Negotiating Tips for "Med Pay" Claims for Reimbursement

Continuing our series on how to approach liens in personal injury cases and negotiating tips for the myriad of lien claims that crop up, we now turn to a discussion of tips for medical pay (commonly called med pay) lien claims. I refer to them as claims for reimbursement, as they arise by contract and are usually couched in terms of subrogation and/or reimbursement rights, rather than "lien" rights which have a different legal effect.

Med pay is usually available under your client's own automobile insurance policy if your client contracted for that type of coverage. Under med pay coverage, you or your client can submit their medical bills to their own insurance company for payment under the med pay provisions of their own insurance policy (1st party coverage).

Your client's own insurer will generally pay the bills and will then advise if they will be asserting a claim for reimbursement for the same. Use these tips to knock down the amount that will have to be paid back on the med pay claim, so you can increase your client's net from the settlement amount.

Tip #1: Use the Med Pay!

One of the first things to do is find out if there is available med pay and then USE it.

Clients often do not realize that they have med pay coverage, and even if they do, sometimes they do not realize what it is for or how to use it. Not surprisingly, their own insurer does not always make it clear that the coverage is available for use, or makes the client jump through a series of hoops that they do not understand.

Review the declaration page for your client's auto insurance policy to find if coverage is available, and if so, how much.

You may ask: why use the med pay if you are pursuing funds from the third party tortfeasor?

Short Answer: It makes sense.

Long Answer:
1. These are additional funds that will increase the overall amount of the settlement.
2. All the medical bills and lien claims are going to have to be paid out of any settlement funds received from the third party. Outstanding balances with individual providers (i.e. ambulance, medical doctor, hospital, chiropractor) are going to be harder to negotiate than a health or med pay insurance claim, so it makes sense to have health insurance or med pay coverage pay the bills, and then negotiate with the insurers at the end of the case.
3. If the med pay policy does not have a right to reimbursement, then those funds simply increased the settlement, without having to be reimbursed.
4. Using med pay also avoids bills being sent to collection, as the case against the third party can take many months, or longer, to get resolved.

Tip #2: If Medical Bills Exceed the Med Pay Available, Submit Bills for Payment That Are Going to Be the Hardest to Negotiate

When the med pay amount available is less than the amount of outstanding medical bills, it is important to think through which bills to submit to med pay.

Generally, outstanding bills and lien claims fall into the following categories:
1. Will not negotiate: Ambulance
2. Difficult to negotiate: Medical doctor or physician group
3. Can be negotiated and statutory caps apply but may be difficult if there is enough money to go around: Hospitals, County facilities
4. May negotiate but not really required to: chiropractor, other individual providers 5. Difficult to negotiate depending on the language of the plan, depends on jurisdiction whether equitable defenses may be available: self-funded ERISA health insurance
6. Will reduce for common fund: Medicare
7. Will reduce for common fund and statutory cap applies: Medi-Cal
8. Will negotiate, statutory caps apply and equitable defenses may be available: health insurance, insured ERISA plans, med pay claims for reimbursement

Thus, it makes sense to use med pay to pay the most difficult lien claims first. For example, if the ambulance charge is $2,000.00, use the med pay to pay that bill first. Ambulance companies generally will not negotiate at all, so if med pay pays their bill of $2,000.00, then at the end of the case, you can negotiate with the med pay provider, who will generally reduce for one-third off the bat, and usually you can make other arguments to further reduce the claim. This way, your client is not stuck with reimbursing the full $2,000.00 at the end of the case, but the bill has been satisfied.

Tip #3: Find Out if the Med Pay Insurer Has a Claim for Reimbursement

Most policies offering med pay will have a right of reimbursement written into the policy language. HOWEVER, there are still a few that do not have a right of reimbursement. Count yourself lucky if your client has one of those; they do exist but there not many of them.

Policies requiring reimbursement of medical payments after recovery from the third party have been upheld. Lee v. State Farm Mut. Auto Ins. Co. 57 Cal.App. 3d 458. (1976).

Request a copy of the contract language and read it carefully to see if the policy does in fact have a claim for reimbursement.

