Negotiating Tips for "Med Pay" Claims for Reimbursement

Continuing our series on how to approach lien claims 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 out 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 may 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 increase 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 not 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: 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 may 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 outstanding bills 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.

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.

The contract will also disclose whether the insurer has contracted around certain defenses, such as the "made-whole" or common fund doctrines. These are discussed in more detail below.

Tip #5: Reduce for Actual Recovery

When certain bills are not recovered as part of the settlement, advise the insurer of the same, and have them removed from their claim for reimbursement.

If you have a case where the third party policy is limited so that you can't recover all of the medical bills or there is a large amount of wage loss or pain and suffering that take up most of the available policy amount, it may be appropriate to make the argument that some of the medical bills have not been recovered, and therefore the lien claimant cannot seek reimbursement for the same.

The holdings of two Supreme Court cases dealing with Medicaid liens can be analogized here. Both Arkansas Dept. of Health and Human Services v. Ahlborn, (2006) 126 S. Ct. 1752, and Wos v. E.M.A. (2013) 133 S.Ct. 1391, stand for the proposition that the Medicaid lienholder could only demand reimbursement from the portion of a tort beneficiary's recovery that was attributable to medical expenses. The court in Ahlborn did not reach the issue of how to allocate what portion of the recovery was for medical damages because the parties stipulated to a number. In Wos, the parties had not, and the court advised that a judicial or administrative hearing may necessary when the parties don't agree.

Tip #6: Use Applicable Statutory Scheme

If there is a statutory scheme for reducing 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." Many attorneys 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). See, Gilman v. Dalby (2009) 176 Cal.App.4th 606, 620 ("as a matter of law, 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.") This will be a sticking point. When it is, ask the other side what authority they have for their position.

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, that shows 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 claim 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 the final judgment includes a finding by the judge, jury, or arbitrator.

Even if you don't have a judgment with a finding, this is still a point worth making, but must be done before finalizing the settlement. If needed, ask the third party's adjuster or attorney to put in writing that their settlement offer reflects their position on comparative fault.

The Ahlborn case can be used here as well, as it is similar to the one above, just couched in different terms. In Ahlborn, 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 for Common Fund

"[A] litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole." US Airways v. McCutchen (2013) 133 S. Ct. 1537, 1545 citing Boeing Co. v. Van Gemert (1980) 100 S.Ct. 745. The claim for reimbursement must therefore be reduced by the same percentage for attorney's fees that the client is being charged, and reduced for a proportionate share of costs. The US Airways case also held that the common fund rule serves as the default, if the contract does not address the issue. See also, Progressive West Insurance Co. v. Yolo County Superior Court (2005) 37 Cal.Rptr. 434, 444 for a discussion of the rule in California.

In California, this reduction is also reflected in California Civ. Code section 3040(f) which states that a lien subject to that provision must be reduced on a pro rata basis commensurate with the insured's reasonable attorney's fees and costs, in accordance with the common fund doctrine.

Tip #9: Reduce for Made Whole

The made whole rule states that a lien claimant cannot assert its contractual right to repayment until the insured is fully compensated. The nuances of rule may vary by jurisdiction.

In the California case, Progressive West, 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. Progressive West Insurance Co. v. Yolo County Superior Court, supra, 37 Cal.Rptr. at 442 citing Plut v. Fireman's Fund Ins. Co. (2000) 85 Cal.App.4th 98, 104; Hodge v. Kirkpatrick Dev., Inc. (2005) Cal.App.4th 540, 548.  

"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) (2009) 47 Cal.4th 511, 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. Attorney's fees are therefore not taken into account when determining whether your client was made whole, but are taken into account when taking the common fund reduction.

As stated above, there are some policies that specifically waive any rights to argue the made whole doctrine. But to constitute a valid waiver of the made 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 made whole doctrine has not been waived and therefore is still applicable.

Even if a policy includes valid language waiving the made whole rule, insurers may 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, common sense and courtesy go a long way in this area of law. Creative legal 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 early on in the case, and appealed to their common sense throughout the process. People generally prefer being paid something now so that they can close the account, rather than waiting months and possibly ending up with nothing.

*Every case has unique facts and requires independent research. This article is intended to highlight general tips, 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. Tips for Negotiating ERISA Liens in Personal Injury Cases
4. 7 Steps to Approaching Lien Claims 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.