Healthcare Liens and the Common Fund Doctrine: The Need for Legislative Action to Prevent Fee Shifting at the Expense of Healthcare Providers

AuthorAlex W. Schulte
PositionJ.D. Candidate, The University of Iowa College of Law, 2013
Pages1763-1789
1763
Healthcare Liens and the Common Fund
Doctrine: The Need for Legislative Action
to Prevent Fee Shifting at the Expense of
Healthcare Providers
Alex W. Schulte
ABSTRACT: Over the course of the last forty years, state appellate courts
have grappled with the issue of whether the equitable “common fund
doctrine” should be applied to a healthcare provider’s statutory lien on the
proceeds of a cause of action held by its patient. Early precedents in this area
uniformly rejected this application of the common fund doctrine, but some
recent cases have found it applicable and used it to impose liability on the
healthcare provider for a share of a patient’s attorney fees. This Note argues
that the most prudent course of action—particularly in the many states
without any established case law on this issue—is for state legislatures to
amend state healthcare lien statutes to explicitly state their position on this
shift in attorney fees. This Note further argues that this legislative action
should reject any liability on the part of the healthcare provider for patient
legal fees in order to preserve the full benefit of healthcare liens to those
providers.
I. INTRODUCTION .................................................................................... 1765
II. BACKGROUND ...................................................................................... 1767
A. THE HEALTHCARE LIEN ................................................................. 1767
B. THE COMMON FUND DOCTRINE ...................................................... 1770
C. THE COMMON FUND DOCTRINE APPLIED TO HEALTHCARE LIENS ..... 1771
III. THE SPLIT AMONG STATE APPELLATE COURTS ................................... 1772
A. THE EARLY ERA: 1971–1992 ........................................................ 1773
1. The Implied-Contract Argument ........................................ 1773
2. The Subrogation Argument ................................................ 1775
J.D. Candidate, The University of Iowa College of Law, 2013; B.S., The University of
Missouri, 2010. I would like to thank Bill Rasmussen and Judge Rodney Clark for introducing
me to this topic and for giving me my first chance to see what real lawyers do. I would also like
to thank my parents, Bill and Candy Schulte, for all their support.
1764 IOWA LAW REVIEW [Vol. 98:1763
B. MARTINEZ V. ST. JOSEPH HEALTHCARE SYSTEM ........................... 1777
C. THE POST-MARTINEZ ERA: 1994–2011 ........................................ 1778
1. Cases Adopting the Martinez Application of the
Common Fund Doctrine to Healthcare Liens ................... 1779
2. Cases Rejecting the Martinez Application of the
Common Fund Doctrine to Healthcare Liens ................... 1780
IV. INTERVENTION BY STATE LEGISLATURES ............................................. 1781
A. THE NEED FOR LEGISLATIVE ACTION IN THIS AREA ......................... 1782
B. PRECLUDING SHIFTS IN ATTORNEY FEES THROUGH LEGISLATIVE
ACTION ......................................................................................... 1785
1. Financial Difficulties that Hospitals Face as Care
Providers for Uninsured Americans ................................... 1785
2. Ensuring Full Lien Benefits for Hospitals .......................... 1787
V. CONCLUSION ....................................................................................... 1788

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