Brooks v. St. Mary Hospital

57 Cal.App.4th 241 (1997) | Cited 0 times | California Court of Appeal | August 21, 1997

This case concerns the effect of Medi-Cal reimbursements paid to health care providers. The Federal law governing the Medi-Cal program requires that every health care provider who accepts Medi-Cal payments for a particular patient must also agree not to seek further payment from that patient. Instead, the health care provider must content itself with the amounts paid by Medi-Cal. Whether this Federal law can be avoided by state statute is the question posed by this case.

The plaintiff was injured in a car accident. He was treated by defendant St. Mary Medical Center (St. Mary). St Mary's bill totaled $77,384.45. After plaintiff was discharged from St. Mary, he filed suit against a third party seeking recovery for damages suffered in the accident. He also executed a lien on his lawsuit in favor of St. Mary. The precise circumstances of and reasons for execution of this lien are not revealed in the record. About eighteen months after plaintiff's discharge from St. Mary, St. Mary accepted two payments totaling $13,340 from Medi-Cal. A little over a year after St. Mary received these payments, plaintiff settled his lawsuit with the third party for $294,500.

Plaintiff filed this declaratory relief action to determine whether he has an obligation to make further payments to St. Mary. Plaintiff contends that St. Mary's acceptance of the payments from Medi-Cal prohibits St. Mary from seeking any further payment from him. St. Mary's cross-complained for the full amount of its bill. The trial court ruled in favor of plaintiff, disallowing any further recovery to St. Mary, and St. Mary appeals. 1

Because the ruling of the trial court was correct under controlling Federal law, we affirm.


1. The Federal ban on "balance billing."

California's Medi-Cal program receives Federal Medicaid funds to help finance California's program. As a condition of receipt of these Federal Medicaid funds, the Medi-Cal program must comply with Federal law and regulations. The Federal rule implicated in this case is the rule against what has been called "balance billing." Balance billing refers to the practice of billing patients for the balance remaining on a medical bill above the amount covered by Medi-Cal.

Medi-Cal (as the state agency distributing the Federal funds) "must limit participation in the Medicaid program [in California, "Medi-Cal"] to providers who accept, as payment in full, the amounts paid by the agency . . . ." (42 C.F.R. § 447.15.) Moreover, a "state plan for medical assistance must . . . provide . . . that in case of an individual who is entitled to medical assistance under the State plan with respect to a service for which a third party is liable for payment, the person furnishing the service may not seek to collect from the individual (or any financially responsible relative or representative of that individual) payment of an amount for that service . . . ." (42 U.S.C.S. § 1396a, subd. (a)(25)(C).) 2 Thus under Federal law, St. Mary was eligible for Medi-Cal money only if St. Mary agreed to accept that Medi-Cal money as payment in full. Presumably St. Mary made such an agreement, because St. Mary did in fact receive Medi-Cal money in this case. Once St. Mary accepted the Medi-Cal money, it was barred from billing for the balance. (See also Palumbo v. Myers (1983) 149 Cal. App. 3d 1020, 197 Cal. Rptr. 214; Serafini v. Blake (1985) 167 Cal. App. 3d Supp. 11, 213 Cal. Rptr. 207; cf. Rybicki v. Hartley, (supra) , 792 F.2d 260 [Medicare].)

2. The state's first effort to avoid the balance billing ban.

In 1985, the Legislature attempted to avoid the Federal ban on balance billing by enacting provisions contained in Chapter 776 of the Statutes of 1985. This Chapter tentatively amended Welfare and Institutions Code section 14124.791 to allow medical care providers to file a lien for the balance not paid by Medi-Cal against sums recovered by the patient from third parties responsible for the patient's injuries. It also tentatively amended Welfare and Institutions Code section 14124.74 to provide that if a Medi-Cal patient received an award in a lawsuit arising out of the patient's injury, the court -- after first ensuring payment of litigation expenses and reimbursement to Medi-Cal -- was to impose a lien against the patient's recovery in favor of the patient's medical care provider in the amount of any unpaid charges.

The Legislature apparently recognized that these provisions were in conflict with the Federal ban on balance billing, and the new provisions were therefore not to become effective until "appropriate federal waivers" were obtained. (Stats. 1985, ch. 776, § 6.) The Federal government denied the waiver requests in 1986, and the new provisions hence never took effect. (Historical and Statutory Notes, 74A West's Ann. Welf. & Inst. Code (1991 ed.) § 14019.3, p. 77.)

3. The state's second effort to avoid the balance billing ban.

In 1992, the Legislature again tried to avoid the Federal ban on balance billing, this time by passing the statute involved here, Welfare and Institutions Code section 14124.791(a). This section contains two relevant provisions. The first provision concerns the filing of a lien: if a medical care provider has provided services to a patient because the patient was injured by a third party, even if the medical care provider has received payment from Medi-Cal, the health care provider may "file a lien for all fees for services provided to the [Medi-Cal patient] against any judgment, award, or settlement obtained by the [Medi-Cal patient] . . . against that third party." The second relevant provision concerns recovery on the lien: the medical care provider "may only recover upon the lien if the provider has made a full reimbursement of any fees paid" by Medi-Cal.

