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Hospital Could Not Seek Tortfeasor Insurance; Billing Rights Not Preserved for Lien


Drivers, insured by two automobile liability insurers, injured people in various car accidents. A hospital provided emergency room services to the injured people. All of these patients were covered by health insurance from the same health insurer. After these patients were discharged from the emergency room, the hospital learned each was injured by the negligence of a driver insured by one of two automobile liability insurers.

 

The hospital follows the same procedure in collecting on its Hospital Lien Act (HLA), Civ. Code, § 3045.1 et seq., liens whenever a third party has caused injury to an emergency room patient who has coverage with a health insurer having a rate agreement contract with the hospital. Specifically, the hospital bills the full amount of the emergency room costs to the injured patient's health plan per the hospital's contract with the health plan. The hospital also bills the full amount of emergency room costs to the third party tortfeasor and/or tortfeasor's liability insurer by serving an HLA notice. In other words, the hospital does not seek to “balance bill” tortfeasors or their liability insurers for the difference between the negotiated rates paid by health care service plans and the customary rate the hospital would ordinarily charge. Instead, the hospital seeks to recover the entirety of its customary rates from the tortfeasors and their liability insurers.

 

If the tortfeasor, tortfeasor's liability insurer, or any responsible party pays the hospital's HLA claim before the patient's health care service plan pays the hospital the negotiated rate, the hospital cancels its bill to the patient's health care service plan. However, if the patient's health plan pays the negotiated rate under the applicable rate agreement before any other responsible party pays under the HLA lien, the hospital holds the health plan's payment in abeyance (as well as any copayment received from the injured patient), pending resolution of the hospital's HLA claim. If the hospital recovers money on its HLA claim following payment from the patient's health care service plan, the hospital refunds the patient's copayment and then refunds the health care service plan from the proceeds of the HLA lien recovery. If there are any proceeds remaining after reimbursements to the patient and patient's health plans, the hospital keeps the remainder. In any event, the hospital does not attempt to collect or retain more than its reasonable and necessary charges in any patient's account.

 

For each of these patient’s emergency room services bills the hospital sought to collect from the two automobile liability insurers its customary billing rates by serving them liens filed under the HLA. For each of these patients, the hospital learned the two automobile liability insurers paid a settlement to the patient without satisfying any part of the hospital's HLA liens.

 

Upon learning of the settlements, the hospital sued the two automobile liability insurers to recover on its HLA liens. The automobile liability insurers each moved for summary judgment, arguing the hospital could not recover anything under the HLA liens because the underlying debts had been extinguished by payments in full by the patients' health plans. The San Joaquin County Superior Court granted summary judgment in favor of the automobile liability insurers.

 

On appeal, the automobile liability insurers contended they were not responsible for any amount after the patients’ health insurer paid in full the bill for the emergency room services provided by the hospital. The hospital responded that it contracted with the patients’ health insurer to preserve its rights to recover the customary billing rates from tortfeasors and their automobile liability insurers. More specifically, the hospital argued that its contracts with the patients’ health insurer contained an “applicable rate agreement” that preserved the hospital's HLA rights, as contemplated by the California Supreme Court in Parnell v. Adventist Health System/West, 35 Cal.4th 595, 611, 109 P.3d 69, 26 Cal.Rptr.3d 569, 05 Cal. Daily Op. Serv. 2866, 2005 Daily Journal D.A.R. 3864 (Cal., April 4, 2005). The hospital asserted that the tortfeasors and their automobile liability insurers were responsible for the entire bill for medical services at the customary rate—not just the difference between the reimbursement received from the patients’ health insurer and the customary billing rate.

 

The California Third District Court of Appeal affirmed. The court held that although generally a hospital may impose a medical lien to recover customary billing rates for emergency room services if the hospital has an express contract with a health insurer to that effect, here the hospital's contract with the patients’ health insurer failed to preserve the hospital's billing rights against third party tortfeasors liable for injuries to its emergency room patients covered by the health service plan.

 

The hospital's contract with the patients’ health insurer failed to preserve the hospital's billing rights against third party tortfeasors liable for injuries to its emergency room patients covered by the health service plan. Generally, under the HLA, a hospital may impose a medical lien to recover customary billing rates for emergency room services if the hospital has an express contract with the health care service plan to that effect. The hospital's contract with the patients’ health insurer stated that the hospital would accept negotiated billing rates “as payment in full for Covered Services,” irrespective of the cost to the hospital of providing such services, or of the hospital's “customary charges for such services.” The contract was silent as to whether the hospital may collect from tortfeasors and their automobile insurers after receiving negotiated rate payments from the patients' health insurer. This contract failed to preserve the hospital's billing rights against third party tortfeasors liable for injuries to its emergency room patients covered by this health insurer. Thus, the hospital could not recover on the HLA liens. A health care service plan's payment of a previously negotiated rate for emergency room services insulated the third party tortfeasor's automobile liability insurer from having to pay the customary rate for medical care rendered. Hospitals may not recover their customary rates for emergency room care when they have contractually agreed to accept negotiated rates as payment in full. If hospitals wish to preserve their right to recover the difference between usual and customary charges and the negotiated rate through a lien under the HLA, they are free to contract for this right. But the hospital must actually contract for this right. The hospital cannot supply the contract term by relying on a history of “uniform conduct” in which the hospital and the patients’ health insurer have cooperated in seeking payment from third party tortfeasors and their liability insurers. Consequently, the trial court properly granted summary judgment in favor of the automobile liability insurers.

 

The California Third District Court of Appeal affirmed the trial court’s grant of summary judgment in favor of the automobile liability insurers.

 

See: Dameron Hospital Association v. AAA Northern California, Nevada and Utah Insurance Exchange, 2014 WL 4379083, 14 Cal. Daily Op. Serv. 10,480, 2014 Daily Journal D.A.R. 12,294 (Cal.App. 3 Dist., September 4, 2014).

 

See also Medical Law Perspectives, December 2012 Report: When Urgency Leads to Errors: Liability for Emergency Care

 

 

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