Medical Liens on a Personal Injury Settlement, Explained

A medical lien is a legal claim on your injury settlement by whoever paid for or provided your treatment. Liens get paid before you do. In one U.S. Supreme Court case, Medicaid claimed $215,645 of a $550,000 settlement, about 39%.

The good news is that most liens can be reduced. How much depends on who holds the lien and which law governs it.

Who can place a lien on your settlement?

Hospitals

Many states have hospital lien statutes that attach to your injury claim, not to you personally. In Texas, a hospital has a lien if you were admitted within 72 hours of the accident, under Property Code §55.002.

States cap these liens differently. Texas limits the lien to the lesser of charges for the first 100 days or 50% of your recovery, and excludes charges above a "reasonable and regular rate" (§55.004). California caps hospital liens at 50% of the recovery under Civil Code §3045.4.

Health insurers

Private health plans recover through subrogation or reimbursement clauses in the policy. If your employer bought insurance from a carrier, state insurance law applies and can limit or block that recovery.

Self-funded ERISA plans

If your employer pays claims from its own funds, the plan is "self-funded" under ERISA. In FMC Corp. v. Holliday, decided November 27, 1990, the Supreme Court held that state anti-subrogation laws do not apply to these plans. The plan document controls, which is why the first question about any health plan lien is how the plan is funded.

Medicare

The Medicare Secondary Payer Act, 42 U.S.C. §1395y(b)(2), makes liability and no-fault insurers primary. When Medicare pays first anyway, the United States is subrogated to your claim and must be repaid from any settlement.

Medicaid

Federal law requires each state Medicaid program to pursue liable third parties, and treats the state as holding your rights to payment for the care it covered (42 U.S.C. §1396a(a)(25)).

That claim is limited to the medical part of your settlement. In Arkansas DHHS v. Ahlborn (May 1, 2006), Medicaid had paid $215,645. The Court held Arkansas could recover only $35,581, the share of a $550,000 settlement tied to medical costs.

Workers' compensation

If you were hurt on the job by a third party, the comp carrier gets paid back from that recovery. Texas Labor Code §417.001 lets the carrier reimburse itself first, up to the benefits it paid, and pay you the rest. Our guide to workers' comp vs. personal injury explains when you have both claims.

What are the made-whole and common-fund doctrines?

These are 2 defenses that can shrink a health plan's claim. The made-whole doctrine says an insurer cannot collect until you have been fully compensated. The common-fund doctrine says an insurer that benefits from your lawyer's work must pay its share of the fee.

ERISA plans can write both out. In US Airways v. McCutchen, decided April 16, 2013, the plan had paid $66,866. McCutchen recovered $110,000, paid a 40% fee of $44,000, and kept $66,000. The plan wanted all $66,866 back.

The Court held that clear plan terms beat equitable doctrines like made-whole. Where the plan is silent on attorney's fees, though, the common-fund doctrine fills the gap, and the plan must share in the fee.

How does Medicare's conditional payment process work?

Medicare's recovery runs through the Benefits Coordination and Recovery Center (BCRC). CMS describes the steps this way.

1. You or your lawyer report the case to the BCRC, at 1-855-798-2627 or through the Medicare Secondary Payer Recovery Portal.
2. The BCRC sends a Conditional Payment Letter within 65 days of its Rights and Responsibilities letter, listing what Medicare paid.
3. You dispute any charges that are not related to the accident.
4. After settling, you report the settlement amount, fees and costs, and the BCRC issues a demand letter.
5. You repay within 60 days of the demand, or interest starts to accrue. Waiver and appeal rights are listed in the demand.

Medicare reduces its claim for your legal costs under 42 C.F.R. §411.37. It divides your procurement costs by the settlement, applies that ratio to its payments, and subtracts the result.

Can a lien be negotiated down?

Often, yes, and each type of lien has its own pressure point. Your lawyer should test every one before paying.

• Hospital liens: check the statutory cap. Texas excludes charges above a reasonable and regular rate, and California limits the lien to 50% of the recovery.
• Insured health plans: ask whether your state's made-whole or anti-subrogation rules apply, and request a common-fund reduction for the fee.
• Self-funded ERISA plans: read the plan document. If it says nothing about attorney's fees, McCutchen supports a fee reduction.
• Medicare: dispute unrelated charges on the Conditional Payment Letter, and ask about the waiver and appeal rights listed in the demand letter.
• Medicaid: limit the claim to the medical share of the settlement under Ahlborn.

Put every reduction in writing, signed by the lien holder, before the settlement money is disbursed.

What does a settlement look like after fees, costs and liens?

The order is almost always the same: gross settlement, minus the attorney's fee, minus case costs, minus liens. What is left goes to you.

Our guide to how settlements are calculated covers the gross number. The liens decide the net.

What should you ask before you sign a release?

• Who has asserted a lien, and do you have each lien holder's final amount in writing?
• Is my health plan insured or self-funded? Ask the plan administrator for the plan document, not just the summary.
• If I am on Medicare, has the case been reported to the BCRC, and has the conditional payment amount been checked for unrelated charges?
• If Medicaid paid, how much of the settlement is allocated to medical expenses under Ahlborn?
• Does your fee come off the gross settlement or the amount after liens? See how contingency fees work.
• Will you negotiate the liens, and do you charge extra for that?

Lawyers who handle injury cases resolve liens routinely. If you are comparing firms, our city rankings rank local firms on Google Maps position and reviews.