LIENS

Jason D. Lazarus, J.D., LL.M., CSSC, MSCC

June 9, 2022

On June 6th, 2022, the United States Supreme Court decided in a 7-2 decision to allow Florida Medicaid, pursuant to Section 409.910 of the Florida Statutes, to recover its lien from all medical damages past and future.  This decision has nothing to do with future eligibility for Medicaid post settlement, that is still protected by special needs trusts, instead, it allows a state Medicaid agency to pursue its lien against all medical damages in the case.  This is a departure from the dictates of Ahlborn which protected a Medicaid recipients’ property right in their settlement as dictated by the federal anti-lien provisions. 

Gallardo argued that the anti-lien provisions in the Medicaid Act prohibited Florida Medicaid from attempting to recover its lien from anything other than the amounts properly allocable to past medical expenses.  The Supreme Court held otherwise finding that it falls within an exception to the anti-lien provisions that served as the pillars of the Ahlborn decision.  Further, the court held that the assignment provisions in the Medicaid Act requires a Medicaid beneficiary, as a condition of eligibility, to assign all rights to payments for medical care from a third party back to the state Medicaid agency.  And states must enact recovery provisions that allow for the state to recover from liability third parties when a Medicaid beneficiary is injured, and Medicaid pays for that care.  While the court upheld the property right and anti-lien prohibitions against recovery from non-medical damages, it held it didn’t protect damages that were for medical care. 

The bottom line of the holding is as follows:

“Under §1396k(a)(1)(A), Florida may seek reimbursement from settlement amounts representing “payment for medical care,” past or future. Thus, because Florida’s assignment statute “is expressly authorized by the terms of . . . [§]1396k(a),” it falls squarely within the “exception to the anti-lien provision” that this Court has recognized. Ahlborn, 547 U. S., at 284.”

Justice Sotomayor’s dissent in Gallardo is right on point about the inequity of the majority’s opinion related to Medicaid liens and from what elements of damages a state agency can recover from: “It holds that States may reimburse themselves for medical care furnished on behalf of a beneficiary not only from the portions of the beneficiary’s settlement representing compensation for Medicaid-furnished care, but also from settlement funds that compensate the Medicaid beneficiary for future medical care for which Medicaid has not paid and might never pay. The Court does so by reading one statutory provision in isolation while giving short shrift to the statutory context, the relationships between the provisions at issue, and the framework set forth in precedent. The Court’s holding is inconsistent with the structure of the Medicaid program and will cause needless unfairness and disruption.”  Justice Sotomayor also recognized that due to the majority’s ruling, many injury victims would have less dollars from their settlement to place into federally-authorized special needs trusts that protect their ability to pay for important expenses Medicaid will not cover.  This is exactly what had been done for the benefit of Gallardo when her case was settled but now she will have less go into that trust since more money will have to go to reimburse Florida Medicaid. 

So, what does Gallardo mean for injury victims? A state Medicaid agency or its recovery contractor can now take the position that the recovery right applies to past and future medicals so when you do an Ahlborn analysis, it would be the appropriate reduction percentage (using a pro-rata formula) applied to the entire value of medical damages to see if there is a reduction in the lien. Pre-Gallardo, some states were already taking that position as well as some recovery contractors. From a practical perspective, in cases with a large life care plan or a lot of future medicals, there may not be a reduction at all in the lien. It is going to be important that the non-economic damages get properly valued with some multiplier times specials to make strong arguments for a reduction. 

In the end, Medicaid beneficiaries will not net out as much from their settlements as they should. Some cases may not be brought, and more injury victims will wind up quickly back on Medicaid post recovery. It is an unfortunate end result and just bad law.

To read the full opinion, click HERE

This decision doesn’t mean though all is lost, but you need experts to help you navigate through the lien resolution minefield. Contact Synergy to help find your way to the best outcome for your client.

To read a whitepaper for a summary of the law pre-Gallardo, click HERE.

June 9, 2022 

Michael Walrath, Esq.

