By Benjamin Meredith

Introduction

I remember handling my first personal injury case. I collected all of the relevant medical records and bills, I put together a letter demanding a significant (but very reasonable) settlement figure and handed the draft to my managing partner for approval. I remember being disappointed when the feedback wasn’t that it was among the best demand letters ever written, but rather a simple question: “What is the lien situation?” My response was to say something like, “What lien? No one told me about any lien.” I was then invited to spend the next 24 hours reviewing examples of lien resolution correspondence in several of our firm’s recently handled matters.

 

I quickly came to understand that when a negligence victim suffers an injury requiring medical care, they will frequently use their health insurance to avoid personally incurring the costs of the negligence-related medical bills. In most tort contexts, when such bills are paid by a health insurer or third party, those payments give rise to a potential lien in the event of a subsequent recovery based, at least in part, upon the negligence-related medical bills. The word potential is emphasized in the prior sentence because such a lien does not generally come into existence unless and until there is a recovery in tort, either by settlement or judgment. In the absence of such a recovery, health insurers are generally contractually obligated to provide benefits pursuant to their insured’s insurance contract. However, those same contracts almost universally provide health insurers with a subrogation lien interest against any future tort recovery based upon medical bills paid by the insurer.

 

At first, I was offended by the idea that health insurers would seek to take a portion of a victim’s recovery after those victims had already paid their premiums and met their deductibles. In my mind, it was only appropriate that victims receive the benefit of the decision to obtain and maintain health insurance coverage. However, I came to understand that when a health insurer is forced to incur additional costs for a victim’s care due to a tortfeasor’s negligence, in reality, the tortfeasor’s negligence has not only injured the victim, but has also caused additional costs to the victim’s insurer.

 

After further discussion with the partner, I recognized that my client had a contractual obligation to report the potential claim to their health insurer, and that failing to do so would risk the loss of future health coverage. Thereafter, I managed to quickly reach out to my client’s health insurer, put it on notice of the claim, and obtain an itemized ledger detailing the care the insurer asserted was caused by the negligence. After sending my demand letter to the negligent party’s insurer, I was able to leverage the fact that my client anticipated having to satisfy the lien out of any recovery during settlement discussions. Following settlement, I was able to negotiate a significant reduction in the initial lien claim, resulting in a greater net recovery to my client.

 

In the years since that first recovery, I have handled liens from an enormous variety of health insurers. I feel strongly that any time it is likely a tort recovery will give rise to such a lien, the recognition, consideration, negotiation, and resolution of that lien is part and parcel of properly handling the client’s claim.

 

Recognition

Although tort subrogation liens typically arise out of recoveries of payments for medical care caused by negligence, the right to recover a lien for such payments can arise from a variety of sources and differ broadly. Consequently, it is essential to not only recognize that a tort recovery may give rise to a lien, but also to recognize the basis for any subrogation rights an insurer or payor may seek to assert.

 

Some payors are statutorily precluded from asserting subrogation rights against tort recoveries, even when coverage has been used to pay medical expenses incurred as a result of negligence. For example, personal injury protection coverage (“PIP”) frequently acts as the primary payer for medical bills following an auto collision until coverage is exhausted. However, under Md. Code Ann., Insurance 19-507(d), “An insurer that provides the benefits described in §19-505 of [the Insurance subtitle] does not have a right of subrogation and does not have a claim against any other person or insurer to recover any benefits paid because of the alleged fault of the other person in causing or contributing to a motor vehicle accident.”

 

By contrast, when medical bills are paid by health insurers, subrogation rights typically arise. For example, in situations where Medicare has made payments, Medicare has a statutory subrogation right, as well as the right to intervene in the tort action pursuant to 42 C.F.R. § 411.26:

 

“(a) Subrogation. With respect to services for which Medicare paid, CMS is subrogated to any individual, provider, supplier, physician, private insurer, State agency, attorney, or any other entity entitled to payment by a primary payer.

 

(b) Right to intervene. CMS may join or intervene in any action related to the events that gave rise to the need for services for which Medicare paid.”

