HOSPITAL LIENS
Welcome to our hospital liens blog page! Our Synergy experts have extensive experience and InSights in managing hospital liens and navigating the complex world of healthcare reimbursement. Our blogs cover a wide range of topics related to hospital liens, including the basics of hospital liens, how to negotiate hospital liens, government benefit preservation, and more. We understand the financial burdens that can arise from hospital liens and the challenges that families and individuals face when dealing with them. Our goal is to provide you with the information and resources you need to navigate the process with confidence and achieve the best possible outcomes. We’re passionate about helping our clients protect their hard-fought recoveries and secure their financial futures, and we’re excited to share our expertise with you. Check back often for new blog posts and updates!
Introduction
The landscape of healthcare billing can be complex and confusing, both for healthcare providers and patients alike. When there is third-party liability involved, such as in cases of accidents or injuries caused by someone other than the patient, the responsibility for billing insurance can become even more complex. In these situations, a hospital may explore various avenues to determine the primary source of payment for the medical services provided. One common question that often arises is whether hospitals and healthcare providers are obligated to bill insurance, particularly government programs like Medicare or Medicaid. In this post, we will explore healthcare billing, the role of insurance, and the requirements associated with billing Medicare and Medicaid generally and in third-party liability cases.
The Basics of Healthcare Billing
Healthcare billing is the process by which healthcare providers submit claims to insurance companies or government programs to receive payment for the services they render to patients. Health insurance, whether private or government-sponsored, plays a crucial role in covering medical expenses and ensuring access to healthcare services for covered individuals.
Providers are generally encouraged to bill insurance companies to facilitate the reimbursement process and reduce the financial burden on patients. However, the decision to accept insurance and the specific agreements between providers and insurers can vary.
Do Hospitals and Providers Have to Bill Insurance?
In the United States, there is no federal law mandating that hospitals or healthcare providers must bill private insurance, Medicaid, or Medicare. Providers have the flexibility to decide whether they will accept insurance and enter into agreements with specific insurance plans for the amount of those payments for specific services. While it’s customary for healthcare providers to bill insurance, including Medicare and Medicaid, some may choose not to participate in certain networks or programs. However, this decision can have implications for both the provider and the patient, as non-participating providers may charge higher fees, leaving patients responsible for a larger portion of the bill.
Typically, hospitals initiate billing by submitting claims to the primary health insurance for the medical services rendered. This is a standard practice, and hospitals typically bill the patient’s insurance as part of the normal billing process. In situations involving third-party liability, the hospital may engage in a process known as Coordination of Benefits. This involves determining the order in which multiple insurance policies will contribute to covering the patient’s medical expenses. The hospital may work with the patient’s primary insurance provider, and if applicable, the insurance provider who represents the at-fault third party.
The hospital will likely conduct an analysis balancing how they receive the largest payment for their services in the shortest period of time. While the hospital works through the billing and coordination process, the patient may still be responsible for co-pays, deductibles, or any charges not covered by insurance. Clear communication between the hospital and the patient about financial responsibilities is crucial.
Billing Medicare: An Overview
Medicare, a federally funded program, provides health coverage for individuals 65 and older and certain younger individuals who suffer from specified disabilities. Providers can participate in the Medicare program or be non-participating providers, though this is uncommon.
Participating providers agree to accept Medicare-approved amounts as full payment for covered services, and they submit claims directly to Medicare. Non-participating providers may charge more than the Medicare-approved amount and may require patients to pay the difference, known as “balance billing.”
It’s important to note that while providers are not required to participate in Medicare, they are prohibited from discriminating against Medicare beneficiaries. This means that providers cannot refuse to treat a patient solely because they are covered by Medicare.
When the payment for treatment is someone else’s apparent responsibility, the provider has an obligation to not bill Medicare. Under the Medicare Secondary Payer Act, Medicare may not pay for a beneficiary’s medical expenses when payment “has been made or can reasonably be expected to be made under a workers’ compensation plan, an automobile or liability insurance policy or plan (including a self-insured plan), or under no-fault insurance.”[1] However, if responsibility for the medical expenses incurred is in dispute and other insurance will not pay promptly, the hospital, provider, physician, or other supplier may bill Medicare as the primary payer.
