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Protecting Your Auto Insurance Settlement from Your Health Care Provider

By Joe Frey

The astronomic rise in health care costs and the frugality of health insurers and HMOs are forcing many hospitals to scrape for every penny. As a result, some hospitals are laying claim to portions of consumers' auto insurance liability settlements in order to recoup payment for services rendered. There's nothing wrong with collecting what's owed, but, in many cases, the hospital bills the health insurer or HMO and the consumer. That practice, known as "balance billing," is illegal in some states.

"Balance billing" is illegal in some states.

Hospitals have every right to receive payment for services rendered and can come after you if you or your health insurer hasn't paid your bills. In fact, some Medicare+Choice plans allow doctors and hospitals to bill you for up to 115 percent over and above what Medicare normally pays. But if your health insurer and the health care providers agree on a payment schedule, even if those fees are at a discount, the health care providers can't seek reimbursement from you, the health insurance policyholder, once they've been paid by your health plan.

However, some hospitals are apparently ignoring the law when auto insurance liability settlements are involved. Here's how a hospital might try to claim part of your liability settlement.

Don't lien on me

Say you were injured in an auto accident that was not your fault and admitted to the hospital because you sustained moderate injuries. You tell the admissions personnel that your injuries are the result of an auto accident and that you have health insurance. Your health insurance happens to be an HMO plan that has contracted that hospital, which means the hospital agrees to give the HMO a substantial discount on health care. Your HMO picks up the tab for you and the hospital is supposed to consider payment from the HMO as full reimbursement.

But the hospital, knowing that you were injured in an auto accident, files a lien against any auto insurance liability settlement you collect — meaning the hospital gets to collect the difference between what your HMO paid and what the medical care actually cost. For instance, your hospital bill is $10,000 and your HMO's preset agreement with the hospital allows it a discount of 40 percent. Your HMO pays $6,000 and, if you collect an insurance settlement, the hospital will come after you for the remaining $4,000.

"Any time you have a discount contract between a health care insurer and a provider, the provider can't bill the consumer for the balance of the bill," says James Holmes, an attorney based in Henderson, Texas, who is currently pursuing a class action lawsuit against Mother Frances Regional Health Care Center in Rusk County, Texas, for such practices. Holmes says that if the case is certified as a class action, it could affect 3,000 individuals in Texas.

"Any time you have a discount contract between a health care insurer and a provider, the provider can't bill the consumer for the balance of the bill."

Pam Holland, the plaintiff whom Holmes represents, alleges that Mother Frances used the services of a small collection agency to file a lien against any liability settlement she received, which would allow the hospital to recover payment for the care provided to her that was not paid for by her PPO, Prudential. Hospitals have the right to file liens against liability settlements within 10 to 30 days of care to ensure payment for services given.

"There was a contract in the bowels of that hospital between [the PPO] and Mother Frances that says the hospital 'agrees to look solely to Prudential for compensation of coverage services,'" says Holmes. "Mother Frances knew it had a contract that said 'thou shalt not,' but it did anyway."

Holland later received a $250,000 liability settlement from the person who caused the auto accident, and Mother Frances laid claim to $36,000 of that.

Previous cases show the illegality

In a similar case in Texas (Satsky vs. United States of America), U.S. District Judge Samuel Kent ruled on Feb. 6, 1998, that a hospital's attempt to recover payment from former patient Linda Satsky was prohibited because the hospital had been paid in full by Satsky's health insurance company.

Satsky had received a liability settlement as a result of an auto accident and the hospital to which she was admitted filed a lien against any liability settlement she received. Judge Kent ruled, however, that "a lien can only legally attach if there is an underlying debt secured by the lien. . . . The facts prove that Satsky's insurer has paid all of the sums owed to the hospital. . . . As there is no debt, there can be no lien."

In Dorr vs. Sacred Heart Hospital, a case decided by the Wisconsin Court of Appeals on May 25, 1999, the hospital was found to have acted in bad faith by trying to collect payment from Beverly Dorr (the plaintiff) for services rendered. The hospital had filed a lien against any liability settlement Dorr received as a result of an auto accident.

The court ruled that Sacred Heart Hospital filed the lien "purely as a ploy to try to get as much money as possible," and stated that there was "ample evidence" to show that the hospital intentionally disregarded Dorr's rights to her full liability settlement by trying to collect on the lien.

Hospitals could avoid legal pitfalls by lobbying to change laws that restrict them to accepting payment from one source only.

In addition to the case law, Maryland's attorney general and the insurance commissioners in Arkansas and Florida have specifically warned hospitals and other health care providers about the illegality of "balance billing." The Maryland attorney general wrote in a September 1998 opinion that "no [health care provider], whether under contract with the HMO or not, could charge an HMO subscriber for any treatment which was a covered service." Balance billing is also forbidden in Michigan, according to the state's public health regulations, MCLA §333.21053.

Dennis Purtell, an attorney at von Briesen, Purtell & Roper, a Milwaukee-based law firm that represents health care providers, says that hospital collection efforts vary widely across the country, but cases like Dorr's occasionally happen. Purtell says that hospitals could avoid legal pitfalls by lobbying to change laws that restrict them to accepting payment from one source only.

Until that change happens, however, Purtell and his colleagues advise hospitals in an article titled, Liening Too Close to the Edge: Violating the Hospital Lien Statute Can Lead to Serious Consequences, to: "Use hospital liens with respect to HMO patients only with extreme care," and "consider a policy of accepting payment from the HMO. Such a policy may be more efficient and financially safer in the long run."

Know your rights

When you receive a liability settlement after an auto accident, you don't have to give your health care providers a dime if your health insurance company and the hospital or doctor have an agreement on how services will be paid for. However, you might have to fork over a portion of it to your HMO or health insurer if it paid for your medical treatment. Your health insurance contract might say that your health insurer has the right to subrogate — meaning seek payment — if you receive a settlement.

The theory behind your not being able to keep a settlement and file a health claim is similar to the way health care providers aren't allowed to "balance bill": Collecting money twice for one event is getting more than you legally deserve.

Last updated Dec 30, 2000

Source: Insurance News Network