By Guest Author Teresa Kenyon, Esq. – Director of Lien Resolution for Synergy Settlement Services
You are handling a third-party liability case and you know your client had health insurance that paid the medical expenses. Should you check to see if there is a lien interest on the settlement funds? Or maybe you have already settled the case and you just received a notice letter from a possible lienholder. What do you do about it? What about Medicare or other federally governed interests? Do you treat them differently?
Medical liens or reimbursement demands from health insurance carriers are generally an unwelcomed part of the whole recovery process. Lien resolution is the case after the case. The target is always moving, there is a lot of information to process and there are different laws to apply. It can be complicated. Each health benefit provider has a possible right of reimbursement from the underlying settlement that should be assessed, and that possible right is governed by distinct laws–whether it be statutory, contractual, confirmed by case law or otherwise.
As you approach the handling of your client’s medical liens, take note that each type of medical lien needs to be handled in a slightly altered way. Employee Retirement Income Security Act (ERISA) requires a different approach and cadence for follow up than a Medicare or a Tricare claim. Each are governed by their own set of laws. And these laws often change. Sometimes this is for the benefit of the injured party, but unfortunately, often these changes benefit the collecting medical benefit program.
Theory of Health Insurance Subrogation
The idea of subrogation is that the health carrier “steps in the shoes” of the injured party and presents their claim directly against the liable party or their insurance carrier. A more formal definition of subrogation is the substitution of one person in the place of another with reference to a lawful claim or right. Essentially, the health insurance carrier stakes claim to all or part of the available settlement funds as if they are an injured party/entity. Allegedly, they were injured because they had to pay for medical treatment that “should have” been paid for by the at-fault party, and/or their insurance carrier. No consideration is given for the fact that the injured party paid premiums for health insurance coverage and received the expected result when they required medical treatment. Instead, simply because someone else was at fault, the insurance carrier wants their money back or in some cases denies payment for the treatment at all. Subrogation has one goal: to move settlement funds away from the injured party and give those funds to health insurance carriers. It is often a windfall to those insurance carriers, a gift from injured parties.
When someone is injured and requires medical treatment, a health insurance card is produced to secure payment of those services rendered by a health care provider. This insurance card could be from Medicare, Tricare, Medicaid or a private health insurer like Aetna, Blue Cross Blue Shield, Kaiser, etc. It is important to note that even Medicaid and Medicare, including Advantage, RX and supplement plans can be handled by these private health insurance carriers. It can be bewildering to try to keep it all straight. Most medical providers (hospitals, doctors, rehabilitation centers, physical therapists, etc.) have contractual arrangements with the health insurance carriers which predetermine the payment amounts. And remember, the insured / beneficiary paid premiums for this coverage. But when someone is injured due to the negligence of another, and if other insurance coverage is responsible for compensating the injured party, then these insurance carriers and government agencies want their money returned.
The thought is that without subrogation or reimbursement, the injured party is obtaining a double recovery. When performing subrogation functions, health insurance providers of all kinds feed on the mantra that they are collecting the medical damages paid for that should not have been paid by them and instead should have been paid for by another–the tortfeasor. The problem is that most settlements received by the injured person are not fully compensating or making the injured party whole. This is especially the case with a limited policy limits. In those cases, when the subrogator does not adjust their claim or acknowledge that their medical damage is only one small part of the total damages suffered by the injured party or that their medical damages were not included at all, huge injustices can occur. As a result, there is often inequity with the subrogating carrier taking much more than their fair share of that settlement. Health insurance lien resolution has continued to develop into a multibillion-dollar industry. Unfortunately, it is not going to stop anytime soon.
What Do You Do About Those Possible Health Insurance Liens?
In our experience, how attorney’s handle liens often depends on their own individual risk aversion. Some attorneys want to follow every rule by the book and if the lienholder says the lien must be paid in full, they pay it. Others want to operate in the gray space, push the envelope and make the lienholder prove every aspect of their claim. When it comes to health insurance liens, it can be tricky. Some attorneys want to place every possible lienholder on notice whereas others only want to communicate with those who reach out to them first. A common question we hear is: “Do I have to place X health insurance carrier on notice of the third-party claim? I only want to reach out to the ones that I have to reach out to, by law.”