Billing Medicaid: An Overview
Similarly, by law, the Medicaid program is the “payer of last resort.” If another insurer or program has the responsibility to pay for medical costs incurred by a Medicaid-eligible individual, that entity is generally required to pay all or part of the cost of the claim prior to Medicaid making any payment. This is known as “third-party liability” or TPL. Third parties that may be liable to pay for services include private health insurance, Medicare, employer-sponsored health insurance, settlements from a liability insurer, workers’ compensation, long-term care insurance, and other State and Federal programs (unless specifically excluded by Federal statute).
Problems can arise when a provider decides they would rather be reimbursed from a beneficiary’s tort settlement. A provider may make this decision if it suspects it would be entitled to a higher reimbursement amount than it would receive from Medicaid. This does not always work out in the provider’s favor if the settlement amount ends up not being enough to satisfy the provider’s claim. Typically, providers have only 1 year from the date of service to submit bills to Medicaid.
Navigating the Billing Process
Patients should be proactive in understanding their insurance coverage and seeking clarification from providers about their billing practices. It is advisable to confirm whether a healthcare provider accepts the insurance, including Medicare or Medicaid, and inquire about any potential out-of-pocket costs. Being informed and seeking in-network providers can significantly alleviate the complexities of the billing process.
No Surprises Act
The No Surprises Billing Act, officially known as the No Surprises Act, is a U.S. federal law enacted as part of the Consolidated Appropriations Act, 2021. It addresses the issue of surprise medical billing, a situation where patients receive unexpectedly high medical bills, often due to receiving care from out-of-network providers, even in emergencies or situations beyond their control. The act aims to protect patients from exorbitant bills for out-of-network healthcare services, particularly in emergency situations and certain non-emergency situations.
Key provisions of the No Surprises Billing Act include:
- Patients are protected from surprise billing in emergency situations, where they have little or no control over the choice of healthcare provider, by limiting their out-of-pocket costs to in-network amounts.
- In situations where insurers and providers cannot agree on reimbursement rates for out-of-network services, the No Surprises Act establishes an Independent Dispute Resolution (IDR) process. This process involves an independent third party reviewing and resolving disputes between healthcare providers and insurers regarding reimbursement.
- The Act requires healthcare providers and insurers to provide patients with a good faith estimate of the expected costs for scheduled services, allowing patients to better understand and plan for their healthcare expenses.
- Patients are protected from balance billing for out-of-network emergency services and certain non-emergency services provided at in-network facilities.
The No Surprises Billing Act primarily focuses on protecting patients from unexpected and excessive medical bills, and it does not specifically address third-party liability situations in the traditional sense. However, its impact on third-party liability scenarios can be seen in the context of emergency care and situations where patients have limited control over the choice of healthcare providers.
In cases of emergency care, where patients may not have the opportunity to choose in-network providers, the No Surprises Act helps protect patients from balance billing and ensures that their out-of-pocket costs are limited to the amounts they would pay for in-network services. While the No Surprises Act primarily addresses disputes between insurers and providers, the IDR process could potentially be used in certain third-party liability situations where disagreements arise over reimbursement for medical services.
Conclusion
In the complex world of healthcare billing, there is no universal requirement for hospitals and providers to bill insurance, including Medicare or Medicaid. The decision to participate in insurance programs is often at the discretion of individual providers. In normal situations, patients should advocate for themselves by being informed about their insurance coverage, seeking in-network providers when possible, and clarifying billing arrangements with healthcare providers. In third-party liability situations, planning is often not possible. However, the No Surprises Billing Act should add a layer of protection, preventing unexpected billing surprises for patients whether or not available insurance is billed, or the hospital maintains a debt or asserts a lien.
[1] 42 U.S.C. §1395y(b)(2).
