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Frosting a Hospital Lien, and Other Tips Part 1

April 10, 2018

 

Few liens hamper the final settlement of a case more than statutory hospital liens.  For many years, § I.C. 32-33-4, the “Hospital Lien Statute,” (“Statute”) had allowed hospitals to charge different amounts to patients depending on the circumstances requiring the patient’s care.  But the amount a hospital receives as payment, and the amount a patient is obligated to pay, should not change just because the patient was harmed due to the negligence of others.

 

On July 1, 2013, after long, hard, work by many, including the ITLA, a new version of the Statute was enacted.  Every change greatly enhanced the rights of patients, and curtailed abusive billing practices of hospitals. These changes were first detailed in ITLA’s Verdict magazine.(1)

 

Despite this dramatic victory, hospitals lost no time in identifying ways to claw back profits.  Hospitals are still aggressively filing liens because that is the quickest way for them to get the most money. This has led to a series of trial court level declaratory actions that continue to this day.  The only one that has resulted in an appellate level opinion is Parkview Hospital, Inc. v. Frost, 52 N.E.3d 804 (Ind.Ct.App.2016).  Ostensibly, it is merely a “discovery”opinion, but it is much more.  How it can be used, and built upon is vital for every personal injury lawyer to know.  But first, it is helpful to know the history and anatomy of hospital liens, and how the

 

2013 amendments to the Statute fundamentally changed how we address them.

 

A.  History of the Hospital Lien Statute

The Statute was originally adopted in 1933 during the Great Depression, long before private health insurance and other medical plans became widespread, and long before programs like Medicare were adopted.  Meta Calder, Florida's Hospital Lien Laws, 21 Fla. St. University Law Review, 341, 370 (Fall 1993).  The underlying purpose of the Statute was to insure that hospitals are compensated for their services. Parkview Hosp., Inc. v. Roese, 750 N.E.2d 384, 387 (Ind. Ct. App. 2001).

The Statute has long given hospitals the right to file a lien for all reasonable and necessary charges for hospital care, treatment, or maintenance of patients if the injuries giving rise to the claim required the hospital care.  Id. at 386-387.  But from its laudable beginnings during the Depression, collection practices of hospitals over the years became increasingly aggressive.

 

1. The Statute allowed hospitals to use aggressive billing tactics.

 

The Statute historically gave hospitals a means to be compensated for their services, but it also often put patients harmed due to the negligence of others in a much worse financial position.   For instance, the old version of I.C. 32-33-4-3(b)(5) [2002] required hospitals to reduce charges only by the “amount of any medical insurance proceeds paid to the hospital” before filing the lien.  But it did not require hospitals to give patients the benefit of pre-negotiated health insurance discounts normally required by the contracts between the insurers and the hospitals.  That meant that hospitals could file liens for their “gross” chargemaster rates, minus the amount they actually received from insurers.  The remainder left patients exposed to the collection of much higher sums than if they had not had a liability claim at all.

 

Also, the old Statute ostensibly allowed a patient to keep 20% of a recovery.  I.C. 32-33-4-3(c)[2002 version]. But this 20% was only after attorney fees, case expenses, and payoffs on properly perfected hospital liens. Id.  Patients still had to pay any other medical bills not covered by the Statute, like doctors’ bills, out of the 20%.  Worse, even if a hospital was forced to reduce its lien recovery due to the “20% rule”, it could still go after the patient for the balance after the lien was released.  Cullimore v. St. Anthony Medical Center, Inc., 718 N.E.2d 1221 (Ind. Ct. App. 1999).  This point, later affirmed in Clarian Health Partners v. Evans, 848 N.E.2d 763 (Ind. Ct. App. 2006), allowed this practice of “balance billing” to expose the patient to the collection of the entire unpaid balance.

 

Even that might have been fair, if the charges were reasonable.  But hospitals often failed to give the insured patients the benefit of the insurance discounts, and claimed the full “chargemaster” rates.  As noted above, chargemaster rates usually contain highly inflated prices at several times that of actual costs to the hospital. See also Steven Brill, Bitter Pill: Why Medical Bills Are Killing Us, Time (February 20, 2013).

 

The complexities of modern health care pricing now make it difficult to determine whether the amount charged, the amount accepted by providers, or some amount in between represents the “reasonable value” of medical services.  One authority reports that hospitals historically billed insured and uninsured patients similarly. Mark A. Hall & Carl E. Schneider, Patients As Consumers: Courts, Contracts, and the New Medical Marketplace, 106 Mich. L. Rev. 643, 663 (2008).  But with the advent of managed care, some insurers began demanding deep discounts, and hospitals shifted costs to less influential patients.  Id.  Insurers generally pay about forty cents per dollar of billed charges, with hospitals accepting such amounts in full satisfaction of the billed charges. Id.

 

As more medical providers are paid under fixed payment arrangements, hospital charge structures have become less correlated to hospital operations and actual costs.  The Lewin Group, A Study of Hospital Charge Setting Practices (2005).  Currently, the relationship between charges and costs is “tenuous at best.” Id. at 7.  In fact, hospital executives reportedly admit that most charges have “no relation to anything, and certainly not to cost.”  Hall, Patients As Consumers, at 665.  Our Indiana Supreme Court recognized this in Stanley v. Walker, 906 N.E.2d 852, 857 (Ind. 2009).  