The “reasonable value” of healthcare is an issue that weaves throughout our entire system. Even so, there’s no concrete definition of what exactly is “reasonable value”. Dr. Gerard Anderson of Johns Hopkins University School of Public Health has defined it as 40% to 45% above the cost of care[1]. No-fault insurance statutes in many states define reasonable value in their fee schedules for accident care.[2] Certain TPA’s managing employer-based health plans peg reimbursement at a “reasonable value” defined as a stated percentage above Medicare rates in their plans (often called “Reference Based Pricing” or “RBP Plans”).[3]  Meanwhile, hospital systems and the largest insurers enter into complex Provider Agreements, agreeing in advance to what both parties agree is reasonable reimbursement for hundreds of millions of covered lives in the United States.

Reasonable value of health care also appears, in personal injury actions as evidence of medical special damages caused by a tortfeasor, but under a slightly different definition. The definition of “reasonable medical damages” (the amount owed by a tortfeasor for the medical specials incurred by his or her victim) is arguably distinguishable from the amount owed to a hospital, by a patient. While a certain nexus does obviously exist, other evidentiary issues and considerations exist in tort cases, which do not exist in the simpler, more direct “payer-provider disputes” which are more akin to the hospital lien scenario.   

All States and even Hospitals, are Different

The legal framework around hospital liens is set by statutes and case law interpreting them and varies widely from state to state. Forty states, and the District of Columbia, have enacted hospital lien statues.[4] Because all states are so very different, you must follow the law and the facts of your case, when determining whether a hospital lien is attached to an injury settlement, and in developing the best strategy for reducing hospital liens and debts.

For example, California hospitals enjoy liens against injury recoveries by statute (§3045), which are limited to the lesser of “reasonable hospital charges” or 50% of a limited recovery. The burden is on the hospital to prove the “reasonableness” of its charges when seeking interpleaded funds. Not surprisingly, California law is largely consumer-friendly, in this regard, holding “[t]he full amount billed by medical providers is not an accurate measure of the value of medical services because many patients pay discounted rates, and standard rates for a given service can vary tremendously, sometimes by a factor of five or more, from hospital to hospital in California.” Therefore, the statute requires “that the charges for such services were reasonable.” State Farm Mut. Auto. Ins. Co. v. Huff, 216 Cal. App. 4th 1463, 1464 (2013). Conversely, Ohio is one of the nine states with no statewide lien statute, but the common law is similarly friendly, holding that “[i]t is a settled general rule that a physician or surgeon is, in the absence of an agreement as to the amount of his compensation, entitled to recover the reasonable value of his services. Miami Valley Hosp. v. Middleton, 2011-Ohio-5069, ¶ 1 (Ct. App.); however, the case goes on to cite Supreme Court authority suggesting “customary charges” (i.e., full billed charges) are prima facia evidence of reasonable value absent evidence to the contrary.  

Another example of state law diversity can be found in Florida. Florida hospital liens are a creature of County Ordinance, with only nine of the state’s sixty-seven counties enjoying valid, ordinal lien rights. This is after many counties lost their rights pursuant to the Supreme Court of Florida’s opinion in Shands v Mercury[5] which struck down as unconstitutional, all county lien laws created by Special Act of the Florida Legislature, . Consequently, many Florida hospitals (and indeed hospitals in many other states) have elected to simply create hospital liens against third party recoveries, by contract.

Another state with no statewide lien statute is Pennsylvania. The Superior Court of Pennsylvania has held:

Where, as here, there is no express agreement to pay, the law implies a promise to pay a reasonable fee for a health provider’s services. Eagle v. Snyder, 412 Pa. Super. 557, 604 A.2d 253 (Pa. Super. 1992). Thus, in a situation such as this, the defendant should pay for what the services are ordinarily worth in the community. Id. Services are worth what people ordinarily pay for them… Under the law, the Hospital is entitled to the reasonable value of its services, i.e., what people pay for those services, not what the Hospital receives in one to three percent of its cases. Accordingly, the damage award in this unjust enrichment action simply is unwarranted. In light of the applicable law, the Hospital should be awarded its average collection rate for each year in question. This value would be reasonable. 

Temple Univ. Hosp., Inc. v. Healthcare Mgmt. Alts., Inc., 2003 PA Super 332, ¶¶ 26-27, 832 A.2d 501, 508 – 509.