Teresa Kenyon, Esq. and Kevin James
Effectively minimizing or eliminating the reimbursement of any claimed medical lien is a critical part of ensuring just compensation for the injured. Personal injury lawyers encounter numerous obstacles in the process of resolving liens. While the negotiation and resolution of liens can be done independently by the attorney and their teams, collaborating with a seasoned lien resolution expert can alleviate these challenges. The obstacles a personal injury lawyer may face encompass time-consuming tasks such as identification of lienholders, navigating the intricate web of jurisdiction-specific lien laws, and negotiating for the most substantial reduction possible. Confronting these challenges may prevent attorneys from focusing on what the firm does best and distract from the primary task of representing more clients successfully.
If you decide not to outsource lien resolution functions to experts, the following noteworthy precedents will serve as valuable guides in your efforts to minimize liens. The applicability of these cases for lien resolution depends on the unique context of the case and differences from jurisdiction to jurisdiction. Nevertheless, these cases have played a substantial role in shaping lien resolution principles in their respective areas.
Medicaid – Arkansas Department of Health and Human Services v. Ahlborn (2006):
Ahlborn was a landmark case that has played a pivotal role in establishing the principle of “proportional recovery” in Medicaid lien reduction. The Supreme Court ruled that Medicaid can only recover from the portion of settlement dollars that can reasonably attributed to medical expenses. The mandate from the Court is that an allocation must be made between medical expenses and all other types of damages. The parties agreed to a pro-rata reduction prior to the Court’s ultimate holding in Ahlborn, but it is most important to note that the Court expressly refused to mandate a method of allocation, only that an allocation must be done.
Medicaid – Gallardo v Marstiller (2022)
The Court provided additional clarification regarding the previous limitations for reimbursement to Medicaid as espoused by Ahlborn by holding that the Medicaid Act permits states to seek reimbursement from settlement payments allocated for future medical care, not just past medical care.
ERISA – Cigna v Amara (2011)
This case focused on whether the employees could enforce the terms of the ERISA Plan based on misleading SPDs, even if the terms of the Plan and the SPDs did not align. The Supreme Court ruled in favor of the employees, holding that the terms of an ERISA plan could be enforced based on equitable remedies when there was a discrepancy between the plan documents and the SPDs. The Court clarified that, under ERISA, the terms of the plan documents govern, but if there is a conflict or discrepancy between the plan documents and the SPDs, the actual plan terms controlled.
ERISA – US Airways, Inc. v. McCutchen (2013):
The US Supreme Court held that while ERISA plans are contractual, and their terms are generally enforceable, equitable doctrines can sometimes be invoked to limit the extent of reimbursement sought by a plan. The Court ruled that when a plan seeks reimbursement from a participant’s recovery, the common-fund doctrine and unjust enrichment principles can be considered to ensure fairness. However, the Court also emphasized that the specific terms of the Plan and the intent of the parties, as expressed in the plan documents, should guide the analysis. The Court remanded the case to the lower courts to apply these equitable principles in determining the extent of reimbursement owed to the ERISA plan, taking into account the circumstances of the case. While used by subrogation vendors as their support for why they don’t have to reduce their self-funded ERISA lien, it is also strongly support for the injured party when the policy language is not clear and concise.
ERISA – Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan (2016):
Montanile focused on whether the ERISA health benefit plan could enforce its subrogation rights to recover funds from Montanile’s settlement after he had spent the settlement proceeds on nontraceable items. The Montanile decision clarified the limitations on health benefit plans’ ability to enforce subrogation rights in certain circumstances. It emphasized the importance of timely action by plans to assert their rights and highlighted the challenges plans may face when seeking recovery from participants who have already spent settlement funds on general expenses.
Hospital/Provider – Howell v. Hamilton Meats & Provisions, Inc. (Cal 2011):
California Supreme Court case that addressed the issue of medical cost recovery in personal injury lawsuits. In this case, the court held that a plaintiff in a personal injury case could only recover the reasonable value of medical services actually provided, as opposed to the higher billed amount. The decision clarified that the “collateral source rule” did not allow plaintiffs to recover medical expenses greater than the amount actually paid for the services, typically negotiated down by health insurers. This ruling had implications for the calculation of damages in personal injury cases, limiting the amount plaintiffs could recover for medical expenses.
