded by Canadian provinces in Canada’s health care system may explain why fees for some U.S. medical procedures are up to three times as high as fees for similar Canadian procedures. See Gerard F. Anderson, et al., “It’s the Prices, Stupid: Why the United States is so Different,” 22 Health Affairs No. 3, at 89-105 (2003). On top of the higher cost-to-hospital of providing U.S. health care, American hospitals commonly charge two to four times the cost of the actual service or item provided. U.S. Department of Commerce, Committee on Energy and Commerce, “A Review of Hospital Billing and Collection Practices,” Subcommittee on Oversight and Investigations (June 24, 2004), testimony of Gerard F. Andersen. Further complicating matters is the fact that charges are not uniform among U.S. hospitals or hospital systems. It comes as little surprise, then, that Canadian insurers are quite dismayed when they receive U.S. hospital bills for their insureds’ medical care. Adding some insult is the well-known fact that big-volume American insurers have agreements with hospitals that entitle the former to generous discounts on hospital bills � it has been reported that most U.S. insurers pay as little as costs plus or minus 15%. Id. Canadian insurers, unable to guarantee large numbers of patients to a hospital or hospital system, lack such bargaining power except perhaps in U.S. tourist spots with particularly heavy Canadian traffic. As a consequence of this unequal bargaining power, during the claims process U.S. hospitals typically ignore Canadian insurers’ requests to justify their charges, including specifying the cost to the hospital for each service and item. Thus, the hospitals appear to have the upper hand and they usually present Canadian insurers with two choices: Pay 100% of the actual charges or face lawsuits in the United States seeking compensatory and, sometimes, punitive damages (tied to allegations of intentional misrepresentation or statutory unfair business practices). Canadian insurers are beginning to take preventive steps before litigation arises and are starting to respond to the U.S. lawsuits in a number of ways. First, as a preventative measure, Canadian insurers are increasing their use of third-party administrators (TPAs) to process claims for payments to U.S. hospitals. Canadian TPAs not only act as experienced buffers between insurers and hospitals, but often are staffed with medical professionals trained to review hospital bills and records, thus eliminating the need for insurers to maintain duplicative staffs. In addition, experienced TPAs, some of which represent several foreign insurers and have frequent contact with numerous U.S. hospitals and hospital chains, might be able to facilitate the negotiation of discounted rates with certain hospitals and chains, depending on the expected number of Canadian visitors to the area in question. Second, prelitigation alternative dispute resolution (ADR) is being used. Mediation or arbitration is often a cost-efficient means of resolution. The prelitigation mediation process seeks a compromise solution with the prompting of a neutral third party, but without the costs of litigation and the right to discovery. Attorney fees and costs incurred in mediation are usually much lower than those incurred in drawn-out litigation. The process, if successful, ends at the mediation or shortly thereafter. Arbitration, on the other hand, sometimes more closely resembles the litigation process. The arbitration parties may agree to engage in limited or full-blown discovery, including depositions and written discovery. The arbitration concludes with a hearing presided over by an arbitrator agreed to by the parties. The arbitrator hears the arguments of counsel and receives evidence. Subsequently, the arbitrator acts as the trier of fact and renders a decision. The arbitration parties generally retain counsel to represent them during the arbitration process. Another ADR mechanism, binding neutral assessment, is available. Here, the parties agree to have an independent rate assessor, usually a health care professional, review the hospital charges and calculate a reasonable amount, which becomes binding on the parties. Binding neutral assessment is usually the least costly and least time-consuming of the ADR devices. No attorneys, no discovery, no hearing, no appeal. A select number of companies offer their services as neutral rate assessors. Litigation options Third, in the event that a hospital files a lawsuit against a Canadian insurer in U.S. state court, removal to federal court may be an option if there is concern about being “hometowned.” However, federal court may not be the most cost-effective forum for insurers. The Federal Rules of Civil Procedure and local rules of the various U.S. district courts provide for procedural