By Thomas D. Begley, Jr. Esquire, CELA
When a personal injury settlement is being finalized, consideration should be given to resolving a number of liens. It is good practice to obtain information on the existence and amount of these liens early in the process, because this information may be helpful in settlement negotiations.
The types of liens that often arise in personal injury cases include the following:
- Medicare Advantage/Medicare Part D
- Veterans Administration
- State Worker’s Compensation
- Federal Employees Compensation Act (FECA)
- Federal Employees Health Benefit Act (FEHBA)
- Federal Medical Care Recovery Act (FMCRA)
- Welfare Liens
- Mental Health Liens
- Victim of Crime Compensation
- Child Support
- Federal Tort Claims Act
- Derivative Claims
Plaintiffs’ attorneys are often unfamiliar with the Medicaid laws in general and the Ahlborn case in particular.
Understanding Medicaid liens requires familiarity with two federal statutes.
- Assignment to State. As a condition of Medicaid eligibility, a Medicaid applicant is required to assign to the state any rights to payment of medical care from any third party. If the individual fails to pursue the claim, the state has the option of pursuing it. Very often in a personal injury situation, the plaintiff’s medical bills have been paid by Medicaid pending a determination of liability. Medicaid is required to be repaid from the proceeds of the tort recovery and imposes a lien against the recovery. In addition, states require Medicaid applicants to cooperate with the state in identifying and providing assistance in pursuing any third party who may be liable to pay for care and services as a condition of receiving benefit.
- Anti-Lien Statute. Under federal law, no Medicaid lien may be imposed by a state on the property of an individual prior to his death, except pursuant to a court judgment for benefits incorrectly paid.
PRACTICE TIP: In resolving Medicaid liens, it is important to carefully review the statement of amount due to be sure that the services being billed were actually received and were related to the injury subject to the recovery.
Extent of Lien. There are a number of issues to be considered pertaining to the extent of the Medicaid lien:
- Related to Injury. The Medicaid lien affects only Medicaid expenses related to the injury. If an individual has been receiving medical assistance through the Medicaid program for medical conditions unrelated to the injury, these do not have to be reimbursed out of the settlement. For example, a cerebral palsy victim may be receiving Medicaid and subsequently become involved in an automobile accident. Only the medical bills relating to the injury sustained in the automobile accident are subject to Medicaid recovery. Payments by Medicaid on account of the cerebral palsy are not subject to recovery because they were not caused by the acts of a third party and there is no third party liability. Medicaid officials may try to recovery unrelated medical charges, unless the attorney for the person with a disability identifies charges that are not related to the personal injury. Care should be exercised in this regard.
- Payment Prior to Recovery. The Medicaid lien only applies to payments made from the date of the injury to the date of the settlement, because these are the only expenses for which the third party is liable for reimbursement.
- Pro Rata Share. The Ahlborn case made clear that Medicaid’s right to reimbursement attaches only to the portion of the settlement, judgment, or award that represents payment for medical expenses, and not to proceeds intended to cover other items, such as pain and suffering and loss of wages. Therefore, under Ahlborn, Medicaid may recover only a pro rata share of its claim, which is determined by the ratio that the settlement amount bears to the reasonable value of the total claim.
Reasonable Value of the Claim. Cases settle for less than full value when there are issues with respect to liability or when the recovery is limited by the confines of the insurance policy or by comparative fault or contributory negligence. Some states, like Wisconsin, require, by statute, that the state is a party to the action and may be involved in the settlement negotiation.
When cases settle, it becomes difficult to determine the reasonable value of the entire claim. The Ahlborn court addressed the “risk of settlement manipulation” by reasoning that, “the risk that parties to a tort suit will allocate away the State’s interest can be avoided either by obtaining the State’s advance agreement to an allocation or, if necessary, by submitting the matter to a court for a decision.” Alternatives for establishing the full value of the case might include the following:
- Medicaid Stipulation. It may be possible, as in the Ahlborn case, to obtain a stipulation between the plaintiff and Medicaid as to the reasonable value of the claim. Post-Ahlborn this may be unlikely.
- Defendant’s Stipulation. Although Medicaid may be unwilling to enter into a stipulation with respect to the fair value of the case, the defendant may be willing to do so. It is questionable as to whether a state Medicaid agency would accept a stipulation between the plaintiff and the defendant because such a stipulation might be easily manipulated after the case is settled.
- Expert Witness. An expert witness may be obtained to write a report determining the fair value of the case with reasons to support the conclusions. The expert witness might be a personal injury attorney with an outstanding reputation in the community. The expert witness report might be used in negotiating a settlement with Medicaid or admitted to a court as a basis for a court order.
