Tennessee High Court Blocks Hospital Lien on Insurer’s Benefit Payment

Hospitals are not entitled to place liens on insurance benefits paid by insurers to third party service providers, the Tennessee Supreme Court has ruled.

The case involved a man, Kevin L. Holt, who was injured in a car crash in Arkansas in 2006 and first taken by ambulance to a hospital in that state. He was later transferred to the Regional Medical Center (owned by Shelby County Health Care Corp.) in Memphis, where he incurred $34,000 in expenses.

Nationwide Mutual Insurance Co., the insurer for Holt under an auto policy with limits of $5,000, paid $1,290 for ambulance services and $3,710 to the Arkansas hospital.

Shelby County Health Care Corp. sued Nationwide for impairment of its lien, seeking to recover the entire amount due for its medical services to Holt. The trial court awarded Shelby $5,000 in damages. The Court of Appeals revised the amount to the full $34,000.

But the state’s high court has now dismissed Shelby’s claim, finding that liens under the state’s Hospital Lien Act (HLA) do not attach to medical payment benefits paid under an insurance policy.

Nationwide argued that there was no valid hospital lien against Nationwide because there had been no “judgment, settlement, or compromise” on the claim. The insurer also argued that direct payments to other medical service providers did not constitute an impairment of a lien and, even if they did, the hospital could not recover beyond the $5,000 limit of the policy.

The hospital contended that a lien may be asserted against “claims” or “demands” arising out of an insurance contract and that it had a right to recover the full cost of its services, regardless of any limitations on Holt’s coverage.

The Supreme Court found that the HLA “only authorizes the attachment of hospital liens to ‘damages’ obtained by persons to whom care, treatment or maintenance is furnished, or to their legal representatives in the case of their death,” and that the medical benefits payment by Nationwide was not damages or a demand. The court said the legislative history supports this interpretation.