Insured Patients May Still Face Hospital Liens

Many hospitals in California, no longer satisfied with the payments made by accident victims’ health insurance, are seeking a share of the money patients get from lawsuits and settlements.

In one case, Pamela Henline of San Diego was still in the hospital recovering from a car wreck that left her a quadriplegic when she got another jolt.

Scripps Memorial Hospital in La Jolla, which treated Henline’s spinal injuries, demanded that she pay the difference between what her insurer paid and what the hospital says was the actual cost of her care: $16,000.

The hospital placed a lien against any money that Henline might recover from a tow truck driver and others who caused her car to slam into a concrete barrier on Interstate 5 in San Diego.

“This was rubbing it in,” said Henline, 54. “My life is already ruined and here they [are] sending me bills that don’t make sense.”

Scripps Memorial took the action despite having previously negotiated the discounted fees with Henline’s insurer, Prudential Healthcare Plan of California.

Christine Friestad, an attorney for Scripps, argued that the hospital chain was not seeking the money from Henline or other victims but from the people who caused their accidents.

“Our provider put the patient back together so some of that windfall is ours,” Friestad said. “I don’t think it’s fair for people to collect money from third parties and put it in their pocket when they still owe the hospital money.”

Scripps is not the only hospital doing this. Scores of hospitals have sought--and received--full payment from thousands of accident victims, placing liens against their court awards or settlements.

Health insurers and some judges say that the liens are improper when hospitals agree to accept a patient’s insurance as full payment for care.

Patients Caught in the Middle

The battle over money won in court is a symptom of the financial distress throughout the health care system. The problem stems from the dominance of large managed care firms, whose main strategy was to reduce costs by negotiating lower fees with groups of doctors and hospitals. The net result left many health care providers with too little cash.

Several managed care companies are near insolvency. Hospitals are finding that the discounted fees do not generate enough money for them to stay afloat.

Now many patients complain that they are caught in the middle.

“Some hospitals have reached a level of desperation where they’re scrambling for any potential pocket of money,” said Peter Boland, a health care consultant in Berkeley. “They’re using a scattered shotgun approach where they’re firing off many salvos hoping some of them hit and bring in more money.”

The practice of placing liens to force patients to pay the actual cost of their care has yielded millions of dollars for some hospitals, according to hospital executives and their collection agencies.

A hospital trade group says the recovered money has helped to keep the state’s trauma centers and emergency rooms open during the last few years.

“About 60% of our hospitals are operating in the red,” said Jim Lott, vice president of the California Health Care Assn. “They need this [lien] money.”

But the tactic also may backfire.

A San Diego judge is allowing Henline to sue Scripps and its collection agency for the agony she said she suffered when they pressed her for the lien money.

That suit is scheduled for trial this summer.

Also working its way through the courts is a class-action suit filed earlier this year against Scripps, seeking to recover all the money paid from liens--legal devices that put holds on assets until disputes are resolved.

Richard Ivey, a director of Scripps’ collection agency, said other hospitals and collection agencies are closely watching the Henline and class action lawsuits.

“Everyone is running scared,” Ivey said. “If this goes against us, the others believe they could be exposed.”

By all accounts, placing liens against accident victims is becoming increasingly common in California and elsewhere.

Tenet Healthcare Corp., the second-largest U.S. hospital chain, with 150 facilities in 18 states, said: “Like most hospitals, we file such liens when appropriate.” The company declined to elaborate.

Philip David Peatman, a Lakewood attorney who represents several large Los Angeles and San Diego hospitals, files up to 200 liens monthly, according to court records.

Aaron J. Lebovic, a Sherman Oaks attorney, files liens for Los Angeles hospitals but would not say how many.

Hospitals in San Diego--a region with one of the highest managed care enrollments in the nation--are the most aggressive in placing liens against their patients.

Ki-Ki Barbeau, president of Medical Liability Recoveries, said her firm places 5,000 liens a year, for amounts ranging from $700 to $400,000.

Many of her 15 clients collect up to $200,000 each month from liens, said Barbeau, whose San Diego agency services Scripps’ six acute care facilities.

The company’s share can be as much of 25% of the money it collects.

Medical Liability Recoveries, which has grown to 34 employees in its five-year history, posts an employee in each of Scripps’ hospitals. That employee, called a “recovery analyst,” reviews patient records to see what injuries sent them to Scripps’ emergency rooms.

