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Cal. hospitals can't place liens on insured patients' tort awards.

A hospital cannot assert a lien against a patient's tort recovery for the difference between its "actual" costs and the amount paid by the patient and his or her insurer, the California Supreme Court has ruled. When a hospital agrees, as part of a preferred provider organization (PPO), to accept reduced fees "as payment in full" for treating an in-network patient, there is no further debt, the court held. (Parnell v. Adventist Health Sys./West, 109 P.3d 69 (Cal. 2005).)

"The ruling upholds the reasonable expectation of the PPO patient or insured of what his or her liability is when he or she uses the services of an in-network hospital," said William Hanagami of Los Angeles, cocounsel for the plaintiff. "Insureds under a PPO are encouraged to go to in-network hospitals or providers. They expect that all they have to pay is their co-payment or deductible."

On April 20, 1997, Joel Parnell was injured when the taxi he was riding in was struck by another vehicle. He was treated at San Joaquin Community Hospital, owned by Adventist Health Systems/West. Both the hospital and Parnell's employer-provided health plan were part of the PPO Community Care Network. The health plan encouraged members to go to in-network providers for treatment, and participating providers--including San Joaquin--agreed to treat plan members and accept negotiated discounted fees "as payment in full."

The actual costs of Parnell's treatment--the costs the hospital would have charged to an uninsured patient--were approximately $19,500. Under the PPO agreement, the health plan paid $4,000 and Parnell paid a $1,000 deductible. The hospital wrote off the balance, following its usual practice.

Later, Parnell needed two surgeries for his back injuries and was unable to continue working as a truck driver. Because of these continuing problems, he sued the driver of the vehicle that caused the accident. The hospital filed a lien against "any final judgment, compromise, or settlement agreement" from that case, seeking to recover the approximately $14,500 it had written off. Parnell then sued the hospital, alleging unfair business practices, violation of consumer protection laws, breach of third-party contract, and negligence.

California's Hospital Lien Act (HLA) allows a hospital to assert a lien against tort damages for "reasonable and necessary charges." The trial court granted the hospital's motion for judgment on the pleadings, holding that lien rights under the HLA are "not constrained by the hospital's negotiated discount with a health insurance carrier." The court of appeals reversed, holding that because the hospital agreed to accept the discounted PPO rates "as payment in full," it is not entitled to assert a lien.

The California Supreme Court agreed. "[A] lien under the HLA requires the existence of an underlying debt owed by the patient to the hospital and ... absent such a debt, no lien may attach," Associate Justice Janice Rogers Brown wrote. Because the hospital accepted the amount specified in the provider agreement as payment in full, "Parnell's entire debt to the hospital has therefore been extinguished."

Hanagami said that PPOs are the predominant type of health insurance provided through California employers. The ruling stops a practice he said he first saw in the early 1990s.

Several major hospital systems, including the University of California Hospital System, filed amicus briefs for the defendant. The case is not the only challenge to the practice brought in California, but it is the first to be heard by the state's high court.

Many other states have similar hospital lien acts, intended to allow hospitals to place liens against the tort recoveries of uninsured patients who do not pay their medical bills. The California court noted that most of the state high courts that have addressed this issue under analogous laws--including courts in Florida, Illinois, Nebraska, New Mexico, Texas, and Wisconsin--had ruled the same.
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Author:Jurand, Sara Hoffman
Date:Jun 1, 2005
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