Impact of the Howell Decision on Hospital Liens

Author: Kelly Denham

The California Supreme Court in Howell v. Hamilton Meats (2011) 52 Cal.4th 541 (“Howell”) held an injured plaintiff, whose medical expenses are paid by private insurance, can only recover as damages the amount of the medical bills actually paid by the medical carrier, not the amount initially billed by the medical provider.

A recent decision discussed the effect of Howell on liens under the Healthcare Lien Act in Civil Code Section 3045.1 et seq. (HLA).  (Dameron Hospital Association v. AAA Northern California, Nevada, and Utah Insurance Exchange et al. (2014) WL 4379083.)  Specifically, the court in Dameron considered whether a hospital could pursue the difference between the amount actually paid and the total amount billed by the health insurer under the HLA.

In Dameron, three patients were injured due to the negligence of drivers insured by Allstate Insurance Company (“Allstate”) and AAA Northern California, Nevada and Utah Insurance Exchange (“AAA”).  The three injured patients were insured by Kaiser Permanente (“Kaiser”) and received care at an emergency room operated by Dameron Hospital Association (“Dameron”).  Kaiser paid the three patients’ hospital bills at a negotiated rate in accordance with its contract with Dameron.  Unlike Kaiser, neither AAA nor Allstate had contracts with Dameron. 

In the absence of an agreement for negotiated billing rates, Dameron sought to collect from AAA and Allstate its customary billing rates by asserting liens filed under the HLA.  However, AAA and Allstate ignored Dameron’s HLA liens when paying settlements to the three Kaiser patients.  When Dameron learned of the settlements, it sued AAA and Allstate to recover on its HLA liens.  The trial court granted the insurers’ motions for summary judgment on the grounds the patients’ debts had been fully satisfied by their health care service plans.  Dameron appealed, arguing based on the HLA and the language of its contract with Kaiser, it was not prevented from collecting the total amount of its customary billing rates from the insurers of the allegedly negligent drivers.

This issue was formerly discussed by the California Supreme Court in Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595, which held hospitals may not recover their customary rates for emergency room care when they have contractually agreed to accept negotiated rates as payment in full.  The court found if “hospitals wish to preserve their right to recover the difference between usual and customary charges and the negotiated rate through a lien under the HLA, they are free to contract for this right.”

AAA and Allstate relied on Howell in their argument to the Court of Appeal.  The Court of Appeal noted Howell addressed whether a patient could recover the customary billing rate from a tortfeasor.  The hospital’s right to recover the customary rate was not an issue.  In every instance where the Howell court discussed its holding, it noted the hospital agreed to accept the negotiated rate as payment in full. 

The Court of Appeal in Dameron noted that under Parnell, Dameron’s contract with the health care provider needed to expressly preserve the right to recover the customary billing rate for emergency room services from the negligent tortfeasors.  Dameron failed to adequately preserve this right.  Without sufficient language in Dameron’s contract with the insurers to preserve its right to recover the customary billing rate for emergency room services, the Court held Dameron was not entitled to assert its liens under the HLA.

Despite Howell’s limitation on a plaintiff’s right to recover more than the paid amount, the healthcare provider itself may still pursue the full amount from the third party defendant where there is sufficient contractual language to do so. Therefore, when hospitals are faced with HLA liens, it is important to identify the relevant contract language between the provider and the insurer in order to determine whether the provider has preserved its rights to collect on liens.

 ABOUT THE AUTHOR: Kelly Denham graduated from Loyola Law School in 2012.  Ms. Denham’s primary focus at Tyson & Mendes is construction defect litigation.  Contact Kelly at 858.263.4117 or kdenham@tysonmendes.com.

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