The new statutory scheme thus provides first for creation of a lien against a personal injury recovery for the full amount of the medical care provider's bill, and second for recovery of this full amount by the medical care provider "if" the provider "has made" a full reimbursement to Medi-Cal.

4. The uncertainty and unenforceability of the statute.

These provisions raise numerous uncertainties: When must the medical care provider enforce its lien? Does a four-year statute of limitations apply? How is the personal injury plaintiff to know whether to accept a settlement offer while not knowing whether lien enforcement will later be attempted? May the medical care provider obtain a judgment for the full amount of its lien before reimbursing Medi-Cal? The statute prohibits only recovery prior to reimbursement. Does the statute create a new form of judgment subject to a condition subsequent -- a judgment which cannot be enforced until the medical care provider "has made" full reimbursement of Medi-Cal monies received? No procedure is provided by statute for administration of such a conditional judgment -- normally a judgment constitutes an unconditional final determination that money is owing, while here the medical care provider could not "recover" on an otherwise valid judgment until reimbursement were first made. How would a court know whether or not to enforce such a judgment? What if such a judgment were enforced without reimbursement? What if the medical care provider makes reimbursement only after recovery in the personal injury action has been distributed? Is there an estoppel? Other questions of similar vein are also raised.

These are legitimate questions, but they are all attacks on the wisdom of the statute. Courts have limited legitimate authority to review the wisdom of a statute. Even assuming that a statute may create procedural complications, it is the Legislature's judgment to enact the statute that controls. A court cannot properly invalidate a statute simply because it is incomplete, raises questions, might create confusion, etc. Nevertheless, the statute cannot be applied for a different reason -- it conflicts with the Federal law under which the Medi-Cal system operates.

5. Federal law controls.

The Medicaid money involved here is, by law, Federal money. Although the Federal practice of raising tax money in the states and then returning some of that money to the states only if the states agree to abide by Federal conditions may appear to subvert the constitutional allocation of responsibilities between state and Federal governments, the practice has never been found illegal and is regularly used. No contention has been raised in this case that the practice exceeds constitutional bounds. By opting into the Federal program, the state subjected itself to the Federal law that governs the program. Similarly, St. Mary became subject to Federal law when St. Mary chose to participate in the program. St. Mary now contends that it should be governed by the state, rather than the Federal law. However, whenever state law conflicts with a valid Federal law, it is the Federal law that controls. (U.S. Const., art. VI, cl. 2 [The "Supremacy Clause"].)

An almost identical issue was decided in Evanston Hosp. v. Hauck (7th Cir. 1993) 1 F.3d 540 (Evanston Hospital). Evanston Hospital had provided medical care to a patient badly injured in an electrical accident, and had amassed a large bill. The patient could not pay, and the hospital eventually accepted a lesser amount from the state Medicaid agency. The patient later recovered a multi-million dollar judgment against a third party. The hospital then filed an action against the patient and the state Medicaid agency, seeking a declaration that the hospital could refund the Medicaid payments and thereafter sue the patient for the full amount of the billings. The Seventh Circuit rejected the hospital's claim. Relying upon Federal statutes and corresponding state law, the court ruled that a medical care provider which had accepted Medicaid funds could not simply repay those funds and then seek to obtain additional funds from the patient.

The only distinction between Evanston Hospital and the instant case is that in Evanston Hospital there was no state statute specifically authorizing repayment of Medicaid funds followed by suit against a patient. The hospital in Evanston Hospital hence proceeded by a suit for declaratory relief. Here, St. Mary instead proceeds under the state statute. This distinction, however, is immaterial. The decision in Evanston Hospital did not depend upon the absence of a state enabling statute, and the presence of such a state statute does not change the decision here.

There were several components to the reasoning in Evanston Hospital The starting point was the Federal ban on balance billing. (42 U.S.C.S. 1396a(a)(25)(C); 42 C.F.R. § 447.15.) Another element was the provision that a hospital which accepts payment in Medicaid funds transfers to the state agency administering the program the right to seek reimbursement from third parties. (42 U.S.C.S. § 1396a(a)(25)(A)-(C); Evanston Hospital, supra, 1 F.3d 540, 543.) The law further requires that once a state agency has paid a medical bill with Medicaid funds, that agency must "take all reasonable measures to ascertain the legal liability of third parties . . . and where the amount of reimbursement the State can reasonably expect to recover exceeds the cost of such recovery, the State or local agency will seek reimbursement for such assistance to the extent of such legal liability." ( Evanston Hospital, supra, 1 F.3d 540, 543; 42 U.S.C.S. § 1396a(a)(25)(A)-(B).) Under this provision, a state agency could either sue a third party or intervene in a patient's pending action against a third party, and seek to impose liability on that third party. If, in the alternative, the state agency chooses simply to place and later enforce a lien on the patient's own eventual recovery from the third party, the end effect is similar. In any event, it is the state agency which, after paying the hospital, has the right to seek reimbursement of the amount paid. Finally, Evanston Hospital noted the adverse financial effects on the Medicaid system that could flow from a rule allowing a hospital to recover Medicaid funds in all cases, then later decide to repay in selected cases and then sue those patients who later became solvent. If the hospital had that option, "hospitals would have every incentive to capture as much government money as they could without regard for the probabilities of collecting reimbursement from the private party," ( Evanston Hospital, supra, 1 F.3d 540, 544) while the implicit intent of Congress was to provide for Medicaid payment only when the patient was truly expected to be unable to pay. For all these reasons, Evanston Hospital rejected the proposition that the hospital could repay the Medicaid funds and then sue the patient; in the ultimate analysis this proposition conflicted with Federal law.

