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Dameron Hospital Association v. AAA Northern California, Nevada and Utah Ins. Exchange

California Court of Appeals, Third District, San Joaquin

September 4, 2014



APPEAL from a judgment of the Superior Court of San Joaquin County, No. 39201000245260CUMCSTK Carter P. Holly, Judge.

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[Copyrighted Material Omitted]

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Hatton, Petrie & Stackler, Gregory M. Hatton and John A. McMahon for Plaintiff and Appellant.

Coddington, Hicks & Danforth, Richard G. Grotch, R. Wardell Loveland and Sungjee Lee for Defendant and Respondent AAA Northern California, Nevada and Utah Insurance Exchange.

Pollak, Vida & Fisher, Michael M. Pollak and Hamed Amiri Ghaemmaghami for Defendant and Respondent Allstate Insurance Company.

Fred J. Hiestand for The Civil Justice Association of California as Amicus Curiae on behalf of Defendants and Respondents;

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Davis & Associates and Monte R. Davis, Jr., for Permanent General Assurance Company as Amicus Curiae on behalf of Defendants and Respondents.



Under California law, hospitals must provide emergency room services without regard for a patient’s ability to pay or who will ultimately bear responsibility for the medical bill. (Prospect Medical Group, Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, 501-502 [87 Cal.Rptr.3d 299, 198 P.3d 86] (Prospect).) Depending on who pays the bill for emergency room services, billing rates for the same treatment can vary substantially. (Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, 552, 560 [129 Cal.Rptr.3d 325, 257 P.3d 1130] (Howell).) After patients have received their care, hospitals often face the difficult and complex task of trying to secure payment for the emergency room services. The final cost and identity of the responsible payer of the emergency room services can remain unresolved for years.

Sometimes a patient needs emergency room care due to negligent driving by a third party tortfeasor with automobile liability insurance coverage. In such an instance, the hospital with the emergency room must determine whether the medical bills are the responsibility of the patient, the patient’s health care service plan, the tortfeasor, the tortfeasor’s liability insurer, or some combination of these potential payers. (Prospect, supra, 45 Cal.4th at pp. 501-502; Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595, 598 [26 Cal.Rptr.3d 569. 109 P.3d 69] (Parnell); Health & Saf. Code, § 1371.4, subd. (b).) Further complicating a hospital’s endeavor to bill for emergency room services are varying limits on financial responsibility for the medical services. A patient’s financial responsibility may be limited to the copayment amounts specified by the health care service plan. (Parnell, at p. 611, fn. 15.) The patient’s health care service plan may be limited to paying a negotiated rate that is less than the hospital’s customary billing rate.[1] (Parnell, at p. 609.) Many hospitals enter into contracts with health care service plans to ensure sufficient volume for their emergency rooms and

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in turn pass along the savings for “buying in bulk” the emergency room services provided. While many health care service plans contract for such negotiated rates, most automobile liability insurers do not.

The health care service plan in this case, Kaiser Permanente (Kaiser), covered three patients who received care at an emergency room operated by Dameron Hospital Association (Dameron). The patients were injured due to the negligence of third party tortfeasors who had automobile liability insurance with California Automobile Association Inter-insurance Bureau (AAA)[2] and Allstate Insurance Company (Allstate). Unlike Kaiser, neither AAA nor Allstate has contracts with Dameron. In the absence of an agreement for negotiated billing rates, Dameron sought to collect from AAA and Allstate its customary billing rates by asserting liens filed under the Hospital Lien Act (HLA). (Civ. Code, § 3045.1 et seq.) AAA and Allstate, however, ignored Dameron’s HLA liens when paying settlements to the three Kaiser patients.

Upon learning of the settlements, Dameron sued AAA and Allstate to recover on its HLA liens. The trial court granted the automobile liability insurers’ motions for summary judgment on grounds the patients’ debts had already been fully satisfied by their health care service plans. Reasoning the HLA liens were extinguished for lack of any underlying debt, the trial court dismissed the case. The trial court further found dismissal was warranted because Dameron failed to timely file some of its HLA liens against AAA.

The central question presented in Dameron’s appeal is this: Does a health care service plan’s payment of a previously negotiated rate for emergency room services insulate the tortfeasor’s automobile liability insurer from having to pay the customary rate for medical care rendered? AAA and Allstate contend they are not responsible for any amount after Kaiser paid in full the bill for the emergency room services provided by Dameron. Dameron responds that it contracted with Kaiser to preserve its rights to recover the customary billing rates from tortfeasors and their automobile liability insurers. Dameron asserts the tortfeasors and their liability insurers are responsible for the entire bill for medical services at the customary rate—not just the difference between the reimbursement it received from Kaiser and the customary billing rate.

