Parnell v. Adventist Health System/West

• Decision Date: 04 April 2005
• Docket Number: No. S114888.,S114888.
• Citation: 26 Cal.Rptr.3d 569,109 P.3d 69,35 Cal.4th 595
• Court: California Supreme Court
• Parties: Joel K. PARNELL, Plaintiff and Appellant, v. ADVENTIST HEALTH SYSTEM/WEST et al., Defendants and Respondents.

26 Cal.Rptr.3d 569

35 Cal.4th 595

109 P.3d 69

Joel K. PARNELL, Plaintiff and Appellant, v. ADVENTIST HEALTH SYSTEM/WEST et al., Defendants and Respondents.

No. S114888.

Supreme Court of California.

April 4, 2005.

King & Hanagami, William K. Hanagami, Los Angeles; Law Offices of Ralph B. Wegis and Ralph B. Wegis, Bakersfield, for Plaintiff and Appellant.

Ian Herzog, Santa Monica; Sharon Arkin, Newport Beach; David Rosen; James Sturdevant, San Francisco; Bruce M. Brusavich, Los Angeles; Donald de Camara; Scott H.Z. Sumner, Walnut Creek; Dan Wilcoxen; Lea-Ann Tratten; Enser & Chang and Stuart B. Esner, Los Angeles, for Consumer Attorneys of California as Amici Curiae on behalf of Plaintiff and Appellant.

Latham & Watkins, Robert D. Crockett, Sara Mars; Law Offices of Deborah Giles and Deborah Giles, Los Angeles, for Defendants and Respondents.

Manatt, Phelps & Phillips, Barry S. Landsberg and Joanna S. McCallum, Los Angeles, for Catholic Healthcare West, Scripps Health and the Regents of University of California as Amici Curiae on behalf of Defendants and Respondents.

Lois Richardson for California Healthcare Association as Amicus Curiae on behalf of Defendants and Respondents.

Friestad & Giles, Deborah Giles and Christine Friestad, San Diego, for Scripps Health as Amicus Curiae on behalf of Defendants and Respondents.

Dennis J. Herrera, City Attorney (San Francisco), Joanne Hoeper and David B. Newdorf, Deputy City Attorneys; Manuela Albuquerque, City Attorney (Berkeley); and Casey Gwinn, City Attorney (San Diego), for City and County of San Francisco and League of California Cities as Amici Curiae.

Horvitz & Levy, Lisa Perrochet, H. Thomas Watson, Encino, and Orly Degani, Los Angeles, for Association of California Insurance Companies, Personal Insurance Federation of California and American Insurance Association as Amici Curiae.

BROWN, J.

Under the Hospital Lien Act (HLA; Civ.Code, §§ 3045.1-3045.6),¹ a hospital that treats a patient injured by a third party tortfeasor may assert a lien against any judgment, settlement, or compromise recovered by that patient from the tortfeasor in the amount of its "reasonable and necessary charges" (§ 3045.1). In this case, a hospital received payment from a patient and his health insurer and agreed to accept that payment as "payment in full" for its services. Nonetheless, the hospital asserted a lien under the HLA, seeking to recover the difference between its usual and customary charges and the amount received from the patient and his insurer. We now consider whether the hospital may do so. We conclude that it may not.

I.

Because this case comes before us after the grant of a motion for judgment on the pleadings, we "accept[ ] as true all material facts alleged" in the complaint. (Smiley v. Citibank (South Dakota) N.A. (1995) 11 Cal.4th 138, 146, 44 Cal.Rptr.2d 441, 900 P.2d 690.) The following facts appear from the allegations of the complaint.

Plaintiff Joel K. Parnell was injured in an automobile accident while a passenger in a taxicab. At the time of the accident, Parnell had medical insurance through the Wholesale Beer Distributor Industry Trust Health Plan (the Health Plan). The Health Plan had contracted with Community Care Network (CCN), a preferred provider organization, to provide discounts on medical care to its beneficiaries (CCN agreement). Under the terms of the CCN agreement, the Health Plan agreed to reimburse preferred providers in the CCN network for services rendered to its beneficiaries, which included deductibles and copayments owed by the beneficiaries themselves, in the amount specified in CCN's provider agreements. In turn, CCN agreed to accept those amounts as "payment in full for Health Care Services or Benefits provided to Beneficiaries by CCN providers."²

Parnell received treatment for his injuries from defendant San Joaquin Community Hospital, which was owned and operated by defendant Adventist Health System/West (collectively, the Community Hospital). The Community Hospital was a preferred provider in CCN's network and had entered into a provider agreement with CCN (provider agreement). Under the provider agreement, the Community Hospital authorized CCN "to act in its behalf in contracting for the provision of" medical services. The Community Hospital further agreed to provide medical services to the beneficiaries of any contracts entered into by CCN on its behalf and to accept "as payment in full" the amount set forth in the agreement which included any deductibles and copayments owed by the beneficiaries themselves.³

As required by the provider agreement, the Community Hospital presented a claim for payment for services provided to Parnell to the Health Plan. In accordance with the CCN and provider agreements, the Health Plan reimbursed the hospital in the amount specified in the provider agreement. Parnell also paid the hospital his required share of the deductibles and copayments. Consistent with the "payment in full" clause in the provider agreement, each bill received by Parnell from the Community Hospital noted that Parnell had received a "CCN discount" which "will be `written off' by" the hospital.

