Maximizing damages and settlements – Lesson 3

Excerpted from Insurance Settlements by Ronald V. Miller, Jr.

Hospital, Medicaid, Medicare, and workers’ compensation liens

The economic realities of settling personal injury cases today (particularly in terms of soft tissue injury cases) mandate negotiating with medical care providers to reduce their liens.

By utilizing computer programs such as Colossus or medical review evaluation companies, insurance carriers routinely reduce the actual medical expenses of the patients and determine they ought to be less for purposes of evaluating a claim’s value.

To succeed in a personal injury practice, a cost conscious personal injury attorney cannot afford to take many soft tissue cases to trial. The manpower required and the time expenditure needed as well as the costs that must be advanced when considered in a cost benefit analysis dictate that the attorney should attempt to settle those cases whenever feasible and only pursue trial as a last resort.

Eventually, the best offer will be obtained through the negotiation process. This offer will not necessarily be a fair one but assume it is the best offer from that company and adjuster on a given day. In order to have a reasonable opportunity to secure the client enough money to settle the case, the attorney may be forced to consider a reduction of his fee. He will likely conclude that is not a viable alternative in light of all the work done and will probably turn to the medical care providers for reductions in their liens. This places the attorney and providers at odds and fosters ill will. Nevertheless, many providers will routinely grant reductions as low as ten percent and as high as fifty percent in specialized circumstances.

Some providers say that they will not reduce unless the attorney reduces by a comparable percentage. Your response might be that your law firm charges no more and no less than most law firms in the neighborhood (e.g. one third) and that the insurance carrier did an analysis of the doctor’s bill and determined it one third too high based upon a statistical computer review. You are therefore only requesting that the medical provider bring his bill in line with the study of the carrier which said it was one third too much.

In this situation, the plaintiff’s attorney, unfortunately, has to wear the equivalent of the insurance adjuster’s hat by convincing the medical provider to reduce his charges down to the same amount the insurance company utilized to evaluate the claim.

If the carrier’s review can be obtained from the adjuster (unlikely) this can be provided to the doctor as further ammunition for reduction.

§2910A     Make a Record of All Liens

Be sure that all liens from all medical providers are known and logged during the pendency of the claim and prior to discussing settlement. It is unfortunate when an attorney misses a lien. If this happens and distribution has been made, the lienholder will hold the attorney responsible.

Further, there may be an ethical violation if the attorney has failed to protect the lienholder, even if this occurs inadvertently.

Practice Tip:

Promptly upon receipt, log a lien into both into your personal injury software and in the printed file on a log sheet as well.

§2920A     How to Handle Disputed Funds

If there is ultimately a dispute about the legitimacy or the amount of a lien, the attorney should hold the disputed funds until the matter is resolved or file an action in interpleader. The former is recommended only when it is reasonably anticipated that resolution will be forthcoming in the immediate future. The latter is ethically required if no reasonably quick solution is expected.

§2930A     Hospital Liens

There are many law firms now working for hospitals for the purpose of collecting on their statutory liens. Attorneys must become conversant with the applicable codes which often grant hospitals (under certain circumstances and with certain conditions) special priority liens. For example, see California Civil Code §§ 3045.1 et.seq. which grant hospitals special liens.

There are provisions in Civil Code § 3045.5 which regulate the time limits restricting hospitals as to enforcement of a statutory lien. Essentially, however, a statutory lien serves as a mortgage on the case and cannot be ignored.

While there are restrictive code requirements for enforcement, the attorney must be very careful to make certain statutory liens are not ignored.

Often the “common fund doctrine” can be applied with respect to the statutory lien to reduce the amount of the lien in the equivalent percentage as the attorney’s fees. In other words, if the patient is paying his attorney one third of gross proceeds, then because the attorney created the “common fund” from which the hospital can collect (no fund would exist without the attorney pursuing the personal injury case) the hospital may reduce its charges by the same percentage as the percentage of attorney’s fees being charged against the settlement or judgment.

For statutory lien enforcement by a hospital, it is typical that written notice needs to be served containing the name and address of the injured person, the location of the hospital, the name of the hospital, the date of the occurrence, the amount the hospital billed and the name of each person allegedly liable to the injured person. The notice is generally sent by certified or registered mail. If the law firm ignores the lien, it will be responsible for the payment thereof.

The statutory lien laws (in the states where they exist) have strict statutes of limitations. Strangely enough, if a distribution is made with the statutory lien being ignored by the attorney, the time limit to sue to enforce the lien will begin to run from disbursement and the deadline to sue may be as short as one year typically. If the hospital has no knowledge of the disbursement, this may cause it to lose sight of the deadline (being unaware of the deadline) and cause it to forfeit its rights. The particular code sections of each jurisdiction should be examined in order to determine if this “loophole” applies in the particular state.