Medicare – Bradley v Sebelius (11th Cir 2010)
The 11th Circuit Court of Appeals dealt a significant blow to Medicare’s reimbursement practices under the Medicare Secondary Payer Act. The ruling, stemming from a case challenging Medicare’s ability to recover from the portion of the settlement dollars intended to compensate the heirs for their damages under Florida’s Wrongful Death Act’. This holding establishes that the Medicare Secondary Payer Act does not preempt the Florida Wrongful Death Act and that Medicare was limited to the funds allocated to the survivorship claim.
Medicare Advantage – In re Avandia (3rd Cir 2012):
The first court to conclude that a Medicare Advantage Plans rights under the Secondary Payer Act are identical to those under traditional Medicare. Unfortunately, some subrogation vendors for Medicare Advantage plans have twisted this and subsequent cases to mean that they have the same right to make a recovery but then do not believe it means that they have the same liabilities or requirements for reduction or compromise as traditional Medicare.
Conclusion
In conclusion, effectively managing and minimizing medical liens in personal injury cases is a multifaceted and evolving challenge. The landscape of lien resolution is continuously shaped and redefined by significant legal precedents, such as Ahlborn, Gallardo, Amara, McCutchen, Montanile, Howell, Bradley, and the Avandia case. These rulings collectively underscore the necessity for personal injury attorneys to be acutely aware of the nuanced and jurisdiction-specific legal frameworks governing medical liens.
For attorneys, these cases serve as essential guides in navigating the complex terrain of medical lien resolution. They offer strategic insights into negotiating lien reductions, understanding the scope of lienholders’ rights, and leveraging equitable doctrines to contest excessive claims. More importantly, these rulings underscore the importance of precise and informed decision-making in the resolution process.
The evolving legal landscape, characterized by these landmark cases, reinforces the value of collaboration with experienced lien resolution professionals. While personal injury attorneys possess the legal acumen to represent their clients effectively, partnering with lien resolution experts can provide the specialized knowledge and strategic insight necessary to navigate this complex area efficiently. Such collaboration not only maximizes the potential for reducing liens but also allows attorneys to focus on their core competency—advocating for their clients—thereby enhancing the overall effectiveness and success of their legal practice.
Partner with Synergy for lien resolution services here.
March 9, 2023
Introduction
Navigating the complex world of healthcare liens can be overwhelming, especially for cases involving military personnel, Veterans, Medicaid recipients and the uninsured who need hospital care. However, understanding the intricacies of programs like the Federal Medical Care Recovery Act (FMCRA), Medicaid, and hospital lien laws is crucial to ensure that those who are injured pay back as little as possible. This article explores the FMCRA, Medicaid, and hospital liens, and highlights important laws and applicable court cases that have shaped how these programs recover. By understanding the nuances of these programs, a trial lawyer can be better prepared to decide whether to partner with lien resolution experts to get the best results.
Military
The Federal Medical Care Recovery Act (FMCRA) [1] is designed to ensure that the person or entity responsible for a Veteran’s injury pays for their medical care, rather than the taxpayers. The Act grants the United States the right to recover the reasonable value of medical care and treatment from the party responsible for the injury. This applies to TRICARE beneficiaries and covers care provided by Uniformed Services facilities, care paid for by TRICARE, or both. The funds recovered by the program are used to supplement the budget allocated by Congress, enabling each VA medical facility to provide exceptional care and services to Veterans.
The FMCRA empowers the federal government to recover the costs of medical care in cases where the United States is authorized or required to provide or pay for medical care for someone suffering from a disease or injury caused by the intentional conduct or negligence of a third party. To recover the cost, the government relies on 10 U.S.C. § 1095 and expects beneficiaries to pursue the case to protect the government’s interests. Many military branches require the attorney hired by the injured party to sign an Attorney Protection Agreement, acknowledging their responsibility to protect those interests. However, the government does not provide attorneys representing injured parties with fees or reductions for their interests, specifically for attorney fees and costs associated with effectuating the settlement. [2]
The government has a lien on any proceeds of recovery for medical and hospital care provided by Veterans’ Administration hospitals or private health care providers. The government has three ways to recover medical and hospital care costs in cases of tort liability by a third party: subrogation, intervening or joining in any action brought by the injured person, or initiating such an action in conjunction with the injured or deceased person. None of these procedures is mandatory, and the head of the department or agency furnishing care has the discretion to choose the method.