 

The old Indiana Hospital Lien Statute became a vehicle for hospitals to maximize their revenue by using the full gross chargemaster rates.  For example, this was particularly helpful to hospitals where the patients were Medicare recipients. Ordinarily, a hospital would be obligated to submit bills of such a patient to Medicare, after which it would be discounted, some payment would be made, and the beneficiary would be left with some modest balance.  But the hospitals litigated for, and won, the right not to have to submit its bills to Medicare if the patient was the victim of negligence.  Parkview Hosp., Inc. v. Roese, 750 N.E.2d 384 (Ind. Ct. App., 2001).  Due to this, many Medicare beneficiaries were treated no differently than an uninsured patient.  In the case of the wrongful death of a Medicare beneficiary, the Statute thus exposed the general assets of the patient’s estate to collection in satisfaction of hospital charges that did not have to be submitted to Medicare, and which were not satisfied in full through the lien mechanism, as allowed by Clarian Health Partners v. Evans, 848 N.E.2d 763 (Ind. Ct. App. 2006).  Thus, making a wrongful death claim could have unwittingly bankrupted the patient’s estate.  Similarly, a hospital used to have no duty to submit charges to Medicaid if it instead wished to file a lien under the Statute for the full chargemaster rates.

 

The Hospital Lien Statute was a powerful tool for hospitals, ensuring that payment to them had priority over nearly everyone else in a liability claim, including ordinary doctors.  But these aggressive tactics eventually caused a groundswell of public support, which in turn caused the Legislature to drastically amend it.

 

2. The new Hospital Lien Statute enacted on July 1, 2013, greatly increased the rights of patients.

 

The new Hospital Lien Statute, still codified as I.C. 32-33-4, looks very different from the 2002 version.  A simple comparison shows the Legislature wanted to ensure that the amount of money a hospital receives for its services would not depend on the circumstances that required the care (e.g., a third party liability claim).  Every substantive change expanded the rights of patients, and curtailed the rights of hospitals.

 

For instance, the Legislature nullified Parkview Hospital, Inc. v. Roese, 750 N.E.2d 384 (Ind. App. 2001) by adding Medicare to the list of exemptions under I.C. 32-33-4-3(b)(3).  Now, if a patient is a Medicare recipient, the Statute simply is not applicable. In addition, it added a completely new Section (3.5) to enumerate several patient rights that must be considered after a lien is properly perfected.

 

In addition, I.C. 32-33-4-3(b)(5) was changed to expand the lien prerequisite greatly, stating that the hospital charges “must . . . first be reduced by the amount of any benefits” [like Medicaid] “to which the patient is entitled under the terms of any contract, health plan, or medical insurance.”  This section now explicitly requires hospitals to give patients the benefits of all adjustments by the “contract” or “health plan.”  This change eliminates the unfair practice of “balance billing”, which had been allowed by Clarian Health Partners v. Evans, 848 N.E.2d 763, (Ind.Ct.App. 2006).(2)

 

It should be noted that the Legislature had no reason to include Medicaid in the list of exemptions in Section 1 of the Statute.  Medicare was listed as an exclusion to specifically repudiate the Roese case, which removes that program from this discussion.  Since the Legislature did not list Medicaid under the exclusions in Section 1, its participants are still subject to the Statute.  This simply means that hospitals may still file liens for the “amount designated as a copayment or deductible” after they comply with Section 3(b)(5) by submitting charges for payment and adjustment.  The current Statute applies to Medicaid, although many hospitals are still disputing this fact.  This means that hospitals must first submit bills for payment and adjustment to Medicaid for qualified patients.  Afterward, hospitals are free to file a lien if there is any remainder properly owed by the patient.(3)

 

The 2013 amendments to the Statute make it evident that ensuring patient rights to only be charged a fair amount are just as important as the goal of compensating hospitals.  Hospitals still uniformly are on a quest to obtain the highest profits possible, so they will continue to “plead poverty” among their attempts to circumvent the changes. However, they seem to be doing quite well financially.  For instance, Parkview Hospital, based in Fort Wayne, benefits from the favorable tax status of being a “not-for-profit” entity. “Not-for-profit” hospitals are required to file a Form 990 with the federal government each year. The reports are available online at:  http://foundationcenter.org/findfunders/990finder.  In its 2013 Form 990 filing, Parkview reported hundreds of thousands of dollars in charitable gifts(4) to causes which have nothing to do with its core not-for-profit mission of providing medical care.(5)

 

Regardless of the corporate strategy behind such gifts, or the worthiness of these charities, it is unfair for hospitals to fund their largesse (which enhances their businesses “goodwill” and marketing) at the expense of the victims of negligence.  All patients should have the right to know that the amounts they are charged are “reasonable.”

 

 

(1). See 09/01/2013 article by Dan Ladendorf, Hospital Liens: Curbing the Greed.

(2). See side by side comparison of 2002 and 2013 versions of the “must first” rule in Section 3(b)(5).

(3). Indiana Medicaid currently requires members to pay premiums, contributions, and co-pays in many instances. See http://member.indianamedicaid.com/programs--benefits/important-things-to-know/payment-expectations.aspx.

(4). For instance, a $500,000 cash grant to the Embassy Theatre capital campaign.

(5). “Our mission is to improve the health of the communities we serve.” See http://www.parkview.com/en/about-us/Pages/default.aspx.

 

 

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