For many attorneys representing personal injury plaintiffs, dealing with liens, claims for reimbursement, and unpaid medical providers is a massive headache that is taking over their practice. I will collectively call them "lien claims" for the purposes of this article. Clients often do not understand why they have to pay anyone back since the defendant was the one at fault. Clients can also be particularly perplexed by the idea of repaying their health insurance company, when they have spent years paying premiums.
Often, the work negotiating lien claims is more complicated than settling the underlying claim itself. Attorneys also generally do not receive additional payment beyond the contingent fee from the third party settlement, for the work they perform in settling liens claims, other than the eternal gratitude of their appreciative clients, which may or may not go far to pay their overhead.
Given the amount of work involved, and the corresponding lack of additional compensation, some attorneys simply disburse settlement funds to the client and instruct them to pay the liens and debts arising out of their personal injury case. Not only is this approach faulty from an ethical and legal standpoint, but you will also have very unhappy clients, who will have to face dealing with the collection efforts of these various entities. Done correctly, lien claims do not have to be an insurmountable endeavor. Moreover, as the attorney, you have significant leverage in dealing with lien claims, if they are dealt with prior to finalizing the third party settlement. Your client will not have this leverage over lien claimants if left to deal on their own after the settlement.
Step One: Understand Your Ethical and Fiduciary Obligations
Under the ABA Model Rules of Professional Conduct, an attorney: 1) has an obligation to notify the client or third parties who have an interest in funds once the funds are received; 2) shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive; and 3) upon request by the client or third person, shall promptly render a full accounting regarding such property. See, Rule 1.15.
Comment 4 to the rule further states: "A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved."
The California State Bar has indicated that attorneys have a fiduciary obligation to a lien claimant, and will be subject to discipline for failing to communicate with, and promptly pay, the lien claimant. See, Formal Opinion 2008-175 from the State Bar of California Standing Committee on Professional Responsibility and Conduct, which discusses multiple instances where attorneys violated their ethical obligations when dealing with liens, and provides a detailed discussion of the ethical parameters for how to properly deal with them.
Other state bars have addressed various ethical questions that may arise when dealing with lien claims. For example, the State Bar of Arizona issued an ethics opinion in 2011 advising that attorneys with knowledge of matured legal or equitable claims against their client must protect those with an interest in funds in the attorney's control, but they not required to search public records or other sources for medical liens or claims in order to gain knowledge of such an interest. The opinion was clear, however, that it was not commenting on whether such a duty might arise under substantive law. The North Carolina State Bar issued an opinion ruling that in the situation where there is no medical lien, but the client had authorized the attorney to assure a medical provider that it will be paid upon the settlement of the personal injury claim, the attorney is authorized to withhold settlement proceeds from the client and maintain the funds in a trust, until the dispute between the client and medical provider is resolved.
Step Two: Understand What Types of Liens and Claims Exist
Liens and claims for reimbursement arise in personal injury cases in many different scenarios. Some types of claims to look out for:
1. Statutory: Medicare, ERISA health insurance plans, Veterans Administration, Hospital, Medi-Cal, or Workers Compensation.
2. Contractual: Medical pay under auto insurance, health insurance, individual medical providers such as doctors, x-ray service providers, ambulance, chiropractor, acupuncture, or prior attorney.
In certain instances, there may be both a statutory and contractual component, such as a health plan governed by the federal ERISA statute whose contract language must also be reviewed.
Note that liens and claims for reimbursement are very different. A valid lien can be enforced against the settlement funds, whereas a claim for reimbursement or outstanding debt may simply be the subject of a collection action.
Generally, a lien must be perfected in order to be considered a valid lien. For example, in California, under California Code section 3045.3, a hospital lien requires written notice to the person or entity alleged to be liable to the injured person, and said notice must contain specific information and be delivered in a specific manner before payment of any money to the injured person or his attorney.
Importantly, not all liens and claims are created equal. Some will be easier to negotiate than others, and some are subject to statutory reductions and caps.
Step Three: Assess what Lien Claims are Involved at the Outset of the Case
It is critical to ask potential clients the amount of their medical bills and who paid the bills, prior to taking the case. If the entity that paid the bills has a lien that exceeds the policy limits available in the action, and/or the lien claim is not subject to reductions, you should contact the lien claimant and advise them that you cannot take the case unless they are willing to work with you, i.e. limiting their claim to a certain percentage of the recovery. Lien claimants will generally agree to negotiate, particularly when they realize that you may not take the case at all, unless they play ball.