 

Maryland Medicaid similarly has a statutory basis for assertion of subrogation rights pursuant to COMAR 10.09.83.02(D):

 

“D. The [Maryland Department of Health]'s subrogation claim shall be limited to that portion of the claim that represents compensation for the medical expenses paid by the Program until the date of an award, settlement or judgment.”

 

Under 5 C.F.R. § 890.106, Federal Employee Health Benefits (“FEHB”) plans are required to have a subrogation process contractually laid out in the plan documents:

 

“(a) All health benefit plan contracts shall provide that the Federal Employees Health Benefits (FEHB) carrier is entitled to pursue subrogation and reimbursement recoveries, and shall have a policy to pursue such recoveries in accordance with the terms of this section.”

 

In addition, 5 C.F.R. § 890.106(h) contains a preemption clause, specifically preventing local and state anti-subrogation statutes from limiting FEHB programs’ subrogation rights.1

 

Similarly, for health insurance programs established under the Employee Retirement Income Security Act of 1974 (“ERISA”), insurers not only have a subrogation right under 29 U.S. Code § 1132, but also preempt “[‘]any and all State laws insofar as they ... relate to any employee benefit plan.’ § 1144(a).” (See Coventry Health Care of Missouri, Inc. v. Nevils, 581 U.S. 87, 98, 137 S. Ct. 1190, 1198–99, 197 L. Ed. 2d 572 (2017)).

 

Given that private health insurance obtained outside of the FEHB and ERISA context is often obtained pursuant to contracts directly with health insurers, health insurance contracts universally include subrogation clauses.

 

Fortunately, despite the litany of sources of subrogation rights that may serve as the basis for insurers to assert subrogation claims against tort recoveries, for the attorney handling a tort claim, the path to the initial recognition of any possible lien is relatively simple. When obtaining medical bills, you can frequently identify insurers to which bills have been submitted. In addition, it has become my firm’s standard practice to obtain clients’ health insurance information2 as part of the client intake process to allow for ease of subsequent reporting.

 

Consideration

Appropriate consideration of potential subrogation claim(s) that may arise in the event of a recovery on behalf of a client involves a number of actions by the attorney, prior to settlement of any claim.

 

First and foremost, the attorney must seek to ascertain whether any insurer will seek to assert a lien against the recovery. Most often, this can be accomplished by reaching out to the client’s health insurer and putting it on notice of the potential recovery.

 

Government-direct health insurers (i.e., Medicare and Medicaid), have subrogation sub-units responsible for the handling of lien claims and the resolution process. For Medicare beneficiaries, potential liens can be reported by letter or fax, but I prefer to report via the Medicare Secondary Payer Recovery Portal (“MSPRP”); a website that, when used correctly, allows the handling of all aspects of Medicare lien resolution from reporting through resolution, and even payment. For Maryland Medicaid beneficiaries, potential recoveries can be reported to a subrogation unit via correspondence emailed to mdh.legalliability@maryland.gov.

 

In contrast to government-direct insurers, which handle lien subrogation in house, most private insurers contract out subrogation responsibilities to third-party subrogation companies (e.g., Equian, Conduent, Optum, etc.). Generally, I have found it most expedient to first contact the health plan by phone and obtain an understanding of which company is responsible for handling subrogation claims on behalf of the plan.

 

Regardless of whether you’re putting a private insurer or a government-direct insurer on notice, the process is generally the same. You should write to the appropriate claim handler describing the alleged negligence, providing a description of the injuries allegedly related to the negligence, providing the date of injury, and providing identifying information for the injured party (i.e., date of birth, last four of social, beneficiary’s full name).

 

Thereafter, the insurer, or its subrogation partner, will seek to identify any payments made to providers it will assert are related to the negligently caused injuries, and which would thereafter serve as the basis for a subrogation lien in the event of a tort recovery. Unfortunately, insurers and their partners are not incentivized to be discerning during this process. There is no penalty for an insurer “over claiming” care, but failing to put a beneficiary on notice could theoretically preclude a subrogation claim for payments that are not included. Consequently, it is not uncommon for insurers to take a “shotgun approach,” sending a lien claiming that all care received subsequent to the date of injury, regardless of its relationship to the negligence, is related care.

