United States: Payment Of Hospital Liens And Health Insurance Subrogation Claims In Third-Party Claims In Texas And California


Hospital Liens

In Texas, if a person is admitted into a hospital within 72 hours of an injury for treatment of the injury, both the admitting hospital and hospitals to which the patient is transferred have liens on the cause of action or claim of the patient against any negligent party. The lien attaches to the cause of action, a judgment, and the proceeds of a settlement. The lien does not attach to any first party insurance or workers’ compensation coverage. A hospital lien is for the amount of the hospital's charges for services provided to the injured individual during the first 100 days of the injured individual's hospitalization. Payment to a Plaintiff, even with indemnification language in a release, does not satisfy the lien. The best practice when dealing with a hospital lien is to issue a separate check to the hospital for satisfaction of the lien.

In 2014, the Texas Supreme Court addressed the issue of what constitutes a payment to a hospital with a statutory lien for medical expenses incurred within 72 hours of an accident. In McAllen Hosp., L.P. v. State Farm County Mut. Ins. Co. of Texas, 433 S.W.3d 535 (Tex. 2014), State Farm, a liability insurer, settled a bodily injury case when there was a hospital lien on file. The insurer paid claimants with checks made payable to both the claimants and the hospital and sent the checks to the claimants without notifying the hospital. The claimants deposited the checks without the endorsement of the hospital. The hospital sued State Farm to recoup its lien amount. The Texas Supreme Court held that if the hospital is not paid in satisfaction of its lien, the settlement agreement between the claimant and the insured is not valid and enforceable.

Health Insurance Subrogation

Chapter 140 of the Texas Civil Practice & Remedies Code limits the subrogation recovery of health insurance companies in third-party claims. If an injured, covered individual is entitled by law to seek a recovery from the third-party tortfeasor for benefits paid or provided by a subrogee, then all payors are entitled to recover an amount that is equal to the lesser of:

  1. one-half of the covered individual's gross recovery; or
  2. the total cost of benefits paid, provided, or assumed by the payor as a direct result of the tortious conduct of the third-party.

If a claim is represented by an attorney, all payors' shares of a covered individual's recovery is an amount that is equal to the lesser of:

  1. one-half of the covered individual's gross recovery less attorney's fees and procurement costs; or
  2. the total cost of benefits paid, provided, or assumed by the payor as a direct result of the tortious conduct of the third-party less attorney's fees and procurement costs.

This statute does not apply to workers’ compensation carriers, Medicare, Medicaid or ERISA plans.


Hospital Liens (Statutory Recovery)

In California, a hospital furnishing emergency and ongoing medical services “shall, if the person has a claim against another for damages on account of his or her injuries, have a lien upon the damages recovered, or to be recovered, by the person, or by his or her heirs or personal representative in case of his or her death to the extent of the amount of the reasonable and necessary charges of the hospital and any hospital affiliated health facility … in which services are provided for the treatment, care, and maintenance of the person in the hospital or health facility affiliated with the hospital resulting from that accident or negligent or other wrongful act.” (Cal. Civ. Code § 3045.1.) In order to make this lien enforceable, however, the hospital must provide written notice to the third-party in a specified manner as set forth in Civil Code section 3045.3. Upon settlement or judgment in favor of the injured person, the third-party must pay to the hospital its claimed lien amount or “so much thereof as can be satisfied out of 50 percent of the moneys due under any final judgment, compromise, or settlement agreement after paying any prior liens,” or that third-party will be liable to the hospital for the amount of the claimed lien it was entitled to receive. (Cal. Civ. Code § 3045.4.) The hospital may bring an action against a third-party to enforce its lien for up to one year after payment to the injured person. (Cal. Civ. Code § 3045.5.)

Contractual Medical Liens (Contractual Recovery)

Health insurance providers generally are reimbursed for the costs of insurance benefits paid out to an insured which are later recovered from a third-party tortfeasor through language in their patient agreements which provide for same. These insurers are entitled to reimbursement rights only, based on policy provisions authorizing same, provided that the insured has been “made whole” with regard to non-covered damages (not including attorneys’ fees). (21st Century Ins. Co. v. Superior Court (Quintana) (2009) 47 Cal. 4th 511.) Med-pay insurers must seek recovery for personal injury claims through contractual reimbursement rights against their insureds because they are not allowed to assert subrogation claims directly against third-party tortfeasors. (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 272.) The rule is based on the premise that personal injury claims are not assignable, and therefore a med-pay insurer generally has no right to sue the tortfeasor directly and has no standing to intervene. (See Lee v. State Farm Mut. Ins. Co. (1976) 57 Cal.App.3d 458, 466.)

In California, the rule generally precludes an insurer from recovering any third-party funds unless and until the insured has been made whole for the loss (the “Made Whole Doctrine”). (Progressive West, supra.) Courts recognize two exceptions to the applicability of the default “Made Whole Doctrine”: 1) An insurer may disclaim the doctrine in an insurance contract by using clear and specific language that indicates the parties’ intent to permit the insurer to seek reimbursement even if the insured has not been made whole. (Chandler v. State Farm Mut. Auto. Ins. Co., 596 F. Supp.2d 1314 (C.D. Cal. 2008) aff’d, 598 F.3d 1115 (9th Cir. 2010); Progressive West Ins. Co., supra; Sapiano v. Williamsburg Nat’l Ins. Co. (1994) 28 Cal.App.4th 533.) In addition, the insurer must also cooperate with and assist the insured in the third-party litigation; and 2) the Made Whole Doctrine does not apply if the insurer prosecutes the claim against the third-party tortfeasor. (Chandler, supra; Travelers Indem. Co. v. Ingebretsen (1974) 38 Cal. App. 3d 858; Progressive West, supra.) The insured must attempt to recover from the tortfeasor. A carrier may pursue reimbursement and has no obligation to make the insured whole out of reimbursement proceeds unless and until the policyholder attempts and fails to recover from the tortfeasor. (Chandler, supra.)

The above analysis does not apply to workers’ compensation carriers, Medicare, Medicaid, or ERISA plans.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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