Negotiating Tips for Health Insurance Liens in Personal Injury Cases

If you have followed the suggested steps of 7 Steps to Approaching Lien Claims in Personal Injury Cases, you may be at the point where you want to negotiate lien claims, and need to figure out what are the best ways to reduce the lien claim.  

This article will discuss some considerations to keep in mind when negotiating health insurance liens in personal injury cases. Note that there are many types of lien claims out there, and this discussion is limited to health insurance liens.

As advised in the 7 Steps to Approaching Lien Claims in Personal Injury Cases article, make sure to negotiate lien claims BEFORE you finalize the third party settlement. Reiterate that everyone needs to get on board so that the settlement offer can work, and everyone can get paid something. Remember, after the settlement is finalized, you have lost your leverage to gain significant reductions.

Tip #1: Read the Contract

Obtain a copy of the contract language and read it carefully. If the contract is governed by ERISA, stop now, and read the article on ERISA. This is a totally separate beast.

If the lien claim is from a health insurance company with a plan not governed by ERISA, such as an HMO or PPO, then this discussion will apply.

Tip #2: Narrow the Claim

When you read the contract language, determine the parameters of the health insurance company's claim for reimbursement. You want to check to make sure the lien claimant has a right to make the claim, and you also want to know what settlement funds they can go after. Some plans have only contracted for the right to recovery from 3rd party cases, and not Uninsured or Underinsured Motorist cases (1st party claims). But some insurers do contract to the right to recovery from all sources.

Another issue, which is discussed in greater detail below, is whether the insurer has contracted around certain defenses, such as the "made-whole" or common fund doctrines. You will want to know whether these will be available.

Tip #3: Reduce for Unrelated and Unreasonable Charges and Obtain Credit for Co-pays

Generally, health insurers use a third party collection company to recover amounts they claim are due to them under the health insurance policy. Nine times out of ten, they will contact you first, but you may need to contact them to provide you with an itemization of their claim for reimbursement.

Review the itemization of charges for any unrelated charges or items that have been billed twice, and have these charges removed.

Make sure that the charges are reasonable. Determining this can be difficult given the cost of medical care, but is an important point, particularly if the defendant is also raising the issue. One case in California has held that the burden is on the hospital to demonstrate the reasonableness of their charges to recover on their lien. This was in the context of hospital liens under California's Hospital Lien Act, but it makes sense that the lien claimant would have the burden of showing that claimed amounts are reasonable.

Finally, obtain a credit for co-pays made by your client, which should be subtracted from the total lien claim of the health insurer.

Tip #4: Reduce for Actual Recovery of Medical Bills

If, for whatever reason, certain medical bills are not part of the settlement offer, point that out to the lien claimant and advise that they should not be included in the lien claim.

You may also have a situation where there is a significant amount of wage loss or pain and suffering, and the defendant's policy is limited. In that scenario, it may be worth making the argument that not all of the medical bills have been recovered.

For a related discussion on this topic in the context of Medicaid liens, see State Medicaid Liens Limited by U.S. Supreme Court in Wos v. E.M.A. But see this discussion of the passage of Section 202 of the Bipartisan Budget Act and its effect on the holdings of these cases.  

Tip #5: Reduce to the Statutory Cap

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

For example, in California, under Cal. Civil Code section 3040, health insurance liens can be no more than the cost to perfect the lien and the amount actually paid for non-capitated charges, and 80% for capitated charges (i.e. Kaiser, a system in which a medical provider is given a set fee per patient). Note that if you have a provider like Kaiser who pays the ambulance bill, and also has charges for services at a Kaiser facility, the ambulance bill will not be subject to the 80% reduction, but the Kaiser charges will be.

Next, there may be a statutory ceiling on the lien claim. 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 interpret this language to mean that the amount DUE the insured is after reductions for costs and attorney's fees (i.e. take one-third of the net to the client, not one-third of the gross settlement).

