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By Shawn F. Friestad
Associate Attorney of the Friestad Law Firm The case of Olszewski v. Scripps1, which was argued before the California Supreme Court by the Friestad law firm rendered a decision which heralds a drastic change for medical providers seeking payment from liable third parties when Medi-Cal funds are available for patients. It is widely known that California hospitals are facing increasingly difficult financial hardships. Amid the rapidly rising costs of providing quality health care, hospitals also face the ominous challenge of seeking payment for such services from insurance providers and government programs, both of which have sought to contain their costs and reduce the funds paid to hospitals. The growing costs of providing healthcare to patients and stagnant or diminishing funds received by hospitals who provide such care has resulted in a record number of hospitals closing their doors all across California. The hospitals are not the only victims of the present healthcare crisis in California. Medi-Cal, the California State Medicaid program, is also facing financial collapse amid funding shortages and increasing costs. The California Legislature has noted the plight of the hospitals and healthcare industry in general by enacting legislation to assist in alleviating the problem. The Legislature enacted California Welfare and Institutions Code  14124.791 and 14124.74 in an effort to alleviate the burden on both hospitals and Medi-Cal by placing the financial burden of the medical care provided to the patient on the party responsible for causing the injuries to the patient. Specially, California Welfare and Institutions Code  14124.791 provides the medical provider the basis upon which "to file a lien for all fees for services provided to the [Medi-Cal] beneficiary against any judgment, award or settlement obtained by the beneficiary" against the liable third party.Ever since the enactment of California Welfare and Institutions Code 14124.791 and 14124.74 it has been a common practice in the State of California for medical providers to seek payment from liable third parties for the injuries caused to the patient in lieu of seeking reimbursement from Medi-Cal. In practice, if the patient was eligible for Medi-Cal then the hospital (medical provider) would bill Medi-Cal for the services rendered to the patient. (At some point in time the medical providers would be alerted to the possibility that the patient's injuries were caused by another responsible third party through a variety of sources.) Upon obtaining the identity of the tortfeasor the hospital would file a lien against the potentially liable third party pursuant to California Welfare and Institutions Code 14124.791 and 14124.74 for the total amount of charges for the medical services provided to the patient. Finally, the hospital would be required to reimburse Medi-Cal prior to receiving any funds from the liable third party.California Welfare and Institutions Code 14124.791 and 14124.74 allow the hospital to seek the full amount of charges incurred in treating the patient from the third party regardless of the amount of reimbursement the hospital receives from Medi-Cal. Since the hospital is required to reimburse Medi-Cal all funds paid prior to accepting any payment from the liable third party California Welfare and Institutions Code 14124.791 and 14124.74 has the effect of eliminating the costs incurred by Medi-Cal and also providing payment to the hospital. The function of Welfare and Institutions Code 14124.791 was to place the financial cost of treating the injured party squarely on the person responsible for the injuries. In doing so, the benefit to California Taxpayers was to prevent them from absorbing the costs of treating injured parties when the injuries are a result of the tortious conduct of another. Further, the medical providers received a benefit in that California Welfare and Institutions Code 14124.791 and 14124.74 allow the hospital to seek full reimbursement for their charges instead of limiting them to the pitiful reimbursement rates provided by Medi-Cal. Finally, the patient benefits by retaining their right to pursue the liable third party for the full and true value of the costs of medical treatment as opposed to being limited to only seeking medical damages in the amount paid by Medi-Cal, which is often pennies on the dollar.The California Supreme Court reviewed the viability of California Welfare and Institutions Code 14124.791 and 14124.74 in the case entitled Olszewski v. Scripps. The Court addressed the issue and scope of federal preemption as the basis for its decision in Olszewski. The doctrine of federal preemption arises from the Supremacy Clause of the United States Constitution. It is a well settled principle of law that when state law conflicts with federal law it is "without effect" or "preempted." The California Supreme Court analyzed federal Medicaid statutes and regulations limiting provider reimbursement Ð title 42 United States Code Service 1396a(a)(25)(C) and 42 Code of Federal Regulations parts 447.15 and 447.20, in conjunction with the California Welfare and Institutions Code 14124.791 and 14124.74. The Court ruled that federal law preempted California law and therefore the law was stricken as it relates to the hospital's ability to lien the full amount of the charges for the medical services provided. Specifically, the Court found that federal law disallowed the hospitals or medical providers from seeking payment for the full charges over and beyond what Medicaid would charge because that would potentially allow the hospital from seeking compensation from funds that may not be related to the medical charges