- Court Order. A court order, which allocates the settlement among various categories of damages, may be obtained. The state Medicaid agency should be provided with notice of any court hearing.
Statutory Lien. The federal government has a statutory lien for payments made under the Medicare Secondary Payer Act (MSP). The Act provides that Medicare may not make payments when, “payment has been made or can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance,” unless conditional payment has been made as a conditional payment.
Subrogation. Where there is a “conditional payment,” the United States may bring an action against the primary plan responsible for payment, and the United States shall be subrogated for payment of those expenses from the primary plan. If it is necessary for the Centers for Medicare and Medicaid Services (CMS) to take legal action to recover from the primary payer, CMS may recover double damages.
Party Making Payment. CMS has a direct right of action to recover from any entity responsible for making primary payment. This includes an employer, an insurance carrier, plan, or program, and a third party administrator.
Party Receiving Payment. CMS also has a right of recovery from parties that receive third party payments. These include a beneficiary, provider, supplier, physician, attorney, state agency, or primary insurer that has received a third party payment.
Settlement. Under certain circumstances, Medicare claims may be waived in whole or in part or may be compromised:
- Lump-Sum Compromise Settlement. Cases will be compromised when there is questionable liability. In such cases, counsel notifies Medicare of the strengths and weaknesses of the defendant’s case in order to justify a reduction of the Medicare claim. The beneficiary is entitled to appeal an adverse decision on the request for waiver or compromise pursuant to section 870(c) of the Social Security Act.
When there is a lump-sum compromise settlement providing less than total compensation because of questionable liability, Medicare should review the compromise settlement prior to approval by the parties. As long as the settlement provides a reasonable amount for future medical expenses, Medicare will approve the settlement. If Medicare approves a settlement for less than the claimant’s outstanding injury-related medical expenses, Medicare applies the settlement proceeds to medical expenses in a coordinated fashion.
- Allocation of Damages Within the Settlement. Damages within the settlement are allocated for Medicare claim purposes among past medical expenses, compensatory damages, and pain and suffering. Only the portion of the recovery allocated to past medical expenses is available to satisfy the Medicare claim.
PRACTICE TIP: One way reduce a Medicare lien is by a court order allocating the settlement among the various components, including medical, upon notice to Medicare.
MEDICARE ADVANTAGE/MEDICARE PART D
Medicare Part D provides prescription coverage to eligible beneficiaries. Medicare Part D is covered by the Prescription Drug Plans (PDP). PDP is similar to Medicare Managed Care Plans known as Medicare Advantage, and they have a separate right of recovery from Medicare. Both Medicare Part D and Medicare Managed Plan will need to initiate their own recovery efforts since they are not part of the traditional Medicare recovery effort.
It can be argued that Medicare Part D and Medicare Advantage do not have any lien rights against personal injury settlements. This is not to say that they have no recovery rights. Any recovery rights are based in contract rather than the MSP statute.
Technically, Medicare Part C Plans have the same right of reimbursement as traditional Medicare Parts A and B, but do not have a lien. They are reimbursed according to the insurance contract and governing state law. The obligation to repay is set forth in federal law, as follows:
If a Medicare enrollee receives from an MA [Medicare Advantage] organization covered services that are also covered under State or Federal workers’ compensation, any no-fault insurance, or any liability insurance policy or plan…the MA organization may bill…the Medicare enrollee, to the extent that he or she has been paid by the carrier, employer, or entity for covered medical expenses.
The Medicare statute says, “the eligible organization may…charge or authorize the provider of such services to charge…such member to the extent that the member has been paid under such law, plan, or policy for such services.” While traditional Medicare has an automatic statutory right of recovery, the Medicare Advantage Plans have a right to recover but no statutory claim. While Medicare must be given affirmative notice of a third party liability claim, there is no such requirement for Medicare Advantage Plans. CMS maintains records of all third party liability claims involving traditional Medicare recipients, but does not maintain similar records for Medicare Advantage Plan recipients. There is no single source through which to verify coverage, payments or reimbursement rates.
It is important in settling a claim involving a Medicare Advantage Plan to be aware that there may be a Medicare lien for the traditional Medicare Parts A and B for conditional payments made under the Medicare Secondary Payer Act, as well as a right of recovery for Medicare Advantage for payments made by the MA Plan. In resolving a Medicare Advantage claim, the attorney should contact the MA provider requesting a claims itemization and should include a HIPAA release. The attorney should also request a copy of the Summary Plan Description (SPD). The plan’s right of recovery should be assessed and negotiated based on the subrogation language found in the SPD and governing law.
There are two types of private medical insurance subrogation and they are handled in very different ways. The first type of private insurance is through an Employee Retirement Income Security Act (ERISA) plan. The other is non-ERISA. ERISA plans are governed by the ERISA statute. Non-ERISA subrogation is governed by state law.
