Negotiating Those Pesky Health Insurance Liens
NEGOTIATING STRATEGIES TO LIEN ON
When it comes to negotiating those pesky health insurance liens, don’t despair. Rejoice! These liens add value to your case. And handled properly, you can maximize both your fee and your client’s bottom line. Timing and tactics are the keys to unlocking this knotty task.
When is the best time to start the negotiation with the lien holder/collection company? Should you wait until the injury case has settled or should you get things going earlier in the game? Without question, there are advantages to starting early. One of the first things I consider when I receive a lien notice are the attorney fees and litigation costs. I want to know if the lien holder will agree to pay a fair share of both. I never want to have to negotiate my fee when the case has already settled. At that point my only negotiating advantage is that I am holding the money (still always a big thing).
Remember: Possession is 9/10 of the law. This is true in two respects. First, think green. In the usual situation in injury cases, the insurer is holding the money and your job is to get as much of it as you can at the earliest possible date. So I have to cooperate with them. With liens, you either already have the money in your trust account or you will get it when the case settles. The lien holder wants what you have control over. That’s important. They have to come to you.
Second, think information. The collection company will probably have many questions. Should you respond? In the usual injury case, you should respond promptly to all reasonable requests for information from the insurance company. It’s different with liens. You know about all the vital factors that affect settlement value (liability, damages, causation, property damage, credibility, etc.) The lien holder/collection company probably has a fraction of this information. You control the information flow. You are not legally obligated to answer their questions. I don’t share much information with collection companies until they agree to my request for a reasonable fee and costs. Playing this close to the vest increases the pressure on them to cooperate with my reasonable requests regarding paying their fair share.
Dependence increases power and control. The lien holder needs you. If you will not do the work it takes to create the fund, the lien holder is going to have to pay someone else to do it. They generally prefer not to do that. So if you are reasonable in your request for a compromise on the lien, they generally will agree.
The best time to negotiate a lien is during settlement negotiations of the injury case. If your case has liability issues and/or medical causation issues, you can use this to improve your negotiating position. You can truthfully tell the lien holder that they may get nothing because liability is tough and/or causation is at issue. They usually will see the wisdom of compromise at this point. It generally doesn’t take much persuading since they are probably just looking for quick and easy money, especially if the lien is relatively small. You want to negotiate your fee at a time when the lien holder needs you, before the case is settled, and ideally while they are hotly pursuing information about the case.
This can place you in a rather strange situation. On one hand, you must emphasize the positives of your case when communicating with the defendant’s representative. And you downplay the negatives, like the minimal property damage. But when you negotiate with the lien holder, you more or less echo the defense attorney’s positions on liability, causation, damages, etc. It’s a little weird focusing attention on those photos showing only scratches on the bumper, but since minimizing the lien is in your client’s interest, you must do this. You can truthfully argue that you need a compromise on the lien in order to get the third party case settled.
If the case has already settled, you can’t make this assertion. That is why you must begin the lien negotiation process early in the process. If you unfortunately find yourself in the position of having already negotiated a settlement, fear not. There are still ways to reduce the lien. I suggest that you play the waiting game with the lien holder. Put the money into your trust account and let them come to you. Insist that they provide all the documents that prove their entitlement to the lien. Make every possible colorable argument against that entitlement. Hold the money for as long as it takes until they see that they are going to have to pay you fair compensation for your work. Especially if the lien is small, they are going to want to close their file, which means paying you the fee you have earned.
I find that the longer these things go, the better things get for more client. This is another reason why you want to start the process early. The longer things go the more they will see that you are committed to making them prove their entitlement.
This method is especially helpful with ERISA liens, since the law is complex. ERISA lien holders cite a US Supreme Court case, US Airways v. McCutchen, for the proposition that they are entitled to recover the lien without having to pay attorneys fees or costs!! They expect us to act as their unpaid bill collectors. If I am collecting their lien, I expect to be paid. And I let them know that, even post-McCutchen. Why should I work for free?
I suggest that regardless of McCutchen, practically speaking, you can still get a fee for your work. This holds true even if you are dealing with a self-funded ERISA plan, with well drafted language that excludes the common fund and make whole doctrines. See Charles Kannebacker’s article for more on these interesting issues. The lien holder may resist for a while, but if they see that your resolution, they often become open to compromise.
You have to walk a fine line here. If you are completely unreasonable, you risk forcing them to sue you and/or your client, something you want to avoid at virtually all costs. The time, money and stress involved in that kind of litigation is potentially immense. One of the maxims I live by is make money, not law. I would much rather devote my energies to my other files than to defend myself and/or my client in this kind of litigation. So keep it cordial. Keep the threats to a minimum. Show that you know the law, but treat the other side with respect. That applies more to the plan administrator than to the collection company. In my experience, the former is more likely to be truthful in their assertions. The former may have fiduciary duties that constrain them from making exaggerated assertions.
A word of caution: Never sign anything agreeing to protect the lien. Broadly speaking, that will protect you from being sued personally since there is no privity. An exception to this are Medicare liens. You are subject to liability for not protecting a CMS lien even if you haven’t signed anything.
So how much is fair? Let’s say you settle a case for $100,000 and you have a 40% fee agreement with your client. Assume a $30,000 lien. If you pay the lien in full, your client will receive only $30,000 minus your litigation costs and unpaid medical bills. I make it a practice of reducing my fee so that I do not end up with more than the client. So here, I would reduce my fee from $40,000 to $35,000. The client would receive $35,000 minus the costs and unpaid bills.
If the lien holder reduces the lien by a third, from $30,000 to $20,000, the client would now receive $40,000 and I wouldn’t have to reduce my fee. Fighting for a lien reduction helps your client and your own bottom line.
Let’s assume you settled your case, but there are two unpaid bills. The first is a lien from a health insurer and the other is a doctor’s bill. What do you do if your client instructs you not to pay either? The client demands that you stiff the lien holder and the doctor.
On one hand, you have to zealously represent the client and if they want all the money, don’t you have to comply? No! Ethics rule 1.15 requires you to escrow disputed funds. Fully disbursing the settlement would violate this rule. The commentary to the rule allows you to disburse the funds if the reimbursement claim is frivolous. If it’s not clearly frivolous, escrow the money and attempt to negotiate a reduction in the lien.
What if you can’t come to an agreement on a reduction and the statute of limitations appears to have run? The statute of limitations on contract claims is four years in Pennsylvania. Can you always make full distribution four years after the accident? Proceed with caution. Determining both the length of the statute of limitations and when it began to run may be more complex than you think. For one thing, the lien documentation may incorporate the laws of a state other than Pennsylvania. I prefer to negotiate a lien reduction rather than delaying until an apparent deadline passes. I sleep more easily when I close my file with a letter therein confirming final resolution of the lien.
There are various methods for lien reduction. You should do the calculations for each one and go with the approach that works best for your client.
1. Pro rata reduction: For example, if the total settlement is $100,000 and the lien equals $50,000, you multiply 50% by your total attorney fee and costs. The lien holder would reduce the lien by that amount.
2. Request a reduction of the lien by a percentage equal to your fee, plus a pro rata share of the costs. Let’s say you have a one third fee. You would ask for a one third reduction in the lien. The calculation of the pro rata share of the costs is simple. Divide the lien amount by the gross recovery and then multiply this number by your costs. So if there is a $1,000 lien on a $10,000 settlement (10%), and the costs are $100, they would have to reduce the lien by an additional $10.
3. Suggest a one third three way split. On a $60,000 settlement, you, your client and the lien holder would each net $20,000.