The Tylenol Debate: Can Hospitals be Sued for Excessive Markups on Medications and Devices?

By Alex Stein

Steven Brill’s TIME MAGAZINE blockbuster article, Bitter Pill: Why Medical Bills are Killing Us, uncovers the CHARGEMASTER: a publicly undisclosed pricelist accountable for what we see in hospital bills. What we see there doesn’t look good: it includes acetaminophen sold for $1.50 a tablet (you can buy 100 of those for the same price at Amazon); $77 for a box of sterile gauze pads (Amazon’s prices vary between $6 and $11); $18 for a single diabetes test strip (sold for 54 cents by Amazon); $108 for antibacterial Bacitracin ointment (Amazon’s prices vary between $2.50 and $6.50); and so forth. Charges for stay, scans, surgeries, canes, and wheelchairs skyrocket as well.

The American Hospitals Association (AHA) rejects Brill’s analysis. According to AHA, the chargemaster aggregates the hospital’s overall costs on delivering quality care to patients: “In order to take medications in a hospital, even over-the-counter medicines, they must be prescribed by a doctor (a little bit of cost for the doctor), that order gets transmitted to the pharmacy (a little more cost), the order gets filled by a pharmacist or pharmacy tech who retrieves just one Tylenol pill and individually packages that one pill (still more cost), the pill gets transported from the pharmacy to the nursing unit where the patient resides (a little more cost), then the pill is retrieved by a registered nurse who personally gives the pill to the patient and then must document the administration of that pill in the patient medication administration record (a little more cost). All of this process to give a patient a single dose of Tylenol in a hospital bed [must also be] in compliance with all pertaining regulations (a little more cost).”

This post will not try to resolve the Tylenol Debate. Nor will it say anything about the government as a plausible substitute for the eccentric chargemaster. Instead, I will raise a legal question: Can patients sue hospitals for excessive markups on medications and devices?

My answer to this question is a qualified YES. Entrepreneurial and business aspects of running a hospital fall under states’ consumer protection laws (Brookins v. Mote, 292 P.3d 347 (Mont. 2012)). Those aspects certainly include billing (Jaramillo v. Morris, 750 P.2d 1301, 1304 (Wash. App. 1988); Ambach v. French, 216 P.3d 405 (Wash. 2009)). The key question here is whether an excessive markup on medications and devices amounts to deceit or an unfair trade practice. If it does, the hospital would be in violation of the relevant state consumer protection law. This might happen to hospitals whose billing practices—to which patients gave no informed consent—are particularly aggressive. Those hospitals might face class action suits and the prospect of paying treble damages. They also may be stripped of the special protections given to defendants in medical malpractice suits (that include shortened limitations and repose periods for filing suits, caps on damages, and charitable immunities). For my account of the competition between medical malpractice and consumer protection rules, click here.

Brill and other participants in the Tylenol Debate call on the government to start regulating hospital prices. My short advice to hospitals: get rid of unconscionable markups forthwith.

Introducing Guest Blogger Alex Stein

Alex Stein is Professor of Law at Brooklyn Law School. Prior to joining Brooklyn Law, Professor Stein was on the faculty at Cardozo (2004–16) and the Hebrew University of Jerusalem (1991–2004). Alex also held visiting professorial appointments at Columbia, Miami, and Yale Law Schools. In Fall 2016, he visited Harvard Law School, where he taught Torts and a seminar on Medical Malpractice. Alex’s specialty areas are Evidence, Medical Malpractice, Torts, and general legal theory. He authors three books, An Analytical Approach to Evidence (with Ronald J. Allen et al.) (6th ed. 2016), Foundations of Evidence Law (Oxford University Press, 2005) and Tort Liability under Uncertainty (Oxford University Press, 2001) (with Ariel Porat), and over sixty articles of which many have appeared in leading journals including Harvard Law Review, Columbia Law Review, University of Pennsylvania Law ReviewMichigan Law Review, Virginia Law Review, Georgetown Law Journal, Northwestern University Law Review, Texas Law Review, Vanderbilt Law Review and Oxford Journal of Legal Studies. Alex was one of the founding editors of Theoretical Inquiries in Law. In 2013, he launched an e-journal STEIN on Medical Malpractice that covers all significant developments in medical malpractice laws across the United States and attracts 27,000 visitors every year. He graduated from the Hebrew University of Jerusalem and earned a Ph.D. from the University of London.

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