 

Once you have the itemized lien claim in hand, the next important aspect of the consideration step is reviewing the care asserted by the lien holder. As mentioned above, lien holders commonly claim all care out of an abundance of caution, but will quickly remove unrelated care in response to requests to do so. Whether you immediately seek to request removal of the unrelated care, or simply identify it to request removal at a future date, it is essential to consider what the ultimate total lien amount will be.

 

Similarly, it is essential to identify the nature of the lien holder’s subrogation claim and determine whether that lien holder will be subject to a mandatory reduction to account for procurement costs. Generally, private insurance is subject to mandatory reductions pursuant to state and local statutes. For example, in Maryland, insurers are required to reduce lien claims to account for attorneys’ fees by up to one-third pursuant to Md. Code Ann., Cts. & Jud. Proc. § 11-112(c):

 

“(c)(1) Unless a subrogee files a petition to intervene in the personal injury action and is independently represented by counsel, in a subrogation claim arising out of a claim for personal injury, the amount permitted to be recovered by a payor for health care benefits or services paid or payable on behalf of the injured person shall be reduced by the amount that is determined by:

 

(i) Subject to paragraph (2) of this subsection, dividing the amount of the total recovery in the claim for personal injury into the total amount of the attorney's fees incurred by the injured person for services rendered in connection with the injured person's claim; and

 

(ii) Multiplying the result under subparagraph (i) of this paragraph by the amount of the payor's subrogation claim.”

 

Medicare and Medicaid have similar reduction requirements to account for procurement costs.

 

In contrast to private insurance plans and government-direct insurance, FEHB and ERISA plans do not have mandatory reduction requirements within their respective enacting statutes. As a result, such plans frequently take the position that, due to the preemption clauses mentioned above, any state and local statutes mandating lien reduction do not apply. Moreover, as case law has solidified FEHB and ERISA plans’ right to refuse reductions, plans have begun modifying their summary documents and plan language to strengthen the claim that they are immune from any reduction requirements. Over time, plan language has become increasingly onerous, with FEHB and ERISA plans frequently insisting on full reimbursement, regardless of procurement costs once a settlement has been achieved. Consequently, it is essential to recognize and consider the nature of such liens early on and consider them during any settlement negotiations.

 

Negotiation

There are two ways in which negotiation is an important aspect of handling liens, (1) leveraging the lien during settlement negotiations and (2) negotiating reductions in the liens post-settlement to account for procurement costs (i.e., the combined cost of attorneys’ fees and reimbursable expenses, which will be paid out of the client’s recovery).

                                               

Utilizing knowledge of a lien during settlement negotiations can be an incredibly effective method of demonstrating the extent of your monetary damages. Assuming that you’ve recognized the existence of a lien, reported it, and reviewed it prior to settlement negotiations, you should be able to predict with some accuracy the anticipated total amount that will be paid out of any recovery to a lien holder. While defendants (and their insurers) are aware of the fact that liens are frequently reduced via negotiations post-settlement, they must also acknowledge that even reduced liens can often consume large portions of any recovery. Moreover, defendants and insurers are also aware that FEHB and ERISA lien holders frequently refuse to reduce liens to account for procurement costs.

 

It would be a missed opportunity to fail to point out to a mediator that even a reduced lien will result in a significantly reduced net recovery to your client. Although insurers and defendants often prefer to ignore reality when discussing gross settlement offers, frequently the net recovery to the client after payment of fees, expenses, and liens is what drives settlement discussions. When you can effectively demonstrate the extent of a lien’s impact on the gross recovery, liens can often be leveraged to drive settlement discussions forward. For this reason, advanced consideration of the lien is essential to effectively leveraging the lien during settlement negotiations.