Medicaid
Medicaid is a public benefit program that provides essential healthcare coverage to individuals who meet financial eligibility criteria. The program is funded by both the federal and state governments, with administration at the state level.
In the landmark case of Ahlborn[3], the US Supreme Court limited the amount of funds that Medicaid can recover when a beneficiary receives a settlement in a third-party liability situation. Under federal law, Medicaid is only entitled to recover funds that are attributable to medical expenses, rather than the entire settlement or judgment. State statutes that mandate full reimbursement of Medicaid expenditures are unenforceable, as far as they do not exempt from recovery the non-medical portions of the settlement, such as damages for pain and suffering or lost wages.
In Wos v. E.M.A. [4], the US Supreme Court held that North Carolina’s statute, which allocated up to one-third of personal injury awards to medical expenses, was preempted by the anti-lien provision of the Medicaid Act. This decision rendered arbitrary allocations in state statutes unenforceable, and the Medicaid anti-lien rule from Ahlborn prevented North Carolina’s statue from being enforced as written.
However, the recent case of Gallardo v. Marstiller[5] potentially changes the analysis set forth in Ahlborn. The US Supreme Court ruled that Florida can seek reimbursement from settlement amounts that represent “payment for medical care,” whether past or future. This decision may have implications for certain cases, and the circumstances of each case will need to be considered to determine whether the Ahlborn analysis applies or is modified now by Gallardo’s inclusion of future care.
Hospital Liens
Hospital lien laws are established by state statutes, and their interpretation through case law varies significantly from state to state. Consequently, there is no single pivotal case or statute that forms the legal basis for a hospital lien.
The key to reducing the amount owed under a hospital lien is to focus on the actual reasonable value of the services provided. Rather than attempting to negotiate down from the full billed charges presented by the hospital, it is essential to assess the fair cost of care and negotiate accordingly. Hospital bills are often inflated, bearing little relation to what should be paid for the services provided.
Those familiar with health insurance may have noticed the vast difference between billed charges and the amount paid to a provider based on contractual agreements between facilities and insurance carriers. For example, a bill could be presented for $45,000, while a health insurance carrier may have a contract to pay only $16,000. Facilities also offer uninsured discounts. It is unfair to require an injured party who receives a settlement to pay the full amount. Moreover, if there are insufficient funds to cover the bill, it is inequitable to attach a lien to the whole settlement and then assert a debt for the remaining amount, which is often significantly more than what would have been paid by Medicare, Medicaid, or a private insurer.
So, what is the reasonable cost for services? It varies depending on the location, facility, and procedure. Obtaining this information is not easy. Hospitals that receive payments from Medicare are required to submit a Hospital Cost Report (CMS Form 2552-110), which provides detailed information about the costs incurred in each department.
Conclusion
In conclusion, even though military medical care, Medicaid and hospital liens third party liability recovery all involve the reimbursement of the cost of medical treatment, how they are handled in the legal system varies. The Federal Medical Care Recovery Act ensures that those responsible for a veteran’s injury pay for their medical care, and the funds recovered supplement the budget allocated by Congress to provide exceptional care and services to veterans. Medicaid provides essential healthcare coverage to financially eligible individuals, with a recent Supreme Court decision potentially changing how reimbursement from settlements is handled. Hospital liens, which vary by state, can be reduced by focusing on the actual reasonable value of services and negotiating accordingly. It is essential to consider the fair cost of care rather than the inflated billed charges presented by hospitals, and obtain detailed information about costs incurred in each department. Ultimately, these topics highlight the importance of ensuring that those in need of medical care receive fair and just treatment in the legal system.
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[1] 42 USC 2651-2653
[2] 5 USC 3106
[3] Arkansas Dept. of Health and Human Servs. V Ahlborn, 547 U.S. 268 (2006)
[4] Wos v E.M.A., 568 U.S. 627 (2013)
[5] 596 US ___(2022)
August 12, 2021
When handling a third-party liability case and you know your client had health insurance that paid the medical expenses, should you check to see if there is a lien interest on the settlement funds? Or maybe you have settled a case and you just received a notice letter from a possible lienholder, what do you do about it? What about Medicare or other federally governed interests? Do you treat them differently? These are critical questions to answer prior to disbursing funds to your client.