As a final example of lien law diversity, I turn to Maryland and Virginia. Maryland does have a lien statute which limits liens to reasonable charges, but Maryland is the last of the “all payer” states. Accordingly, in simplified terms, all Maryland patients pay essentially the same amount whether insured, on Medicare, or self-pay Hospital charges in Maryland are vetted and approved by a State Commission, making “reasonable value” arguments nearly impossible. Virginia actually has two different hospital lien statues; one for hospitals operated by the Commonwealth, and a second for all other hospitals. Commonwealth hospital liens are not limited to “reasonable charges” in the main section of the statute, but enforcement provisions limit collection to “reasonable charges.” So arguably, reasonableness is required. Unfortunately, the Attorney General’s Office, who collects upon Commonwealth liens in Virginia, does not agree and insists on full billed charges unless an equitable distribution of a limited settlement is required.

As these diverse examples illustrate, it is critically important to follow the law and facts of your case, in the hospital’s jurisdiction, when it comes to determining the validity of a lien against a given recovery, and the legal definition/interpretation of “reasonable value.”

Reduction Strategies – What IS “Reasonable Value,” Anyway?

Over the past fifteen years, I have worked with and presented to hundreds of lawyers and law firms, in Florida and more recently, nationwide. Despite the previously explored legal diversity regarding the validity of liens and the common-law interpretation of reasonable value, lawyers tend to approach hospital lien negotiations in a surprisingly similar way.  This is basically, a “blind” negotiation of the amount allegedly due, seeking a “discount” from full billed charges. Both sides, unfortunately, frame reductions as “discounts,” as if full billed charges are owed merely because the hospital wrote them on the lien. If nothing else, this semantic misstep sets the wrong tone, and hands all the negotiation leverage to the hospital. Under the statutes, ordinances, and the common law of all but a few states, the true power paradigm is the exact opposite. Patients and their attorneys have the money, and the law expressly limits hospitals to “reasonable charges” and saddles the hospital with the burden of proof. The only proof of reasonableness a hospital can ever muster is that they charge everyone the same rates. However, as we know, less than a few percent of patients pay those amounts and overcharging everyone equally isn’t evidence of reasonableness, anyway. Shockingly, personal injury attorneys allow themselves to be lumped in with those few percent and request “discounts” as if the hospitals are granting favors. Simply put, reframe the negotiation; put you and your client properly in the driver’s seat where you belong.

I start most presentations by asking injury firms what their average reductions are. The typical, average responses are, 1) we never accept less than a 20% discount, 2) a thirty percent discount is about average, and 3) a forty percent discount is a homerun, and we’ll recommend accepting it. Understandably, many clients are indeed happy with a 40% reduction in the amount initially shown on the Closing Statement, especially on large billsas that reduction can be a substantial amount of money. And for the avoidance of doubt, these are average results from years of questions, this is normal so if they sound familiar, that is not a bad thing. However, I do want to share why and how there are deeper reductions available.

“Inverting the Argument”

The answer is simple in theory, a bit more complex in practice. Theoretically, reduction results (notice I do not call them “discounts”) are better when you negotiate “up” from reasonable value of care that is due and owing under most state law, rather than down from the unilateral, arbitrary, and unreasonable full billed charges which nobody ever pays.  

In practice, this theoretical shift requires definition and calculation of the reasonable value of the care rendered. While more complex than simply proceeding with negotiations without any data at all, defining reasonable value and calculating it are not impossible. Case law in most states, and leading hospital billing experts suggest that the “cost” of treating patients, is a reasonable benchmark. Accordingly, a workable definition of reasonable value, and in my opinion the easiest definition of “reasonable value” for Judges and lay-people alike to understand, is “cost of care plus a reasonable profit.” And thankfully, cost of care in the hospital setting is calculable.

Every hospital which accepts Medicare patients (which, because hospitals must treat everyone seeking emergency care, effectively means every hospital in the US) submits, annually, a Hospital Cost Report (CMS Form 2552-210). These Reports contain data detailing the costs incurred and charges billed by every department and can be used to estimate the “cost of care” of any given line item of service on any hospital bill. What is the reasonable value of a CT Scan at Jackson Memorial Hospital in Miami? If the total revenue data and total cost data from JMH’s annual Hospital Cost Report are merged for the CT Scan department, a “cost to charge” ratio can be derived and applied to the charges for any single scan, yielding an estimated and defensible “cost of care,” and then, “reasonable value.” This methodology is used by experts not only in testimony before Congress, but also in studies published in highly respected healthcare journals like HEALTH AFFAIRS[6]. Reports can be obtained:

  • From CMS via FOIA Request (or searched via various online cms.gov websites/portals)
  • From hospitals directly by subpoena or in discovery (if litigating the hospital lien)
  • From various data vendors online (just google “hospital cost report”)

SYNERGY SETTLEMENT SERVICES uses its proprietary database and algorithm to quickly calculate “cost of care” and “reasonable value” of any hospital bill and uses that analysis to negotiate up from reasonable value, nationwide.

