California hospitals are tensely awaiting a critical court ruling that could eliminate one of their most effective yet controversial means of recovering the full cost of treating Medicaid patients.
The state Supreme Court is expected by mid-June to issue a final decision in a 4-year-old case regarding whether hospitals can place liens against monetary damages won by accident victims they treat-even after the hospitals receive payment for the bills from Medi-Cal, the state's Medicaid program. If the court rules against them, hospitals ultimately could be forced to pay back the millions of dollars they've garnered through these liens.
"It's a very important ruling," said Lois Richardson, vice president and legal counsel for the California Healthcare Association, which represents 500 of the state's hospitals. "Everyone is holding their breath."
In March, Scripps Health, San Diego, challenged a state appellate court ruling that struck down a California law allowing hospitals to supplement their Medi-Cal fees with money that patients later collect from those who injured them. In that case, a three-judge panel in San Diego ruled that the 1992 law violated a federal mandate that prohibits providers from billing patients for amounts that exceed their state Medicaid fees.
Hospitals contend that their efforts to "balance bill"-or to recover the difference between what Medi-Cal pays them and the actual cost of care-are essential to their survival, particularly at a time when most emergency rooms are running in the red because of the rising cost of uncompensated care.
"Hospitals have to treat anyone who walks in the door," said lawyer Deborah Giles, lead counsel for Scripps, which operates five not-for-profit hospitals. "The statute helps them recoup some of those losses. Without it, an already underfunded trauma system is going to be placed in greater jeopardy."
California has the lowest spending per Medicaid beneficiary of all 50 states, according to a brief issued by the Kaiser Family Foundation last week. And the situation could worsen; Gov. Gray Davis has proposed cutting Medi-Cal funding by 34%, to $7.1 billion this fiscal year as part of an effort to close the state's $35 billion deficit.
But patient representatives argue that providers aren't entitled to go after low-income residents just because they successfully sue someone who caused their injuries. "When a provider accepts payment under its contract with Medicaid, it's considered payment in full. There's no debt," said Mark Chavez, lead counsel for the plaintiff. To place a lien, there must be a debt, he said. "And if there's no debt, how can you have a lien?"
The case arose from a lawsuit filed on behalf of Cimmaron Olszewski, a 16-year-old girl who was treated at 447-bed Scripps Mercy Hospital in San Diego after being injured in a car accident in August 1998. After collecting payment from Medi-Cal, Scripps filed a lien for $200,000-its estimated cost for treating Olszewski-against the $410,000 she was awarded in a legal settlement with the driver of the other car.
The lien was upheld by a Superior Court judge in July 1999 but was overturned by a state appellate court in May 2001. While allowing Olszewski to keep her full award, the court also ruled that Scripps was not liable for additional damages because it had relied on state law when it sought the lien.
Both parties appealed portions of the decision before the state Supreme Court in March. Scripps argued that the California law allows hospitals to recoup the true cost of care as long as they repay Medi-Cal. Meanwhile, plaintiffs' attorneys argued that Scripps should be forced to pay back to patients all the money it has collected through such liens over the past four years-an amount Chavez estimates is in the millions of dollars.
Giles said that if the court forces Scripps to relinquish its lien-derived money, it could throw open the floodgates to similar lawsuits demanding that other hospitals repay all the money they've garnered through liens in recent years. "If we lose, all kinds of other cases are going to light up," she said, adding that the case ultimately could move to the U.S. Supreme Court.
Most states have laws allowing hospitals to place liens against patients' awards. But many of the laws were written decades ago and designed to ensure hospitals some payment when they provided care to the uninsured. Whether the laws also permit liens against patients covered by government or private insurers remains hotly contested. Courts in Florida, Pennsylvania and Texas have addressed the issue with various rulings.
Another closely watched case also involves Scripps, which was sued in 1998 for placing a lien against a court award won by Paul McMeans, a 47-year-old car accident victim, after accepting payment from his insurer, Aetna.
A California trial court found in favor of Scripps in February 2000, ruling that hospitals are allowed under a 1961 state law to place liens against patients' damage awards to make up for the steeply discounted fees that HMOs pay them. But an appellate court overturned the decision two years later, ruling that the law, written well before managed care, was meant to compensate hospitals only in cases where their bills were not paid at all.
The state Supreme Court agreed in November 2002 to review the ruling but put the case on hold pending its disposition of the Olszewski case. A final decision isn't expected for at least another year, Giles said.