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May 13, 2021
Introduction
Plaintiffs’ lawyers largely understand settlement proceeds which are subject to a claim of lien must be protected in trust, even against the client’s interests or wishes. An attorney may not serve as the “sole arbiter” of a lien dispute, take it upon herself or himself to decide the dispute in the client’s favor, and distribute the disputed funds. Generally, liens must be amicably resolved or adjudicated at impasse. Perhaps the most misunderstood concept in the resolution of direct hospital/provider liens, is what I call the “lien debt dichotomy.” The lien debt dichotomy is simply a name I have given to the myriad of issues and decisions that flow from or turn upon, the distinction between a lien and a mere debt.
Reimbursement Liens vs. Direct Provider Liens
I have long believed the disconnect and the root of much of the confusion regarding direct provider liens versus mere medical debts flows from their place in an entirely different silo in the lien resolution world. Upwards of 80% of clients are covered by some form of health insurance. Whether public (Medicare, Medicaid or certain state, county or municipal “Health Care Districts”) or private insurance (the Blues, Uniteds, Cignas, and Aetnas, to name the big plans), or even self-funded or insured ERISA plans–health insurers in most states, and under federal law in the case of ERISA, have “reimbursement lien rights” against tort recoveries. Accordingly, Plaintiffs’ attorneys must identify, negotiate, and resolve reimbursement liens in more than eight out of ten clients’ recoveries. As we all know from common experience, we do not owe a debt to our health insurers when they pay out our health benefits. We, and our injured clients, have benefits under a plan, that plan pays for our healthcare, and that is it; but when there is a tort recovery, everything changes. Tort recoveries themselves, under various legal doctrines, contracts, and statutory regimes, create a right of reimbursement: a lien against the settlement proceeds allowing these plans to recover (to be reimbursed) the benefits they have paid. The very high percentage of clients facing these reimbursement liens has, in the Author’s opinion, trained many lawyers to believe accident-related medical care automatically creates a lien (it does not); and to ignore the importance of debts when it comes to direct provider liens (which is a mistake).
When a patient does not have health benefits, or a patient’s healthcare providers do not bill a patient’s health plan, there are no payments to reimburse. Stated simply, if a provider was paid by a plan, the plan often has a reimbursement lien, but if the provider has not been paid at all for accident-related care, the provider may (or may not) have a direct provider lien. This article focuses on the latter: providers who have treated a tort victim and have not yet been paid.
How Providers get Lien Rights
As stated at the outset, liens against settlement proceeds must be resolved or adjudicated, and the Plaintiffs’ attorneys face significant exposure, both ethically and legally, if liens are ignored. There are essentially only two (2) ways a provider gets a direct lien against a tort recovery. Firstly, direct provider liens can be created by contract. The most familiar version of these contractual liens is the Letter of Protection (LOP) or some similarly styled agreement between a lawyer and a provider (or a client and a provider) in which the client agrees to pay the provider from a future settlement if the provider agrees to treat and forbear collection until the tort case settles. These agreements are often the only way an uninsured accident victim can obtain non-emergency accident-related care. While Emergency Medical Treatment and Labor Act (EMTALA) ensures hospital emergency rooms will treat and stabilize an uninsured injury victim, the same is not true of future, scheduled care. The contract itself is the genesis of the providers’ lien rights, as well as the “law of the case.” Therefore, the terms, requirements, and legal exposure depend entirely upon the language of the agreement. The second way a provider is given direct lien rights against recovery proceeds is by statute (or in some cases, by County Ordinance). These “statutory” liens often include perfection requirements and carry impairment provisions, set priority, and even limit or define lien amounts. If unsure, the best way to determine whether a provider has a lien against a settlement is to ask. At the outset of every post-settlement negotiation, the Author’s practice is to inquire whether each known provider is pursuing a lien, and if so, request documentation supporting their alleged lien rights.
