| | | | | | | | | | Liens and Subrogation Interests By Charles Dunn This article is intended to serve as a reference for the general practitioner who handles the occasional personal injury claim and is faced with the sometimes thorny issue of how to deal with third parties who assert a claim to a client's settlement or judgment funds. This article is not intended as an in depth treatment of the subject, but rather it is intended as an overview to serve as a starting point for the research necessary to resolve the claims of those who are competing for your clients money after you have collected it for them. The Initial Analysis When you undertake the representation of a new client in a personal injury claim, you must determine, as one of your first tasks, whether or not there exists a third party who has provided medical services or other benefits to your client. If so, you can expect that the third party will attempt to recover its money when you resolve your client's case against the defendant. To avoid a delay in settlement, you must begin dealing with the lien or subrogation claim at the very beginning of the case. The first thing you need to determine is the type of claim being made. The claim asserted will fall into one of two categories. It will be either a lien or a subrogation interest. A lien is a statutory interest that when properly perfected, attaches to the recovery as a matter of law. The various types of liens will be discussed below. A subrogation interest is an interest in the recovery created by contract between the third party and your client, most commonly as part of your client's medical insurance agreement. In general there are two types of subrogation interests. There is the interest created by private insurance agreements which are regulated by Texas insurance law, and there are ERIS A contracts which are regulated by Federal Law. Both will be discussed in this article. | | | | | | | | | |
| | | | | | | | | | The Hospital Lien In order to relieve hospitals of the financial burden of caring for accident victims, the Texas Legislature enacted the hospital lien statute. The current version of the statute is found in Chapter 55 of the Texas Property Code. It provides that a lien attaches to any cause of action, judgment or settlement received by a Plaintiff as a result of an accident in which the Plaintiff was admitted to the hospital within 72 hours of the injury. For the lien to attach, the hospital must file the lien with the county clerk before settlement is made. Before settling any claim in which your client was treated in the hospital, you must check with the county clerk to see if the hospital has filed a hospital lien. If a lien has been filed, you have constructive notice of the lien and are responsible to resolve it. Hospital liens are limited to charges for the first 100 days of hospitalization and only to those charges that are "reasonable and regular". Although the statute does not provide for attorney fees to the Plaintiffs attorney for his services in obtaining the recovery, most hospitals will negotiate a reduction in the claimed lien in return for prompt payment. Hospital liens do not attach to wrongful death claims and do not attach to underinsured/uninsured motorists benefits. The Child Support Lien The Family Code, in Sec. 157.317(a) provides for a lien for unpaid child support against an injured claimant who files a personal injury claim. Health care providers with a valid lien have priority over a child support lien and the child support lien does not attach to attorneys fees owed to the attorney obtaining the settlement. Actual notice of the lien is required for enforcement and it may be filed with the county clerk in the county where the personal injury suit is filed, the county where the suit in the interest of the child originated, or in the county of the obligor's residence. | | | | | | | | | |
| | | | | | | | | | The Workers Compensation Lien Chapter 417 of the Texas Labor Code grants a subrogation interest or direct right of recovery in favor of a carrier who has paid workers compensation benefits to an injured worker. The workers compensation carrier is entitled to the first money received from the third party recovery, but Sec. 417.003 sets forth rules for payment to the attorney who obtains the recovery out of which the subrogation interest is paid. Sec. 417.002 also provides the carrier with a "holiday" in which it does not have to pay benefits until the entire third party recovery is exhausted. Because of the onerous nature of workers compensation liens, the plaintiffs attorney should analyze carefully a third party case before bringing suit. Many times the workers compensation coverage is more valuable to the client than the amount of available funds from the third party and therefore suit against the third party would not be in the client's best interest. The Medicare Lien Although Medicare claims to have a lien against your client's recovery for money paid by it on your clients behalf, at least one court of appeals has held that Medicare has a subrogation interest and not a lien, Zinman v. Shalala 67 F.3rd 841 ( 9th Cir. 