The Lien/Debt Dichotomy

There is a critical difference between a lien and a debt, which dictates not only best practices in reducing/resolving liens, but also the legal and ethical exposure associated with the same. Liens can ONLY be created by statute/ordinance, or by agreement/contract; whereas debts exist whenever a patient has received care which has not been paid for (even if there is no injury case or recovery at all). A “LIEN” is a legal interest in the proceeds being held in Trust; it is merely a security interest in the proceeds (not a legal right to collect money from a patient). Think of a mortgage. When a homeowner borrows money to buy a house, she or he owes a debt to the bank, but the bank also creates a mortgage which attaches that debt to the real property, as security. The bank could loan someone money to buy a house without creating a mortgage, and the person would still owe the bank the same amount as if there was a mortgage. The only difference is the person could sell the house and pay nothing to the bank from the proceeds of that sale. The same is true of hospital debts and liens.

Accordingly, it is important to determine whether a medical bill/account is a LIEN, or a mere DEBT, and if a lien, whether its contractual or statutory, before engaging in negotiations. The steps you take for resolving a lien are different than the steps you take for resolving a debt.

If there is a valid lien against the proceeds, review the language of the statute or contract creating the legal interest in the settlement proceeds (lien). Next, estimate the “reasonable value,” and calculate the “equitable distribution” amount (provider’s pro-rata portion of an equitable share of the settlement – usually 1/3 of settlement, or 50% of NET). Then lastly, negotiate for the better/lower of “equitable amount” or “reasonable value.” And remember, many lien statutes and some contractual liens obviate or codify “equitable distribution” formulae – always follow the applicable law/language.

If there is not a valid lien against the proceeds, the best strategies to employ are different. First, I strongly recommend obtaining written confirmation that the provider is not pursuing a lien against the client’s settlement. Next, determine if your client even wants to resolve the “mere debt” from the settlement proceeds (remember, you have no ethical responsibilities towards ordinary creditors). If not, you may disburse proceeds upon demand, but I do recommend obtaining signed acknowledgment of the debt, from your client. Only if your client does wish to resolve the debt from her or his proceeds (which I recommend you advocate for), should you negotiate for reasonable value or an equitable reduction. But importantly, note that absent an agreement otherwise, equitable reduction merely resolves liens, as a matter of law. Accordingly, be sure to include language that the provider agrees to accept the equitable amount as “payment in full,” to release all debt.

Responsibility to “Discover” Liens?

Generally, it is a lienholder’s responsibility to put you on notice of their lien. However, Ethics Committees often impute some level of due diligence onto Injury Attorneys in these, as in most other, circumstances. To minimize exposure, I always recommend Injury Attorneys ask all known medical providers if they are pursuing lien rights and if so, to provide documentation of the same. If providers confirm they are not pursuing a lien, it is up to the client whether to pay from proceeds, or not. If a provider confirms they are pursuing lien rights (and provide evidence of such rights in the way of a properly filed HOSPITAL CLAIM OF LIEN or a contractual lien signed by the client), you must hold the encumbered proceeds in Trust and either negotiate a release or adjudicate the lien, if negotiations impasse. And lastly, if a provider refuses to respond or refuses to provide documentary evidence of their lien, I recommend sending several written requests, including deadlines for provision of evidence of a lien and a date for distribution. As a rule of thumb, the more evidence of your due diligence, the better. So, I typically conclude my efforts with a NOTICE OF WAIVER OF LIEN RIGHTS, advising again that any alleged rights will be waived, and monies will be disbursed, on a specific date.

