Hospital Liens: Factual and Legal Reduction Strategies

February 13, 2020

By: Michael Walrath

Some of the most frustrating and murky issues facing attorneys representing injured clients stem from alleged direct provider “liens” against settlement proceeds. The positions of various state bar associations on these issues, and the limited law delineating them, have historically been ever-shifting and evolving.

1. Ethical Obligation to Protect Liens

One constant in this otherwise uncertain area, is this: Attorneys representing injured Plaintiffs in personal injury actions have an ethical responsibility to use all reasonable efforts to resolve disputes between clients and known third-party lienholders.

Pursuant to the rules of most state bar associations and the ethics opinions interpreting them, injury attorneys cannot unilaterally arbitrate lien disputes. If a dispute cannot be resolved through negotiation, then injury attorneys should consider the possibility of depositing the disputed funds into the registry of the applicable court and proceed to adjudicate the dispute. Ethics committees in many states have stated that injury attorneys should endeavor to assist clients and third-party lienholders in effecting a compromise and resolving lien disputes, if possible. If such efforts fail, lawyers are often encouraged to institute interpleader actions in a court of competent jurisdiction naming their client and the physician as co-defendants. For obvious reasons, this should be a last resort and is not the only option in so far as adjudication goes, even at impasse. Other options include suits against providers for overcharging, unfair or deceptive billing practices, unfair debt collection practices, declaratory relief, or similar.

1. Unreasonable Hospital Charges

            While not necessarily in the lien context, the overarching issue of unreasonable medical charges, especially hospital charges, have become increasingly prevalent in national and local news. Headlines like the following are appearing across the country, almost daily:

• ‘I wasn’t doing anything crazy’ | Florida man faces $100K hospital bill after e-scooter crash (ABC News, July 19, 2019)

• When a hospital sling costs 900% more than Amazon’s price, something is very wrong (Los Angeles Times, Sep 13, 2019)

• ‘Really astonishing’: Average cost of hospital ER visit surges 176% in a decade, report says (USA TODAY, Jun 4, 2019)

Hospital charges, untethered to their internal costs or the average amounts they negotiate, receive and accept as payment in full, have skyrocketed. Thankfully, only a small percentage of the patient population is even asked to pay full billed charges, and an even smaller fraction pays them. But unfortunately, plaintiffs injured in third-party liability scenarios are among those unlucky patients.

Thankfully, the law in most states allows patients to challenge unreasonable hospital charges. The touchstone of such a challenge usually centers on the reality that the parties to the agreement to pay for the services, i.e., the hospital and the patient, do not agree on a price term. The “open price term” doctrine ensures that while a contract can be concluded and binding without agreement to price, a “reasonable” price is imported into that “open price term” contract. A quote from the seminal case in Florida sums up this concept as follows:

A patient may not be bound by unreasonable charges in an agreement to pay charges in accordance with “standard and current rates.” When a contract fails to fix a price furthermore, a reasonable price is implied. Humana thus is limited to reasonable compensation.

Payne v. Humana Hospital Orange Park, 661 So.2d 1239 (Fla. 1^st DCA 1995). With the reasonableness challenge on solid legal footing, the common law in most states goes on to illuminate the types of evidence relevant to reasonable value. There are essentially types of evidence which show up in state case law across the country, as follows: 1) the average charges in the community for identical care (often referred to as “usual and customary rates” or UCR), 2) the average amounts providers accept as payment in full across the entire spectrum of payers, including managed care, often referred to as “average reimbursement rates,” and 3) the “cost of care” which includes evidence of the provider’s internal cost structure. A federal case which set these factors out clearly has been effectively adopted in several states, in whole or in part, describes these elements as follows:

Plaintiff’s claim of unreasonable pricing for hospital services could be proved based on the following non-exhaustive types of evidence: (1) the relevant market price for hospital services (including the rates charged by other similarly situated hospitals for similar services); (2) the usual and customary rate Mercy charges and receives for the services in question; and (3) Mercy’s internal cost structure.

Colomar v. Mercy Hospital, Inc., 2007 U.S. Dist. LEXIS 52659 (S.D. Fla. 2007). Texas is one such state, and its Supreme Court held as follows when addressing discovery issues in a case wherein a plaintiff challenged the reasonableness of hospital charges asserted under Texas’ hospital lien statute:

In any event, for discovery purposes a hospital’s costs surely have some bearing on the reasonableness of its patient charges. See Colomar, 461 F. Supp. 2d at 1272 (noting that a hospital’s internal cost structure could play a role in evaluating a claim of unreasonable pricing). Accordingly, we hold that the trial court did not order the production of irrelevant information.

In re N. Cypress Med. Ctr. Operating Co., No. 16-0851, 2018 Tex. LEXIS 1148, at *18 (Apr. 27, 2018). While not an exclusive list of evidence relevant to reasonable value, the above factors lend a good starting point, in most states.