Tip #4: Narrow the Claim

When you read the contract language, determine the parameters of the claim for reimbursement.

Since the med pay money is coming from your client's own insurance, the med pay insurer is going to be seeking recovery from the third party settlement. But note that if the claim is pursuant to an Underinsured Motorist (i.e. the third party had a limited policy, and you are now making a claim to your client's own insurer), the insurer may be entitled to a credit for any med pay amounts paid. However, if the value of your client's case exceeds the amount available per the Underinsured Motorist coverage plus the med pay, then you can argue that no credit is appropriate.

Additionally, the contract language will reveal whether the insurer has contracted around certain defenses, such as the "made-whole" or common fund doctrines. These points are discussed below in more detail, but it's important to be aware, at the outset, whether these arguments are going to be available to you.

Tip #5: Reduce for Actual Recovery

If you have a case where the third party policy limits are smaller than the value of your case, and the amount of wage loss exceeds or makes up a large portion of the policy limits, or the limits are so small that the amount is less than the value for pain and suffering, make the argument that some, if not all, of the medical bills have not been recovered, and therefore the lien claimant cannot seek reimbursement for the same.

See, Arkansas Dept. of Health and Human Services v. Ahlborn, 126 S. Ct. 1752 (2006), "The statute does not sanction an assignment of rights to payment for anything other than medical expenses -- not lost wages, not pain and suffering." While this case involved a Medicaid case, the rationale is compelling as an equitable argument. That is, the lien claimant cannot seek reimbursement for money obtained for items other than the medical bills it paid for.

Tip #6: Use Applicable Statutory Scheme

If there is a statutory scheme for reducing health insurance liens, follow the language of the statute.

In California, Cal. Civil Code section 3040(c)(2) provides that if the insured (your client) retains an attorney, the lien claim cannot exceed "one-third of the moneys due to the enrollee or insured under any final judgment, compromise, or settlement agreement." I read this statement to refer to the amount DUE the insured, after reductions for costs and attorney's fees (i.e. take one-third of the net to the client, not one-third of the gross settlement).

This position is often met with resistance from lien claimants, who take the position that they are entitled to one-third of the gross settlement. Cite Gilman v. Dalby (2009) 176 Cal.App.4th 606 (stating that the amount recovered by the plaintiff in a personal injury lawsuit always goes first to satisfy the attorney lien for fees and costs before it is used to satisfy medical liens), which I believe strongly supports the position that attorney's fees and costs must be taken out first before determining the statutory cap on the lien. This may be a point of contention in your negotiations, but I think one that is well worth making.

Using the statutory scheme, if you have multiple lien claims along with the claim for reimbursement, follow the example set forth in Tip #6 of Negotiating Tips for Health Insurance liens , where I walked through an example of how to calculate the proportionate share of the statutory cap for each lien claim.

Tip #7: Reduce for Comparative Fault

If the settlement was reduced because the plaintiff was at fault for a percentage of their damages, use this to negotiate the lien down.

In California, Cal. Civil Code section 3040(e) provides for a reduction for the percentage of comparative fault on the part of your client, if certain conditions are met:

"Where a final judgment includes a special finding by a judge, jury, or arbitrator, that the enrollee or insured was partially at fault, the lien subject to subdivision (a) or (b) shall be reduced by the same comparative fault percentage by which the enrollee or insured's recovery was reduced."

This can also be used simply as a negotiating tool, even if you do not have a finding by a judge, jury or arbitrator. However, it will be useless if you try after finalizing a settlement. You must use this tool before you finalize the third party settlement.

If the lien claimant pushes back on this, you can ask the third party's adjuster or counsel to put in writing that their settlement offer reflects the percentage of fault assigned to your client.

The Ahlborn case, supra, 126 S. Ct. 1752 (2006) is also helpful in making this argument. There, the court reduced the lien claim to one-sixth of the amount because the recovery by the plaintiff in that case was only one-sixth of the value of the case due to plaintiff's comparative fault, as evidenced by the stipulation of the parties.