Conclusion

In conclusion, it is ultimately YOUR responsibility to determine if a medical bill is a “lien” or a mere “debt.” Liens are third-party “security interests” in the money you are holding in Trust; you must protect them, and you may not be the “sole arbiter” of a lien dispute. If lien amounts are not agreed in advance of care being rendered, your client owes only the “reasonable value” of the care they received. And that “Reasonable Value” is most easily defined and calculated as the “Cost of Care” plus a “Reasonable Profit.” And finally, always remember that SYNERGY SETTLEMENT SERVICES compliantly negotiates hospital and provider liens nationwide, so you don’t have to spend the time doing so. We are your strategic partner, ensuring you avoid all the many ethical and legal pitfalls of hospital lien resolution, while efficiently reducing hospital liens to an objectively reasonable amount,  protecting your clients’ well deserved and hard-earned recoveries.   

[1] GERARD F. ANDERSON, PhD is a professor of health policy and management and professor of international health at the Johns Hopkins University Bloomberg School Public Health, professor of medicine at the Johns Hopkins University School of Medicine, director of the Johns Hopkins Center for Hospital Finance and Management. His work encompasses studies of chronic conditions, comparative insurance systems in developing countries, medical education, health care payment reform, and technology diffusion. He has directed reviews of health systems for the World Bank and USAID in multiple countries. He has authored two books on health care payment policy, published over 250 peer reviewed articles, testified in Congress over 40 times as an individual witness, and serves on multiple editorial committees. Prior to his arrival at Johns Hopkins, Dr. Anderson held various positions in the Office of the Secretary, U.S. Department of Health and Human Services, where he helped to develop Medicare prospective payment legislation. See https://publichealth.jhu.edu/faculty/11/gerard-anderson

[2] In Florida for example, reasonable charges for non-emergency room care are defined as 200% Medicare, while the reasonable value of care rendered in the Emergency Room is 75% of the hospital’s billed charges.

[3] See American Hospital Association, Fact Sheet: Reference Based Pricing at https://www.aha.org/fact-sheets/2021-06-08-fact-sheet-reference-based-pricing.

[4] Ala. Code § 35-11-370; Alaska Stat. § 34.35.450; Ariz. Rev. Stat. Ann. § 33-931; Ark. Code Ann. § 18-46-101; Cal. Civ. Code § 3045.1; Colo. Rev. Stat. Ann. § 38-27-101; Conn. Gen. Stat. Ann. § 49-73; Del. Code Ann. tit. 25, § 4301; D.C. Code § 40-201; Ga. Code Ann. § 44-14-470; Haw. Rev. Stat. § 507-4; Idaho Code Ann. § 45-701; 770 Ill. Comp. Stat. Ann. 23/1; Ind. Code Ann. § 32-33-4-1; Iowa Code Ann. § 582; Kan. Stat. Ann. § 65-406; La. Rev. Stat. Ann. § 9:4751; Me. Rev. Stat. tit. 10, § 3411; Md. Code Ann., Com. Law § 16-601; Mass. Gen. Laws Ann. Ch. 111, § 70a; Minn. Stat. § 514.68; Mo. Ann. Stat. § 430.230; Neb. Rev. Stat. Ann. §§52-401 & 52-402; Nev. Rev. Stat. Ann. § 108.590; N.H. Rev. Stat. Ann. § 448-A:1; N.J. Stat. Ann § 2a:44-35; N.M. Stat. Ann. § 48-8-1; N.Y. Lien Law § 189; N.C. Gen. Stat. Ann. § 44-49; N.D. Cent. Code Ann. § 35-18-01; Okla. Stat. Ann. tit. 42 §§43 & 44; Or. Rev. Stat. Ann. § 87.555; R.I. Gen. Laws Ann.§§9-3-4 to 9-3-8; S.D. Codified Laws § 44-12-1; Tenn. Code Ann. § 29-22-101; Tex. Prop. Code Ann. § 55.001; Utah Code Ann. § 38-7-1; Vt. Stat. Ann. tit. 18, § 2253; Va. Code Ann. § 8.01-66.2; Wash. Rev. Code Ann. § 60.44.010; Wis. Stat. Ann. § 779.80

[5] “The Alachua County Lien Law, ch. 88-539, Laws of Fla., is a special law which creates a lien based on a private contract between a hospital and its patient, and is thus unconstitutional under Art. III, § 11(a)(9), Fla. Const.”
Shands Teaching Hosp. & Clinics v. Mercury Ins. Co., 97 So. 3d 204, 207 (Fla. 2012)