In Parnell, supra, 35 Cal.4th 595, the California Supreme Court unanimously held hospitals may not recover their customary rates for emergency room care when they have contractually agreed to accept negotiated rates as payment in full. (Id. at p. 609.) In so holding, the Supreme Court

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acknowledged that “California hospitals face mounting financial pressures, and that many, if not all, of these hospitals may ‘face a genuine financial crisis that threatens their ability to continue to serve their communities.’ ” (Id. at p. 611.) Parnell noted its holding might “result in a significant hardship for many of these hospitals.” (Ibid.) To alleviate such hardship, the Supreme Court stated hospitals could turn to the Legislature for changes to the HLA. (35 Cal.4th at p. 611.)

More importantly for purposes of this case, the Parnell court held that “the solution lies in the hands of the hospitals. By precluding the Community Hospital from asserting a lien under the HLA in this case, we ‘simply give[] effect to’ its contracts. (Lopez v. Morley [(2004)] 352 Ill.App.3d 1174 [288 Ill.Dec. 234, 817 N.E.2d [592,] 599.) If 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. Our decision today does not preclude hospitals from doing so. (See, e.g., Andrews [v. Samaritan Health System (Ct. App. 2001) 201 Ariz. 379] 36 P.3d [57,] 61.)” (Parnell, supra, 35 Cal.4th at p. 611, fn. omitted.)

Although Dameron claims it should benefit from the California Supreme Court’s holding that it may avoid extinguishment of its HLA liens upon receiving payments from health insurers, the contract in this case preceded Parnell by 10 years. The Dameron/Kaiser contract did not seek to avail itself of the Parnell court’s guidance. Instead, the Dameron/Kaiser contract is silent as to whether Dameron may collect from tortfeasors and their automobile insurers after receiving negotiated rate payments from the patients’ health care service plans. Dameron attempts to supply the contract term by relying on a history of “uniform conduct” in which Dameron and Kaiser have cooperated in seeking payment from third party tortfeasors and their liability insurers.

We conclude the Dameron/Kaiser contract does not contain the term described by the Parnell court as sufficient to preserve the right to recover the customary billing rate for emergency room services from third party tortfeasors.[3] To paraphrase Parnell, if Dameron wishes to preserve its right to recover its customary billing rates through an HLA lien, it is free to contract for this right. (Parnell, supra, 35 Cal.4th at p. 611.) But Dameron must actually contract for this right. (Ibid.) A history of voluntary cooperation with Kaiser does not suffice to avail Dameron of the Parnell court’s guidance on reservation of contractual rights under the HLA. Consequently, the trial court properly granted summary judgment in favor of AAA and Allstate.

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As to Dameron’s argument that it filed a timely claim relating to patient Rita H.’s HLA lien, we affirm the trial court’s dismissal based on the statute of limitations. Dameron has not made a sufficient showing of diligence to toll the claim under the discovery rule.


Dameron’s Claims Against AAA and Allstate

In July 2010, Dameron sued AAA and Allstate for damages as well as injunctive and declaratory relief. Dameron’s complaint alleges it gives emergency room care to patients regardless of their ability to pay, as required by Health and Safety Code section 1317. Thus, Dameron provided emergency room services to Denise H.[4] and Don P. The bill for Denise H. amounted to $1,724 and Don P.’s bill was $3,445. After these patients were discharged from the emergency room, Dameron learned each was injured by the negligence of a driver insured by Allstate.

Dameron also provided emergency room services to Rita H., Sara M., and D.S. Rita H.’s emergency room bill totaled $33,831.74, Sara M.’s was $1,976, and D.S.’s was $2,029.76. After these patients were discharged, Dameron learned they were all injured by drivers insured by AAA.

The record indicates Kaiser provided health insurance for each of these patients except Rita H. and D.S. For each of these patient’s emergency room services bills Dameron served HLA liens on all entities known to Dameron and who might be liable for causing each patient’s injuries. And, for each of these patients, Dameron learned AAA or Allstate paid a settlement to the patient without satisfying any part of Dameron’s HLA liens. Dameron filed the present action within a year of learning of the settlements and judgments.

Dameron further alleges each of the contracts with health care service plans for the patients in this case contains an “applicable rate agreement” that “preserves Dameron’s HLA rights, as contemplated by the California Supreme Court in Parnell[, supra, 35 Cal.4th at p. 611].” Dameron asserts it follows the same procedure in collecting on its HLA liens whenever a third party has caused injury to an emergency room patient who has coverage with a health insurer having a rate agreement contract with Dameron. Specifically, Dameron bills the full amount of the emergency room costs to the injured patient’s health plan per Dameron’s contract with the health plan. Dameron also bills the full amount of emergency room costs to the third party

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tortfeasor and/or tortfeasor’s liability insurer by serving an HLA notice under Civil ...

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