Supremes rule hospitals can’t keep a lien on your property after you’ve paid your bill

(Note: This expands upon the original post — which included only a news release, now at the bottom of this post.)
The higher hospital charges billed to people who are uninsured are not “necessary and reasonable” and thus cannot be used by hospitals to place a lien against those who had their bill paid by insurance companies, the state Supreme Court has ruled.

In a unanimous ruling Friday, the court threw out liens filed against two patients treated at the Regional Medical Center in Memphis, known as “the Med,” after traffic accidents. In a news release, court officials said it is “common practice” for Tennessee hospitals to accept insurance payment, then nonetheless seek a lien against the patient in anticipation of a lawsuit against the person — or “tortfeasor” — who caused the accident.

In one case, patient Diane West’s insurance company paid $3,215.72 to cover her bill, in accord with the hospital’s contract with the company and sent her a letter saying she owed nothing. Without the contract, the cost would have been $14,008.97.

Still, the hospital got a lien against West. Legally, that gives it standing to sue the third party causing the accident and collect the full $14,008.97. As explained in the decision:

“The Med continues its efforts to collect the full, nondiscounted cost of its treatment from the third-party tortfeasor. Whenever the Med is able to collect the full amount of its unadjusted cost from the third-party tortfeasor directly or from the patient’s recovery from the third-party tortfeasor, it refunds any payment or payments already received from the patient’s insurance company. The Med releases its lien only after it has been paid for the full, unadjusted cost of its services.”

The opinion notes that Tennessee’s hospital lien law, basically unchanged since enacted in 1970, requires that a lien applies only to “necessary and reasonable costs.” While accepting that the services provided were necessary, the justices held they are not reasonable and thus no lien can be imposed on the patient.

“The Med’s non-discounted charges reflected in the amount of the liens it filed against (the two patients) should not be considered reasonable charges for the purpose of (the lien law) for two reasons. First, the amount of these charges is unreasonable because it does not reflect what is actually being paid in the market place … because virtually no public or private insurer actually pays full charges.

“… The second basis for concluding that the Med’s non-discounted charges are not reasonable stems from its contracts with (the insurance companies). … The Med furthered its own economic interest when it agreed in these contracts to discount its charges for patients,” the opinion said. “Thus, with regard to an insurance company’s customers, ‘reasonable charges’ are the charges agreed to by the insurance company and the hospital,” the court said.

Note: The full opinion is HERE. A news release is below.

News release from Administrative Office of the Courts:
Nashville, Tenn. ¬– In a unanimous opinion, the Tennessee Supreme Court has decided that hospitals are required to release their hospital lien against a patient as soon as the patient and the patient’s insurance company have paid the full amount of the hospital charges.

This lawsuit involves a common practice in the hospital industry. Hospitals charge uninsured patients more for the same services than they charge insured patients. This occurs because hospitals routinely contract with health insurance companies to discount their charges for the medical services they provide. In return for these discounts, insurance companies agree to pay their customers’ medical bills promptly.

The Regional Medical Center in Memphis (“the Med”) routinely categorizes its patients according to the type of injury and the circumstances surrounding the injury. It also calculates the charges for the medical services provided based on whether the patient is insured or not. If the patient is insured, the Med sends its discounted bill to the patient’s insurance company. The insurance company is contractually obligated to pay the patient’s bill, except for the deductibles and co-pays that are the patient’s responsibility. Hospitals also have a right by law to file a lien against the patient’s property to assure that they are paid for the services they provide.

When the Med decides that another person might be liable for a patient’s injuries, it routinely files a hospital lien against the patient for the full, non-discounted amount of its medical charges, even if the patient has insurance. Even when the patient and the patient’s insurance company pay the entire amount of the Med’s bill, the Med customarily declines to release its lien against the insured patient’s property in hope that it will be able to recover additional money from the person or persons responsible for the patient’s injuries.

In this case, three patients who received treatment at the Med’s emergency room filed suit in the Circuit Court for Shelby County challenging the Med’s practice of filing liens against its patients and declining to release these liens after they had been paid. The trial court dismissed the lawsuit, but the Court of Appeals reversed.

The Tennessee Supreme Court granted the Med’s appeal. In a unanimous decision, the Court ruled that neither the laws authorizing hospital liens nor the Med’s contract with health insurance companies permitted the Med to maintain its lien after the patient’s debt to the Med has been fully extinguished with payments from the patient and the patient’s insurance company.

Note: The full opinion is HERE.