Low, Ball & Lynch’s

WEEKLY LAW RESUME

April 14, 2005 Issue      By: Ray Coates

Damages - Limits Placed on Hospital’s Right To Assert Lien

Parnell v. Adventist Health System/West

California Supreme Court

(April 4, 2026)

Over the past several years, California courts have grappled with the issue of what is the proper amount of medical bills that may be claimed by a plaintiff in a personal injury lawsuit. The issue has been complicated by the “managed care” system of financing health care services, whereby health insurance carriers enter into contracts with hospitals and physicians. Under these contracts, insureds receive services, normally for a premium.  The carriers pay a pre-determined fee to the provider for services rendered. This is usually a percentage of the “normal and customary charge” of the hospital or physician.  In return, the providers receive an assurance of business.  In Nishihama v. City and County of San Francisco (2001) 93 Cal. App. 4th 298, the Court of Appeal, First District, held that a plaintiff may only claim the amount of medical bills accepted by the hospital or doctor as payment in full, not the “normal and customary charge.”  The Nishihama decision was consistent with a prior Court of Appeal decision, Hanif v. Housing Authority (1988) 200 Cal App.3d 635. 

A related issue involves a hospital or physician’s ability to assert a lien in a personal injury action. Under the Hospital Lien Act (HLA)(California Civil Code sections 3045.1-3045.6), a hospital that treats a patient injured by a third party tortfeasor may assert a lien against any judgement or settlement recovered by the patient/plaintiff in the amount of its “reasonable and customary charges.”  This case analyzed whether a hospital could assert a lien under the HLA to recover the difference between its normal and customary charges and the discounted amount received from the patient and his health insurer.

Plaintiff Joel Parnell was injured in an automobile accident. Plaintiff received treatment for his injuries from San Joaquin Community Hospital, which was owned by Defendant Adventist Health System/West. (Adventist). Adventist was a preferred provider with the Community Care Network (CCN).  Parnell had medical insurance through a health plan that had a contract with CCN.  Under the terms of the contract,  Parnell’s insurer agreed to reimburse CCN a discounted amount, specified in the contract, for services rendered.  In turn, CCN agreed to accept those amounts as payment in full. Additional charges to Parnell were “written off.”

Parnell later asserted a tort claim against the driver of the vehicle that struck his vehicle. Soon thereafter, CCN (and Adventist) filed a notice of lien against any settlement or judgement.  The lien, pursuant to the HLA, sought to recover the difference between the hospital’s normal and customary charge and the negotiated amount actually received by the hospital. In response, Parnell filed suit against CCN /Adventist alleging Unfair Business Practices, and other causes of action. Parnell argued that the Hospital had received full payment for services under the terms of its contract with Parnell’s insurance provider, and therefore, was not entitled to recover its normal and customary charges. At the trial court level, CCN filed a motion for judgement on the pleadings. The trial court granted the motion and held that the HLA permitted full recovery of the normal charges. The Court of Appeal reversed. The California Supreme Court then accepted the case for review.

The Supreme Court first analyzed whether a lien asserted under the HLA requires the existence of an underlying debt owed by the patient to the hospital -- as argued by Parnell.  In looking to the language of the statute and the Legislative intent, the Court concluded that any lien under the HLA must be based on a debt owed by the patient. CCN argued that any recovery under the lien comes from the tortfeasor, not from the patient. This did not sway the Supreme Court, which held that the HLA is simply a legal claim upon the property of another, in satisfaction of a debt owed by a patient for medical services.

The Supreme Court then looked to the contract between Parnell’s health insurer and CCN.  Pursuant to the terms of the agreement, the insurer’s payment was “payment in full.” Thus, Parnell’s entire debt to the hospital had been extinguished. Because there was no outstanding debt to CCN for services, the Court concluded that CCN could not assert a lien under the HLA against Parnell’s recovery from a third party tortfeasor.  The Court of Appeal decision was, therefore, affirmed.

COMMENT

In ruling against Adventist, the Supreme Court recognized that its decision could result in financial hardship for hospitals. The Court commented that the hospitals could look to the Legislature for relief or renegotiate contracts with insurers so that the hospitals could preserve their right to recover their normal and customary charges through liens. 

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