Cui Bono? Reasons and Ramifications For When the Hospital Refuses to Bill Your Health Insurance

Hold up! What happened to liens and subrogation?

Yeah, I know. We're right smack in the middle of a series on liens and subrogation, and here I am getting all distracted and taking you down a ginormous rabbit hole. Not cool. I hope that you'll accept my sincerest apologies; I want to cover this topic really quickly, because (i) I'm sure that you're all bored of liens and subrogation for the time being, (ii) this particular topic is really important and rarely gets covered, and (iii) it does kind of tie into the whole liens and subrogation forum. Don't worry; I'll keep it short.

So what are we talking about here, anyway?

Lately I've been hearing more and more about a peculiar little stunt that hospitals are pulling on their patients. It's unfair and in my opinion, it's illegal, but apparently that isn't stopping a good number of hospitals from doing it.

What happens is that the patient gets in a car accident, gets treatment, and then the medical provider refuses to bill the patient's health insurance. There can be a couple of reasons why a provider would want to do this, but the primary reason (and the one we're going to focus on today) relates to reimbursement. I know it's shocking to hear about the healthcare industry being greedy, but there you go.

But... why?

Look at it from the hospital's point of view. Generally speaking, when a healthcare provider bills a health insurance carrier for treatment, they're going to get paid at pennies on the dollar. Whether that steep discount arises from a contract (like with private insurance or an ERISA plan) or from the law (like Medicaid or Medicare), the hospital may want to roll the dice on you recovering in your personal injury claim by asserting a lien against that recovery and hoping to recover the full amount of his bill.

Let's look at an example. You get in an accident and go to the Emergency Room. The original bill for the treatment that you receive totals $5,000. When you came into the ER, you gave the intake nurse the information for your health insurance, which is provided by Medicare. You complete your treatment and go home.

Now, the hospital has a couple of options. It can bill Medicare for your treatment and get paid maybe $1,500 on that $5,000 bill, or it can assert a § 44-49 lien* against your recovery, wait for the claim to resolve, and then get the full $5,000 or at least an amount greater than what Medicare would pay. 

Is this practice legal?

Strictly speaking, it is against North Carolina law for a hospital to "bill insured patients for charges that would have been covered by their insurance had the hospital ... submitted the claim or other information required to process the claim within the allotted time requirements of the insurer." Pretty cut-and-dry, right?

Well, it's cut-and-dry what North Carolina law says. The problem is that a lot of healthcare insurers are created, maintained, and held accountable by authority that preempts state law. For instance, Medicare, TRICARE, and ERISA are all creatures of federal law. Even Medicaid, though it's a state program, is probably going to preempt any conflicting North Carolina General Statutes. So the question isn't whether North Carolina law allows the practice (it pretty clearly doesn't); it's whether the particular insurance carrier is bound by North Carolina law.

How does the hospital decide whether to bill insurance or not?

There are going to be a lot of pragmatic factors, like the severity of the injuries, the timeline for recovery, and any contributory negligence considerations. But the factor I want to focus on today deals with what type of health insurance provider the patient is dealing with.

When a hospital bills an insurance carrier, it's going to get paid in one of two ways. For policies through private insurers or ERISA employment plans (as well as Medicare Advantage plans), the hospital will be reimbursed according to a fee schedule that was incorporated into the contract that the hospital and the carrier entered into when they first agreed to work together. For example, the fee schedule might dictate that the $5,000 MRI that you received will be reimbursed in the amount of $2,500 by the health insurance carrier. Knowing exactly what the paid amount is going to be could incentivize the hospital to go ahead and bill the insurance carrier.

On the other hand, plans through Medicare, Medicaid and TRICARE are handled a little bit differently. Providers are given the option of whether to accept plan recipients; but if the provider does accept the patient and bill the plan, the plan is basically going to force the hospital to accept whatever payment amounts the plan decides to give. For our $5,000 MRI, for example, Medicare might pay the hospital anywhere between $800 and $2,000. This uncertainty often makes the hospital want to wait and see what it can get from the patient's personal injury claim.

Why does it help me for the hospital to bill my health insurance?

Remember the Collateral Source Rule? It means that the amount paid by your health insurance carrier for your treatment is irrelevant to your recovery, no matter how steep the discount ends up being.

Here's what it looks like put into practice. You get hurt in an accident, you get treatment at the ER, and your final bill is $5,000. The hospital bills your ERISA healthcare plan and gets paid $2,500 per the fee schedule. Because you're a Billed-versus-Paid ninja master, you get an itemized bill from the ER that doesn't include any insurance payments. You include that bill in your demand package and end up settling for $10,000. Because the ERISA plan only paid $2,500 instead of the full $5,000, you pay the plan back $2,500 and end up with an extra $2,500 in your pocket at the end of the day.

On the other hand, if the hospital refuses to bill the ERISA plan, then the hospital ends up with a § 44-49 lien against your recovery, and you end up having to pay back a greater amount. This hurts your recovery, which is obviously something that we'd like to avoid whenever possible.

What does that leave us with?

Believe it or not, this issue is still fairly up in the air. What we're most likely confronted with at the moment is that hospitals do not have an obligation to bill Medicare, Medicaid, TRICARE, and the like. They might have an obligation to bill an ERISA plan, depending on whether or not the contractual language would tend to create such an obligation. They probably do have an obligation to bill private healthcare plans, since those plans would be directly subject to the requirements of North Carolina General Statutes § 131E-91(c).

I know that this amounts to a non-answer worthy of Roger Goodell, and that's because that's really all the law tells us on the subject at this point. When more information becomes available, you know where you can find it!

* § 44-49 liens are going to be covered on Friday. Stay tuned!