Gregg et al. v. Providence St. Joseph Health et al: A Challenge Against California’s Hospital Lien Act

On February 12, 2021, a California federal judge remanded to state court a putative class-action lawsuit that challenges the amount that California hospitals can recover through liens against accident victims’ settlements from their tortfeasors under California’s Hospital Lien Act (“HLA”). California Civil Code sections 3045.1-3045.6. The case, Gregg et al. v. Providence St. Joseph Health et al. (Case No. 4:20-cv-03880-YGR (N.D. Cal. Feb. 12, 2021)), hinges on what constitutes a “reasonable and necessary” charge under the framework of the HLA.

Under the HLA, a hospital that provides “emergency and ongoing medical or other services to any person injured by reason of an accident or negligent or other wrongful act” is permitted to assert a lien upon any claim for damages “to the extent of the amount of the reasonable and necessary charges of the hospital” resulting from those injuries. Cal. Civ. Code § 3045.1. In effect, the HLA gives California hospitals the opportunity to recover the cost of care provided to patients’ who pursue tort claims against the responsible tortfeasor by asserting liens, limited to 50 percent of the final judgment or settlement, in the patient’s personal injury action.

In Gregg, the two representative plaintiffs received medical treatment after suffering personal injuries in independent automobile accidents. Upon receiving treatment from the defendants, a group of medical institutions, both plaintiffs provided information regarding their respective health care plans, which allegedly contained terms providing that contractual rates with the medical institutions constituted “payment in full.” However, rather than billing the plaintiffs’ health insurance plans, the defendants asserted liens under the HLA against the plaintiffs’ prospective recoveries from their tortfeasors.

The crux of the plaintiffs’ argument is that, although the hospital liens were not more than 50 percent of the final judgment or settlement, the defendants’ liens exceeded the HLA’s “reasonable and necessary” limitation because the lien amounts were higher than what would have been accepted as “payment in full” had the defendants billed the plaintiffs’ health insurance plans. By not billing the patient’s health insurance and seeking the higher “retail” bill through an HLA lien, the plaintiffs contend that the defendants “denied them the benefit of the bargain of their health insurance contracts and abused the HLA in a way that was not intended by the Legislature.” As such, the plaintiffs seek damages, restitution, injunctive, and other relief against the defendants for intentional interference with contractual relations, and for unlawful, unfair, and fraudulent business practices in violation of California’s Unfair Competition Law. See Cal. Bus. & Prof. Code § 17200.

This is not the first time that a hospitals lien practices under the HLA has faced scrutiny by the courts. In Parnell v. Adventist Health System, the California Supreme Court held that a hospital’s practice of “balance billing”, whereby the hospital asserted a hospital lien for the difference between its charges and the amount received by a patient’s health insurance plan, was unlawful under the HLA in some circumstances. 35 Cal.4th 595, 612 (2005). In so holding, the Court noted “[i]f hospitals wish to preserve their right to recover the difference between usual and customary charges and the negotiated rate through a lien under the HLA, they are free to contract for this right.” Id.

If decided in the plaintiffs’ favor, Gregg would limit liens asserted under the HLA to their “reasonable and necessary” amount, the measure of which would be the rates that hospitals normally would recover from a patient’s health insurance plan.