Preview:

Updated: March 01, 2011

No. 101,690 IN THE COURT OF APPEALS OF THE STATE OF KANSAS VIA CHRISTI REGIONAL MEDICAL CENTER, INC., Appellee, v. IVAN M. REED, Appellant, and PATTERSON GOTT & BURK, L.C., as successor entity of PATTERSON GOTT & GRAYBILL, L.C., Appellees.

SYLLABUS BY THE COURT

1. The Kansas hospital-lien statutes, K.S.A. 65-406 et seq., serve a public purpose by ensuring that injured patients are quickly treated and by financially protecting health-care providers so that they can continue to provide care, especially trauma care. Accordingly, K.S.A. 65-407, which requires that notice of a hospital lien be given to third parties, is liberally construed so that substantial compliance with its provisions is sufficient.

2. For a notice to be in substantial compliance with a statutory notice provision, it must sufficiently advise the party to whom it is directed of the essential information the statute directs be provided.

1

3. Under the facts of this case, the hospital did not commit an unconscionable or deceptive act under the Kansas Consumer Protection Act when it made no financial claim directly against its patient and only sought an equitable reimbursement for treatment expenses from settlement proceeds that the patient had recovered.

Appeal from Reno District Court; TIMOTHY J. CHAMBERS, judge. Opinion filed February 18, 2011. Affirmed in part, vacated in part, and remanded with directions.

Jacob S. Graybill and N. Russell Hazlewood, of Graybill & Hazlewood L.L.C., of Wichita, for appellant Ivan M. Reed.

Jay F. Fowler, Holly A. Dyer, and James D. Oliver, of Foulston Siefkin L.L.P., of Wichita, for appellee Via Christi Regional Medical Center, Inc.

Before LEBEN, P.J., PIERRON, J., and LARSON, S.J.

LEBEN, J.: Ivan Reed's car collided with a Union Pacific train, and he received treatment for his traumatic injuries at Via Christi Regional Medical Center. Via Christi filed a hospital lien for the more than $80,000 in services it provided to Reed, and then it filed an action to enforce the lien on the $540,000 in proceeds that Reed eventually received from a personal injury settlement with Union Pacific. Reed counterclaimed and alleged that Via Christi's bill charges were deceptive and unconscionable in violation of the Kansas Consumer Protection Act (KCPA). Via Christi filed a motion for summary judgment on Reed's counterclaims, and Reed filed a partial motion for summary judgment that sought to declare Via Christi's lien invalid because Via Christi didn't comply with all of the statutory requirements for an effective lien. The district court enforced Via Christi's entire lien, awarded the hospital the accrued interest on the lien amount, and dismissed Reed's KCPA claims. Reed appeals.
2

The district court properly enforced Via Christi's lien because the public purpose behind hospital liens--to encourage hospitals to treat patients regardless of the patients' ability to pay--allows less-than-strict compliance with the statutory lien creation requirements. But the district court improperly enforced the entire lien amount: The record does not show that the district court considered any facts or evidence that would support its conclusion that enforcing Via Christi's entire lien amount was an equitable distribution of Reed's settlement proceeds, especially when Reed recovered less than a quarter of his requested damages from Union Pacific.

Finally, the district court properly dismissed Reed's KCPA claims. Via Christi's action to enforce its lien requires the court to enter an equitable or fair order, so Reed can have no claim for unconscionability, which by definition means unfairness. Via Christi was legally prohibited from collecting an inequitable or unfair amount. Nor are his claims of deception successful. He cannot show that he was harmed by anything Via Christi did because Via Christi never sought personal judgment against him on the bills.

We therefore affirm the district court's decision to enforce Via Christi's lien and dismiss Reed's KCPA claims, but we vacate the lien amount awarded and remand the case for the district court to hold a hearing and make an appropriate finding on what portion of the lien constitutes an equitable distribution of Reed's settlement proceeds.