1995). Regardless, Medicare must be dealt with early on in the representation process or your settlement will be delayed. In my experience it will take at least six months from the date that you notify Medicare of their subrogation interest before Medicare will provide to you their claimed interest amount. The notification process is a two step one and begins by notifying the Coordination of Benefits Contractor (COB) that a subrogation file needs to be set up. Their address is: MSP Claims Investigation Project, P.O. Box 5041, New York, New York 10274. The COB will prepare a subrogation file and send it to Dennison. Their address is Medicare, P.O. Box 9020, Dennison, Texas 75021. Once they receive it, they will notify you of the claimed interest amount. After receiving the claimed interest amount there is a pro-rata cost of recovery reduction that applies to the claimed interest and is the amount your client is obligated to reimburse. Medicare is more generous than others in reducing their claimed amount for the cost of obtaining the recovery. | | | | | | | | | |
| | | | | | | | | | The Medicaid Lien Medicaid is administered through the Texas Attorney General and should be notified of your clients third party claim through the Texas Medicaid Health Partnership, P.O. Box 202948, Austin, Texas 78720. Medicaid has been notorious among plaintiffs lawyers for refusing to reduce liens, even when the amount of available funds for recovery is less than the amount of the Medicaid lien. In the past they have insisted upon receiving their money off of the top and refuse to pay any more than a 15% attorney's fee for your efforts in recovering their money. However, with the recent Supreme Court decision of Arkansas Department of Health v. Ahlborn,\26 S.Ct. 1752 (2006) the Supreme Court ruled that when there is not enough money in the recovery to make the victim whole, Medicaid must reduce its lien in proportion to the amount of the funds available. Although Medicaid in Texas has been slow to adapt to this new decision, it is now possible to negotiate significant lien reductions for your client in Medicare cases by citing Ahlborn. ERISA Subrogation ERIS A stands for the Employee Retirement Income Security Act. Health care plans that qualify under ERISA pre-empt most state law except those laws that specifically regulate the insurance industry. This is an extremely complex area of the law with many pitfalls. A complete discussion of how to deal with ERISA liens is beyond the scope of this article. However, a recent decision by the United States Supreme Court should be the starting point for all general practice attorneys faced with resolving an ERISA subrogation interest. In Sereboffv. Mid. Atlantic Medical Services, 126 S.Ct. 1869 (2006), the Court held that an ERISA plan was not allowed to sue for reimbursement because such suits are legal remedies and under ERISA congress limited all remedies to those found in equity. This case will allow you to negotiate significant reductions in your ERISA cases. | | | | | | | | | |
| | | | | | | | | | Contractual Subrogation For almost thirty years Texas followed the "Made Whole" doctrine set out by the Supreme Court in Ortiz v. Great Southern Casualty Insurance Company, 597 S.W. 2d 342 (Tex. 1980). The Made Whole Doctrine is an equitable doctrine that states that before an insurance company which has paid benefits to its insured may enforce its contractual subrogation rights to recovery against the proceeds of the insured's third party judgment or settlement, the insured must first be made whole. The court reasoned that if one party had to go unpaid because of the limited funds available for recovery, it should be the insurance company because that is the risk it is paid to assume when it accepts the insured's premium payment. This year the Texas Supreme Court overruled Ortiz and held in Fortis Benefits v. Cantu, No. 05-0791 (Tex. June 29, 2007) that "equity follows the law" and that the subrogation clause in the contact should be enforced regardless of the amount of funds available for the victims recovery. The court reasoned that Texas favors the freedom to contract and that if an insured did not want to agree to a subrogation clause in its health insurance contract, the insured is free to negotiate the clause out of the contract. The bottom line is that in the past, Plaintiffs lawyers were able to ignore non-ERISA contractual subrogation interests. Because the court has now severely limited the Made Whole doctrine, these interests must be addressed. Since this decision, I have noticed in my cases that medical insurance companies have been far more aggressive in pursuing reimbursement from their insured. Conclusion Subrogation interests and liens must be addressed by the plaintiffs lawyer at the beginning of the suit with a determination early in the case as to how the claimed interest should be resolved. If there is a valid lien or subrogation interest, tell your client up front that his recovery will be reduced so that there won't be any surprises when a settlement or judgment occurs. | | | | | | | | | |
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