Over the past few years, St. Luke’s Hospital refused to accept the health insurance of 930 patients injured in auto accidents. It instead went after higher payments from car insurance settlements intended for the victims.
On Friday, the hospital committed to never do it again.
St. Luke’s also agreed to help the 930 former patients whose health insurance wasn’t accepted. It will either drop efforts to collect the hospital’s charges or provide partial compensation. The agreement is worth about $3.5 million plus attorney fees.
The move was part of an agreement approved Friday by Judge Joel Fahnestock to settle a lawsuit filed in Jackson County by three former patients. It could serve as a model to cure an unheralded but increasingly popular method used by hospitals around the country to boost revenues.
Attorneys for the patients said the settlement was fair and comprehesive.
“The settlement includes not only financial compensation for the class members but also injunctive relief whereby St. Luke’s has agreed to change its practices,” said Mitch Burgess, one of the attorneys.
The three plaintiffs in the lawsuit declined to comment.
St. Luke’s said its official who could comment about the settlement was ill and not available.
When hospitals refuse to accept health insurance from auto accident patients and instead collect car insurance settlements, they typically get paid more. That’s because health insurers have arrangements under which they can reduce the hospital’s charges. In health insurance contracts, hospitals agree in advance to the discounted charges to do business with the insurer.
Hospitals instead seek payment of the non-discounted bill from a car insurance settlement, usually by filing a lien against the patients for any settlement they receive. In some cases, hospitals even go after payment for the full bill directly from patients. St. Luke’s was not accused of doing that.
A story by The Kansas City Star last year examined the practice. The St. Luke’s settlement is thought to be one of the first court settlements, if not the first, to put an explicit stop to the repayment method.
The agreement announced Friday leaves three area hospitals — Truman Medical Center, Research Medical Center and Liberty Hospital — facing similar lawsuits in the Kansas City area. All three have denied doing anything wrong.
The St. Luke’s settlement affects all its hospitals in Missouri, including two that go by a different name: Wright Memorial Hospital in Trenton and Hedrick Medical Center of Chillicothe. All the hospitals admitted patients whose health insurance wasn’t accepted.
According to the settlement, the case doesn’t cover St. Luke’s hospitals in Kansas.
Under the court agreement:
• The hospital is prohibited from filing liens against an insurance settlement or seeking payment directly from the patient and instead must accept a patient’s valid health insurance. The hospital can still file a lien or bill for charges such as co-payments and deductibles, which remain the patient’s responsibility. This provision over the next five years is valued at $2.3 million.
• St. Luke’s will immediately forgive any liens not paid or collected. That will save 193 former patients $700,000.
• A payout fund of $500,000 will be established within 30 days of the settlement. The 737 patients who had auto insurance settlements tapped have already been notified by mail, and those wanting to file claims have done so. Each will receive a pro-rated share of the fund. Any money left over will go to Legal Aid of Missouri.
Hospitals tapping auto insurance settlements is not new. In state laws dating back to the Great Depression, when hospitals were struggling because many patients were unable to pay, the hospitals got the right to place liens on injury judgments and settlements. The liens were seen as contributing to the public good by helping hospitals stay open.
But critics say that in recent years, hospitals looking for new sources of money as health care reforms seek to curb costs are using the liens to help maximize revenues. However, no figures are available to show how often bills aren’t submitted to health insurance.
“We are looking at cases in other states where hospitals are also refusing to submit a patient’s bill to health insurance in auto accident cases,” said Ralph Phalen, one of the attorneys involved in the area lawsuits, including the one against St. Luke’s.
Kenneth Berger, an attorney in South Carolina, said it was happening so much that many hospitals were hiring outside companies to collect more than the health insurer would have paid.
“It is prevalent,” he said.
The most public rebuke to the practice occurred last year in Indiana. With large bipartisan majorities, the legislature approved a bill stopping the practice, and a conservative governor signed the bill. The law went into effect July 1.
Bills to stop the practice were introduced this year in the Missouri General Assembly, but they aren’t expected to pass. State Sen. Rob Schaaf, one of the sponsors, said he was pleased that St. Luke’s had agreed to a settlement.
Critics say the practice puts patients in the middle of disputes over medical bills that they thought would be paid with health insurance.
Auto insurance settlements can indeed help pay the hospital in many instances, but the inflated cost without the health insurer discount can take an outsize chunk from a pot of money that is also used to cover other expenses, such as lost wages, attorney fees and replacement vehicles.
Dave Dillon, a spokesman for the Missouri Hospital Association, said whether health or other insurance should pay the bill also leaves hospitals in the middle.
“It’s an awkward situation,” he said. “Hospitals generally want to do the right thing.”
St. Luke’s decision to settle came after a long legal battle that was not without some success.
In Jackson County Circuit Court, St. Luke’s argued that Missouri’s liens law gave it wide authority to use it on health insurance patients.
It rejected arguments that it was unjustly enriching itself by seeking to recover the medical bill without the discounts.
The judge agreed, handing St. Luke’s a victory.
But the case was appealed to the Missouri Court of Appeals. The appeals court ruled the hospital didn’t have unfettered rights to use the liens to collect a higher bill. Instead, the case hinged on whether the hospital was required to submit the health insurance claim and accept the discounts.
The case was sent back to Jackson County Circuit Court to determine whether the hospital’s contract with the health insurer indeed required a claim to be filed. Attorneys representing St. Luke’s patients said they had seen enough such contracts to be confident there was such a requirement, and insurers like Blue Cross Blue Shield have said their contracts with hospitals do require filing a claim.
St. Luke’s disagreed, saying it was not required by contract or law to submit a claim.
But on Friday, St. Luke’s settled the case before the lower court ruled on the issue.