Why the “Lien Debt Dichotomy” Matters
In short, liens attach to settlements, while debts attach to people. A lien secures a debt to the settlement proceeds, requiring the lien amount to be protected in trust. Absent a lien, a provider is a mere creditor with an unsecured debt. The fact that a provider rendered accident-related care is irrelevant to whether their interest is a lien or a mere debt. Perhaps the best analogy is a mortgage and a home loan. A mortgage is a security instrument, an agreement that attaches a debt to real property. If a bank merely loaned money to purchase a house but did not require a security interest to protect the loan, the homeowner could simply sell the home, spend the proceeds, and never pay the bank back. The same is true of a non-lienor medical provider. If a surgeon, for example, performs a spinal fusion on a tort victim and fails to require a contractual lien against the settlement, the patient could recover his damages from the tortfeasor and refuse to pay the doctor whose bills the medical special damages were based upon. Accordingly, determining whether a medical provider has a lien against the settlement, versus a mere debt against the patient, is not only required to analyze the attorney’s ethical and legal requirements and exposure, but it also drives negotiation strategies and distribution procedures. If there is not a lien, it is up to the client whether they wish to pay a provider anything at all from the settlement. Clients are free to refuse such payment and force providers to pursue traditional collection actions to collect on their debts.
Equitable Distribution
Most Plaintiffs’ attorneys are familiar with the concept of equitable distribution. While procedure and formulae vary, an equitable distribution is essentially a court-ordered “fair” division of a limited settlement. The most common split is to award a third to each of the interested parties: one third to the attorney, one third to the client, and the last third split pro-rata among the medical lienholders. But remember, only lienholders have claims to the settlement proceeds. Providers who do not have any such lien rights are mere creditors and should not properly participate in an equitable distribution. After all, lienholders went to the trouble of obtaining a security interest while mere creditors did not; why should the mere creditors who did not be permitted to dilute the positions of the lienholders as related to their share of the settlement? Again, consider the mortgage analogy. Only lienholders would be able to lay claim to the proceeds of a sale, while mere creditors would have to secure and execute traditional judgments against the general assets of the debtor, which may or may not include remaining proceeds from the sale of the property.
Negotiation of Direct Medical Liens
Once a lien has been identified, a Plaintiff’s lawyer’s marching orders are clear: amicably resolve the lien or have it adjudicated. This legal interest in the settlement proceeds must be respected, and protected, until such time as the lien rights are released. The first step is always to identify all the known terms of the lien (whether found in a contractual agreement, statute or ordinance). Once the lien terms are clear, and their meaning agreed upon with the lienholder, attorneys must determine whether a deeper reduction is available through an equitable reduction or a reduction to a reasonable value. This decision typically turns on the amounts of the settlement and of other liens. If a settlement is limited, and an equitable distribution is likely to obtain better results for the client, agreements with all lienholders should be sought, in accordance with a distribution schedule setting out their pro-rata shares of a “fair” position of the proceeds (such as one third, as discussed above). Be careful to make offers contingent on the agreement of all lienholders and be prepared to file for formal equitable distribution with the Court, if all such agreements cannot be secured amicably.
Negotiation of Medical Debts
When it is confirmed that a provider does not have lien rights (a confirmation the Author highly recommends be obtained in writing), all bets are off and negotiation leverage swings heavily to your favor. Best practices include explaining the client’s options, including paying the debt from the proceeds, or electing not to and instead of awaiting traditional collections activity from the provider. It is unquestionably in the client’s best interests to resolve debts when possible, while they have proceeds and counsel (two things they likely will no longer have, by the time the provider sues them). Accordingly, clients should be made acutely aware of the potential exposure and adverse effects of such a future collection action and reminded they will be unrepresented at that time; however, the providers do not know the client’s true intentions. The leverage created by threatening to give the money to the client and pay the provider nothing from the settlement is substantial and effective.
Conclusion
Understanding the “lien debt dichotomy” is paramount to ensuring effective resolution of direct provider liens. Identifying which medical providers have liens, and which have mere debts, is a critical first step. Once confirmed, liens can be negotiated based upon either equitable principles or analysis and negotiation towards reasonable value. Mere debts should also be negotiated along both “equitable” and “reasonable value” lines, but your negotiation position is much stronger and providers, given the choice between something or nothing, often make the right decision.
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