SAN FRANCISCO -- California hospitals can no longer recover from insured patients the difference between a hospital's actual costs and what insurance companies pay for medical services, the state Supreme Court ruled.
The unanimous decision Monday was a victory for consumers and a financial blow to the health care industry. The court said hospitals cannot recoup costs by placing liens on insured patients' personal injury case awards.
Lawyers suing San Joaquin Community Hospital in Kern County said the hospital was abusing a 44-year-old state law generally allowing hospitals the right to sue or take other measures against uninsured patients who don't pay their medical bills.
"The hospitals have taken a well-intentioned law, and tortured and twisted it to prey on the insured by extorting and extracting from them," said Ralph Wegis, one of the attorneys who sued on behalf of a Bakersfield man injured in a car crash.
The insurance industry and hospitals usually have prearranged agreements by which the hospital will be reimbursed at a substantially lower amount than the hospital's normal charge for services. Hospitals do this to acquire more paying patients and to guarantee they will be compensated for its services.
The case decided Monday concerns Joel Parnell, who was injured while riding as a passenger in a taxi in 1997. He spent about a week in the San Joaquin hospital, generating a $20,000 bill from back injuries.
In all, his insurance company and Adventist Health System/West, the hospital's owner, had a pre-negotiated deal that amounted to a bill of $5,000 as "payment in full" for all the various services Parnell received.
But the hospital went after Parnell when he sued the man who smashed into the taxi. Parnell, 32, won $15,000 from his personal injury case, and the hospital put a lien on it.
Parnell then sued the hospital, taking his case to the California Supreme Court, saying such a lien could only be placed on his damages award if he was not insured and didn't pay his bill.
Justice Janice Rogers Brown, writing for the court, noted that the $1,000 deductible from Parnell and the $4,000 his insurance company paid to the hospital amounted to "payment in full."
"Because Parnell no longer owes a debt to the hospital for its services, we conclude that the hospital may not assert a lien ... against Parnell's recovery," Brown wrote, adding that the California justices were following "the lead of most of our sister courts" nationwide.
Thomas Watson, a lawyer for the Association of California Insurance Companies and the Personal Insurance Federation of California, urged the court to side with Parnell.
He suggested hospitals might alter their admission policies and require insured patients like Parnell to agree in advance of service that a lien could be placed on any damages Parnell might be awarded by the person who injured him.
"They'll change the nature of the contract, and then this will be litigated," Watson said.
In a footnote, the justices declined to address such a scenario at the hospital's urging, saying those facts were not before it.
Representatives of the San Joaquin hospital did not return repeated phone calls.
Still, dozens of hospitals urged the court to side with the hospital's billing practice. They included the University of California and Scripps Health, which each operate five hospitals, and Catholic Healthcare West, the state's largest operator with 41 hospitals
The hospitals' attorney, Barry Landsberg said the disputed practice was lawful and that such liens are put in place because they "are confronting severe challenges to their very existence."
The case is Parnell v. Adventist Health System, S114888.