Synergy’s recommendation is to tackle every lien head-on. The best way to handle any possible lien is to resolve it; reach an agreement with the lienholder thereby fully and completely bringing the matter to a close. If the lienholder does not have a right to the settlement funds, tell them so. Fight it out and make them submit. It does take time and it could become quite the battle. But there is nothing worse for the client experience then after receiving their settlement funds, the postman delivers a letter or the phone rings repeatedly from a lienholder subrogation vendor like Optum or Conduent demanding thousands of dollars for a “lien” that was not handled by their attorney.
The subrogation vendor handling a lien for a private insurance carrier, particularly for ERISA or Federal Employees Health Benefits Act (FEHBA) liens, will likely refer to their policy language wherein there is a duty to cooperate, and often more specifically, a duty to notify the health insurance carrier when a third-party claim is being pursued. By extension, that duty could reach the attorney representative. Subrogation vendors have been known to pursue the attorney or law firm for not handling the lien. The risk is there, albeit a smaller one. It appears that the threat to take action against the injured party and/or the law firm representing is commonplace, but actual litigation is rare. When it does occur, it is no doubt used as an example, a precedent, of what not to do when it comes to potential medical lien interest.
Medicare has pursued attorneys directly as well. It is important to note that most of Medicare’s direct action against plaintiff attorneys through the Department of Justice (DOJ) have been focused on Maryland and Pennsylvania law firms. In January 2020, a Pennsylvania law firm agreed to pay $6,604.59 for the unresolved Medicare debts. The DOJ stated: “Lawyers need to set a good example and follow the rules of the road for Medicare reimbursement. If they do not, we will move aggressively to recover the money for taxpayers.” In November 2019, a Maryland law firm agreed to pay $91,406.98 to resolve allegations it failed to pay back Medicare for conditional payments. The DOJ “intends to hold attorneys accountable for failing to make good on their obligations to repay Medicare for its conditional payments, regardless of whether they were the ones primarily handling the litigation for the plaintiff.” In March 2019, a Maryland law firm agreed to pay $250,000 to resolve claims that it did not reimburse Medicare on behalf of the firm’s clients. And in June 2018, a Pennsylvania law firm agreed to pay $28,000 for outstanding Medicare interest. The DOJ stated that when “an attorney fails to reimburse Medicare, the United States can recover from the attorney—even if the attorney already transmitted the proceeds to the client. Congress enacted these rules to ensure timely repayment from responsible parties, and we intend to hold attorneys accountable for failing to make good on their obligations.”
Tackling potential lien interest head on also avoids any potential ethical issues. A Maryland Ethics opinion from 1993 provides that a firm must continue to hold money in interest-bearing account until third party is found or until firm receives copy of judgment, stipulation, or binding decision stating that it shall release funds.
Some guidance is provided by Maryland Lawyer’s Rule of Professional Conduct 1.15 Safekeeping Property. In the footnote, it is noted that section (e) of this rule also “recognizes that third parties may have lawful claims against specific funds or other property in an attorney’s custody, such as a client’s creditor who has a lien on funds recovered in a personal injury action. An attorney may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the attorney must refuse to surrender the funds or property to the client until the claims are resolved. An attorney should not unilaterally assume to arbitrate a dispute between the client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the attorney may file an action to have a court resolve the dispute.”
ERISA Lien Resolution
The Employee Retirement Income Security Act (ERISA) is a federal statute setting minimum standards for voluntarily established pensions and other employee benefit plans, like health benefits. An ERISA plan, in this context, is essentially an employer-provided health plan ; however, certain employers like religious and government employers do not fall under the ERISA framework. According to the US Department of Labor, ERISA protects the interest of employee benefit plan participants and their beneficiaries. It requires plan sponsors to provide plan information to participants. It establishes standards of conduct for plan managers and other fiduciaries. And it establishes enforcement provisions to ensure that plan funds are protected and that qualifying participants receive their benefits.
