By: Jacob Stembridge
Introduction
You are stopped at a red light when a distracted driver slams into you from behind. You did nothing wrong. You carry health insurance. The emergency room treats you, and it could bill your insurer at the discounted rate the hospital and insurer already agreed on. Instead, the hospital does something else. It sets your insurance aside, files a lien on your accident claim, and demands the full, undiscounted price of your care. Often the lien is not even filed by the hospital, but by a third-party company that specializes in the practice.[1] Tennessee’s legislature created the Hospital Lien Act to protect hospitals from patients who never pay. Today it is used to take money from patients who are already covered.
A Shield for Hospitals
The Tennessee General Assembly enacted the Hospital Lien Act in 1970.[2] It solved a narrow problem. Hospitals were treating injured people who walked away without paying their bills and later won a judgment from (or settled with) the person who hurt them. The Act fixed this by giving the hospital a direct claim on the patient’s recovery, which the legislature said would help hospitals keep costs down.[3] Courts have called this a “humane purpose,” because the promise of payment encouraged hospitals to treat accident victims who might otherwise be turned away.[4] The statute shielded hospitals from the uninsured patient who collected a large settlement and then paid everyone but the hospital.
How the Act Works
A Tennessee hospital has a lien for all reasonable and necessary charges for treating an injured person.[5] The lien attaches to the patient’s claim against whoever caused the injury, and it reaches up to one-third of the patient’s recovery.[6] To perfect the lien, the hospital files notice in the circuit court where it sits and where the patient lives.[7] A patient who believes the lien is too high can ask the court to reduce or quash it.[8] The entire statute turns on two words: “ reasonable charges.” That is where the abuse begins.
The Ceiling the Court Set
In 2014, the Tennessee Supreme Court decided West v. Shelby County Healthcare Corp.[9] The patients in West had insurance. Their insurers paid the hospital the discounted rates the parties had agreed on, yet the hospital refused to release the liens it had filed against the patients for the much larger undiscounted amounts associated with their care.[10] The Court held that “reasonable charges” are the discounted amounts a hospital accepts as full payment from a patient’ s insurer, not the inflated amounts printed on the bill.[11] Full price, the Court explained, does not reflect what anyone actually pays, because “virtually no public or private insurer actually pays full charges.”[12] Once an insurer pays the agreed rate, the lien is extinguished.[13] For insured patients, West looked like real protection.
The Weapon: Refusing to Bill Insurance
But West only helps a patient if the hospital bills the insurance in the first place. And some hospitals stopped billing insurance at all. This deliberate move is at the center of the problem. A hospital that bills your insurer collects the discounted rate and nothing more. A hospital that sets your insurer aside and files a lien can claim the full undiscounted price out of your settlement. The difference between these figures is often enormous. By not billing the insurance company, the hospital often collects two or three times the actual cost of care.
This practice reached the Tennessee Supreme Court in Franks v. Sykes.[14] Two people were hurt in car accidents. Both had health insurance. Neither hospital billed the insurance company. Instead, each filed a lien against the patient’ s accident claim for the full amount of their medical bills.[15] The hospitals did not even file the liens. Rather, a third-party servicer filed the liens on the hospital’s behalf.[16] These servicers partner with a hospital, refuse to bill the patient’s insurance, and file a full-price lien against anyone with an accident claim.
This practice turns the Hospital Lien Act on its head. A law designed to protect hospitals from patients who never pay is now being used to collect extra money from insured patients who have done nothing wrong. The shield has become a weapon. Those who are injured in accidents sit by powerlessly and watch as part of the compensation meant to make them whole goes to a hospital which could have simply billed their insurance.
Dedmon v. Steelman made this workaround easier to defend.[17] In Dedmon, the Court held that the West definition of “reasonable charges” applies only to the Hospital Lien Act and not to personal injury cases in general.[18] Outside the Act, a plaintiff can submit the full, undiscounted bill to the jury as evidence of reasonable expenses.[19] So, the inflated bill keeps its legal force nearly everywhere, and Those who file liens use this to argue their “oversized” liens are reasonable after all.
Conclusion
This problem has an easy solution. Hospitals should not be allowed to bypass a patient’ s insurance to collect more from the patient’s injury settlement. Franks offered one way to achieve this goal, because the Court held that a hospital acting as a business can be sued under the Tennessee Consumer Protection Act for filing an undiscounted lien instead of billing insurance.[20] But a lawsuit is a slow and uncertain remedy for someone who is already hurt. The better answer necessitates action by the Tennessee General Assembly. The Assembly could require a hospital to bill any available insurance before filing a lien and amend the Hospital Lien Act to define “reasonable charges” as the amount that insurance would have paid. Until it does, injured Tennesseans will keep learning the same hard lesson: when a lien is filed, having insurance is no protection at all.
[1] Third-party companies increasingly contract with hospitals to file and enforce these liens. See Franks v. Sykes, 600 S.W.3d 908, 910 (Tenn. 2020) (showing liens filed by Professional Account Services, Inc., acting for the hospital corporations rather than by the hospitals directly).
[2] Tenn. Code Ann. § 29-22-101 et seq.; see West v. Shelby Cnty. Healthcare Corp., 459 S.W.3d 33, 42–43 (Tenn. 2014).
[3] Martino v. Dyer, No. M1999-02397-COA-R3-CV, 2000 WL 1727778, at *2 (Tenn. Ct. App. Nov. 22, 2000).
[4] West, 459 S.W.3d at 43 (quoting Shelby Cnty. Health Care Corp. v. Nationwide Ins. Co., 325 S.W.3d 88, 93 (Tenn. 2010)).
[5] Tenn. Code Ann. § 29-22-101(a).
[6] Id. § 29-22-101(b).
[7] Id. § 29-22-102(a).
[8] Id. § 29-22-102(d).
[9] 459 S.W.3d 33 (Tenn. 2014).
[10] Id.
[11] Id. at 46; see Dedmon v. Steelman, 535 S.W.3d 431, 434 (Tenn. 2017) (summarizing West).
[12] West, 459 S.W.3d at 44–45.
[13] Id. at 46.
[14] 600 S.W.3d 908 (Tenn. 2020).
[15] Id. at 9–10.
[16] Id.
[17] 535 S.W.3d 431 (Tenn. 2017).
[18] Id. at 450–51.
[19] Id. at 466.
[20] Franks, 600 S.W.3d at 909, 921.