whatsoever. According to the Court, there was a conflict with federal law and therefore the California law was preempted.The Court, in its lengthy opinion, effectively prohibited medical providers from seeking full payment from the third party. As such, hospitals must now accept payments by Medi-Cal as payment in full and cannot seek the full value of the charges incurred. This decision also dealt a blow to the actual patients who are covered under Medi-Cal as the decision effectively barred plaintiffs from seeking the full value of the medical services provided and more egregious is that Medi-Cal must now pay for the medical treatment of injuries caused by a third party, giving the perpetrators a windfall. In Olszewski v. Scripps, the total cost of treating Cimmaron Olszewski was $201,672.17, of which, Medi-Cal provided reimbursement in the amount of $3,953.99. The result of the decision in Olszewski is to limit the patients (Mr. Olszewski) to only seeking compensation for their medical injuries in the amount paid by Medi-Cal ($3,953.99) from the liable third party. As such, it would have been much more difficult for Mr. Olszewski to obtain counsel willing to represent him in his action against the liable third party due to the lack of funds. While there is nothing that prevents patients from pursuing their claims against the liable third parties, the reduction of medical damages (specials) will only increase the difficulty faced by plaintiffs in obtaining "pain and suffering" damages (general). The impact of the decision is glaringly evident. It will be more difficult for injured persons who qualify for Medi-Cal to pursue their case against the responsible third party as they are limited to the amount of medical damages as that reimbursed to the hospital by Medi-Cal. Since the amount that the hospital receives from Medi-Cal is pennies on the dollar, plaintiff's counsel will be much more reluctant to pursue liable third parties given the overall amount of funds available to recover. Further, hospitals will no longer spend the resources needed to pursue liable third parties and instead will simply accept Medi-Cal payments as satisfaction in full for the medical services provided to the patient. This will have a two-fold result. First, the hospitals will suffer additional financial hardships due to the elimination of a significant source of revenue. Second, Medi-Cal will absorb the full costs of providing care to the injured patients, as opposed to the responsible third party(ies) responsible for the patients' injuries. This will only further exacerbate the financial problems faced by Medi-Cal and the medical providers in California. Third, the insurance carriers and their insureds can now pocket the money they would be obligated to pay for the injuries caused to the patient. The California Supreme Court was fully aware of the consequences of its decision and was not pleased with the result, but felt that its conclusion was squarely based on federal and state law. However, the Court specifically requested that the California State Legislature step in and remedy the defects in the present California Welfare and Institutions Code 14124.791. The Court stated:By invalidating liens filed pursuant to section 14124.791, we give the third party tortfeasor a windfall at the expense of the innocent health care provider. Because the provider may no longer assert a lien for the full cost of its services, the Medicaid beneficiary may only recover the amount payable under Medicaid as his or her medical expenses in an action against a third party tortfeasor. As a result, the tortfeasor escapes liability for the full amount of the medical expenses he or she wrongfully caused. Such a result not only benefits the party who should be responsible for the medical costs of the beneficiary at the expense of the blameless provider, it also harms society as a whole. Because health care providers cannot recover the full costs of their services from the responsible tortfeasors, they must either charge more to those innocent patients who can pay in order to recoup their losses or stop providing medical care to the needy. In the end, everybody suffers but the third party tortfeasor. We therefore urge the legislature to remedy this anomaly in a manner consistent with federal law. As the Court noted, the impact of the Olszewski decision only benefits the party responsible for the injuries to the patient at the expense of the innocent patient, hospital and state Medi-Cal program. Presently, there are efforts being made by numerous individuals and organizations to rectify the problems highlighted by the Supreme Court in Olszewski. The possibility still remains for the Olszewski decision to be petitioned to the United States Supreme Court for review. Additionally, there is a targeted effort to bring the decision in Olszewski to the attention to the California Legislature so that the present Welfare and Institutions Code 14124.791 can be amended and brought into conformity with the holding of the Court. Regardless, the impact of the Olszewski decision to the health care community in California is enormous and its application will have far reaching effects. While it is unclear as to the specific manner in which the present state of the law will be addressed by those in the healthcare community, it is clear that the issue is not yet settled or resolved. In the meantime, the healthcare community will be watching this issue closely.1 This case was handled by the Friestad Law Firm since its inception as a class action. The Friestad law firm has been active in creating California healthcare law for 16 years. Please feel free to call Christine E. Friestad, Esq. or Shawn F. Friestad, Esq., at (619) 232-4433 should you have any questions. |