This position is often met with resistance from lien claimants, who take the position that they are entitled to one-third of the gross settlement. 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 may be a point of contention in your negotiations.

Tip #6: Reduce for Proportionate Share of the Statutory Cap Where Appropriate

If you have multiple lien claims, particularly when you have a limited 3rd party policy from which to recover funds, it can be beneficial to figure out a proportionate share of the statutory cap for each lien claim.

Many of us entered the legal profession to avoid math, but the best way to illustrate this concept is by example:

Say you have a proposed settlement for policy limits of $15,000.00. Your attorney fees are one-third, or $5,000.00. To keep it simple, let's say that the costs for the case are $500.00. Your client would due $9,500.00. I would take the position that the health insurer's claim can be no more than one-third of that figure, that is, $3,166.67.

In this hypothetical, say the health insurer with whom you are negotiating has a claim of $5,000.00, and the total lien claims are $10,000.00.

Therefore, the analysis of the health insurer's lien claim would be:

AMOUNT PAYABLE IN SATISFACTION
OF THE PROPORTIONATE SHARE OF ALL
CLAIMS (50% ($5,000.00/$10,000.00)
x amount subject to liens $3,166.67 = $1,583.33

As you can see, we figured out what proportion the health insurer's lien claim is to the total lien claims. In this example, it is 50% ($5,000.00 claim divided by the total claims of $10,000.00). Next, you use that 50% number and multiply it by the amount available under the cap. Here, that is $3,166.67.

So, 50% of $3,166.67 brings us to the $1,583.33 amount to offer to the health insurer as their proportionate share, before taking into account any applicable further reductions discussed below. Right there, you have reduced their lien claim by 68.3%.

Tip #7: Reduce for Comparative Fault

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

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

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

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

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

See also, Arkansas Dept. of Health and Human Services v. Ahlborn, (2006) 126 S. Ct. 1752. There, the court reduced the lien claim to one-sixth of the amount because the recovery by the plaintiff in that case was only one-sixth of the value of the case due to plaintiff's comparative fault, as evidenced by the stipulation of the parties.

Tip #8: Reduce for Made Whole

The made whole rule states that a lien claimant (i.e. health insurer) cannot assert its contractual right to repayment until the insured is fully compensated. Treatment of the rule may vary by jurisdiction.

In the case where the defendant has a limited policy, such that your client will not be made whole by the settlement, make the argument to the lien claimant that the settlement does not fully compensate your client for their injuries or damages.

As stated above, there are some policies that specifically waive any rights to argue the made whole doctrine. Even if a policy includes this language, insurers may consider the equities of the situation, so make the argument regardless of whether it is allowed by the policy or not.

Tip #9: Reduce for Common Fund

Finally, the common fund doctrine may allow for reduction for attorney's fees and pro rata share of costs depending on the law of your jurisdiction.

"[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. Under this doctrine, the lien claims must be reduced by the same percentage for attorney fees as the client is being charged as well as the proportionate share of the costs incurred by your client. US Airways also held that the common fund rule serves as the default if the contract is silent on the issue.

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

Tip #10: Common Sense and Courtesy Should Prevail

This is a complicated area of law that is continually evolving. Legal theories are helpful, but it is just as important to appeal to common sense and be courteous, by communicating with lien claimants early on and throughout the case.

*Laws are continually changing, and every case requires independent up-to-date research specific to your jurisdiction. This article is intended to highlight general concepts, and is not meant as an exhaustive discussion, nor a guarantee of a particular result.*

For further discussion on liens, please see:
2. Negotiating Tips for Hospital Liens in Personal Injury Cases
3. Negotiating Tips for "Med Pay" Claims for Reimbursement
4. Tips for Negotiating ERISA Liens in Personal Injury Cases
5. 7 Steps to Approaching Lien Claims in Personal Injury Cases
6. How to Deal with Medicare Liens in Personal Injury Cases
7. 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.