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December 10, 1984


The opinion of the court was delivered by: Mihm, District Judge.


On March 1, 1984, Plaintiff Andrew Holle filed in Illinois circuit court a "Petition for Adjudication of Rights of Lienholders and Adverse Parties" naming several Defendants, including the Secretary of the United States Department of Health and Human Services. On March 8, 1984, the federal Defendant removed the matter to this Court.

Plaintiff sought an order specifying the amounts of money that he had to pay to each of the Defendants for medical services they paid for or provided to the Plaintiff arising out of an automobile accident. On September 13, 1983, Plaintiff was involved in an automobile accident from which he sustained serious and permanent injuries. He was employed at the time of his accident and lost wages from the date of his accident until his return to work in December of 1983. He receives income from Social Security payments, payable as a result of his father's death, because he is a dependent adult of his parents. As a Social Security recipient, the Plaintiff was eligible for Medicare benefits at the time of his accident. Several doctors and the Moline Public Hospital received payment for medical services from Medicare. Pursuant to Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., commonly known as the Medicare program, Blue Cross and Blue Shield of Illinois and E.D.S. Federal Corporation ("EDSF") paid a total of $19,380.77 in Medicare benefits.

On February 13, 1984, a settlement was reached between the Plaintiff and John Deere Insurance Company on behalf of the driver of the automobile which hit the Plaintiff. The insurance company agreed to pay Plaintiff the sum of $50,000, the insurance policy limits for liability. Five providers of medical services to the Plaintiff served Plaintiff's attorney with notices of lien pursuant to Chapter 82 of the Illinois Revised Statutes for the amount of their services rendered which remained unpaid. The Secretary of Health and Human Services also claimed an interest in the proceeds of the personal injury settlement entered into between the Plaintiff and John Deere Insurance Company.

After oral argument, the Court, analogizing this case to United States v. Lorenzetti, ___ U.S. ___, 104 S.Ct. 2284, 81 L.Ed.2d 134 (1984), denied the Plaintiff's motion for summary judgment insofar as it related to Defendant Margaret Heckler. The Court held that Defendant Heckler was entitled to distribution in the amount of $19,380.77, less her proportionate share of the costs involved in obtaining the settlement fund. Thus, Plaintiff was ordered to distribute to the United States the sum of $12,881.41. Defendants other than Margaret Heckler and the Moline Public Hospital were defaulted for their non-appearance and failure to respond to this action.

Plaintiff now seeks an order from this Court specifying the amount of money that he must pay to Defendant Moline Public Hospital ("Hospital") for medical services it provided to the Plaintiff arising out of Plaintiff's accident. Plaintiff requests that this Court void the lien of the Hospital with regard to any proceeds of the liability insurance settlement between the Plaintiff and the John Deere Insurance Company and that the Moline Public Hospital be found to be indebted to Plaintiff in the sum of $2,000 minus deductibles plus the costs of these proceedings. Plaintiff seeks the sum of $2,000 on the basis that Plaintiff's private medical insurance carrier, American Republic Insurance Company, paid that sum to the Hospital for Medicare-covered services provided to the Plaintiff. This sum was paid after the Hospital had already been paid by Medicare.

Since the Hospital is a participating provider in the federal Medicare program, the Hospital billed Medicare for the services provided to Holle pursuant to the Hospital's provider agreement with Medicare. This agreement provides that Medicare will pay the hospital charges incurred by a Medicare beneficiary for Medicare-covered expenses, except for deductible and co-insurance amounts which must be paid by the beneficiary. Medicare paid the Hospital in full for Medicare-covered expenses. Medicare's reimbursement was, pursuant to statute and regulation, determined on a per diem basis based on the number of days over a period of time that all Medicare eligible patients were rendered covered services of any kind by the Hospital. Medicare reimbursed the Hospital a sum based on that calculation, irrespective of the actual services rendered.