Balance billing by hospitals has also become a problem. In a real case, a victim was hurt in an accident as a passenger in a taxi. He made a claim against the party who rear-ended the taxi. The hospital gladly billed the victim’s insurance carrier and took the $5000.00 maximum coverage that he had and then filed an additional lien for almost $20,000.00. The victim disputed the balance billing.

The trial court initially decided that the hospital, despite the fact that it had negotiated a discount with the health insurance carrier and agreed to the $5000.00, could still collect the balance as a lien against the victim’s case. The court of appeal disagreed and concluded that the hospital had made an agreement with the health insurance company and that was to be construed as payment in full. The idea was that if the hospital was not willing to accept that amount as payment in full, then it should have liened the case and simply waited.

It chose, as do most hospitals, to maximize its instant cash flow rather than to wait. In fact, an entire cottage industry supplies patients to hospitals, pays the hospital a pre-determined amount depending upon the particular procedure and length of stay, and holds the paper until the case is over and collects “the spread.”

Hospitals provide a valuable service. They do need to collect. Laws have been enacted throughout the country to assist and these are typically known as “hospital lien laws.” When a hospital accepts a certain amount, however, and then attempts to lien the patient’s monetary recovery for the difference, problems ensue. Courts are now addressing this issue.

§2940A     Medicaid Liens: What Can Lawyers Do About Them?

In an ideal world, lawyers could just get the best possible recovery for their clients, either by settlement or trial, and that would be the end of it. Often, it is just the beginning of a case because of medical liens. In terms of hierarchy of difficulty, Medicare liens are among the most difficult.

Medicare was established in 1965 as a part of the Social Security Act. In theory and usually in practice, Medicare offers what should be a part of any civilized society: health insurance and medical care for the aged and disabled. When a personal injury plaintiff receives Medicare benefits, Medicare has a subrogation interest to any award given in a workers’ compensation, medical malpractice or auto accident claim (both first- and third-party recoveries). While Medicare has been provided a direct right of action, Medicare administrators usually choose to piggyback off personal injury lawyers seeking compensation for their clients.

A Medicare lien has real teeth, taking priority over all other liens or interests on any settlement or judgment proceeds. If you ignore the lien, Medicare can later seek a recovery not only from the injury victim, but also the lawyer. Unlike many liens, notice is not required, so lawyers need to find out if there is a Medicare lien, as opposed to sitting back passively waiting for a lien notice. Under the statute, if the lien exceeds the amount of the recovery, Medicare recovers the entire lien, excluding only the lawyer fees and expenses.

So is there any hope beyond recovery of the attorneys’ fees? There is. Medicare has authority to reduce or waive its Medicare lien if it is in the “best interests of the program,” if the “probability of recovery, or the amount [of the recovery] does not warrant pursuit” of the lien, or if enforcing the lien would lead to significant “financial hardship.” This means you have to find the right person to talk to at Medicare and you need to make a real case; you cannot just have a paralegal call and ask for a reduction. You also need patience, because getting a response takes time and multiple phone calls and letters.

Not surprisingly, the more of a reduction you seek, the more hoops you have to jump through. If the request exceeds $ 100,000.00, the Department of Justice decides whether a reduction is in order. Obviously, this adds more time, more phone calls and more letters to the process.

There is nothing more frustrating than killing yourself to settle a case only to realize you work has just begun. But in many cases, it is the most essential work a lawyer can do on the case in terms of achieving some measure of justice.

§2950A     Medicare

The federal government has a right of action to recover from any entity required to make payment. There are provisions for negotiations similar to Medicaid.

The need to consider the lien usually arises when a senior citizen is involved in an accident in which Medicare pays for some or all of the care provided.

The care is usually provided though a managed care program in which the insurance company does not actually cover the expenses but pays for the care by using funds supplied by the Federal Government through Medicare. In other words, the insurance company acts as an administrator. When large amounts of money are involved, there may be more than one administrator.

Federal statutes provide a right of reimbursement through the administrator or directly to the federal government itself.

Fortunately, there are equity provisions which apply the equivalent of a common fund doctrine with the government sharing pro rata in the attorney’s fees and costs.

The Health Care Financing Administration of the Department of Health and Human Services created rules with respect to what is to occur as to reimbursement when the third party tortfeasor’s carrier makes payment as a result of a settlement or judgment.