• Hospital Liens

Hospital liens are the mechanism which “attach” a hospital “debt” to a personal injury settlement. These liens attach only to settlement proceeds, they do not attach to any other personal or real property of the patient/plaintiff. The easy way to understand and remember the difference between “liens” and “debts” is that DEBTS ATTACH TO PEOPLE, while LIENS ATTACH TO PROCEEDS. Hospital liens have been the subject of much litigation, nationally. Forty states and the District of Columbia[1] have enacted state statutes creating hospital liens. In contrast, Florida instead offers lien rights on a county by county basis. I strongly recommend a LEXIS or West Law search of your state statute and review of the cases cited below. Treatment, rights, and obligations, penalties for impairment, and general interpretation of everything from equity to timely filing, vary widely by state.

1. Case Study

As part of every presentation to injury firms across the country, I always start by asking about the status quo. Firstly, what size discounts do you typically see on cases with full settlements (what is the “worst” discount you would agree to and what is a good day) when negotiating a hospital lien? The numbers I am told are surprisingly consistent. Typically, I am told they would never settle for less than a 20% discount, and a 40% discount is a “home run” (on a fully-funded case; i.e., equitable reductions vary based upon settlement size).

Accordingly, the following chart displays an actual Synergy case, which was analyzed for “reasonable value” and ultimately resolved at a discount. Compare the values for the “worst” average discount (20% off), the “home run” discount (40% off) and the results of instead reducing to various percentages above “reasonable value.”

“Status Quo” negotiated discounts from Full Billed Charges ($95,457.12)

Enhanced “Cost Up” Negotiations, from the Reasonable Value of Care ($20,000)

As illustrated above, negotiating up from the “Reasonable Value” (cost of care plus a reasonable profit), often results in much deeper discounts, while negotiating down from the Full Billed Charges often results in significant overpayments to the hospital.

Synergy offers two products to assist with hospital and other direct provider liens, as follows:

• Reasonableness Reports. Synergy analyzes your provider bills/liens, eliminates all non-billable charges and reprices billable charges to a reasonable profit above cost. The fee for Reports is 15% of the additional savings you obtain in your negotiations, using the Report.
• Full Negotiation Services. Using the same data, analysis and methodologies, coupled with Synergy’s hundreds of years of combined experience negotiating the release of health liens, Synergy will negotiate for you and charges 15% of the additional savings we obtain.

As you know, 100% of all post-settlement time and resources spent resolving liens are “sunk costs” on your files. Synergy’s efforts often result in deeper discounts than are typically obtained negotiating in-house. Accordingly, the “path of least resistance” also happens to the road to the deepest discount. Please consider Synergy on your next hospital/provider lien issue and see why thousands of attorneys across the country rely on Synergy to save their clients money, while also saving their staff time.

Please do not hesitate to contact us with any questions and thank you for your support.

[1] See Ala. Code § 35-11-370; Alaska Stat. § 34.35.450; Ariz. Rev. Stat. Ann. § 33-931; Ark. Code Ann. § 18-46-101; Cal. Civ. Code § 3045.1; Colo. Rev. Stat. Ann. § 38-27-101; Conn. Gen. Stat. Ann. § 49-73; Del. Code Ann. tit. 25, § 4301; D.C. Code § 40-201; Ga. Code Ann. § 44-14-470; Haw. Rev. Stat. § 507-4; Idaho Code Ann. § 45-701; 770 Ill. Comp. Stat. Ann. 23/1; Ind. Code Ann. § 32-33-4-1; Iowa Code Ann. § 582; Kan. Stat. Ann. § 65-406; La. Rev. Stat. Ann. § 9:4751; Me. Rev. Stat. tit. 10, § 3411; Md. Code Ann., Com. Law § 16-601; Mass. Gen. Laws Ann. Ch. 111, § 70a; Minn. Stat. § 514.68; Mo. Ann. Stat. § 430.230; Neb. Rev. Stat. Ann. §§52-401 & 52-402; Nev. Rev. Stat. Ann. § 108.590; N.H. Rev. Stat. Ann. § 448-A:1; N.J. Stat. Ann § 2a:44-35; N.M. Stat. Ann. § 48-8-1; N.Y. Lien Law § 189; N.C. Gen. Stat. Ann. § 44-49; N.D. Cent. Code Ann. § 35-18-01; Okla. Stat. Ann. tit. 42 §§43 & 44; Or. Rev. Stat. Ann. § 87.555; R.I. Gen. Laws Ann.§§9-3-4 to 9-3-8; S.D. Codified Laws § 44-12-1; Tenn. Code Ann. § 29-22-101; Tex. Prop. Code Ann. § 55.001; Utah Code Ann. § 38-7-1; Vt. Stat. Ann. tit. 18, § 2253; Va. Code Ann. § 8.01-66.2; Wash. Rev. Code Ann. § 60.44.010; Wis. Stat. Ann. § 779.80