If the case involves a contractual right of reimbursement or lien, be sure to request a copy of the contract or plan language and review the same carefully, because the plan language will generally govern what reductions can be applied.
Next, request and review all of the client's medical and billing records to determine what amounts were paid, and by whom, and what amounts remain outstanding.
Make a chart of who the provider is, what the charged amount is, what has been paid, who paid the amount, and if any balance or lien exists. This chart will be infinitely helpful, not only for settling liens and claims, but also for determining the value of your client's case (since medical damages can be subject to reductions when insurers pay reduced amounts for medical care under Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541).
Step Four: Explain to Your Client Their Obligation to Pay Lien Claims
My first letter to the client includes the following statement:
"You are obligated to pay any outstanding account balances or claims for reimbursement for payments made for care related to injuries that you suffered in this incident, pursuant to agreements that you signed, or the contract language of your policy or plan. In your case, it appears that following entities have claims for reimbursement: _________ (insert entities). Generally, these amounts can be negotiated, depending on the language of the agreement. We will be in contact with these entities as your case progress, and we will keep you apprised of any developments in this regard."
Step Five: Call and Write Letters to Each Lien Claimant at the Beginning of the Case
Call and write letters to all lien claimants at the beginning of the case, and advise the following: 1) this is a 3rd party case; 2) liability may be disputed; 3) the reasonableness of their bill may be a point raised by defendant; and 4) you are aware of their claim and will be in touch as the case progresses. Request an updated itemization of their claim and review it carefully, and be sure to advise if there are any unrelated charges that need to be removed.
Step Six: Keep the Lien Claimant in the Loop as the Case Progresses
It is important that the lien claimant is on board as the case moves forward. Keep them in the loop of important developments, such as mediation and settlement conference dates, as well as the tenor of settlement discussions, so that they know what issues the adjuster has with the case and how the adjuster is valuing the case.
Do not wait until mediation, settlement conference or trial to contact the lien claimant. Lien claimants will be much more likely to work with you on significant reductions if they are brought in early in the process and understand the real possibility that nothing may be recovered at trial, or if any amounts are recovered, they could be significantly reduced by expert and other trial costs.
Step Seven: Contact the Lien Claimant to Negotiate Their Claim BEFORE Finalizing the Third Party Settlement
When you receive a settlement offer that is being seriously considered by the client, run the numbers and figure out exactly what your client would net out of the settlement, after your fees and costs, and after paying the lien claimants at the full value of their claim, and at the value that you think the lien should be reduced.
Review the numbers with your client and discuss with them what you think would be appropriate offers to the lien claimants to settle their claims.
Contact the lien claimants before finalizing the third party settlement, and let them know that there is an offer pending that your client is considering, and that you want to discuss their claim with them to see if everyone can make the settlement work. Then send an email or letter with a breakdown of the reductions applicable to their claim and your offer to settle.
Settlement of the lien claim may take a few rounds of negotiation, but this approach has proven useful in getting lien claimants to deal, particularly with the possibility that the whole settlement could fall apart if they do not negotiate. Of course, every case is unique, and the results of a case will depend on the facts and types of liens involved.
Once an agreement is reached with the lien claimant, send them a confirming letter that you have reached said agreement, which is in full and final satisfaction of any claim they may have arising out of this case, and is subject to finalization of the third party settlement.
Dealing with lien claims can be a daunting task to the unwary, but it is an integral part of personal injury claims that should not be an afterthought. If approached from the beginning of the case, and by using these steps and the negotiating tips, you can conquer liens.
*Every case is unique and will require up to date research specific to your jurisdiction. This article is intended to highlight general concepts, and is not meant as an exhaustive discussion, nor a guarantee of a particular result.*
For further discussion on liens, please see:
1. The FindLaw Guide to Negotiating Liens in Personal Injury Cases
2. Negotiating Tips for Hospital Liens in Personal Injury Cases
3. Negotiating Tips for "Med Pay" Claims for Reimbursement
4. Tips for Negotiating ERISA Liens in Personal Injury Cases
5. How to Deal with Medicare Liens in Personal Injury Cases
6. Negotiating Tips for Health Insurance Liens in Personal Injury Cases
7. What US Airways v. McCutchen Means for Your Personal Injury Cases
8. State Medicaid Liens Limited by US Supreme Court in Wos v. E.M.A.