Keep in mind that it is federal law that governs most ERISA plans and Maryland state law is not applicable to those plans’ recovery rights. This is most definitely the case if it is a self-funded ERISA plan. When starting to negotiate a potential ERISA plan lien, you must fully understand whether or not they really have a recovery right. That means verifying the funding source, knowing which law is applicable, obtaining pertinent governing documents and identifying any and all arguments that can result in reduction or full waiver of the lien.
ERISA plans are either fully insured or self-funded. This is the very first assessment that must be done to validate an ERISA plan’s recovery rights. Both fully insured and self-funded plans may have recovery rights in some states, but only the self-funded plan may have recovery rights in every state. Where these rights are derived from varies based on this funding status. In some situations, a plan may be governed by the contract language, but that policy may be overridden by state law in some states. It certainly gets complicated. For a deeper read, review the Preemption Clause, Savings Clause and Deemer Clause.
Practical Tips for ERISA Liens
The most important step to take when faced with an ERISA lien is to obtain the plan documents. There is a laundry list of items that the plan participant is entitled to receive under the ERISA statute. “The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, [sic] plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.” An administrator is required to provide the requested documents. The ERISA statute has created a civil penalty which has been increased to $110/day. Subrogation vendors, insurance carriers, and defense firms representing them will regularly state that they do not have all of the documents, that they are not the proper party to request the documents, that the documents are not necessary to ascertain the funding status of the plan, etc. Regardless of whether they are subject to the statute, their client, the self-funded plan, is subject to the statute and ultimately needs to prove their right to seek recovery at all. Those plan documents are the key. The most important documents to assess the plan’s rights are the Master Plan Document (MPD) and the Summary Plan Description (SPD). These documents often refer to each other as the governing policy.
U.S. Supreme Court Cases
If a plan is self-funded, then federal law applies. Beginning in 1990, the U.S. Supreme Court decided that a state’s anti-subrogation law had reference to and was connected with ERISA plans. Therefore, it was found that Congress intended, through ERISA, to preempt these types of state laws. Then in Sereboff v. Mid Atlantic Medical Servs., Inc. 547 U.S. 356 (2006), the U.S. Supreme reiterated that reimbursement provisions asserted by ERISA self-funded plans were enforceable under the ERISA statute and enforced such provisions as equitable relief under ERISA. Specifically, the Court stated that the ERISA self-funded plan must identify a particular fund that they were seeking to collect from which needed to be different than the plan participant’s general assets.
Prior to Sereboff, there was conflict in the federal courts about whether an ERISA plan could enforce its repayment provisions. After Sereboff, it was clear that ERISA plan’s contractual provisions for repayment could be enforced via equitable principles under section 502(a)(3) by filing an action for an equitable lien or for constructive trust.
In 2013, the U.S. Supreme Court provided additional clarification and stated that the ERISA health plan’s recovery rights are outlined in the written terms of the policy documents; however, those documents must be clearly written to eliminate equitable defenses, otherwise, they apply.. This is why obtaining the plan documents is so important and getting them from the employer/Plan Administrator directly is a must. You want to make sure you are getting the right documents because whether there is a right of recovery is contained therein.
Medicare Conditional Payments / Final Demand
Medicare is the nation’s health insurance program for people who are 65 years or older, and younger people with a disability or end-stage renal disease. Medicare has a lien interest on any third-party settlement obtained. Specifically, by statute, Medicare may not pay for a beneficiary’s medical expenses when payment “has been made or can reasonably be expected to be made under a workers’ compensation plan, an automobile or liability insurance policy or plan (including a self-insured plan), or under no-fault insurance.” If responsibility for the medical expenses incurred is in dispute and other insurance will not pay promptly, the provider, physician, or other supplier may bill Medicare as the primary payer. If the service is reimbursable under Medicare rules, Medicare may pay conditionally, subject to later recovery if there is a subsequent settlement, judgment, award, or other payment.
