Update on Negotiating Hospital Liens: Shifting the Burden

For many reasons, hospital liens in personal injury cases can pose significant hurdles: charges are often higher than what an insurer would pay; hospitals have statutory lien rights and do not have to reduce their lien claims as much as insurers do, and if left unsettled, a hospital lien can hold up the settlement check from the responsible party.

Our article, Negotiating Tips for Hospital Liens in Personal Injury Cases, provided 12 tips to negotiating these often difficult liens. There are many different ways to challenge or reduce a hospital lien, but tip #6 in particular, included the reminder to review any hospital bill and make sure the charges are reasonable and necessary.

The Hospital Lien Act, set forth in CA Civ. Code 3045.1 et seq., limits liens to "the amount of the reasonable and necessary charges of the hospital" for the services provided to the injured person on account of the third party's negligent or other wrongful act. However, determining this amount can often be a difficult task given the lack of transparency in hospital billing, and the general inability of consumers to compare prices for medical care.

A recent California appellate case, State Farm Mutual Automobile Insurance Co. v. Huff, now gives practitioners some teeth to this argument. This case, out of the Fourth Appellate District, Division 1, places the burden on hospitals to prove that their charges were reasonable and necessary if they want to recover on their lien.

Burden on Hospital to Prove Charges Were Reasonable and Necessary

The Huff case is similar to many personal injury cases. Mr. Huff was injured in a motor vehicle accident. After trial, he obtained a judgment against the responsible party in the amount of $356,587.92.

A hospital asserted a lien in the amount of $34,320.86. Mr. Huff disputed the amount of the lien, and the insurance company for the responsible party deposited the money with the court so that Mr. Huff and the hospital could resolve their dispute.

At a bench trial, the following evidence was submitted: (1) an authenticated copy of the hospital bill, which the director of patient accounting confirmed remained unpaid; (2) testimony from hospital staff that Mr. Huff told the hospital to bill the responsible party and that he did not have insurance; (3) a certified notice of the hospital's lien had been served in accordance with the Hospital Lien Act; and (4) Mr. Huff's attorney in his personal injury action testified that he had introduced evidence of all the medical expenses Mr. Huff incurred during his hospitalization, and also authenticated a copy of the judgment Mr. Huff obtained in the underlying negligence action.

The trial court concluded that the hospital had met its burden in establishing a valid lien, and was not required under the Hospital Lien Act to present expert testimony or prove that the amount it claimed in the lien were for reasonable and necessary charges.

The appellate court reversed, holding that, although the Hospital Lien Act does not specify who bears the burden of proof on the amount a hospital may recover, it was the hospital that had the burden to prove by a preponderance of the evidence the amount of its lien, that is, "the amount of the reasonable and necessary charges" for the "emergency and ongoing medical or other services" it furnished Mr. Huff.

In this case, the hospital had failed to introduce any evidence that the amount was reasonable or necessary, and as such, the hospital was not entitled to recover on its lien.

It is important to remember, however, that the hospital may still try to recover for amounts that a patient incurs and does not pay, even if its lien fails. But by imposing this burden on hospitals to prove the reasonableness and necessity of charges, practitioners now have significant leverage in their hospital lien negotiations.

Following Trend Set By Howell and Corenbaum

The Huff case appears to follow the Howell and Corenbaum cases which questioned the relevance of the full amount billed by medical providers in general.

In Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, 566, the California Supreme Court held that an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial. After Howell, personal injury plaintiffs could not recover the difference between the amount billed by medical provider and the amount paid by a health insurer.

Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308 answered the evidentiary question left open by Howell. "Evidence of the full amount billed for a plaintiff's medical care is not relevant to the determination of a plaintiff's damages for past medical expenses, and therefore is inadmissible for that purpose if the plaintiff's medical providers, by prior agreement, had contracted to accept a lesser amount as full payment for the services provided."

Citing those cases, the court in Huff noted, "the full amount billed by medical providers is not an accurate measure of the value of medical services" (Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308, 1326) because "many patients . . . pay discounted rates," and standard rates "for a given service can vary tremendously, sometimes by a factor of five or more, from hospital to hospital in California" (Howell, supra, 52 Cal.4th at p. 561)."

It should be remembered that there still exists California authority that the full amount of medical bills is relevant for the purposes of determining general damages. In Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, the court stated: "There is no reason to assume that the usual rates provided a less accurate indicator of the extent of plaintiff's injuries than did the specially negotiated rates obtained by Blue Cross. Indeed, the opposite is more likely to be true." In Greer v. Buzgheia (2006) 141 Cal.App.4th 1150, the court held that neither Nishihama nor Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 "holds that evidence of the reasonable cost of medical care may not be admitted. Indeed, Nishihama suggests just the opposite: Such evidence gives the jury a more complete picture of the extent of a plaintiff's injuries."

Concluding Thoughts

This holding in Huff is helpful for negotiating hospital liens, to be sure. There is now clear authority that the burden is upon hospitals to prove that their charges were reasonable and necessary by a preponderance of the evidence, if they want to recover on their lien. On the other hand, it also appears supportive of cases that limit plaintiffs from recovering the full value of their damages.