I.            Introduction
Even in the absence of an express contract, the rendering of medical services creates an implied contract between the hospital (or other health care provider) and its patient, resulting in a creditor-debtor relationship.  Unlike most other creditors, however, hospitals must often provide services without first ascertaining whether the patient can pay.  This is virtually always the case where a patient is injured in an accident and requires emergency care.

In an attempt to lessen the burden imposed on hospitals that provide care to injured patients, many legislatures have enacted hospital lien statutes (sometimes called physician’s liens).  Lien statutes give the hospital a lien upon recoveries the patient might receive to compensate for his or her injuries.1 Lien statutes do not change the fact that the patient is still responsible for paying his or her bill. However, by granting the hospital a security interest in any settlement, judgment or other money paid to the patient on account of his injuries, lien statutes provide a mechanism for the hospital to ensure its bill will be satisfied in whole or in part out of those funds.

Questions often arise regarding the enforceability of a hospital lien after the hospital has received a discounted payment for its services from a patient’s health insurance company, Medicare or Medicaid.  This article will address the effect of those payments on hospital liens and suggest steps a hospital can take to increase the chance that its lien rights will be protected, thereby maximizing potential recoveries.

II.            Hospital Liens and Health Insurance
If a patient has health insurance that pays a portion of the patient’s medical charges, the hospital’s ability to enforce a lien for the difference between the insurance payment and the hospital’s actual charges will depend upon whether there is a provider agreement and the terms of that agreement.

  
In the absence of a provider agreement, the hospital is generally free to enforce a hospital lien in addition to (or instead of) seeking reimbursement from the health insurance company.2  Where there is a provider agreement, the hospital can only enforce a lien if consistent with the language of the agreement.  As a general rule, a hospital lien will not be allowed if the provider agreement simply states that negotiated rates must be accepted by the hospital as “payment in full.”  However, if the provider agreement allows recovery in excess of the negotiated insurance rate from other sources, it is more likely that the hospital’s lien rights will be enforced.  To facilitate protection of lien rights, hospitals can attempt to include language that expressly allows recovery in excess of the negotiated insurance rate from third party payers and makes reference to lien rights in provider agreements.

            1.            “Payment in Full” Provisions
Within the health insurance industry, it is common for insurers and medical providers to enter into agreements in which the provider agrees to accept as full payment an amount less than what is billed to the insured patient. In exchange for the provider's agreeing to offer its services at a discounted rate, the insurer agrees to create incentives for its insureds to use the provider, thus helping to ensure a higher volume of patients for the provider.  If the provider agreement contains a “payment in full” provision or prohibits the hospital from balance billing the patient and says nothing about third party payers or lien rights, the hospital will generally not be entitled to assert a hospital lien.  The rationale behind this rule is that once a patient’s health insurance has paid, no debt is owed from the patient to the hospital.  In the absence of a debt, there can be no lien.

To illustrate, in N.C. v. A.W3 the patient was treated at Northern Illinois Medical Center (NIMC) following an automobile accident.  Although the patient’s medical bills totaled $22,551, plaintiff’s health insurer paid NIMC an agreed rate of $4,200 as “payment in full” pursuant to NIMC's network contract with One Health Plan of Illinois, Inc. (One Health).  The contract between NIMC and One Health provided that after payment by the insurer, NIMC could only bill a member for deductibles, coinsurance, copayments, and charges for non-approved or non-covered services.

In a subsequent action to determine the validity of a hospital lien filed by NIMC against the proceeds of a third party liability settlement (stemming from the automobile accident), the court held that the lien was not enforceable.  The court stated that in order for a hospital lien to attach, there must be a debt owed from the patient to the hospital.  Because the provider agreement between NIMC and One Health extinguished all debts when the patient’s health insurer paid NIMC at the agreed rate, no lien could attach.

A similar conclusion was reached in the more recent case of Parnell v. Adventist Health System.4  There, the patient was injured in an automobile accident and treated at San Joaquin Community Hospital (owned and operated by defendant Adventist Health System/West). The court held that where a hospital accepts a contractually agreed upon reduced rate from the patient’s health insurer as “payment in full” under a provider agreement, the hospital cannot assert a hospital lien against a potential damage recovery from a third-party tortfeasor.  The court reasoned that acceptance of the payment in full from the health insurer extinguishes the plaintiff's obligation to the hospital and, thus, removes any basis for the assertion of the hospital lien.5

            2.            Negotiated Lien Rights
Because most provider agreements prohibit hospitals from charging patients for services covered by the agreement, hospitals cannot avoid the effect of “payment in full” provisions by simply choosing not to bill a patient’s health insurance company.6  However, hospitals can attempt to negotiate provider agreements that allow them to enforce hospital liens even when they have negotiated reduced-rate payments from health insurance payers.  The court in the Parnell case recognized this alternative:

By precluding the Community Hospital from asserting a lien under the [Hospital Lien Act] in this case, we “simply give[ ] effect to” its contracts. . . . If hospitals wish to preserve their right to recover the difference between the usual and customary charges and the negotiated rate through a lien under the [Hospital Lien Act], they are free to contract for this right.  Our decision today does not preclude hospitals from doing so.7

Several courts have addressed the type of language that may protect a hospital’s ability to enforce its lien rights.  For example, in Rogalla v. Christie Clinic,8 the patient suffered injuries in an auto accident and was treated at Christie Clinic, P.C.  The patient had health insurance through an HMO that had entered into a medical services/capitation agreement with Christie Clinic.  Following the patient’s settlement with the at-fault party in the auto accident, the Court held that Christie Clinic could enforce a Physician’s Lien against the settlement proceeds based on the following language contained in the medical services agreement:  "Christie and PersonalCare shall have the right to seek to recover charges incurred as a result of providing Medical/Hospital Services which are the liability of a third party.” 