requirements that can make this type of litigation very expensive. Unless the dollar stakes are high and the risks of local bias great, Canadian insurers might be better served by keeping their fight in state court. Fourth, in response to a U.S. lawsuit, a challenge to jurisdiction may be appropriate, depending upon the identity of the defendant. If the hospital sues only the insurer, then a challenge to jurisdiction might be problematic. The hospital will argue that a Canadian travel insurer’s issuance of a policy to an insured later injured in the United States is akin to a foreign liability insurer’s issuance of a policy to an insured later sued in the United States, and that therefore the local court enjoys jurisdiction. See Farmers Ins. Exch. v. Portage La Prairie Mut. Ins. Co., 907 F.2d 911, 913-15 (9th Cir. 1990); but see Benefit Assn. Int’l Inc. v. Superior Court, 46 Cal. App. 4th 827 (Calif. Ct. App. 1996). However, and assuming that a TPA has handled the claims process, if the hospital sues only the insurer’s TPA, which happens quite often, then the TPA, which is not in privity of contract with the insured, may gain the benefit of the traditional “minimum contacts” analysis. Of course, the TPA’s success on this issue ultimately will turn upon whether there is sufficient figurative distance between the TPA and the forum state. Fifth, assuming jurisdiction is established, Canadian insurers might consider asserting the Uniform Commercial Code’s (UCC) defense of accord-and-satisfaction if the insurers took prelitigation steps to set up this defense. See UCC 3-311. Thus, in California, which follows the UCC, a debt may be deemed discharged if, prior to the lawsuit, the debtor-insurer in good faith tendered an instrument to the claimant-hospital as full satisfaction of the claim; the amount of the claim was unliquidated or subject to a bona fide dispute; the claimant obtained payment of the instrument; and the negotiable instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim. See California Commercial Code � 3311(a) and (b). Again, this defense must be set up in advance, starting with the prelitigation tender of payment to the hospital of a “reasonable” amount in accordance with the cited commercial code. Under those circumstances, if the hospital negotiates the check, then the defense of accord-and-satisfaction becomes available. Sixth, Canadian insurers should use the discovery process to push hospitals to back up their standard allegations that their charges are reasonable. But what is “reasonable”? Canadian insurers contend that reasonable charges should reflect the cost to the hospital plus a reasonable markup. Some insurers urge a benchmark formula of reasonableness consistent with the Medicare rate plus 25%, which is considerably less than the 200% to 400% of costs often charged by hospitals. In contrast, many U.S. hospitals take the position that their charges are reasonable because they reflect their customary charge for the same service/item and/or because those charges are comparable to charges of other hospitals in the area. To quickly get to the heart of the reasonableness issue, an insurer’s written discovery should seek information and documents relating to the actual costs to the hospital of the items and services provided to the subject Canadian visitor; reports from third-party consultants concerning the hospital’s profitability and rate setting; and the hospital’s negotiated rates with other insurers. Also, a deposition of the hospital’s chief financial officer or director of patient accounts is recommended to obtain an explanation of the hospital’s determination of reasonableness. In response to these more aggressive discovery tactics, insurers should expect hospitals to put up vigorous opposition and should anticipate the need for some discovery motions. However, when faced with eventual discovery orders compelling them to provide substantive responses and documents, U.S. hospitals may be eager to settle for discounted amounts rather than disclose sensitive information and documents. It is the rare hospital-insurer dispute that should end in a trial. Almost all are resolvable in the early stages of litigation, given some thought and planning. But, this growing area of litigation will not go away anytime soon. Canadian insurers and U.S. hospitals can be expected to test each other in U.S. courts unless broad-based discount agreements or ADR solutions are reached between the parties, on their own or with the help of their respective governments. Brian S. Inamine is a principal in the Los Angeles office of Richmond, Va.-based Wright, Robinson, Osthimer & Tatum. His practice includes advising health insurance companies and third-party claims administrators, and litigating on their behalf.

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