Parnell later asserted a tort claim against the driver of the vehicle that struck the taxicab. Soon thereafter, the Community Hospital filed a notice of lien "against any final judgment, compromise, or settlement agreement made between" Parnell and the driver pursuant to section 3045.1 in the amount of $14,450.40. The lien sought to recover the difference between the "actual" cost of the medical services and the negotiated amount received by the Community Hospital under the provider agreement.

In response, Parnell filed the instant action against the Community Hospital, alleging unfair business practices (Bus. & Prof.Code, § 17200 et seq.), violation of the Consumer Legal Remedies Act (Civ.Code, § 1750 et seq.), trespass to chattels, breach of third party contract, and negligence.⁴ After answering the complaint, the Community Hospital filed a motion for judgment on the pleadings. Following a hearing, the trial court granted the motion and held that "[t]he Hospital's lien rights provided by Civil Code Section 3045.1 to assert a lien against a patient's recovery from a third party tortfeasor to the extent of reasonable and necessary charges of the hospital, whether by way of judgment, settlement or compromise is not constrained by the Hospital's negotiated discount with a health insurance carrier."⁵

The Court of Appeal reversed. According to the court, "based on the purposes of the act as disclosed in the available legislative history, the [HLA] did not, and was not intended to, rewrite California law of accord and satisfaction in such a manner as to permit the hospital to assert a lien in the foregoing circumstances." The court therefore disagreed with Swanson v. St. John's Regional Medical Center (2002) 97 Cal.App.4th 245, 118 Cal.Rptr.2d 325 (Swanson) and concluded that "a hospital that has received full payment for services under the terms of its contract with a medical insurance provider is not entitled to file a lien to recover the difference between that payment and the hospital's `usual and customary' charges for similar services." The court, however, declined to address the applicability of the litigation privilege or "to sort out the causes of action and types of relief to which appellant may be entitled." Instead, it merely held "that ... based on the pleadings before the trial court, [Parnell] has stated a cause of action for declaratory relief under the Unfair Practices Act (Bus. & Prof. Code, § 17200) and the judgment against him, dismissing this action, was erroneous."

We granted review.

II.

We begin by determining whether a lien asserted under the HLA requires the existence of an underlying debt owed by the patient to the hospital. Parnell contends the lien does and, absent such a debt, the hospital may not assert the lien. Citing Swanson, supra, 97 Cal.App.4th 245,118 Cal.Rptr.2d 325, the hospital counters that the lien is statutory and does not require an underlying debt because it only "seeks recourse against the third party tortfeasor that caused the injuries." (Id. at p. 250, 118 Cal.Rptr.2d 325.) As explained below, we agree with Parnell.

Under the HLA, any hospital "which furnishes emergency and ongoing medical or other services to any person injured by reason of an accident or negligent or wrongful act ... shall, if the person has a claim against another for damages on account of his or her injuries, have a lien upon the damages recovered, or to be recovered, by the person ... to the extent of the amount of the reasonable and necessary charges of the hospital and any hospital affiliated health facility...." (§ 3045.1.)⁶ "The lien shall apply whether the damages are recovered, or are to be recovered, by judgment, settlement, or compromise." (§ 3045.2.) The hospital's recovery on the lien is, however, limited "to an amount which could be satisfied from 50 percent of the" amount recovered by the injured person from the tortfeasor. (Newton v. Clemons (2003) 110 Cal.App.4th 1, 6, 1 Cal.Rptr.3d 90; see also § 3045.4.)

To assert the lien, the hospital need not provide notice of the lien to the injured person. But the lien "shall not be effective ... unless a written notice ... is ... mailed ... to each" alleged tortfeasor "known to the hospital...." (§ 3045.3.)⁷ If the tortfeasor pays the injured person "after the receipt of the notice as provided by Section 3045.3, without paying to the" hospital "the amount of its lien claimed in the notice, or so much thereof as can be satisfied out of 50 percent of the moneys due under any final judgment, compromise, or settlement agreement," then the tortfeasor "shall be liable to the" hospital "for the amount of its lien claimed in the notice which the hospital was entitled to receive as payment for medical care and services rendered to the injured person."...