BALANCE-BILLING AFTER OLSZEWSKI

A. The Law Surrounding Balance-billing Law is Rapidly Evolving

Personal injury counsel are increasingly looked to as collection agents for medical care
providers, insurance companies and the like. The preferred mechanism for this
undertaking is the lien claim. As a practitioner, you know that lien issues can be among
the most difficult and frustrating aspects of representing your clients.

Balance-billing is an area of lien practice that is both confusing and unsettling to a

practitioner trying to sort out the amount due on liens from various providers. It seems
that the appellate courts may be injecting some sense into this area, though the process
is slow.

Even so, in June of this year, our Supreme Court declared that balance-billing (really
substitute billing, see below) is not allowed in Medi-Cal situations. Olszewski v. Scripps
Health, 30 Cal. 4th 798, 135 Cal. Rptr. 2d 1. As for private insurance and hospitals
attempting to balance bill under the Hospital Lien Act, it seems a high court decision is
likely in the near future. See, McMeans v. Scripps Health, Inc., 123 Cal. Rptr. 2d 143
(2002) rev. granted, Nov. 26, 2002.

In any event, it is clear that the law surrounding balance-billing is in an evolutionary

phase.

B. Balance-billing Principles

Balance-billing is a hot button issue for both consumer attorneys as well as hospitals,
physicians and health insurers.

Consumer attorneys frequently complain that medical providers already fully

compensated under their insurance provider agreements have no right to assert further
recovery from an injured plaintiff’s personal injury recovery.

Medical care providers, on the other hand, view themselves as caught in a cash-
squeeze caused by diminishing benefit schedules versus the real cost of providing care.

The issue has become heated enough that, at their annual convention in January 2003,
the American Medical Association passed a balance-billing resolution advocating that
physicians be allowed to bill Medicare recipients the difference between reimbursement
rates and actual cost of services.

“It is imperative that we get back to a system where the economic arrangement is
between the doctor and the patient,” said Bohn Allen, M.D., a Texas delegate. “This
gives us the ability to not charge those who can’t pay and to make the transaction a
reasonable business transaction just like every other business person in this world
does.”

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Stagg Elliott, Amednews.com, (Jan. 6, 2003) Physicians seek right to balance-bill under
Medicare.

California Medical Association Resolution 408-03 specifically dictates “That CMA

continue to advocate that the Centers for Medicare and Medicaid Services eliminate all
caps on balance-billing.”

The issue is high priority in the medical field as Medicare and Medicaid continue to
reduce benefits payable for medical care. Doctors, hospitals and other recipients of
public funds are motivated to make up the difference from the beneficiaries.

Personal injury settlements represent a target for balance-billing interests because of

this financial reality.

C. Balance-billing Basics

While balance-billing has been described as “the practice of billing patients for the
balance remaining on a medical bill after deducting the amount paid by Medi-Cal,”
(Olszewski, supra, 30 Cal. 4th at 805, n.2), in reality balance-billing is better defined as
the practice of billing for any balance over that paid by an insurer or benefit provider of
any kind.

In the personal injury context, balance-billing is generally seen where a health provider n
asserts a lien against a tort recovery for the difference between payment made by an
insurer and its “usual and customary charge.”

However, just because a health provider’s usual and customary charge exceeds the
amount already paid by the insurer does not mean that it is entitled to balance bill.

In the realm of private insurance, the decision in Nishihama v. City & County of S.F., 93
Cal. App. 4th 298, 112 Cal. Rptr. 2d 861 (2001) is instructive. In Nishihama, a jury
awarded $20,295 in medical costs to the plaintiff following a slip-and-fall accident,
including $17,168 for care received from California Pacific Medical Center (“CPMC”).
The later amount was based on CPMC’s normal rates.

However, CPMC treated the plaintiff under a contract with Blue Cross, under which
CPMC agreed to treat the plaintiff at a reduced rate and accept the Blue Cross payment
as payment in full. Under terms of that agreement, CPMC had already accepted $3,600
as payment in full for services rendered. Even so, CPMC filed a balance-billing lien
under the Hospital Lien Act (“HLA”) at Civil Code sections 3045.1-3045.6.

The Court of Appeal modified the judgment to reduce the amount awarded as costs for
CPMC medical care from $17,168 to $3,600. As for the CPMC lien, the Court of Appeal
held that because CPMC’s rights were derivative of the plaintiff’s claim, it’s lien rights
were limited by the Blue Cross contract to the amount it had agreed to accept as
payment in full.