 

Negotiating reductions in a lien directly is the other way in which negotiation is an essential component of handling liens effectively. In the event that you have an FEHB, ERISA, or a large lien that would consume a significant portion of a limited recovery (due to limited insurance coverage or caps), it may be sensible to seek to negotiate a lien reduction prior to settlement. In such situations, your leverage is the fact that any lien does not come into existence unless and until there is a recovery. That being the case, your most effective threat is that your client will refuse to pursue a recovery without an advanced agreement from the lien holder to accept a reduced amount in full satisfaction of the anticipated lien. In such scenarios, if the situation is presented correctly and timely, lien holders will often agree to equitable divisions of a potential recovery prior to settlement (e.g., dividing the recovery with 1/3rd to client, 1/3rd to attorneys’ fee, and 1/3rd to the lien holder(s)). Timing is essential in such negotiations, as once the recovery has been obtained, the leverage of a threat to refuse to pursue the claim has been lost.

 

Resolution

When advanced negotiation of lien reductions is unnecessary, it is often sensible to seek reductions after agreeing to a settlement figure. Doing so allows you to capture all procurement costs and mathematically demonstrate why a lien reduction is appropriate. In order to move forward with post-settlement reduction, notice should be provided to the lien holder upon obtaining a settlement. Along with the notice of settlement, attorneys should include a request that the lien holder reduce the lien. This request can be based on statute, an analysis of the case, or a combination of both. I frequently request that lien holders reduce the lien beyond a standard one-third reduction. I have found that providing the following calculations in a reduction request letter has yielded good results for me over the years:

 

Procurement Cost Calculation

[Attorneys’ Fee]

+ [Reimbursable Litigation Expenses]

= [Total Procurement Cost]

 

Percentage of Recovery Consumed by Procurement Costs

[Total Procurement Cost]

÷ [Gross Recovery]

= [Procurement Cost Ratio]

 

Calculation of Lien Holder’s Equitable Share of Procurement Costs

[Gross Lien Claim]

x [Procurement Cost Ratio]

= [Lien Holder’s Equitable Share of Procurement Costs]

 

Proposed Demand Amount

[Gross Lien Claim]

- [Lien Holder’s Equitable Share of Procurement Costs]

= [Proposed Reduced Final Demand]

 

Although I tend to use this set of reduction request calculations in the Medicare, Medicaid, and private insurance lien context, I have found that providing the mathematic basis for any reduction request gives your request credibility, regardless of the nature of the lien holder. That being the case, I frequently include similar calculations with any request that an ERISA or FEHB lien holder reduce its lien.

 

Regardless of the nature of the insurer, following your reduction request, the insurer will typically issue a final demand letter (hopefully) agreeing to accept a reduced amount in full satisfaction of its lien claim. To complete the resolution process, I generally issue checks from my client trust account directly to the lien holder (or its 3rd party subrogation partner if so instructed) out of the settlement proceeds.3

 

Conclusion

The foregoing is by no means an exhaustive article describing all aspects of tort subrogation lien resolution. It would be impossible to provide such a guide in so few words. What this article provides is a rough path of how to identify and handle any lien, with references that should allow you to quickly obtain additional case law and background on the various contexts in which tort subrogation liens can arise. If you follow the general steps outlined above, the vast majority of tort subrogation liens will be timely recognized, carefully considered, effectively negotiated, and easily and appropriately resolved.

 

Biography

Benjamin Howard Meredith is a Shareholder at Iliff, Meredith, Wildberger, & Brennan, PC in Pasadena, MD. Mr. Meredith joined the firm in 2011 after serving as a judicial law clerk for Hon. Joseph F. Murphy, Jr. and later became a shareholder in 2019. His practice focuses on the representation of victims as Plaintiffs’ counsel in the Personal Injury context, including Medical Malpractice, Products Liability, Auto Negligence, and Premises Liability claims. His practice also includes acting as Defense counsel in legal malpractice claims and private ethics counsel. Mr. Meredith currently serves as the Chair of the MSBA Ethics Committee and as a member of the MSBA Judicial Appointments Committee.