Use of liens by hospitals challenged.

In a decision being trumpeted by Califoraia's hospital industry, a state Court of Appeal panel has upheld the right of health-care facilities to place liens on monetary damages won by injured patients they treat - even after the hospitals received payments for the bills from private insurers.

It's the first ruling at the appellate court level involving a lawsuit directly challenging the practice, which became popular in the late 1990s but is being increasingly attacked by patients.

Hospital officials claim the practice is necessary because insurers have negotiated stingy rates that do not come close to covering the true costs of service.

The March 5 decision by a Los Angeles appeals panel upheld a lower court ruling in a case filed in Ventura County Superior Court against Catholic Health care West, the largest not-for-profit hospital system in the state and a big player in the Los Angeles market.

Among the other systems that have been sued are Tenet Healthcare Corp., the Santa Barbara-based for-profit that is the largest hospital operator in L.A. County, and Scripps Health, a San Diego-based community health care system that is a not-for-profit like CHW.

Most cases have involved auto accident victims who are treated at hospitals and then later win damage awards or settlements from the driver at fault in the accident.

The appellate court ruled that under a 1961 law specifically providing for hospital liens in cases where patients win damages, hospitals have the statutory right to bring the liens even if patients are insured. However, patient attorneys argue that the law, written long before managed care, was to compensate hospitals in cases where their bills were not paid at all.

"The hospitals are wearing the white hat here' said attorney Barry Landsberg of Manatt Phelps & Phillips, who represented CHW in the local lawsuit. "They have to serve whoever comes to their emergency rooms, but their bills have been drilled down under negotiated rate contracts."

Fast toed tall

The case against CHW stemmed from a case in which a woman tripped and fell at a Ventura County fast-food restaurant and was treated at a CHW hospital, according to William John Weilbacher Jr., who represented the plaintiff.

The woman later settled the case for $50,000 with the fast-food restaurant but had a $12,000 lien placed on her settlement by the hospital. Weilbacher said he then sued CHW, which agreed to drop the lien if the plaintiff would dismiss the lawsuit.

That was done, but Weilbacher said he was so angered by the lien that he had one of his former clients, James Swanson, bring suit against CHW under a state law that allows citizens to act as private attorneys general in cases where unfair business practices are alleged.

"It makes all the sense in the world if people are being injured and then stick the hospital for a bill and collect insurance money, but that is not the case here," Weilbacher said.

(Hospitals say that many of the lawsuits they now face challenging the liens come from plaintiffs acting as private attorneys general.)

Taking the award

Scott Sumner, a Walnut Creek trial attorney, said he has been involved in numerous cases in which liens were placed on his clients' damages. Sometimes the liens eat up the majority of an award.

That can happen when a third party is found liable, for example, for $300,000 in damages but only has $100,000 in his or her insurance coverage. A hospital lien for a full bill could approach the limits of the coverage, he said. "Essentially the attorney for the patient is working for the benefit of the hospital," Sumner said.

But hospital industry officials say that plaintiffs' attorneys make a windfall because they are allowed to bring the full--not discounted--hospital bill before a jury, which is then used as the basis for computing various damages.

At the same time, emergency rooms are running in the red because of the cost of uncompensated care. "The point of the liens is to allow emergency rooms and hospitals to remain open," said Mark Klein, a CHW spokesman.

Weilbacher said he has asked the Court of Appeal to reconsider the ruling, and if it fails to do so expects he will appeal the case to the state Supreme Court.

"Everybody on both sides of the issue agrees this is an issue of the highest importance," he said. "A lot of money is at stake."

At the same time, the state's hospital industry has petitioned to have the case formerly "published" so it can set a precedent for the other cases that are still being litigated, said Lois Richardson, general counsel for the California Healthcare Association, the state's hospital industry trade group.

The hospital industry also is asking the Supreme Court to "depublish" another appeals court decision handed down last October by an appellate panel in San Francisco.

Ruling against hospital

The court ruled in that case that a San Francisco hospital did not have the right to seek more than what it had agreed to receive from a patient's insurer.

However, hospital industry officials argue that the case should not set a precedent, because the ruling was a side issue in a lawsuit between the City of San Francisco and a woman named Karen Nishihama, who tripped and fell on a city street.

The state Supreme Court has already agreed to hear a hospital lien lawsuit in a case against Scripps Health but it involves patients whose care is paid for by Medi-Cal, the government health program for the poor.

Those liens are not only controlled by a different state statute, but there is also the question of whether federal law supercedes state law and prohibits the practice, said attorney Majusha Kulkarni of the National Health Law Program, a health care advocacy group that is involved in the case.

Any decision in the case may influence but likely would not set a precedent regarding the liens involving managed-care patients, she said.

In response to all the litigation, Tenet has stopped placing hospital liens, while CHW continues to do so, said spokespersons for the two systems.