The Centers for Medicare and Medicaid Services released a data set on May 8 that can help personal injury attorneys pare down the amount of injured clients’ recoveries eaten up by hospital bills.

The CMS data reveals the stark difference between what a hospital bills for a given medical procedure and what Medicare pays that hospital for that same procedure.

The disparity between differing facilities’ charges for the same procedure is shocking. One example noted in a May 8 press release from the U.S. Department of Health & Human Services is a joint replacement treatment. Patients lucky enough to live in Ada, Okla., where hospitals charge $5,300, will be $218,000 better off than those in Monterey Park, Calif., where hospitals charge $223,000.

More importantly for Texas lawyers, the data also may provide a tool to maximize injured clients’ recoveries — something increasingly difficult to do in the post-tort reform landscape. Specifically, for those representing injured individuals whose monetary recovery from a third party is encumbered by a hospital lien, the CMS data provides good evidence for challenging the reasonableness of the hospital’s bill.

Here’s a quick introduction to the Texas hospital lien, for lawyers just starting out in this area. If a negligent third party injures a client, and that client is hospitalized within 72 hours of the injury-causing incident, a hospital providing treatment may assert a lien over any monetary recovery the client secures from the negligent third party responsible for the client’s injuries.

The hospital has to take some steps to perfect the lien, but they’re not onerous. All this is codified in Texas Property Code Chapter 55. A brief review of lien filings in any urban county provides a glimpse of their sheer volume, which can number in the hundreds for any given month.

So, how can the CMS data help a lawyer challenge those liens? Ironically, a case that liability insurers use to beat down the value of an injured claimant’s recovery during the pre-settlement phase of a case may provide a shield against an intransigent and aggressive hospital collections company in the post-settlement phase.

In Haygood v. De Escabedo(2012), the Texas Supreme Court held that "reimbursement rates have been determined to be reasonable under Medicare. . . ." But until the release of the CMS data, determining what these Medicare reimbursement rates were for a given medical provider’s services was next to impossible.

Now, lawyers can make a cogent argument, post-Haygood, that what Medicare pays a hospital for a procedure constitutes a reasonable reimbursement for that procedure. Combine that argument with the data from CMS produces a dollar figure. With a little math, an attorney can calculate the aggregate percentage reimbursement rate for any hospital on which CMS released data. Relative to the full billed charge, that amount is usually in the 10-15% range.

In practice, the bite a hospital lien takes from an injured individual’s recovery could be reduced by 85-90% if an injured client’s challenge to the hospital lien is successful.

This doesn’t impact the attorney fees, which remain fixed at a percentage of the gross recovery. But it does lower the amount of money that the client must reimburse to the hospital, which is the medical provider that almost invariably seeks the lion’s share of any settlement.

Make It Happen

So, how can an attorney put this insight into practice? First, wait until the third-party liability insurance carrier has agreed to a settlement. Moving too soon may compromise the value of the lien in negotiations with that carrier.

Begin by contacting the hospital’s collection company and pointing out the CMS reimbursement rate for the client’s procedure.

If the CMS data doesn’t identify the specific procedure undergone by the client, the lawyer can calculate and identify the aggregate reimbursement rate. Then, it’s time to play the Haygood card, explaining that the Texas Supreme Court thinks Medicare reimbursement rates are reasonable.

This may not gain traction. Hospital collectors empowered with a properly perfected lien are notoriously difficult parties with whom to negotiate. That’s when the lawyer can file a declaratory judgment action under Chapter 37 of the Texas Civil Practice & Remedies Code. This will force the hospital’s collection company into a posture where it’s enormously inflated charges will be on trial.

If the Texas Supreme Court recognizes Medicare reimbursement rates as reasonable, a state district or county court judge likely will see charges at almost 10 times those rates as unreasonable, and it’s probably a safe bet that a jury will, too.

As an added bonus, the lawyer may have an opportunity to argue that a hospital’s "conditions of admission" (the document all patients are forced to sign before admission) amounts to an adhesion contract; an exercise in the unauthorized practice of law; and any number of additional violations of law, equity, public policy and good conscience. Those are issues for another article, though.

While it may not be possible to persuade the court to rule that the Medicare reimbursement is all the hospital should recover, it’s a pretty good bet a fair-minded judge will declare a reasonable reimbursement to be less than 100% of the hospital’s charges. That dollar difference will go straight to the injured party’s pocket, and that’s where the bulk of settlement dollars are supposed to go in a properly functioning tort system.

Is there a downside? Possibly. Taking this route too early may compromise the hospital lien as evidence of the dollar value of a client’s damages, reducing those for purposes of the liability valuation. An attorney can avoid this by filing the declaratory judgment action after the parties have settled the liability claim.

If the client is impatient, explain that he or she will reap the benefit of decreasing the hospital’s inflated reimbursement by about 90%. Who knew that Haygood might actually help injured Texans?