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Even if the HLA contemplated an independent right in the hospital, the extent of that
right would be defined by any contract between the injured party or her insurer and the
health care provider. Civil Code section 3045.4 accordingly provides that the third party
“shall be liable to the [health care provider] for the amount of its lien claimed in the notice
which the hospital was entitled to receive as payment for the medical care and services
rendered to the injured person.” The amount that a hospital is entitled to receive as
payment necessarily turns on any agreement it has with the injured person or the injured
person’s insurer. Here, for example, because of its contract with Blue Cross, CPMC was
entitled to receive only $3,600 as payment for the medical services rendered to plaintiff.”
Nishihama, supra, 93 Cal. App. 4th at 307-308 (emphasis in original). McMeans v.
Scripps Health, Inc., 123 Cal. Rptr. 2d 143 (2002) rev. granted, Nov. 26, 2002, follows
the Nishihama analysis, in reaching different results on whether a health provider
asserting an HLA lien may recover, based upon differing contracts with various insurers.

Though the California Supreme Court has yet to weigh in on the subject as of this
writing, its pronouncement seems imminent. In granting review on McMeans, our
Supreme Court stated: “Further action in this matter is deferred pending consideration
and disposition of a related issue in Olszewski v. Scripps Health, Inc. . . . or pending
further order of the court.”

D. Olszewski ends Medi-Cal Balance-billing

On June 2, 2003, the Supreme Court decided Olszewski v. Scripps Health, 30 Cal. 4th
798, 135 Cal. Rptr. 2d 1, without deciding the HLA lien issue. Rather, Olszewski is
notable in that it holds federal Medicaid law preempts California state provider lien
statutes, the upshot being that Medi-Cal providers may no longer assert a lien for the full
amount of their usual and customary charges, but must instead accept Medi-Cal
reimbursement as payment in full.

Actually, in the Medi-Cal area, providers have not practiced balance-billing, but rather
engaged in its close cousin, substitute billing, as authorized by Welfare & Institutions
Code section 14124.791. Substitute billing, the practice of a provider billing for the entire
“usual and customary” amount after refunding the previously paid Medi-Cal payment,
was authorized by statute in 1992 after the Legislature recognized that balance-billing is
prohibited by federal Medicaid law. See, Olszewski, supra, 30 Cal. 4th at 805.

The Supreme Court considered the liens authorized by Welfare & Institutions Code
sections 14124.791 and 14124.74 in light of federal Medicaid statutes and decided that,
to the extent they authorize a provider to assert a lien for an amount above that paid by
Medi-Cal, they are preempted by federal law.

Under 42 Code of Federal Regulations part 447.15, the provider must “accept” [the
amount due under the Medi-Cal payment schedule] plus any cost-sharing charges
allowed under the plan as “payment in full.” . . . [T]hese statutes and regulations are
unambiguous and limit provider collections from a Medicaid beneficiary to, at most, the
cost-sharing charges allowed under the state plan, even when a third party tortfeasor is
later found liable for the injuries suffered by that beneficiary. . . . Thus, a health care

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provider may, at most, recover a “nominal” amount from the beneficiary. [Citations
omitted.]
Olszewski, supra, 30 Cal. 4th at 819-820.

We therefore conclude that federal law preempts sections 14124.791 and 14124.74. . . .
These provider lien statutes are therefore unconstitutional, and the California statute
limiting provider recovery from Medicaid beneficiaries in accordance with federal
Medicaid law controls. This statute prohibits providers from attempting to obtain payment
for their services directly from Medicaid beneficiaries. Because defendant’s lien against
plaintiff constitutes such an attempt, it is invalid, unenforceable, and uncollectible.
Olszewski, supra, 30 Cal. 4th at 826.

In reaching its holding, the Supreme Court urged the Legislature to remedy the situation
by future legislation and there are already ongoing discussion in Sacramento on this
topic.

However, pending the legislative process, balance-billing liens in the Medi-Cal arena are
void.

***

William A. Daniels is a Trial Attorney with BILL DANIELS | LAW OFFICES, APC, in
Encino, CA. His practice focuses on employment, serious personal injury and class
actions. A graduate of Loyola Law School of Los Angeles, he is a member of the
Consumer Attorney Association of Los Angeles Board of governors and a founding
member of the Civil Justice Program and the 21 st Century Trial School at Loyola. For
several consecutive years he has been names a “Super Lawyer” Los Angeles Magazine
in Southern California.

He can be reached at William.Daniels@BillDanielsLaw.com; www. BillDanielsLaw.com

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