Resolution of the Government’s interests concerning conditional payment obligations can seem simple on its face, but it is nonetheless often very time-consuming. The process of reporting the settlement starts with contacting the Benefits Coordination Recovery Contractor (BCRC). This should begin prior to settlement so that you can obtain and review a conditional payment letter (CPL) before finalizing your case. Although a CPL cannot be relied upon to satisfy Medicare’s final interest, it is necessary to review and audit for removal of unrelated care. Once settlement is reached, Medicare must be given the details of the settlement. Medicare then issues a Final Demand. Once the Final Demand is issued, Medicare must be paid its Final Demand amount regardless of whether further action is requested of Medicare. The Final Demand must be paid within sixty days of issuance or else interest begins to accrue at over ten percent. If still not paid, it will be referred to the U.S. Treasury for an enforcement action to recover the unpaid amount.
Practical Tip for Medicare Refunds
Once the Final Demand is paid, a refund is possible. Yes, that is right, Medicare does issue refunds. BCRC has the authority to grant full or partial waivers to beneficiaries for whom repayment of Medicare’s Conditional Payments would pose a financial hardship. Another place where Medicare could provide a refund is through an evaluation by CMS of the “Best Interests of the Program.” “The Secretary may waive (in whole or in part) the provisions of this subparagraph in the case of an individual claim if the Secretary determines that the waiver is in the best interests of the program established under this title.” This is especially vague, but it exists, and it means something. Also, under the Federal Claims Collection Act (FCCA), federal agencies have authority to compromise where the cost of collection does not justify the enforced collection of the claim, there is an inability to pay within a reasonable time on the part of the individual against whom the claim is made, or the chances of successful litigation are questionable, making it advisable to seek a compromise settlement.
Military Lien Interests
Military liens are asserted in a variety of forms through either Tricare insurance or the Department of Veterans Affairs (VA). Tricare is the health insurance program for active duty, reservists, and retirees under age 65. “If a member of the uniformed services is injured or contracts a disease, under circumstances creating a tort liability upon a third person…the United States shall have a right to recover from the third person or an insurer of the third person…” The VA provides benefits for those who have served during wartime. The VA has a “right to recover reasonable charges in repayment for healthcare benefits provided to a veteran…from certain third parties who would otherwise be liable for the veterans medical care. Unfortunately, if not addressed, outstanding liens or unreported settlements may affect your client’s eligibility.
Practical Tip for Military Liens
Obtaining the claim statement from the military is a lengthy process. You should start your request for the lien as early as possible. There is nothing more frustrating for you as the attorney or your client than to be waiting for the military to produce the amount of their lien, thereby holding up finalization of settlement, disbursement of funds, etc. This is just part of the long process as it relates to communication with the military.
Medicaid is a needs-based public benefit which provides basic healthcare coverage for those who are financially eligible. The Medicaid program is federally, and state funded but administered on the state level.
The pivotal decision by the U.S. Supreme Court in Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006) provides that federal law limits the funds Medicaid can recover from when a beneficiary receives a settlement in a third-party liability situation to only those funds attributable to past medical expenses. Essentially, Ahlborn rendered unenforceable any state statutes that require full reimbursement of Medicaid expenditures without taking into consideration the non-medical portions of a settlement or judgment like the damages for pain and suffering or lost wages.
There is an ongoing issue about statutory construction. Federal Medicaid law requires states, who administer the Medicaid benefits, to pursue reimbursement for Medicaid payment of medical expenses from beneficiaries who collect a third-party settlement. The Ahlborn court found that federal Medicaid law does not permit states a right to reimbursement from settlement funds designated for non-medical damages. This is specifically because the federal Medicaid anti-lien statute limits Medicaid from collection by stating that “[n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid.” It was interpreted that the settlement funds are property belonging to the individual. The federal Medicaid anti-recovery statute further provides that “[n]o adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the state plan may be made.”
As has been stated, Medicaid’s lien is limited to the portion of a settlement that is designated for past medical expenses. In the case of Wos v. E.M.A., 133 S. Ct. 1391 (2013), the U.S. Supreme Court reiterated that N.C. Gen. Stat. § 108A-57 was preempted by the anti-lien provision of the Medicaid Act. As a result, any state statutes which contain arbitrary allocations are also unenforceable. North Carolina’s statute provided that up to one-third of all personal injury awards would automatically be deemed to represent the amount of settlement funds that were allocated for medical expenses. The Medicaid anti-lien rule from Ahlborn applied again.