FACTUAL AND PROCEDURAL BACKGROUND

Ivan Reed sustained life-threatening injuries when his car collided with a Union Pacific Railroad train on November 18, 2001. He was initially taken to a hospital in Hutchinson, Kansas, but was quickly transferred to Via Christi Regional Medical Center

3

in Wichita so that he could receive the trauma care he needed. Reed agrees that he received life-saving treatment at Via Christi.

The next day, Reed's sister signed a form agreement in which the patient agreed to pay any medical insurance benefits he or she received to Via Christi. Although the agreement contained a promise by the patient to pay for the services Via Christi provided, Reed's sister had crossed this paragraph out and written "Do not agree to pay" next to it. Reed was hospitalized for 14 days and underwent several surgeries during that time. Reed did not have health insurance, and he didn't qualify for Medicare. Reed did receive MediKan benefits but only for about $2,000 for his last 2 days in the hospital. Reed did not pay the medical bills.

Almost a year after he was discharged from the hospital, on November 4, 2002, Via Christi filed a hospital lien in the amount of $84,774 for the charges it incurred while treating Reed. Via Christi later agreed to reduce its lien amount to $83,366 so that it wasn't seeking those charges that had been reimbursed by MediKan. Via Christi named Reed's automobile-insurance company as the alleged liable third party and served the lien on Reed.

Because of his injuries, Reed was disabled and unable to work. On June 2, 2003, he filed a personal-injury tort claim against Union Pacific. Reed and Union Pacific began negotiating a settlement in July 2004; Reed notified Via Christi of the settlement negotiations. Via Christi did not amend its lien statement or file a new hospital lien naming Union Pacific as the liable third-party; nor did Via Christi serve Union Pacific with the lien statement as is required by statute. Via Christi demanded its lien amount from the settlement proceeds; Reed replied that Via Christi's charges were unreasonable.

4

Through numerous letters exchanged between the parties' attorneys, Via Christi and Reed agreed that Reed's attorney would take Via Christi's reduced lien amount from the settlement proceeds and place it in the firm's trust account while the two parties worked out their dispute over the charges' reasonableness. No formal, written trust agreement was executed.

Reed and Union Pacific settled for $540,000 in August 2004. Union Pacific was aware of Via Christi's charges and of its claim. In the written settlement agreement between Reed and Union Pacific, Reed and his attorneys represented to Union Pacific that there were no outstanding liens "other than the medical lien of Via Christi Health System" and that of the automobile-insurance carrier. Reed's attorney disbursed all of the Union Pacific settlement proceeds except Via Christi's claimed lien amount, which was transferred from the firm's trust account into an interest-bearing bank account. Reed offered Via Christi a $21,000 check to settle the matter; Via Christi returned the check and reasserted its right to the proceeds held in trust. Reed countered with additional complaints that Via Christi's charges were unreasonable and assertions that the lien was invalid.

In October 2004, Via Christi filed an action against Reed and his attorneys to enforce its lien and compel distribution of the settlement proceeds. Reed's answer denied any responsibility to distribute the proceeds, asserted that Via Christi's lien was invalid, and made a counterclaim that Via Christi's charges were deceptive and unconscionable in violation of the Kansas Consumer Protection Act.

Both parties moved for summary judgment. First, Via Christi moved for summary judgment in its favor on Reed's KCPA counterclaims. Reed responded by moving for partial summary judgment on the grounds that Via Christi's lien was ineffective and that

5

the hospital had no right to the settlement proceeds held in trust. After hearing oral argument from both parties, the district court: (1) held that Via Christi's lien was effective against Reed and denied Reed's motion; (2) ruled that Via Christi's use of the health-care industry's universal method of billing was valid as a matter of law and granted Via Christi's motion on Reed's KCPA counterclaims; and (3) entered an order requiring Reed to disburse to Via Christi the full amount of its lien. Reed appeals all three rulings.

