July 13, 2012 – Although state law prohibits charitable hospitals from “directly charging” those persons eligible for Medicaid, hospitals can place liens on personal injury settlements instead of seeking reimbursement from Medicaid, according to the Wisconsin Supreme Court.

In Gister v. American Family Mutual Insurance Company, 2012 WI 86 (July 11, 2012), a majority (4-3) ruled that St. Joseph’s Hospital of Marshfield could place a “hospital lien” on a settlement between a tortfeasor’s insurer and the injured party, who was eligible for Medicaid.

Jeffrey Mohr was negligent when he ran a light and crashed into a car containing Jaymie Gister and her three sons. American Family insured the vehicle Mohr was driving, and the Gister family injuries at issue totaled about $183,000 in medical costs at St. Joseph’s Hospital.

Wis. Admin. Code section 106.03(8), gives medical providers the option to bill Medicaid, if an injured party is eligible, or “join in the [patient’s] personal injury claim.” In general, hospitals receive reimbursements at reduced rates under Medicaid contracts, while non-Medicaid patients use settlement or judgment amounts against tortfeasors to reimburse medical costs.

In addition, Wisconsin’s hospital lien statute (Wis. Stat. section 779.80) allows hospitals to place liens on any personal injury settlement or judgment obtained by an injured party. Thus, St. Joseph’s placed a lien on any settlement between the Gisters and American Family.

But the Gisters filed for a declaratory judgment that St. Joseph’s hospital liens on any future personal injury settlement with American Family are invalid under Medicaid law.

Specifically, Wis. Stat. section 49.49(3m)(a) says hospitals can’t “knowingly impose direct charges upon a [patient] in lieu of obtaining” Medicaid payments.

A lien was a “direct charge” against them, the Gisters argued. The circuit court ruled that §106.03(8) permitted the hospital’s lien, but an appeals court ruled that the regulation does not provide authority for hospital liens on settlements in lieu of Medicaid.

The Wisconsin Supreme Court majority concluded that St. Joseph’s lien on any future settlement did not constitute a “direct charge” against the Gister family.

“In the medical context, a hospital directly charges a patient when it sends a bill to the patient,” wrote Justice Michael Gableman for the majority. “The Hospital did not do so here, but rather filed liens against the Gisters’ potential settlements with American Family.”

The majority analogized the hospital lien to an in rem action against property, concluding that “it is permissible for St. Joseph’s to pursue the funds by joining the lawsuit, and it is therefore permissible for St. Joseph’s to pursue the funds through liens.”

In a dissenting opinion by Chief Justice Shirley Abrahamson (joined by Justices Ann Walsh Bradley and Patrick Crooks), the minority argued that the majority’s reasoning overlooks important principles of Medicaid, including one that does not allow hospitals to charge patients.

“The first principle overlooked by the majority is that a hospital cannot charge Medicaid recipients for services covered by Medicaid,” the chief justice wrote. “The reason Medicaid recipients cannot be charged is because they are not liable for the cost of these services.”

The dissent also argued that hospitals have two billing options, join the injured party’s lawsuit or bill Medicaid, and obtaining a hospital lien on Medicaid patients is not a billing option.

“Imposing a lien on the Gisters’ future settlement money is quite different from joining the Gisters’ personal injury lawsuit,” wrote Chief Justice Abrahamson.

Joe Forward is the legal writer for the State Bar of Wisconsin.