Injuries caused by blunt force, for example, signal a strong likelihood that the patient was hurt in an accident caused by someone else, Barbeau said.

The company sends letters to all accident victims, informing them that Scripps plans to hold the negligent party responsible for the hospital’s medical costs--even though the hospital might have signed a contract to accept the accident victim’s insurance.

Lawyers Say Authority Comes From State Law

Attorneys for Scripps and the company say that their legal authority for placing liens comes from a state law that precludes uninsured accident victims from pocketing their monetary awards without paying the hospital for their treatment.

The law, approved in 1961, does not address cases in which hospitals have contracts to accept lower amounts from health insurers.

When hospitals started experiencing financial problems a few years ago, their attorneys and collection agencies interpreted the law more broadly, convincing hospital administrators that it could be used to bring in cash.

Accident victims who have had liens placed on their monetary awards usually pay up. Many lawyers won’t accept cases challenging such liens because the money involved is often not enough to cover their legal expenses.

“It’s not cost-effective,” said Gary Sernaker, a San Diego personal injury attorney, who said at least 50 of his clients have paid the liens.

Some of them have joined the class action suit.

“This practice places the patient who has insurance in the same position as the patient with no insurance,” Sernaker said.

Another patient who is fighting back is William G. Kelley, a church administrator from Laguna Beach.

After a car rammed his rented auto in northern San Diego, Kelley, 56, was treated at Scripps’ hospital in Encinitas for a broken left wrist, broken left foot and other injuries.

Shortly after the accident, Scripps Memorial notified Kelley that it had placed a $10,000 lien against any money he recovers from the negligent driver.

The hospital rejected Kelley’s demand that it remove the lien. He sued. His suit against Scripps and the collection agency alleging unfair business practices is pending in San Diego.

“What’s the use of paying for health insurance if hospitals can still come after you for more money?” said Kelley.

In Henline’s case, Scripps sent her a lien notice when she was paralyzed and undergoing treatment in another hospital.

The hospital initially demanded the entire $81,000 for Henline’s eight-day stay at Scripps. After Henline’s HMO, Prudential Healthcare, paid $65,000, Scripps sent a new notice that it planned to recoup the remaining $16,000 from any monetary awards Henline gets from the accident.

Henline, who worked as a computer systems manager with a San Diego defense contractor before her accident, received a total of $2.7 million in settlements from American Honda Co., Caltrans and a highway contractor.

She also won an $8-million jury verdict against the tow truck company whose driver slammed into her. The tow truck company is appealing the award.

Henline’s attorney, Craig R. McClellan, said the money recovered is not enough to pay for Henline’s care for the remainder of her life. “Someone in a condition desperately needing health care trusts a hospital to keep their agreement,” McClellan said.

“It’s devastating emotionally when that trust is misplaced. It’s a stab in the back.”

Six weeks ago, Henline triumphed in San Diego Superior Court when Judge Ronald S. Prager ruled that she could sue Scripps and the collection agency for “severe emotional distress.”

Prager said that the payment by Henline’s HMO represented “full satisfaction” of her hospital expenses, and that Scripps Memorial “contracted away” the right to recoup any more money by agreeing to accept a discounted rate.

Insurers Back Legal Rulings

Other judges in California have issued almost identical rulings in similar cases.

In New Mexico, which has a similar lien law, state Supreme Court justices have ruled that hospitals cannot recoup the difference when they agree to accept a health insurer’s contract as full payment.

Some insurers have long maintained that position.

In Kelley’s case, Blue Cross warned Scripps that “any attempts to collect more than the patient’s [co-payment] would place [Scripps] in breach of the contractual agreement.” Blue Cross referred to a 1997 decision by a Los Angeles Superior Court judge rejecting a lien filed by Northridge Hospital. Scripps executives and attorneys say they are rewording contracts to make it “painfully clear” that they can legally place liens against accident victims.

They insist that past liens are proper and that the new contracts merely reflect “an overabundance of caution.”

In court papers filed on Scripps’ behalf, Michael A. Dimmitt, a Sacramento health care lobbyist, said that if hospitals aren’t allowed to recover money from accident victims, the consequences could be dire.

“We need every penny we can get our hands on,” Dimmitt said. “Otherwise,” he said, “we can continue to look forward to six-hour waits at emergency rooms and trauma centers, inadequate care and possible patient deaths.”