Supreme Court Clarifies Hospital Lien, Medicare Question

A doctor stands with arms crossed near a sign for the emergency room.
The Colorado Supreme Court concluded on Sept. 13 that hospitals must first bill Medicare before filing a lien against an accident victim, clearing up questions about the interplay between the state’s hospital lien statute and federal laws governing Medicare. / Photo credit Rodnae Productions on Pexels.

Hospitals must bill Medicare before they file a lien against an accident victim covered by the federally run health insurance program, the Colorado Supreme Court concluded Sept. 13 in a pair of cases that attorneys, the healthcare industry, creditors and debt collectors have been following closely.

At the heart of the cases was a disagreement about how Colorado’s hospital lien statute and the federal Medicare Secondary Payer statute interact. 

When Peggy Harvey and Eileen Manzanares were injured in separate car accidents, they ended up in Centura hospitals. Both women had automobile insurance policies, as did the drivers who hit them. Weeks after Centura’s collection agency billed the auto insurers, Centura filed hospital liens against the women.

Harvey and Manzanares sued the hospital group, alleging it violated the state’s hospital lien statute by filing the liens before billing Medicare. The lien statute was amended in 2015 to require a hospital to first bill an injured person’s “property and casualty insurer and the primary medical payer of benefits” before filing a lien. The hospital must submit the charges to the insurers “to the extent permitted by state and federal law.” Because Medicare was their primary medical payer of benefits, the women argued, Centura had to bill Medicare before filing the liens. 

But Centura argued the Medicare Secondary Payer statute prohibits health care providers from treating Medicare as a “primary payer.” Under federal law, Medicare can’t cover medical costs if another insurer, such as liability insurance or a workers’ compensation plan, is likely to pay the bill, making Medicare a “secondary payer,” according to Centura. Because Medicare is a “secondary payer” under the MSP statute, Centura contended, it could not have been a “primary medical payer of benefits” for the purpose of the hospital lien statute and the hospital was not required to submit charges to Medicare before filing a lien. 

The Colorado Supreme Court recognized the ambiguity in the hospital lien statute and looked to its construction and legislative history to resolve the dispute. Testimony in support of the 2015 amendments to the statute showed that “many hospitals had a practice of filing liens instead of billing patients’ insurance plans,” the court noted, and several people “described the impact that those liens had had on their lives, their businesses and their credit.” The court concluded the legislature’s intent in passing the bill was to protect accident victims from aggressive lien practices — a fact that supported the women’s case. 

The high court also noted that under Centura’s interpretation of the lien statute, property and casualty insurers would always be the “primary medical payers of benefits,” so there would have been no reason to include that phrase in the amended statute.

“For all of these reasons, we conclude that when Medicare is a patient’s primary health insurer, the Lien Statute requires a hospital to bill Medicare for the medical services provided to the patient before asserting a lien against that patient,” Justice Richard Gabriel wrote in the unanimous opinion.

The court acknowledged that its interpretation could make it hard for a hospital to collect the full amount it billed for medical expenses, while a patient could end up with a windfall if they collect full damages from third parties. But these results are consistent with both the MSP and lien statutes, the justices concluded.

The decision reversed district court rulings against both women as well as the Court of Appeals’ 2020 decision against Harvey. The intermediate court never ruled on Manzanares’ case, which was taken up by the Supreme Court after it agreed to hear Harvey’s case. The decision also resolved a conflict between the Court of Appeals’ decisions in Harvey and another case, Garcia v. Centura, in which a different panel ruled against the hospital group.

The cases attracted attention from several groups representing hospitals, debt collectors, plaintiffs’ attorneys and others. The Colorado Hospital Association argued in an amicus brief that requiring hospitals to bill Medicare first prevents them from charging market rates for a plaintiff’s care. “For many small government hospitals in Colorado, the difference of a few percentage points of payment at market rates rather than Medicare rates will determine if the hospital remains solvent or not,” states the brief.

In another amicus brief, groups including the Colorado Creditor Bar Association contend that under Harvey’s reading of the laws, the property and casualty insurer and tortfeasor “luck out by injuring a Medicare recipient at the expense of both the taxpayers who fund Medicare and the medical provider” as the “wrongdoer is only liable for charges up to the lower Medicare rate.” This causes the medical provider to lose money, they argue, which in turn increases the cost of services.

The Colorado Trial Lawyers Association filed an amicus brief in support of Harvey. The CTLA argued that Centura’s interpretation creates a “two-tiered system” that favors plaintiffs with private health insurance. “When hospitals like Centura ignore the existence of available insurance, it comes at the expense of the credit history and financial status of their patient,” the CTLA’s brief states. 

“Liens not only have adverse financial consequences on a patient’s credit,” the CTLA asserted, “they also rob tort victims [from receiving] the benefits of their bargain with their health insurers.”

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