Connect With Waller
TwitterLinkedIn
Share
Share
Please select the items which you would like displayed in your pdf.
Create PDF

Court of Appeals Decision Clarifies Provisions of the Hospital Lien Act of Tennessee

Industries Served
02.07.11

On January 26, 2011, the Tennessee Court of Appeals issued a decision which opens the door for hospitals to recover medical fees from parties who impair a hospital lien, even if the hospital wasn't aware of the parties when the lien was filed. In Shelby County Health Care Corporation v. John Baumgartner, et al., the Court clarified certain provisions of the Hospital Lien Act of Tennessee (TCA § 29-22-101, et seq.) (the “HLA”). Specifically, the court answered the following questions:

  • What responsibility does the hospital have to identify and notify potentially liable parties of the lien?
  • What amount of damages are available to the hospital if its lien is impaired?

The case involved a traffic accident in which Mr. Baumgartner, an Arkansas citizen, was injured in a two-car accident in Arkansas where the other driver, Mr. Brewer, was at fault. Mr. Baumgartner was treated for over a month at Regional Medical Center in Memphis (the “MED”) and the medical services he received totaled over $500,000. The MED filed a hospital lien listing Mr. Baumgartner and his automobile insurer, Nationwide Mutual Insurance Company, and sent copies of the filing to both parties. At the time of the lien filing, the MED was not aware of the other driver (Mr. Brewer) or his insurer, Hartford Accident & Indemnity Co. Therefore, the MED did not name or send a copy of the lien to Mr. Brewer or Hartford. Some time later, both Nationwide and Hartford entered into settlement agreements with Mr. Baumgartner. Nationwide paid its policy limits of $25,000 pursuant to the uninsured motorist provisions of Mr. Baumgartner’s automobile liability policy, and Hartford paid its policy limits of $100,000 pursuant to Mr. Brewer’s liability policy. Neither Mr. Baumgartner nor the insurance companies paid any money to the MED for the medical services rendered to Mr. Baumgartner. The MED filed suit against Nationwide and Hartford for impairment of its hospital lien, seeking the total cost of the medical services it provided to Mr. Baumgartner.

What responsibility does the hospital have to identify and notify potentially liable parties of the lien?

The HLA sets forth a number of requirements for perfecting a hospital lien, including a requirement that the lien contain “to the best of the claimant’s knowledge, the names and addresses of persons, firms or corporations claimed by such ill or injured person…to be liable for damages arising from such illness or injury” and that a copy of the lien be sent to each person or entity named therein.[1] The MED did not name Hartford or send Hartford a copy of the lien because the MED was not aware that Hartford was a potentially liable party when the lien was filed. At the same time, the MED did not undertake even a very basic investigation to determine whether there were other liable parties. For example, the MED could have learned of the existence of Hartford simply by asking Mr. Baumgartner about the driver of the other car or reading the accident report. Still, the Court held that the phrase “to the best of the claimant’s knowledge” refers to the hospital’s actual knowledge at the time the lien is filed, which means that hospitals do not have a duty to investigate the identity of potential third-party tortfeasors in order to perfect a hospital lien. The Court held that the MED was able to recover damages from Hartford for impairment of its lien even though the MED did not notify Hartford of the lien.

What amount of damages are available to the hospital if its lien is impaired?

The MED sought to recover the full cost of medical services from the defendants pursuant to TCA. §29-22-104(b), which states that “the lienholder shall be entitled to an action at law for damages on account of such impairment, and in such action may recover from the one accepting such release or satisfaction or making such settlement the reasonable cost of such hospital care, treatment and maintenance” (emphasis added). In response, the defendants pointed to another provision in the HLA, which states that “the hospital lien, however, shall not apply to any amount in excess of one third (1/3) of the damages obtained or recovered by such person.”[2] The Court agreed with the defendants and held that the MED could recover only the damages that were attributable to the impairment of its lien by Hartford and Nationwide. Since the MED would have been entitled to only one-third of the amounts obtained by Mr. Baumgartner from Nationwide and Hartford had the lien not been impaired, the MED was limited to recovering this amount in damages. The Court, however, also noted that the MED could be entitled to recover consequential damages and other damages (e.g., attorney fees) and remanded the case to the trial court for further proceedings on this issue.

Lessons Learned

The Court’s decision opens the door for hospitals to recover from liable parties for impairment of a hospital lien, even if the hospital was not aware of such party at the time the lien was filed. In order to perfect a lien, hospitals have to name only those parties of which it has actual knowledge. While it may be advisable for hospitals to exercise some due diligence to identify potential third party tortfeasors, the Court refused to impose any such requirement in this case. At the same time, however, the Court’s decision limits hospitals’ ability to use the HLA to recover the full cost of patient care from a party that impairs a hospital lien. Under the Court’s ruling, hospitals are able to recover only the amount they would have been entitled to had the lien not been impaired, which is not necessarily the entire cost of medical services provided. The result is that there are no significant penalties imposed on parties who impair hospital liens, since they will be liable for no more than they would have been required to pay under the HLA.

It should be noted that one or more of the parties to this case could appeal the Court’s ruling. Although only a small percentage of cases are granted an appeal, cases that carry important public policy implications, such as this one, are more likely to be heard on appeal. In that situation, interested parties may also have the opportunity to file an amicus brief.

 

For more information, please contact Paul Davidson, Kim Harvey Looney, or any member of the Waller's Healthcare Department at 1-800-487-6380.

 

Links

Files

On-Demand Brochure
Add this page to PDF Brochure
Add Page to Brochure
News / EventsCourt of Appeals Decision Clarifies Provisions of the Hospital Lien Act of Tennessee
Current Brochure Pages
Download Brochure