Medical liens get paid out of a personal injury settlement or judgment. When accident victims are unable to pay for the costs of their care, some healthcare providers may choose to provide that care in exchange for a medical lien. They then recover the costs of that medical care from the defendant if the victim’s personal injury case succeeds.
What is a medical lien or hospital lien?
A medical lien, sometimes referred to as a hospital lien, is an agreement between a patient and his or her healthcare provider. The legally binding contract is known as a lien agreement. Liens are most frequently used when the patient has no other way to pay for the care they need after being hurt in an accident.
In the lien agreement, the healthcare organization agrees to provide the patient the care that he or she needs. In return, the injured party agrees to give the medical care provider a lien on the proceeds of his or her personal injury case.
When that case ends, the medical provider or hospital can then exercise the lien and recover the costs of the medical care that they provided to the defendant in the case.
Basically, when a hospital or provider accepts a medical lien, it is providing healthcare on credit.
Once the lien agreement has been signed, the provider will perfect the lien by notifying the interested parties about the agreement. By perfecting the lien, the healthcare provider guarantees that they will be paid from the personal injury verdict or settlement, first. They come even before the victim, who would be the case’s plaintiff. Payment of medical liens can also create delays in the disbursement of the settlement proceeds.
Not all hospitals, doctors, or providers will work on a lien basis. They know that liens are a risk. If they provide care in exchange for a lien, and then the victim loses the personal injury case, the healthcare provider can only get paid for their services by the victim. The financial limitations of the victim that made them seek out a lien will make it difficult for them to pay their medical bills. This will often mean that the bills get sent to collections. If this happens, the medical institution will receive a fraction of what they are owed.
What if I have health insurance, Medicare, or Medicaid?
Car accident victims who have health insurance, whether from a private insurer or through Medicare or Medicaid, generally do not need to turn to medical liens. Instead, the health insurance company covers the costs of the victim’s medical bills.
Even in these cases, though, the victim may still see their personal injury settlement get eaten away. Rather than a hospital exercising a medical lien, though, the victim’s insurer will recoup its losses through subrogation.
Subrogation is the legal process of an insurance company recouping from the defendant what it had paid to the plaintiff. Insurers generally retain their right to subrogation in their insurance policy. It most often happens in the context of medical expenses and a personal injury lawsuit. Auto insurance companies can also recover subrogation from victims who have benefited from med pay insurance. Even the government can take from your claim with a Medicaid lien or one through the Veteran’s Administration.
For example: Zeke is hurt in an auto accident. He has to spend $30,000 for medical treatment in the emergency room and at a chiropractor. His health insurer covers $27,000 of those costs. Zeke sues the driver that hit him and settles the case for $60,000. His health insurance provider exercises its right to recoup the $27,000 that it had paid out to Zeke for medical services. That repayment comes from Zeke’s settlement.
Many accident victims are surprised by the concept of subrogation. They see their insurer taking a significant piece of their settlement money and think that it is unfair. However, if there were no subrogation, then victims would receive a windfall. They would have their medical bills paid for by their insurer. Then they would recover reimbursement for their medical bills in a successful personal injury claim.
How much can the lien take from a personal injury settlement?
Because a medical lien is a legally binding contract between the patient and the healthcare provider, the healthcare provider is entitled to the full amount of the lien. If the personal injury settlement is not enough to pay off the lien, then the lienholder can pursue the patient for the remainder.
This is in stark contrast to insured victims. They have their medical bills covered by their insurer. The insurer can then pursue its right to subrogation against the defendant in the case in order to recoup the amount it paid to the victim. Many states limit how much the insurer can take in subrogation. Those limitations do not exist for hospital liens.
What if I lose my personal injury case?
If an accident victim agrees to a medical lien in order to pay for his or her medical care, but then loses the personal injury case, the victim will still be liable under the lien. This means that the victim will be personally responsible for paying his or her medical bills under the lien agreement. If the victim cannot pay, the healthcare provider and lienholder can invoke their legal rights to collect the debt.
Are medical liens negotiable?
Yes, medical liens are negotiable, both before and after the agreement has been signed. However, many doctors are wary of negotiating.
Before the lien agreement has been signed, it can be negotiated like any other contract. However, many doctors – especially those in solo or small practices – do not want to go through the legal hassle of changing the terms of their lien offer. A personal injury attorney from a reputable law firm can help victims find a healthcare provider that offers good terms for the lien.
After the lien agreement has been signed, it can still be altered if both sides agree. This situation often arises if the victim received a substantial amount of care, but then lost his or her personal injury claim. With the legal advice of a personal injury lawyer, victims can negotiate with the lienholder to reduce the amount owed or work out a payment plan. Many healthcare providers would rather negotiate these types of liens than take a patient to collections or to court.
What is the law in California?
California allows patients and medical institutions to sign medical lien agreements.1 This makes California different from some other states, like New York, which prohibit these agreements.
Once the agreement is signed, California law requires the lienholder to perfect the lien by notifying the interested parties. If this notification is not sent, the lien is ineffective. The notice has to include:
- the name and address of the injured person,
- the date of the accident,
- the name and the location of the hospital,
- the amount being claimed as reasonable and necessary medical charges, and
- the name of anyone alleged to be liable to the victim.2
Once the lien is signed, it is a binding contract. California law does not limit how much of the settlement proceeds can be exhausted in satisfying the lien. This is different from subrogation, where the following California statutes and legal doctrines protect the settlement money:
- California Civil Code 3040,
- the Made Whole Doctrine, and
- the Common Fund Doctrine, which deals with attorney’s fees.
For more discussion, see our article on How much should I ask for in a personal injury settlement?