Originally published by William K. Berenson.
Arbitration clauses have become the norm in health care provider contracts that patients must sign. 
Why? They usually favor the big hospital over the little consumer and remove the possibility of a lawsuit.
But what happens when a patient is better trying to resolve a billing dispute in front of a jury of his peers, not a panel of businessmen?
On Monday an all-too-rare appellate decision sided with an injured Texan in Cardon v. Goldberg.
Why did the hospital even file a lien against patient’s settlement?
Susan Goldberg received treatment at the Seton Healthcare Services emergency room in Austin for injuries she sustained in an automobile collision. Ms. Goldberg incurred $7,800 in charges which were billed to her health insurer, Blue Cross Blue Shield of Texas. BCBS had the standard reduction contract with the hospital and the bill was reduced to $6,503.
BCBS agreed to pay its share of $4,600 and Ms. Goldberg was billed the remaining $1,903. She forwarded that to her own automobile insurance provider, Nationwide Mutual Insurance Company. So far, so good.
However, instead of just paying that lower amount, Nationwide somehow paid the full $5,000 available under her personal injury protection (PIP) policy.
You might think this situation could be easily corrected. After all, the hospital was paid in excess of the original bill, let alone the adjusted bill as negotiated by BCBS, and could simply refund the difference. Ms. Goldberg never agreed that all $5,000 of her PIP proceeds was to paid to the ER and had other medical bills and lost wages that she presumably wanted to pay with those funds.
But nothing is straightforward in the often Upside Down world of insurance (“Stranger Things” fans will quickly agree).
What happened next? Not only did the hospital admit its mistake and return the entire payment made by BCBS, it also reversed the contractual reduction and billed Ms. Goldberg for the full balance. Now she owed almost $1,000 more to the hospital.
Cardon Healthcare Network, Inc. (Cardon), acting on Seton’s behalf, filed a lien against the patient’s entire personal injury settlement, citing the Texas Property Code, Chapter 55, the hospital lien statute. Goldberg challenged the lien by filing a lawsuit against Cardon and Seton.
Even though Ms. Goldberg removed the express reference to third-party beneficiary in subsequent amended complaints, Seton argued that implicitly referenced the agreement terms and so was nonetheless subject to the arbitration terms.
The decision: non signer is not bound by arbitration agreement
Could the hospital compel its patient to submit to arbitration to settle the billing dispute? The answer rides on whether a nonsignatory to the arbitration agreement was bound by its terms.
Seton and Cardon had the legal burden of proving that Goldberg was bound by the Seton/BCBS contract. The hospital claimed that Ms. Goldberg was bound by that agreement under two theories of contract law: direct benefits estoppel and third-party beneficiary.
The hospital based its third-party beneficiary argument solely upon Goldberg’s pleadings. However the Court of Appeals in Austin ruled that by removing her third-party beneficiary claims from the complaint, the issue had become moot.
The court next considered whether Ms. Goldberg derived a direct benefit from the Seton/BCBS contract. The hospital contended that she sought a direct benefit of the contractual reduction by claiming that, at most, the lien should reflect the original $1,903 charges, not the $2,762 bill she later received.
In support of her argument, the plaintiff alleged fraudulent lien filing, untimely billing practices, Texas Deceptive Trade Practice Act (DTPA) violations, Texas Finance Code violations, promissory estoppel, conversion, and unjust enrichment.
The court ruled that Ms. Goldberg’s claim was rooted in statutory and common law causes of action, not contracts law. The hospital had first billed her according to the Seton/BCBS contract, then pursued payment under her PIP, returned the BCBS payment, and then sent her a much higher bill.
Ms. Goldberg’s alternate claim that she should only be responsible for the original bill amount could be based upon those actions. Since she did not receive a direct benefit from the Seton/BCBS contract, the court found that she was not subject to the arbitration clause in the agreement.
Season Three of Stranger Things should consider basing its supernatural, alternate dimension plots in cases like these.
Related posts:
New Law Repeals Excessive Reimbursement to Medicaid
How the Texas Hospital Liens Statute Can Affect Your Injury Damages Recovery
Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.
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