“Third-Party Tortfeasor or Patient Insurance: Recovery Options for Healthcare Providers in Illinois and How their Participating Provider Agreements Affect the Analysis”

Posted in Insurance

There is a precarious balancing act between healthcare providers, insurance companies, legislative bodies, and the Court system in Illinois. On July 6, 2017, the Fourth District Appellate Court of Illinois issued its decision in Turner v. Orthopedic and Shoulder Center, S.C.[1], and weighed in on that balancing act, further defining the parameters for interpretation and application of healthcare insurance contracts and the rights of physicians to recover against their patients.  Specifically, the question before the Court in Turner was whether a physician who treats a patient that was injured by a third party can attempt to collect 100% of their bills from the patient’s settlement with that third party, or whether the physician is limited to the reduced amount paid by the patient’s healthcare insurance?  The answer in this case, as in most cases, is that it depends.

Cassandra Turner was involved in a car accident with a third party tortfeasor in July of 2014.  By December of 2014, Orthopedic and Shoulder Center, S.C. (“Defendant”) had billed her $30,027.40 for their services, and had submitted a lien to the third party tortfeasor’s insurance company in this amount.  However, Defendant had also submitted bills to the Plaintiff’s personal health insurance for the same treatment.

Defendant was a “participating provider” through Blue Cross (“BCBS”), and had agreed in its contract with Blue Cross to accept “as full payment” the reduced rates they paid for Defendant’s services. Moreover, as a participating provider, Defendant had agreed to forego collections against any patient for amounts above the reduced rate paid by Blue Cross.  On this basis, instead of paying the entire amount of $30,027.40, BCBS issued a check to Defendant in the amount of $6,495.63.  Pursuant to the contract between Defendant and BCBS, this was to be accepted as payment in full.  Defendant cashed the check from BCBS.  However, after realizing that the patient, Cassandra Turner, had made a recovery against the third party tortfeasor that had forced her to incur the bills, the Defendant paid back BCBS their $6,495.63, and began attempting to collect the full amount of its bills from the patient.

In response to Orthopedic and Shoulder Center, S.C.’s collection attempts, Ms. Turner filed suit and asserted several claims, one of which was a consumer fraud action, and one of which sought to reduce the asserted lien of the Defendant to zero.  The trial Court granted the defendant summary judgment and Ms. Turner appealed.

In reaching its decision, the Turner court analyzed and distinguished its decision in Rogalla v. Christie Clinic.  In Rogalla[2], another Fourth District Decision, the Court allowed a healthcare provider to assert a lien in excess of the copayments paid by the plaintiff because the contract between the provider and the insurance company contained a qualifying clause to the general exemption against trying to collect from the patient.  The contract in Rogalla required the provider to accept copayments as full payment from the patient.  However, it did not restrict the provider from claiming additional compensation from individuals or entities that were not the actual patient.  This clause set forth that the provider “shall have the right to seek to recover charges incurred as a result of providing Medical/Hospital Services which are the liability of a third party.”  As such, the Rogalla Court held two things: (1) that the general exemption was modified by this “subrogation clause,” and (2) that because the lien was asserted against the third party tortfeasor rather than the patient, it was permissible under the contractual language between the insurance company and the provider.

In applying Rogalla to the case at hand, the Fourth District Court found that the BCBS contract contained no modification to the clause barring the provider from attempting to collect from its patients in excess of insurance payments.  Thus, the Rogalla analysis did not apply, and the Defendant in the Turner case was not contractually permitted to refuse the BCBS payment in an attempt to recover more money directly from the patient.  While Defendant asserted that Ms. Turner did not have the right to raise breach of contract issues as the two parties to the contract at issue were BCBS (a non-party) and Defendant, the Court looked to the contractual language to find that Ms. Turner was a third-party beneficiary to the contract. In Illinois, third party beneficiaries to a contract can sue for breach despite not being party to the contract.

Further, and perhaps most interestingly, the Court found that the contract language setting forth that “the contracting provider agrees to accept the Plan’s Usual and Customary Fee allowance as full payment for each service covered” meant that the Defendant healthcare provider could not have a lien at all, and was entitled to nothing. In essence, a lien is a legal right held by a creditor.  However, the Defendant in this case had previously agreed to accept the BCBS amount as “full payment,” and it had in fact been paid.  As such, it was not a creditor, and thus could not hold a lien.  In fact, the Turner court reiterated the fact that the Fourth District Court had already held that once a bill has been paid by the patient’s insurance company, there can be no valid lien for that bill by the healthcare provider.[3]

In response, Defendant argued that by sending the BCBS money back, it had put itself back in the shoes of a provider that had foregone submitting the bills to the insurance company in favor of filing a lien against recovery from the third party tortfeasor. While the Court agreed that if a healthcare provider foregoes insurance and instead seeks payment from the third party, the lien is allowable, it made two points in response to this contention.  First, a party to a contract cannot prevent performance of the contract and then seek to benefit by the prevention.  In this case, Defendant was contractually obligated to accept the BCBS payment as full payment, and sending the money back operated as a prevention of BCBS fulfilling their contractual duties.  Second, the specific contract at issue in this case defined the patient as a third party beneficiary, and did not allow the Defendant to seek recovery from third-party torfeasors, unlike the contracts in Rogalla and Barry.

Ultimately, healthcare providers and their counsel must read and understand their rights under their provider agreements with insurance companies in order to assess and analyze their options for recovery against third party tortfeasors and their patients alike. One thing is for certain, the Healthcare Services Lien Act (770 ILCS 23/1, et. seq.) has been the subject of litigation since its inception in 2003, and that is a trend that is likely to continue.

[1] 2017 IL App (4th) 160552

[2] 341 Ill.App.3d 410 (4th Dist. 2003).

[3] Barry v. St. Mary’s Hospital, 2016 IL App (4th) 150961

Ryan Armour

Ryan Armour

Ryan Armour is a partner with Cassiday Schade LLP and focuses primarily on medical malpractice defense litigation. Mr. Armour also has a substantial practice in general insurance defense, including the defense of litigants in car accidents, property damage and insurance coverage issues. In addition, he has experience with product liability, construction liability and premises liability work. He was recognized by Super Lawyers in 2015 as a "Rising Star" in the areas of product liability defense, personal injury defense, and medical malpractice defense. He has also been named a 2015 Emerging Lawyer by Leading Lawyers Network.

Mr. Armour has successfully represented his clients as primary counsel at trial as well as at arbitration and has substantial experience in utilizing alternative dispute resolution methods to obtain favorable results for his clients. He routinely represents hospitals, physicians, nurses and physician practice groups in medical malpractice cases and is committed to vigorously defending the interests of healthcare practitioners and facilities in Illinois.