Stricter rules for hospitals trying to collect liens

When a person receives treatment at a hospital, but is unable to pay for that treatment, the hospital may assert a lien against any recovery that the injured person obtains from a negligent third party that caused the injuries. See Civil Code §§ 3045.1-3045.6 (the Hospital Lien Act). The hospital is entitled to recover the amount of its “reasonable and necessary charges” from the proceeds of any settlement of judgment. While hospitals have always assumed that “reasonable and necessary charges” means the entire amount of their bills, a recent Court of Appeal opinion has placed significant burdens on hospitals in proving what is “reasonable and necessary.”

In State Farm Mutual Auto. Ins. Co. v. Huff (2013) 216 Cal.App.4th 1463, the underlying personal injury case went to trial, and the plaintiff offered into evidence the $34,000 bill that he had incurred at the hospital where he was taken right after the subject automobile accident. The jury returned a verdict of $356,000 for the plaintiff, but it was not clear whether the verdict included the entire $34,000 or some portion of it.

The hospital asserted a lien for its $34,000 in charges, and a dispute arose as to the amount which it was entitled to recover. That dispute proceeded to a bench trial, at which the hospital put on evidence that the amounts charged to the plaintiff were based on the hospital’s standard rates. The trial judge ruled that the hospital was entitled to recover its entire lien.

The Court of Appeal reversed, holding that, under the Hospital Lien Act, a hospital bears the burden of proving that its lien represents “reasonable and necessary charges,” which requires a showing that: (i) the services provided were attributable to the subject accident, (ii) the services were necessary in treating the patient and (iii) the charges were reasonable. A hospital does not meet that burden simply by showing that it charged the plaintiff its standard rates or that the plaintiff sought to recover the entire amount of the hospital’s bill in the personal injury action. The hospital must introduce testimony from medical professionals in order to satisfy these three elements.

This opinion is the flip side of the recent opinions that have limited plaintiffs to recovering the amount of their medical bills that was paid by insurance, rather than the total amount charged. Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541; Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308. Indeed, the Huff opinion cites both Howell and Corenbaum. The underlying premise of all of these opinions is that “the full amount billed by medical providers is not an accurate measure of the value of medical services.” Corenbaum, 215 Cal.App.4th at 1326. Hospital charges, in particular, are grossly inflated, and no one, other than some uninsured patients, ever pays a hospital’s “standard” rates. It is only fair that if the plaintiff’s recovery in his personal injury case is reduced because of this fact, then the hospital’s recovery on its lien should be similarly reduced.

The net effect of Huff should be to make it easier to get hospitals to reduce their liens in settlement. Faced with the prospect of trying to justify its inflated charges, and having to pay doctors or other medical professionals to testify as to the reasonableness of each item in its bill, a hospital will likely be more inclined to reach a compromise. This is, after all, “found money,” in the sense that hospitals usually never get a dime of their money back when they treat uninsured patients.

At long last, an appellate opinion which helps plaintiffs keep more of the money that their lawyers obtain for them by way of settlement or trial!