When the material facts aren't in dispute, this court reviews the grant of summary judgment without any required deference to the district court's decision. Smith v. Kansas Gas Service Co., 285 Kan. 33, 39, 169 P.3d 1052 (2007). Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, admissions on file, and any affidavits show that no genuine issue as to any material fact exists and that the moving party is entitled to judgment as a matter of law. Miller v. Westport Ins. Corp., 288 Kan. 27, 32, 200 P.3d 419 (2009).

ANALYSIS

I.

Although Via Christi Did Not Strictly Comply with the Kansas Hospital-Lien Statutes, the Statutes' Purpose Is Served by a Lenient Construction, and Such a Construction Gives Via Christi an Enforceable Lien in This Case.

When a hospital provides emergency medical services to an injured patient and that patient collects judgment or settlement proceeds from the third party held liable for the injury, the hospital has a lien on the patient's proceeds for the reasonable and necessary charges the hospital incurred when treating the patient. K.S.A. 65-406(a), (b). K.S.A. 65-407 lists the requirements to have an effective lien, and Via Christi admits that

6

it did not comply with two of the statute's requirements: naming Union Pacific as the liable third party in the lien and sending Union Pacific notice of the lien by certified or registered mail.

Since liens are created by statute, Kansas courts generally require strict compliance with the statutes that create an enforceable lien. Owen Lumber Co. v. Chartrand, 276 Kan. 218, 230, 73 P.3d 753 (2003). Then, once a lien is properly created, the remaining lien statutes are liberally construed in the claimant's favor. Alliance Steel, Inc. v. Piland, 39 Kan. App. 2d 972, 976, 187 P.3d 111 (2008), rev. denied 287 Kan. 765 (2009). These rules have generally been applied to Kansas' other statutory liens, especially mechanic's liens, but have not been explicitly applied to hospital liens. See generally Randol, Recent Kansas Case Emphasizes Importance of Strict Compliance with Mechanic's Lien Statutes; Failure to Verify Lien Claimant's Address Renders Lien Invalid, 77 J.K.B.A. 14 (Sept. 2008).

But the purpose of the hospital-lien statute is markedly different than the purpose of other lien statutes: it serves a public purpose of assuring that needed medical treatment is readily available to those who have been injured. Based on this significant difference in the statutory basis for a hospital lien, we conclude that the provisions creating hospital liens, K.S.A. 65-406 and K.S.A. 65-407, should be liberally construed to carry out that public purpose.

The difference between mechanic's liens that protect contractors and hospital liens that are designed to protect both the public and hospitals (themselves often not-for-profit institutions) has long been recognized. The Kansas' mechanic's lien laws protect private interests. Mutual Savings Ass'n v. Res/Com Properties, 32 Kan. App. 2d 48, 52, 79 P.3d 184 (2003), rev. denied 277 Kan. 924 (2004) (mechanic's liens give contractors and

7

subcontractors security for the labor they perform). Hospital liens, on the other hand, serve a public purpose: they encourage hospitals to treat emergency patients without delaying treatment to first consider if the patients are able to pay. See Board of Trustees v. American Resources Ins., 5 So. 3d 521, 528 (Ala. 2008); Buchanan v. Beirne Lumber Company, 197 Ark. 635, 639, 124 S.W.2d 813 (1939); In re Estate of Cooper, 125 Ill.2d 363, 368-69, 532 N.E.2d 236 (1988). Kansas enacted its hospital-lien statute to fulfill this purpose in 1939, at the end of the Great Depression, and the provisions have remained substantially the same for the past 6 decades. See L. 1939, ch. 235, secs. 1-3; L. 1997, ch. 21, sec. 1. A liberal construction of the Kansas hospital-lien statutes will ensure that the statutes' long-standing public purpose is realized.