Evanston Hospital, supra, 1 F.3d 540, might be read as unnecessarily unsympathetic to the position of a hospital which has provided needed medical care to an injured indigent patient, and then has not been fully paid. Evanston Hospital described the hospital's contention as "far-fetched," ( id. at p. 542) and its logic as "elusive," ( id. at p. 543) and stated that it amounted to an attempt to convert "the system into an insurance program for hospitals rather than for indigent patients." ( Id. at p. 544.) The opinion concluded that if the "arrangement is not acceptable to doctors and hospitals, they should not take Medicaid money in the first instance," ( id. at p. 543) and stated that "hospitals and doctors should [not] reap a windfall at the government's expense." ( Id. at p. 543.)

While the possibility for a windfall to a hospital may be slight, (see Discussion of windfalls in Rybicki v. Hartley (1st Cir. 1986) 792 F.2d 260, 262-263), it is clear that the Federal law as construed by Evanston Hospital does virtually ensure a windfall to someone in a case such as this one. The likely candidates for that windfall under this Federal scheme, however, are the tort victim or the tortfeasor. A patient who recovers from the third party the full amount of the medical billings from the hospital, but need not pay those billings to the hospital, will receive a windfall. On the other hand, if the patient were prevented (by state law, for example) from proving up as damages the full amount of the hospital's reasonable billings, the windfall would be shifted to the tortfeasor. Thus under this Federal scheme, when a patient who previously has received medical care funded by Medi-Cal later receives a tort recovery, either the tort victim or the tortfeasor will almost necessarily receive a windfall. The law is presently structured to give that windfall to the tort victim rather than to the tortfeasor. (See, e.g., Palumbo, supra, 149 Cal. App. 3d 1020; Rybicki, supra, 792 F.2d 260.) There is only one way under this Federal scheme for the possibility of windfall to be eliminated -- the hospital must not accept Medi-Cal money. Once the hospital does accept Medi-Cal money in this situation, a windfall to someone is inevitable unless the patient receives no recovery against the alleged third party tortfeasor. The reasoning of Evanston Hospital is nevertheless unassailable insofar as it construes the operation of the Federal law. A hospital is entitled to be paid Medicaid money only if the hospital agrees to forego further attempts to collect. There is no Federal provision allowing repayment followed by suit and, as Evanston Hospital pointed out, allowing such a procedure would conflict with the Federal intention to restrict Medicaid payments to those cases in which the hospital is sufficiently certain that no further source of payment will materialize that the hospital is willing to settle for the lesser Medicaid payment. If this state of law is considered unfair, it is for Congress to change it. (Cf. Holle v. Moline Public Hosp., (supra) , 598 F. Supp. 1017.)


The judgment appealed from is affirmed. Each party to bear its own costs on appeal.


We concur:

FUKUTO, Acting P.J.


1. St. Mary's Notice of Appeal appealed "from the judgment in favor of plaintiff." Plaintiff therefore contends that the appeal does not comprehend the adverse ruling St. Mary received on its cross-complaint. Not so. Barring a severance (which did not occur in this case) a final judgment ruled upon both complaint and cross-complaint. St. Mary's Notice of Appeal is therefore adequate.

2. An identical "balance-billing" ban applies to medical providers obtaining reimbursement directly from the Federal government, rather than through a state-run program such as California's Medi-Cal program. According to 42 United States Code section 1395cc, subd. (a)(1), "Any provider of [Medicare] services . . . shall be qualified to participate under this subchapter and shall be eligible for payment under this subchapter if it files with the Secretary an agreement -- (A) not to charge . . . any individual or any other person for items or services for which such individual is entitled to have payment made under this subchapter . . . or for which such provider is paid . . . ." This has been interpreted to bar liens by hospitals who have been paid by Medicare against settlements or judgments obtained by patients from third parties. ( Rybicki v. Hartley (1st Cir. 1986) 792 F.2d 260, 261-262; Holle v. Moline Public Hosp. (C.D. Ill. 1984) 598 F. Supp. 1017, 1021.)

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