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Hospital may not assert lien for balance of its usual charges after receiving discounted payment from insurer

Law Reporter, May 2003

Parnell v. Adventist Health Sys./W., 131 Cal. Rptr. 2d 148 (Ct. App. 2003).

A California appellate court held that a hospital paid for services under the terms of its contract with an insurer may not file alien against a patient's tort recovery to recover the difference between die insurance payment and the hospital's customary charges for similar services.

Here, a hospital provided treatment to a taxi passenger after he was injured in a collision. The patient sued the driver of the vehicle that hit the taxi. The hospital asserted a lien seeking to recover the difference between the payment it had received from the man's insurer and the hospital's customary charges for its services. The patient sued the hospital, alleging unfair business practices. The trial court concluded that the hospital was not barred by its negotiated discount with the insurer from seeking to obtain the balance from any tort recovery later won by plaintiff.

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Reversing, the appellate court examined the state law authorizing such liens and found that a plain-language reading of the statute cannot uphold the practice of seeking additional charges from later tort recoveries, often referred to as "balance-billing." It is up to a hospital to accept or refuse the level of payment offered by the payor, the court said. If the hospital accepts a discounted level of payment, the patient's debt must be considered paid in full.

Nothing in the text or legislative history of the statute indicates that California intended to relieve a hospital of its choice to provide services at a price below the usual and customary charges for such services, the court found. Whether it makes the choice at the time of entering into a provider contract with an insurer or in negotiations with the patient after services have been provided to a particular patient is immaterial, the court added.

The court observed that the law permits hospitals to seek "reasonable and necessary charges" through liens, but does not define this term. Balance-billing charges cannot be deemed "necessary" in any usual sense of that word, the court reasoned, because such charges are not necessary to obtain services for the patient, who has an existing contract right to services at the rates provided by the medical insurance policy.

Accordingly, the court remanded.

Plaintiff's Counsel

*William K. Hanagami, Los Angeles, Cal.

Ralph B. Wegis, Bakersfield, Cal.

Comment: For a contrary holding, see Swanson v. St. John's Reg'l Med. Ctr., 118 Cal. Rptr. 2d 325 (Ct. App. 2002). Two cases addressing the issue are pending before the California Supreme Court.

Documents in Parnell are available through the Court Document Sets section in the back of this issue, courtesy of Mr. Hanagami.

Hospital may not assert lien for balance of its usual charges after receiving discounted payment from insurer

Law Reporter, May 2003

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