Some form of hospital-lien statute exists in 42 states, and most of the statutes were first adopted in the Great Depression. At that time, hospitals were financially burdened by treating many patients who had no money to pay for treatment. Saar, Note, Blindsided (Again): Iowa Hospitals' Abuse of the Hospital Lien Statute and What Has Been Done to Correct It, 56 Drake L. Rev. 463, 467-68 (2008); see Baylor U. Med. Center v. Travelers Ins. Co., 587 S.W.2d 501, 504 (Tex. Civ. App. 1979). The hospital-lien statutes were designed with a dual purpose: to ensure that injured patients would be quickly treated and to protect health-care providers financially so that they could continue to provide care, especially trauma care. Bergan Mercy Health System v. Haven, 620 N.W.2d 339, 346-47 (Neb. 2000). Those public purposes are no less important today than when the statutes were adopted. Kansans depend upon their community hospitals both for urgent care and the general provision of medical care. As the Illinois Supreme Court has noted, hospital-lien statutes are designed to promote the public good:

"Statutory lien provisions such as the Hospital Lien Act are enacted to promote the health, safety, comfort, or well-being of the community. [Citation omitted.] Many of our sister States have similar hospital lien statutes which are designed to lessen the financial

8

burden that hospitals face in treating nonpaying accident victims. [Citation omitted.] In Illinois, the Hospital Lien Act allows hospitals to assist persons without regard to ability to pay . . . . Thus, utilizing these liens to protect a hospital's interests promotes health care for the poor of this State." In re Estate of Cooper, 125 Ill. 2d at 368-69.

Based on this strong public purpose, "the clear weight of authority" in interpreting these statutes is that "substantial, rather than strict, compliance satisfies the legislative intent." In re Dueis, 130 B.R. 83, 84-85 (Bankr. D. N.D. 1991) (citing cases).

Kansas law fits squarely within this line of authority. Our Supreme Court has long held that "'[i]t is fundamental that where a statute is designed to protect the public, the language must be construed in light of the legislative intent and purpose and is entitled to a broad interpretation so that its public purpose may be fully carried out.'" Blue Cross & Blue Shield of Kansas, Inc. v. Praeger, 276 Kan. 232, 248, 75 P.3d 226 (2003) (quoting Johnson v. Killion, 178 Kan. 154, 158-59, 283 P.2d 433 [1955]). Similarly, we appropriately consider that the hospital-lien statute was enacted against the backdrop of the Great Depression and that it was clearly intended to serve the public purposes we have noted. See Jones v. Kansas State University, 279 Kan. 128, 145, 106 P.3d 10 (2005) (courts may look to the historical background of the statute, the purpose to be accomplished, and the effect that various constructions of it might have in light of that purpose).

Even when giving a statute a liberal construction to carry out its purpose, however, a third party should not unknowingly be subjected to liability. Under K.S.A. 65-408, the hospital can hold a third party liable for the lien amount if the third party distributes the proceeds to the patient without satisfying the hospital's lien. The third-party notice requirement in K.S.A. 65-406 ensures that the third party doesn't incur liability for unknowingly failing to satisfy the lien. But where, as here, the third party knows about
9

the claim even though it wasn't served the lien notice in strict compliance with the statute, the notice requirement's purpose is met, and the statute has been sufficiently complied with so that strict compliance with the service method set out in K.S.A. 65-407 should not be required before the lien may be enforced. See Board of Trustees, 5 So. 3d at 531. Our Supreme Court has allowed substantial, rather than strict, compliance with service or notice provisions in other situations so as to carry out a statute's purpose when that purpose is for the public good. E.g., Cure v. Board of Hodgeman County Comm'rs, 263 Kan. 779, 782-83, 793-95, 799-800 (1998) (substantial compliance with statutes regulating election procedures is sufficient when the election has been held and the voters have already cast ballots); First Nat'l Bank & Tr. v. Miami Co. Co-op Ass'n, 257 Kan. 989, Syl.

Download Via Christi Regional Med. Center, Inc. v. Reed.pdf

Kansas Law