How To Pay For Medical Treatment After A Car Accident/Motorcycle Accident: Understanding Liens

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Shaaban & Biedgoly

In personal injury cases, understanding the intricacies of liens is crucial for both plaintiffs and their attorneys. Liens, often misunderstood, play a significant role in determining the final settlement amount that a plaintiff receives.

What is a Lien in a Personal Injury Case?

A lien is a legal claim against a portion of the settlement or judgment awarded to a plaintiff in a personal injury case. It is essentially a right granted to a third party to recover money owed for services or benefits provided. Liens ensure that those who have contributed to the plaintiff’s recovery, such as healthcare providers or insurance companies, are compensated from the settlement proceeds.

Types of Liens

In personal injury claims, several types of liens can arise including:

  1. Medical Liens: Healthcare providers who treat injury victims often place liens on any future settlement or judgment to secure payment for their services. This is common when the plaintiff cannot pay for medical care upfront and the provider agrees to wait for payment until the case is resolved.
  2. Insurance Liens: Health insurance companies may assert liens to recover the costs they incurred for the plaintiff’s medical treatment. This is known as subrogation, where the insurer steps into the shoes of the insured to seek reimbursement from the at-fault party’s insurance.
  3. Government Liens: Government entities, such as Medicare and Medicaid, may also place liens to recover funds spent on the plaintiff’s medical care. Federal and state laws require these liens to be addressed before the plaintiff receives their settlement funds.
  4. Workers’ Compensation Liens: If the injury occurred at work, the workers’ compensation insurer might place a lien on the settlement to recoup benefits paid to the injured employee.
  5. Attorney’s Liens: Often times if a party decides to obtain new representation in the middle of their personal injury case, their prior attorney can assert a lien against any recovery for the work the attorney performed prior to them being dropped.

California Civil Code 3040 CCP

California Civil Code Section 3040 (CCP) provides specific guidelines on medical liens in personal injury cases. This code limits the amount that healthcare providers can recover through liens to a reasonable and customary value of the services provided, rather than their billed charges. This protects plaintiffs from excessive lien claims and ensures that settlements reflect fair compensation for medical services. For example, health insurance carriers are only able to recover on a lien basis the lesser of:

  • The total cost of medical services provided,
  • 1/3 of the total settlement if the plaintiff did have an attorney, or
  • 1/2 of the total settlement if the victim did not have an attorney.

Further, how the cost of services if calculated will depend on how the healthcare providers were paid by the insurance carrier. If the insurance company uses capitation (where the healthcare provider is paid a flat fee fore every patient they treat), then the cost is capped at 80% of what the healthcare provider would pay under a non-capitated computation. Alternatively, if the insurance carrier does not use capitation, then the cost of the services is the amount of the medical bill as provided by the healthcare provider.

The Made Whole Doctrine

The made whole doctrine is a legal principle that states a plaintiff should be fully compensated for their losses before any lienholder can claim a portion of the settlement. This doctrine is particularly relevant when the settlement amount is insufficient to cover all damages and liens. In California, this principle can be invoked to negotiate reductions in lien amounts, ensuring that the plaintiff is prioritized in receiving compensation.

The Common Fund Doctrine

The common fund doctrine addresses the distribution of attorneys’ fees in cases involving multiple claimants. When a settlement is reached, and liens are involved, this doctrine allows the plaintiff’s attorney to deduct their fees from the total settlement before lienholders are paid. This ensures that the burden of legal costs is shared equitably among all parties benefiting from the settlement. In California, the common fund doctrine helps plaintiffs retain a larger portion of their settlement by reducing the net amount lienholders can claim.

How Liens Affect Personal Injury Settlements

Liens significantly impact the net amount a plaintiff receives from a settlement. Since liens must be paid before the plaintiff can access their funds, they reduce the total amount available. For instance, if a plaintiff settles for $100,000 but has $30,000 in medical liens, only $70,000 remains for the plaintiff after satisfying the liens (not taking into account attorney’s fees and the like).

Negotiating and Resolving Liens

Effective lien management is critical to maximizing the plaintiff’s recovery. Here are key steps involved:

  1. Identify and Notify: Plaintiffs and their attorneys must identify all potential lienholders early in the process and notify them of the pending claim. This transparency helps prevent surprises later on.
  2. Verify Validity: Not all liens are valid or enforceable. Attorneys should scrutinize each lien to ensure it is legitimate and complies with state laws, including California Civil Code 3040 CCP.
  3. Negotiate Reductions: Skilled attorneys often negotiate with lienholders to reduce the amount owed. Lienholders may agree to a lesser amount to avoid the uncertainty and expense of prolonged negotiations or litigation. The made whole doctrine can be a powerful tool in these negotiations.
  4. Include Liens in Settlement Negotiations: When negotiating with the at-fault party’s insurer, it’s crucial to account for lien amounts. This ensures that the settlement covers the plaintiff’s needs and any outstanding liens.

Understanding and managing liens is a pivotal aspect of personal injury claims. Liens ensure that those who have provided services or benefits are compensated, but they also reduce the amount a plaintiff ultimately receives. Effective identification, verification, and negotiation of liens can significantly impact the final settlement amount. Plaintiffs should work closely with experienced personal injury attorneys to navigate this complex area, utilizing principles such as California Civil Code 3040 CCP, the made whole doctrine, and the common fund doctrine to maximize their recovery. Contact Shaaban & Biedgoly today for your free consultation to ensure your rights are protected following any injury and accident.