There are additional statutes which discuss waiver of the lien of the government under certain circumstances of hardship and statutes which exact penalties if the lien is ignored.

§2960A     Medical Indigent Programs

Numerous states establish rights on behalf of county medical indigent programs to recoup sums expended with respect to individuals involved in accidents receiving medical care through such programs by granting rights of the counties involved to place liens against the personal injury cases of the victims.

While such liens appear to have great similarity to the statutory liens discussed above, there are usually vast differences.

When you are negotiating with medical lienholders who are either private lienholders (eg. doctors) who have voluntarily treated the patient on a lien basis or, in the alternative, hospitals which have been granted statutory lien rights, the common fund doctrine typically applies and is the foremost tool of the attorney seeking to obtain a significant reduction.

However, with respect to the liens granted indigent programs, the pertinent code sections often do NOT allow for a reduction in payback based upon a common fund doctrine approach. In short, the net effect might well be that the lien is not reduced at all by the percentage of the attorney’s fees and the lawyer’s costs.

Let us consider how such liens work in California. Sections of the Government Code regulate the situation when a county provides medical care to a person who suffers injury as a result of a third party. In that situation the county has a right to recover from the third party the reasonable value of the care provided. Very often the collector for the county under the County Medical Care Recoupment Program will not honor a claim of common fund reduction since it is a different code section which applies. Under City and Countyof San Francisco vs. Sweet, (1995) 12 C.A. 4th, 105, Government Code § 23004, these liens are not subject to the Common Fund Doctrine. The county will typically not grant an equitable reduction for attorneys’ fees and costs to the person bringing the third party action.

§2970A     Workers’ Compensation Liens

When the client is injured while on the job, his ability to proceed against his employer is typically limited to the statutory workers’ compensation limitations in the particular state. Notwithstanding, state laws usually afford the injured worker the right to proceed against any third party tortfeasor responsible or partially responsible for the worker’s injury.

If the workers’ compensation insurance carrier has paid to or on behalf of the injured client, however, state statutes almost always afford the carrier a right of reimbursement. The carrier will often bring an independent action for reimbursement against the third party or assert a lien against the plaintiff’s third party case. Alternatively, the laws usually allow the carrier to file a complaint in intervention in the employee’s action against the third party wrongdoer.

The process of “intervention” is known as the “active approach” and entails the carrier retaining counsel to actively assert its lien. Written notice of lien must be provided. This approach is often used when the amount of benefits paid has been significant.

The negligence of the employer, if any, in the particular accident will usually reduce the amount of the lien by the percentage of employer comparative fault.

The passive approach is for the carrier to file a lien with the third party is carrier and the plaintiff’s counsel.

In most states, the plaintiff is required to serve a Notice of Action Pending and supply a copy of the summons and complaint to the workers’ compensation insurance company. If the plaintiff’s attorney neglects to send the notice, most states render him liable for the full amount of reimbursement claimed.

Whether the carrier has intervened or merely filed a lien will affect the settlement strategy of plaintiff’s counsel.

If appropriate notice has been provided the insurance carrier of the pendency of the third party action, and if the carrier has actively intervened, this makes it possible, at least theoretically, for the plaintiff’s counsel to settle the third party case around the worker’s compensation lien.

On the other hand, if the carrier, on behalf of the employer, has liened the third party case only but without intervention, the carrier/employer will need to wait until the conclusion of the third party case to realize its rights but could additionally claim a credit against future worker’s compensation benefits to be later paid.

Practice Tip:

Plaintiff’s counsel must never ignore the possibility of a worker’s compensation lien in determining whether or not to settle.

When considering whether settlement is feasible, the plaintiff’s counsel could potentially settle with the third party tortfeasor around the insurance carrier, but for this to make sense there would need to be a hold harmless clause with the defendant willing to run the risk of additional payments.

A time honored method of solving the problem is for the plaintiff to purchase the “comp” lien from the employer’s carrier and, hopefully, at a tremendous discount. Employer comparative fault should be aggressively asserted (if it exists) as a tool to bring down the cost.

The reverse of the above paragraph can have dire consequences when attempting to settle a case. The plaintiff’s counsel should be on the alert for a quick contact and purchase of the lien by the defendant who would later assert a credit for the full amount against the eventual verdict.

In short, the workers’ compensation statutes add considerable complexity to counsel’s decision as to whether to settle.

Conduct a thorough investigation as to whether a worker’s compensation claim has been made, the amount of benefits paid and the position of the carrier prior to deciding whether or not to accept what might initially appear as an excellent offer to settle.


The above advice came from…

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