Practical Tips for Medicaid
First, make sure you place the Medicaid entity on notice, whether traditional Medicaid through a state agency or a Managed Care Organization (MCO) / Health Maintenance Organization (HMO) through an insurance carrier providing Medicaid services. Similar to Military liens, many of these agencies take months, if not a year, to respond to an inquiry. This can cause major issues with the settlement of your case. So, the earlier the identifying and the outreach, the better. Note that there are many MCOs providing Medicaid benefits through traditional insurance carriers. This has been described as a way for states to reduce their Medicaid program costs and better manage the utilization of health services. Because of this, you will see subrogation vendors handling these reimbursement claims.
Second, to assist with lien negotiation post settlement, a release or other settlement documents should specifically designate what portion of the settlement is for past medical expenses to assist in the allocating of Medicaid’s share. In order to apply the proration principles of Ahlborn, this amount should be clear. If handled effectively at the time of settlement, the amount of Medicaid’s recoveries could be significantly reduced if the lienholder recognizes that Ahlborn is the governing law.
The Federal Employees Health Benefits Act (FEHBA) program provides health insurance coverage to current and former federal employees, and their families.  FEHBA authorizes the Office of Personnel Management (OPM) to contract with private insurance carriers to administer FEHBA plans. These OPM contracts have traditionally required the private insurance carriers to pursue subrogation and reimbursement.
In Coventry Health Care of Missouri, Inc. v. Nevils, 137 S. Ct. 1190 (2017), the Supreme Court, empowered FEHBA plans to demand full reimbursement when a settlement occurs. With the holding that FEHBA preempts state law and that such preemption is constitutionally permissible, subrogation vendors handling these liens are emboldened to demand 100% reimbursement. Unfortunately, there has not been much case law to develop around this particular lien type. Because of that, FEHBA liens are difficult to negotiate down as deeply as other liens.
In our experience, the most harmful action an attorney can take is to begin to negotiate a lien without having a full understanding of the rights of recovery of the carrier. Or worse yet, to ignore the possible right and disburse funds without a showing of due diligence. But just because a health insurance provider is knocking on the door for reimbursement, does not mean they actually have a right to be there. Careful assessment is required to ensure you provide the best service for your client. Synergy is your partner for all things lien resolution. If you have any questions or need further assistance, please reach out to us at www.synergysettlements.com and use refer a case
 Maryland Ethics Op. 94-19 (1993) (lawyer must disregard client instruction not to pay creditor where client had valid agreement with creditor).
 Maryland Lawyers’ Rule of Professional Conduct 1.15 Safekeeping Property.
 29 U.S.C. § 1144(a) (2012).
 Id. at § 1144(b)(2)(A).
 Id. at § 1144(b)(2)(B).
 29 U.S.C. 1024(b)(4).
 29 U.S.C. 1132(c)(1).
 29 CFR 2575.502c-3.
 FMC Corporation v Holliday, 498 U.S. 52 (1990).
 US Airways v McCutchen,133 S. Ct 1537 (2013).
 42 U.S.C. §1395y(b)(2) and §1862(b)(2)(A)/Section and §1862(b)(2)(A)(ii) of the Social Security Act.
 See https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Attorney-Services/Attorney-Services.
 See https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Attorney-Services/Conditional-Payment-Information/Conditional-Payment-Information.html.
 42 CFR 411.24(m).
 §1870(c) of the Social Security Act.
 31 U.S.C. 3711; Medicare Secondary Payer Manual (MSP), Chapter 7 §50.7.2).
 42 U.S.C.A §2651.
 38 U.S.C 1729.
 42 U.S.C. §1396a.
 42 U.S.C. §1396p(a)(1).
 Id. at §1396p(b)(1).
 5 U.S.C. § 8901 et seq. (Federal Employees Health Benefits Act or FEHBA).
Jason D. Lazarus is the managing partner and founder of the Special Needs Law Firm; a Florida law firm that provides legal services related to public benefit preservation, liens and Medicare Secondary Payer compliance. He is also a founding Principal and Chief Executive Officer of Synergy Settlement Services, which offers healthcare lien resolution, Medicare secondary payer compliance services, pooled trust services, settlement asset management services and structured settlements.