In Andrews v. Samaritan Health System,9 the Court also held that hospitals may enforce medical liens against patients’ tort recoveries where provider contracts contained language to that effect.  In that case, the provider contracts each contained language stating that the hospitals accepted the plaintiffs' insurer's payment as "payment in full." However, the contracts also reserved the right of the hospitals to recapture from third party payers the difference between any payments made by the insurer and the providers' customary charges.   The Court held that this reservation clearly qualifies the "payment in full" language and sets forth the hospitals' expectation to recover their customary charges when possible.

Finally, in Richmond v. Caban,10 the patient was injured in an automobile accident and incurred $24,238 in medical expenses at Copley Memorial Hospital (Hospital).  Knowing it would receive less than one-third of the value of its services if it submitted a claim to the patient’s HMO policy, the hospital instead attempted to maximize its recovery by filing a lien against the patient’s settlement proceeds.  The court found that while the hospital could bill the HMO, it was not obligated by the provider agreement to do so prior to enforcing a hospital lien.  The court based its finding on language in the agreement that provided that the hospital would first seek payment from the third party insurer and then recover any additional amounts allowed under the provider contract from the insurer (i.e. the difference between the amount allowed under the provider agreement and the amount paid by the tortfeasor).  Ultimately, however, the Court held that an indemnity provision contained in Illinois’ HMO Act limited enforcement of the lien to (1) applicable co-payments or deductibles or (2) fees for services not covered by the policy.

The foregoing authorities indicate that lien rights may be protected where the provider agreement includes language that allows the hospital to recover payments from third party payers, including tortfeasors and their insurers, in excess of the negotiated insurance rate.  A payer’s ability and willingness to enter into such an agreement will depend, at least in part, on its existing member contracts and any limitations imposed by such contracts.  If a payer is willing to include language protecting lien rights in its provider agreement, the agreement should clearly state that both parties contemplate an exception to any “payment in full” language and should make specific reference to enforcement of hospital liens.

III. Medicare and Medicaid
If a hospital accepts a payment from Medicaid or Medicare for medical services rendered to a patient, the law is well-settled that the hospital may not also enforce statutory lien rights.11  The rationale behind this rule can be found both in the language and intent of the Medicaid and Medicare programs.  Federal Medicaid regulations clearly mandate that states must require providers to accept Medicaid payments as payment in full.12 This language prevents providers from billing any entity for the difference between their customary charge and the amount paid by Medicaid.13 Similarly, a hospital that participates in the Medicare program is termed a “participating provider”.14 To be a participating provider, the hospital must enter into an agreement with Medicare.15 The first requirement of the agreement is that the provider promise “not to charge ··· any individual or any other person for items or services for which such individual is entitled to have payment made under this subchapter ····” 16

The mere fact that a patient is eligible for Medicaid or Medicare does not, however, preclude a hospital from asserting a hospital lien.  There is authority that indicates that a hospital can elect to refuse a Medicaid payment and instead choose to pursue a hospital lien.  In Evanston Hosp. v. Hauck, the court stated:

. . . Evanston Hospital was not “forced” to abandon its right to sue Hauck; no one coerced the hospital into cashing a $113,424 [Medicaid] check from the taxpayers as partial reimbursement for Hauck's medical bills. Rather, the hospital could have simply forsaken Medicaid and taken its chances that Hauck would somehow come up with the money to pay the bills himself.17

However, as the Evanston case makes clear, the decision to pursue a hospital lien in lieu of accepting a Medicaid payment must be made before the Medicaid payment is accepted by the hospital.  In other words, the hospital cannot cash a Medicaid payment and then wait until after a third party action against a tortfeasor is resolved to decide whether or not the Medicaid payment or its hospital lien would be more lucrative. 

A similar choice must be made between billing Medicare and pursuing potential third party liability.  When a hospital has reason to believe that it has provided services to a patient for which payment under liability insurance may be available, Medicare Secondary Payer rules require that the hospital only bill the liability insurer during the first 120-days after services have been provided unless there is evidence that the liability insurer will not pay within the time period. After the 120-day timeframe has ended, the hospital may, but is not required to, bill Medicare for conditional payment if the liability insurance claim is not resolved. If the hospital chooses to bill Medicare after the 120-day period and is paid, it must withdraw all liens against the liability insurer and the patient’s settlement. The Medicare reimbursement must be accepted as payment in full and the hospital may charge the beneficiary only for applicable deductible, coinsurance, and non-covered services.