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Collection Actions: 9.5.4.2 Duress As a Defense

A potential defense to a hospital collection action based on breach of contract is duress. A hospital’s requirement that a debtor agree to pay the patient’s medical bills in order for the patient to be admitted or discharged may give rise to the complete contract defense of duress, especially if the debtor is not the patient but a relative or friend.996

Duress consists of the following three elements:997

Collection Actions: 9.5.6.1.1 Overview

A critical issue in many medical debt collection cases will be the reasonable value of the medical services rendered. Medical service providers often do not discuss the price of services in advance, so the consumer has not already assented to the actual amount of the charges. An inquiry into the reasonable value may be required even when there is an express contract.1013

Collection Actions: 9.5.6.1.2 Factors determining reasonable value

Two factors that courts look at to determine reasonable value are: (1) internal factors of the hospital, including the hospital’s cost of operations and its budgetary needs, and (2) charges for comparable services by similar hospitals.1021 The Fifth Circuit has stated that a “reasonable charge” is an individualized inquiry which depends on the individual circumstances of the patient, the time frame in which the services were provided, and the costs of the hospital and its peers at that time.1022

Collection Actions: 9.6.2.2 Medicaid

After Medicare benefits run out, nursing home residents often transition to custodial care coverage under Medicaid. Medicaid is a federal health care program separately administered by each state for the needy and disabled, including coverage for individuals with low incomes, children, pregnant women, the elderly, and those with disabilities. Through the Affordable Care Act, Medicaid expansion states offer coverage to all adults with incomes of up to 133% of the federal poverty level.1074

Collection Actions: 9.6.3 Discharging Residents for Nonpayment

If the resident is still in the facility while the nursing home seeks to collect past-due charges, the nursing home may attempt to discharge the resident for nonpayment. The Centers for Medicare and Medicaid Services (CMS) regulations allow for a nursing home to discharge a resident where:

Collection Actions: 9.6.4 Problems in Seeking Medicaid and Medicare Reimbursement

Large nursing home debt is typically the result of Medicaid and/or Medicare not providing coverage, even though the resident or representative may have assumed it would cover the nursing home costs. Admission agreements will typically put the obligation to obtain Medicare and Medicaid coverage on the resident and the resident’s representative. The nursing home will bill the resident at private pay rates if there is no coverage or if coverage does not apply immediately.

Collection Actions: 9.6.5 Sloppy Nursing Home Pleadings

While the law firms that bring nursing home collection actions are often well-respected and not debt collection mills, they file a surprisingly large volume of highly suspect cases each year against third parties who are not liable for the nursing home debts.

Collection Actions: 9.6.6 Challenging the Amount Allegedly Owed

An important defense to nursing home collection actions is a dispute about the amount of debt owed. The nursing home will seek the nursing home’s private pay rates where Medicare or Medicaid did not reimburse the nursing home. However, these rates are seldom disclosed in advance and billing statements frequently lack specificity regarding what care was provided and the charges for the care.

Collection Actions: 9.6.7.3 Representative’s Liability for a Fraudulent Conveyance

A surprisingly frequent claim against family members and other third parties is based on actual or constructive fraudulent conveyance—i.e., that the third party’s use of any of the resident’s funds on non-nursing home-related items or expenses represent a fraudulent conveyance. For claims of actual or constructive fraudulent conveyance, conversion, or any other claim for fraud or theft of the resident’s funds, look to whether facts are raised in the complaint to support those allegations and whether the allegations are made solely on information and belief.

Collection Actions: 9.6.8 Consumers’ Affirmative Claims for Litigation Abuse

Suing parties for debts for which they are not liable may violate the Fair Debt Collections Practices Act (FDCPA)1110 and a state unfair and deceptive acts and practices (UDAP) statute.1111 Nursing home collection lawsuits are not exempt from these claims.1112 In general, an FDCPA or UDAP claim will not be successful unless the consumer first prevailed in the underlying collection lawsuit.

Collection Actions: 9.7.1 Extent of Liability

Necessaries statutes, which evolved from Married Woman Acts passed by many states at the turn of the twentieth century, make spouses liable for each other’s medical bills. The typical necessaries statute, as originally written, imposed liability on husbands for wives’ medical bills, but not vice versa. Some states have abolished this doctrine or ruled the necessaries statute unconstitutional.1115

Collection Actions: 9.8.1 Introduction

Health care providers may be able to place a lien on a patient’s tort recovery from the entity that caused the patient’s injuries.1150 The amount of the lien may be regulated by statute.1151 State law will also prescribe substantive and procedural requirements, and a provider’s failure to comply may invalidate the lien.1152 In some cases, a provider’s claim will not fall within the scope of the state lien statute.

Collection Actions: 9.8.2 Hospitals’ Ability to Seek a Lien After Receipt of Insurance Payment

Some providers may seek to place a lien on a tort recovery, even though the services provided were covered by the patient’s HMO or insurance plan (which will pay substantially less than the gross charges or list price).1160 Some courts have disapproved this practice, reasoning that once the patient authorizes payment from the insurance company, they owe no debt to the provider.1161 Other courts, however, have allowed a lien for the difference between the HMO reimbursement and its customary c

Collection Actions: 9.8.3 Liens by Insurers or Third-Party Payers

Many HMOs or employee benefit plans include subrogation clauses allowing them to reach a member’s tort recovery,1170 even if the recovery is insufficient to compensate the victim—as in the familiar case in which the costs of a lawsuit and the tortfeasor’s lack of non-exempt assets mandate a settlement for insurance policy limits.1171 Similarly, Medicaid and Medicare have the right to place a lien on the tort recoveries of their beneficiaries.1172