In Dameron Hospital Assoc. v. AAA Northern California, et al. (No. C070475, filed 7/29/14), three Kaiser Permanente health plan members received emergency treatment following an accident. Kaiser had an agreement to pay at a discounted “bulk” rate, and the hospital sought to recover the difference in its customary non-discounted rate from the liability insurers of the tortfeasor who caused the accident.
The hospital asserted liens under the Hospital Lien Act (HLA) (Civ. Code, §§ 3045.1, et seq.), but the liability insurers ignored the liens and paid settlements to the three patients. The hospital then sued the insurers to recover on the liens, but the trial court granted summary judgment to the insurers, reasoning that the liens were extinguished for lack of any underlying debt.
On appeal, the question was whether a health care service plan’s payment of a previously negotiated rate for emergency room services insulates the tortfeasor’s automobile liability insurer from having to pay the customary rate for medical care rendered. The insurers argued that they were not responsible for any amount after Kaiser paid its bill for the emergency room services in full.
The appeals court agreed, citing Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595, which held that a hospital may not assert a lien on a patient’s settlement proceeds for emergency room care when it has contractually agreed to accept negotiated rates as payment in full. In such a case the patient’s entire debt to the hospital has been extinguished. Because a hospital lien requires the existence of an underlying debt owed by the patient to the hospital, no lien can attach absent such a debt.
The Dameron Hospital court applied that result to the tortfeasor and his liability insurers, holding that there was no right to an after-the-fact lawsuit against the insurers to enforce liens for the unpaid difference between the negotiated rate of the victim’s health plan and the hospital’s customary rates.
The holding was not an absolute bar on such claims but, rather, hinged on the terms of Kaiser’s agreement with the hospital to pay negotiated rates. Citing Parnell, the Dameron court said that 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.
Although the hospital argued that disallowing its liens furthered an industry-wide practice of shortchanging hospitals, the Dameron court said that was up to the Legislature. But the Dameron court did reject the insurers’ contention that Howell v. Hamilton Meats (2011) 52 Cal.4th 541, and subsequent decisions, entirely eliminated all rights to collect the difference, noting that Howell involved whether a patient could recover the customary billing rate from a tortfeasor, not a claim by the hospital against a tortfeasor and his liability insurers. The Dameron court said that Parnell remains valid insofar as it allows hospitals to contract for a reservation of rights to recover from tortfeasors the differential between the negotiated and the usual and customary rates for emergency room services.
The problem for Dameron Hospital was the wording of its agreement with Kaiser to accept negotiated rates. Factually, Dameron argued that its practice was to issue a bill to Kaiser for the discounted amount, while also asserting a lien and issuing a bill for the full amount to the tortfeasor and his insurer. Depending on who paid first, Dameron would then either cancel the Kaiser bill or reimburse Kaiser, thereby recouping the difference. However, the Dameron/Kaiser contract was nearly twenty years old, predating Parnell, Howell and the subsequent authorities. The Dameron/Kaiser contract specifically stated that payment by Kaiser constituted payment in full and there was no express reservation of the right to assert a lien or seek the balance from a third party or his insurer.
Applying ordinary rules of contract interpretation, the Dameron court concluded that Dameron Hospital had no right to assert liens against the tortfeasor or his insurers in an after-the-fact lawsuit for damages. However, the Dameron court affirmed a hospital’s right to recover the difference between negotiated and customary rates by using the appropriate wording in its contract for negotiated rates.
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