Tip #8: Reduce Common Fund

The common fund doctrine allows for reduction for attorney's fees and pro rata share of costs. That is, the lien claims must be reduced by the same percentage for attorney fees as the client is being charged, and the lien claimant must reduce for their proportionate share of the costs incurred by your client.

Common fund doctrine applies to reduce a carrier's claim for med pay reimbursement by its pro rata share of plaintiff's attorney's fees and costs. Lee v. State Farm 57 Cal.App.3d 458 (1976).

In California, this reduction is also reflected in California Civ. Code section 3040(f) which states: A lien subject to subdivision (a) or (b) is subject to pro rata reduction, commensurate with the enrollee's or insured's reasonable attorney's fees and costs, in accordance with the common fund doctrine.

Tip #9: Reduce for Make Whole

The make whole rule basically states that a lien claimant cannot assert its contractual right to repayment from the insured's recovery against the third party tortfeasor if the total amount available from the insurance and the third party is insufficient to compensate the full loss suffered by the insured. See, Sapiano v. Williamsburg National Insurance Company 28 Cal.App.4th 533 (1994).

In Progressive West Ins. Co. v Yolo County Superior Court, 37 Cal. Rptr. 3d 434 (2005), the court held that in personal injury cases, to preserve its right of subrogation, the med pay insurer must either interplead itself into any action brought by the insured against the third party tortfeasor, or wait to seek reimbursement under the language of its policy from its insured to the extent that the insured recovers money from the third party. (citing Plut v. Fireman's Fund Ins. Co., 85 Cal.App.4th 98, 104 (2000); Hodge v. Kirkpatrick Dev., Inc., Cal.App.4th 540,. 548 (2005)). Id at 442.

"Thus, when an insurer elects not to participate in the insured's action against a tortfeasor, the insurer is entitled to subrogation only after the insured has recouped his loss and some or all of his litigation expenses incurred in the action against the tortfeasor." Id.

Additonally, 21st Century Insurance Co. v. Superior Court (Quintana), 47 Cal.4th 511 (2009), concluded that the made whole rule applies in the med pay insurance context, and the insured must be made whole as to all damages proximately caused by the injury, but liability for attorney fees is not included under the made whole rule. Those fees instead are subject to a separate equitable apportionment rule (or pro rata sharing) that is analogous to the common fund. Id at 515. Thus, attorney's fees are not taken into account when determining whether your client was made whole, but are taken into account when taking the common fund reduction.

Thus, if the third party has a limited policy, and your client is not going to be made whole by the settlement, make the argument that the settlement does not fully compensate your client for their injuries or damages.

As stated above, there are some policies that specifically waive any rights to argue the make whole doctrine. But to constitute a valid waiver of the make whole doctrine, a "contractual provision that intends to vitiate this rule must 'clearly and specifically [give] the insurer a priority out of proceeds from the tortfeasor regardless whether the insured was first made whole.'" Progressive West Ins. Co. v Yolo County Superior Court, supra, 37 Cal. Rptr. 3d at 443. If the language applicable to your client's claim does not meet this standard, argue that the make whole doctrine has not been waived and therefore is still applicable.

Even if a policy includes valid language waiving make whole, many insurers will consider the equities of the situation, so make the argument regardless of whether it is allowed by the policy or not.

Tip #10: Common Sense and Courtesy Should Prevail

Like the other types of lien claims and claims for reimbursement, I find that a little knowledge and a lot of common sense and courtesy go a long way in this area of law. Innovative legal theories and arguments can take you part of the way, but some of my best results in lien negotiations came because I built rapport with the lien claimant, and appealed to their common sense. Generally, people recognize that getting paid something now is much better than risking it all and ending up with nothing.

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. 7 Steps to Approaching Lien Claims in Personal Injury Cases
6. How to Deal with Medicare Liens in Personal Injury Cases
7. Negotiating Tips for Health Insurance Liens in Personal Injury Cases
8. What US Airways v. McCutchen Means for Your Personal Injury Cases
9. State Medicaid Liens Limited by US Supreme Court in Wos v. E.M.A.

Anne O'Donnell is a recovering litigator who is now currently a Senior Writer for legal professional content at She practiced for 10 years in civil litigation in San Francisco.