A woman is seriously injured in a car accident. It is not her fault. She is taken to the emergency room where she is treated. When she is released, the hospital bills total $100,000. The woman has health insurance. The hospital submits its claim and the health insurance company pays $25,000.00 – the amount owed after the "contractual" adjustment. The hospital accepts the payment.
That should be the end of the story. However, the Tennessee law gives the hospital a lien on any recovery from a third party. So, the woman sues the driver of the other vehicle. The driver’s insurance company pays $100,000 to the injured woman. The hospital refuses to "release" its lien because the hospital asserts that it is entitled to another $75,000.00 – the difference between the insurance company payment and the amount of the hospital bill.
This story sounds like fiction, but it is very real. This story is based on a fact situation that the Tennessee Supreme Court reviewed in Diane West v. Shelby County Healthcare Corporation d/b/a Regional Medical Center at Memphis No. W2012-00044-SC-R11-CV (Tenn. Dec. 19, 2014).
The Tennessee Supreme Court explained that the non-possessory hospital lien is a creature of statute designed to protect hospitals from losing money for providing care to people who then recovered monetary damages from third parties. A debt owed to the hospital is a prerequisite to the lien. Further, the lien statute, Tennessee Code Annotated Section 29-22-101(a) limits the lien to "all reasonable and necessary charges for hospital care, treatment and maintenance of ill or injured persons."
The Court noted that no party challenged the necessity of the care provided. Therefore, the Court focused its attention on the "reasonableness" of the cost of those services. The Court concluded that the non-discounted charges reflected in the Hospital’s bill were not reasonable for two reasons:
- The amount of the charges did not reflect what is actually being paid in the marketplace. The court noted that virtually no public or private insurer actually pays full charges. Therefore, the "reasonable" charge is the charge that insurers actually pay and hospitals are willing to accept.
- The contracts between the hospital and the insurance companies limited the amounts that could be charged to the insureds. By entering into these contracts, the Hospital willingly capped the obligation of the injured party.
Thus, the Court held that the lien ceased to exist when the hospital accepted full payment from the insurance company. Finally, the Court refused to recognize an independent cause of action against the driver who caused the accident.
This case should cause some concern for healthcare providers in Tennessee. Can a hospital or a doctor collect more than the amount that an insurance company actually pays for services rendered to an uninsured patient? According to this case, the answer is no.