[6] See Extreme Markup: The Fifty US Hospitals With The Highest Charge-To-Cost Ratios https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2014.1414

April 7, 2022

Jason D. Lazarus, J.D., LL.M., CSSC, MSCC

Some clients, post-accident, may have switched from Medicare Parts A/B over to a Part
C Medicare Advantage Plan. Therefore, even if you have gone through the resolution process
for your client and gotten the Medicare conditional payment related issues dealt with, you might
not be finished. What lurks out there is that a Part C Advantage Plan (hereinafter MAO) may
have paid for some or all of your client’s care. You may wonder how that is possible when you
were told that the client was a Medicare beneficiary and Part A/B was paid back for conditional
payments.

For more information, read this excerpt from my book ‘The Art of Settlement‘.

December 6, 2021

By: Teresa Kenyon, Esq.

In HMS Holdings LLC v Ted A Greve & Associates P.A. et al, 2021 WL 5163308, an ERISA self-funded health plan was denied a temporary restraining order (TRO) on settlement funds., The court found that the health plan did not present sufficient evidence to satisfy all necessary requirements to issue a TRO, including that the TRO was required to prevent irreparable harm. This was mostly due to the fact that the health plan delayed in bringing the action and that nine-month delay in bringing suit supported the conclusion that irreparable harm will not be suffered in lieu of a temporary restraining order.

The injured party was in an automobile accident and the ERISA health plan paid over $100,000 in medical benefits. The settlement was limited to $100,000. The injured party notified the health plan of their pursuit of a claim against the tortfeasor and asked the plan to prove its self-funded status as otherwise the plan would not have a right to a recovery under North Carolina law.

The ERISA plan filed the ERISA action asking for the TRO and preliminary injunction to restrain the injured party from “wasting, disbursing, spending, converting or comingling” the settlement funds. The ERISA plan expressed concern that if the injured party dissipated settlement funds on non-traceable items, then the health plan would be deprived on its right of recovery. The ERISA plan cited the US Supreme Court’s Montanile case as its support. Montanile v. Bd. of Trustees of Nat’l Elevator Indus. Health Benefit Plan, 136 S.Ct. 651 (2016).

The court noted that when evaluating a request for a TRO, the plaintiff must demonstrate that: (1) it is likely to succeed on the merits; (2) it will likely suffer irreparable harm absent an injunction; (3) the balance of hardships weighs in its favor; and (4) the injunction is in the public interest. The ERISA plan argued that it would suffer irreparable harm because under Montanile, it can only obtain equitable relief against identifiable proceeds. The ERISA plan argued that if the court did not issue an order preventing the firm / injured party from transferring or comingling funds then their pursuit of a recovery would be out of the reach of an ERISA action.

The court stated that irreparable harm was not apparent because the ERISA plan’s injury could be remedied in the ordinary course of litigation. This was especially the case because the health plan had pled multiple alternative causes of action in its Complaint that did not rely on ERISA and those theories of liability did not appear to be limited to equitable relief.

The court also stated that the ERISA plan’s delay in bringing a lawsuit and/or the TRO may indicate the absence of irreparable harm. Although the ERISA plan claimed that it was doing what the Supreme Court required them to do, they were not immediately suing to enforce its lien as the Court required. The court noted that more than 9 months had passed from when the injured party notified the ERISA plan of the settlement. A long delay in pursuing their claim indicated that speedy action, in the form of a TRO, was not required to protect the health plan’s rights.

Interestingly, the court said that it is hesitant to issue a decision that could be interpreted to require such parties to delay distribution of personal injury lawsuit proceeds for months on end to preserve the viability of potential subrogation/reimbursement claims under ERISA, thereby appearing to have sympathy for the injured party and a delayed disbursement of settlement proceeds. Shortly thereafter, the court expressed sympathy for the health plan because if there is a wrongful double recovery to the injured person then it would be a miscarriage of justice. The court acknowledged that the health plan is in a difficult position with ERISA requiring the request of equitable relief by filing suit immediately or risking loss of the ERISA claim. In the end, the ERISA plan did not obtain the TRO and will be forced to decide whether it pursues its claim in another manner.

 

August 12, 2021

Teresa Kenyon, Esq.

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.

To read more, download the article below:

May 13, 2021

Michael Walrath, Esq.

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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