Pursuant to the Illinois Hospital Lien Act, Ill.Rev.Stat., ch. 82, § 97 et seq. (1983), the Hospital filed a lien against the proceeds of Holle's settlement claiming that it is entitled to payment by Holle for the entire amount of the charges. The Hospital objects to writing off a substantial sum generated by the Plaintiff for hospitalization when state law provides a remedy which, the Hospital believes, is consistent with Medicare. The total amount unpaid to date is $20,121.17. Additionally, if the Hospital must convey to the Plaintiff the $2,000 that it received from the Plaintiff's health insurance carrier, it faces a deficit of $22,121.17 on the Plaintiff's account.

The lien asserted by the Hospital is for $16,666.67, one-third of Plaintiff's personal injury recovery of $50,000. This amount, Defendant submits, can be satisfied out of the Plaintiff's recovery to which the lien attaches, as can the Plaintiff's attorney's fees and Medicare's reimbursement. Alternatively, the Hospital argues that it is entitled to receive from the personal injury recovery the sum of $401.30, an amount representing the deductibles and co-insurance for which Plaintiff is liable, pursuant to 42 U.S.C. § 1395cc(a)(2)(A).

The Hospital contends that its recovery of excess charges under its lien is not inconsistent with the Medicare Act and that that Act does not preempt the Illinois Hospital Lien Act. The Secretary of Health and Human Services, in an amicus brief, argues that the Hospital may only collect from the Plaintiff the deductible and co-insurance amounts relating to covered services it provided to him and may not collect for any other charges for covered services.

A hospital that participates in the Medicare program is termed a "participating provider". See 42 U.S.C. § 1395x(u), 42 C.F.R. § 489.2(b) (1982). To be a participating provider, the hospital must enter into an agreement with Medicare. See 42 U.S.C. § 1395cc, 42 C.F.R. § 489. The first requirement of the agreement is that the provider promise "not to charge . . . any individual or any other person for items or services for which such individual is entitled to have payment made under this subchapter. . . ." 42 U.S.C. § 1395cc(a)(1)(A). It is the Secretary's position that this means that, for the items or services that Medicare has agreed to furnish to a Medicare eligible beneficiary, the provider must charge Medicare and not the beneficiary. See § 3313 of the Medicare Intermediary Manual. The only exception is that the provider may charge the beneficiary for any deductible or co-insurance amounts.

Plaintiff places his reliance on several cases interpreting 42 U.S.C. § 1395cc: Niles v. American Banker's Insurance Co., 229 So.2d 435 (La.App. 1969), Appleman v. National Ben Franklin Life Insurance Co. of Illinois, 84 Cal.App.3d 1012, 1014, 149 Cal.Rptr. 117 (Cal.Ct.App. 1978), and Holmes v. California State Automobile Association, 135 Cal.App.3d 635, 185 Cal.Rptr. 521 (Cal.Ct.App. 1982). These cases provide only indirect support for the Plaintiff's position since they are concerned with the obligation of a private insurer to pay to the insured the expenses incurred by the insured where those expenses have been paid, at least in part, by Medicare. Holmes states, however, that:

  "when a legal obligation to pay was created upon
  the rendition of services, the Medicare agreement
  became applicable and the hospital was bound by
  its commitment `not to charge,' i.e., not to
  enforce against the patient liability for the
  costs incurred by the patient." 185 Cal.Rptr. at

The Defendant Hospital relies heavily on Gordon v. Forsythe County Hospital Authority, Inc., 409 F. Supp. 708 (D.N.C. 1976), aff'd and rev'd on other grounds, 544 F.2d 748 (4th Cir. 1976). In Gordon, at issue was the Hospital Survey and Construction Act, Pub.L. No. 79-725, 60 Stat. 1040 (1946), presently codified as Title VI of the Public Health Service Act, 42 U.S.C. § 291, commonly known as the Hill-Burton Act. Under the Hill-Burton Act, states wishing to obtain federal financial assistance for the construction and modernization of public or non-profit community hospitals were required to submit to the Surgeon General for his approval a state plan for carrying out the Congressional purpose. 42 U.S.C. § 291d. The Act also required the state plan to make provision for adequate ...

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