Hospital Not Allowed to Collect from Auto Insurance Benefits

When people are injured in accidents in California and pursue auto accident claims against the other drivers who caused their accidents, their medical providers might place liens against any settlements or awards they might receive in their lawsuits. However, there are limits to the ability of medical providers to place liens against certain types of recoveries. In Dameron Hospital Assn. v. AAA Northern California, Utah, and Nevada Insurance Exchange, Cal. Ct. App. Case No. C086518, the California Court of Appeal held that a hospital cannot place a lien against an insured’s uninsured or underinsured motorist’s coverage or their medical payments coverage through their auto insurance policies when they have health insurance.

Factual and Procedural Background

Five different people were insured by AAA for automobile insurance. Each of these five individuals was injured in accidents caused by others and sought treatment at Dameron Hospital. The patients were required to sign an agreement with the hospital upon their discharge assigning any UM/UIM or MedPay benefits to the hospital. Each of the five people had UM/UIM and/or MedPay coverage on their auto insurance policies. Dameron requested direct payments from the patients’ auto insurance carriers at the hospital’s full rates. However, AAA evaluated the bills sent by the hospital and paid significantly lower rates than what the hospital had billed. The auto insurer paid the balances to the insureds, and the hospital filed a lawsuit against the insurance company to recover the difference.

AAA filed a motion for summary judgment, arguing that the contracts the hospital asked the patients to sign were contracts of adhesion and that the assignments of their UM/UIM and/or Med Pay benefits were invalid under the law. The trial court agreed with AAA and found that the contracts Dameron asked the patients to sign were unenforceable. The hospital filed an appeal.

Issue: Can a hospital collect money directly from a patient’s UM/UIM or Med Pay benefits when the patient has health coverage through a lien?

The issue on appeal was whether a hospital or another medical provider can try to collect the difference between its full rates and the discounted rates it has negotiated with the patients’ health insurer from the patients’ UM/UIM coverage or Med Pay coverage under their auto policies. Dameron argued that it could seek the difference between its full rates and the discounted rates from the UM/UIM and Med Pay coverage and that the patients were contractually obligated to assign those benefits to the hospital. AAA argued that the contracts were contracts of adhesion and were unenforceable as a matter of public policy.

Rule: The consideration in contracts must not conflict with public policy and must be lawful.

The consideration included in contracts must be lawful. Even when it is not expressly prohibited by law, a contract will still be unenforceable and void when the consideration violates public policy. The court considered whether including a contractual provision through which patients had to assign their UM/UIM and Med Pay benefits under their policies violated public policy and was thus void.

Analysis

Hospitals and other medical providers sometimes attempt to balance bill patients to recover the difference between their full rates and the discounted rates they negotiated with their patients’ health insurers. However, balance billing is illegal in California, but some hospitals still try to do it and argue that they have the right to subrogate the patients’ personal injury settlements or awards. Dameron argued that it was not engaging in balance billing because it did not go after the individual patients to recover the difference but instead sought to recover the money from their UM/UIM and/or Med Pay policies directly from AAA.

The court first considered the provision in the contracts each patient signed when they left the hospital through which they agreed to an assignment of their UM/UIM and Med Pay benefits directly to the hospital. One of the patients, O.N., had medical payments coverage with a policy limit of $25,000. AAA sent payments of $145 to a doctor who treated O.N., $1,212 to the ambulance service provider, and $596 to the emergency physicians group. Dameron subsequently sent a bill for $28,577.31 to AAA together with the contract signed by O.N.’s wife assigning his benefits to the hospital. O.N. then sent AAA a copy of the explanation of benefits that he had received from his health insurer, Kaiser Permanente, showing that Kaiser had paid a negotiated rate to the hospital of $630 for the services he had received. AAA responded to Dameron Hospital that it had learned that the hospital had already been paid by the health insurer at its agreed-upon discounted rate, so nothing more was owed.

P.F. was another patient who was injured in a hit-and-run accident. She also had Kaiser health coverage and AAA auto coverage, including UM/UIM coverage. She signed the contract upon her discharge from Dameron Hospital, and the hospital subsequently sent a bill to AAA for $8,902.28. Kaiser had already paid a negotiated rate of $957 for the same services.

Under the Cal. Health & Safety Code § 1342, people who have health insurance cannot be billed the difference between a hospital’s full rate and the discount rate it negotiates with the insurer. This is meant to transfer the financial risk of seeking medical care from the patients to the medical providers. Patients are not liable for medical bills for services they received for which the medical providers agreed to accept the discounted rates negotiated with their health insurers. The court noted that if AAA paid the UM/UIM or Med Pay benefits directly to the patients, then the hospital would have been prohibited from going after the patients to collect the money they had received.

The court then considered whether the hospital could seek to recover UM/UIM and/or Med Pay benefits directly from AAA under the Hospital Lien Act. This law allows hospitals to place a lien against any potential personal injury recovery when the patient owes a debt to the hospital for the services he or she received. However, a lien will not attach when the patient does not owe a debt. When a patient’s health insurer pays a negotiated discount rate to the hospital for the provided services, it extinguishes any debt for the provided services. The Court found that Dameron could not place a lien against the patients’ UM/UIM or Med Pay benefits for amounts it had already received from their health insurers at negotiated discount rates. However, hospitals can include the ability to recover the difference in their contracts with the health insurers.

In this case, the hospital did not have a contract with AAA allowing it to assign UM/UIM benefits or Med Pay benefits for its patients. The Court of Appeal found that the contracts the patients or their guardians signed were thus contracts of adhesion and were void and unenforceable as a matter of law.

However, the court found that the hospital might be able to collect from R.D.’s assignment of Med Pay benefits since AAA had previously paid medical payments benefits directly to the hospital for other patients and that patients might not reasonably expect their auto insurers to pay them these types of benefits directly.

Conclusion

The Court of Appeal affirmed the trial court’s decision to grant AAA’s motion for summary judgment for everything other than the assignment by R.D. of his Med Pay coverage. The case was remanded back to the trial court to proceed on that cause of action only.

Speak to an Experienced Los Angeles Auto Accident Attorney

If you have been injured in an automobile accident and have received treatment for your injuries from a hospital, you should speak to an attorney at the Steven M. Sweat, Personal Injury Lawyers, APC about your rights to recover compensation and whether the hospital might be able to subrogate any compensation you might recover. Call us today to schedule a free case evaluation at 866.966.5240.