ERISA was enacted in 1974. Most medical plans provided by employers fall under the terms of ERISA. These plans may have liens against tort recoveries.
Appropriate Equitable Relief. Relief under ERISA is based on equitable principles, rather than legal relief, in the form of money damages for breach of contract.
ERISA Qualification. To qualify as an ERISA plan, a plan must be:
- a plan-funded program;
- established or maintained by an employer or employee organization, or both;
- for the purpose of providing medical, surgical, hospital care, sickness, accident, disability, or other encumbered benefits stated in ERISA to participants or their beneficiaries.
It is clear that a medical insurance policy covering a self-employed person and spouse does not constitute an ERISA plan. In addition, ERISA does not apply to church, government or farm plans or self-pay insurance contracts.
Plan Language. An ERISA plan can recover for damages received from third parties where the plan language clearly establishes such a right. Since an ERISA plan’s right to reimbursement is based in equity, it is subject to equitable defenses based upon a strict reading of the actual contract language.
Specific Identifiable Fund. The Plan’s right of recovery must be against a specific, identifiable fund, such as a tort recovery, as opposed to a claim against the general assets of the plaintiff. Such a claim against general assets would be a claim at law, rather than in equity.
Derivative Claims. An ERISA lien is enforceable against the settlement of the injured beneficiary on whose behalf benefits are paid, but it is likely unenforceable against the derivative claims of others related to the incident.
- Wrongful Death. State law often protects wrongful death claims from subrogation, so allocating more to wrongful death and less to the survival claim may reduce the lien. Also, the survival claim may be subject to federal or state estate or inheritance taxes. Medicare and Medicaid can collect even from wrongful death because federal law preempts state law.
- Loss of Consortium. Allocation of loss of consortium claims to those who do not have responsibility for medical bills, such as a spouse or child of the injured party, may avoid or reduce the health care lien.
VETERANS ADMINISTRATION CLAIMS
The Veterans Administration (VA) has a right of recovery against a third party when the VA pays for medical treatment on behalf of the veteran or his family. The VA has a lien in favor of the United States against any recovery the veteran or his family subsequently receives from a third party for the same treatment.
In any case in which the veteran is furnished care or services for a non-service-connected disability, the United States has a right to recover or collect reasonable charges for such care or services from a third party to the extent that the veteran (or the provider of the care or services) would be eligible to receive payment for such care or services from such third party if the care or services had not been furnished by a department or agency of the United States.
TRICARE (formerly known as Civilian Health and Medical Program of the Uniformed Services or CHAMPUS) claims are covered under the Federal Medical Care Recovery Act (FMCRA). The right of recovery includes care that may be received by the beneficiary at a uniformed services facility or under TRICARE, or both. Each branch of the service has a slightly different model agreement that must be signed when private counsel asserts a separate cause of action to recover for injury-related care paid by TRICARE on a contingent basis.
STATE WORKER’S COMPENSATION
Generally, where there is a State Workers’ Compensation claim and also a third-party liability case and the third-party liability case settles, there is a Workers’ Compensation lien against the third-party liability proceeds. Frequently, the Workers’ Compensation lien is negotiable, because the Workers’ Compensation carrier is anxious to get the plaintiff off its books.
FEDERAL EMPLOYEE COMPENSATION ACT
The Federal Employee Compensation Act (FECA) is the federal equivalent of the State Workers’ Compensation laws.
Hospital lien statutes are state-specific. Generally, every hospital, nursing home, licensed physician, or dentist has a lien for services rendered, by way of treatment, care, or maintenance to any person who has sustained personal injuries in an accident as a result of the negligence or alleged negligence of any other person. Hospital liens are very difficult to negotiate.
FEDERAL EMPLOYE HEALTH BENEFIT
The Federal Employee Health Benefit Act (FEHBA) provides group health insurance for federal employees. Although there is no statutory right of subrogation or reimbursement, FEHBA contains a preemption provision under which the terms of insurance contracts issued by its private carriers purportedly preempts state and local law. However, the Supreme Court has held that FEHBA does not provide contract insurers with a federal cause of action or federal jurisdiction in a subrogation/reimbursement claim, leaving the matter to the state courts, and it further called into question whether a FEHBA plan may assert any contractual recovery right at all against a beneficiary where such claims are prohibited by state law; the Court was “not prepared to say” that a carrier’s contract with the government “would displace every condition state law places on that recovery.”
FEDERAL MEDICAL CARE RECOVERY ACT
The federal statutory scheme provides several independent bases for recovery of medical costs expended on behalf of government personnel and their dependents for injury or disease not connected to their military or other government service, but the Federal Medical Care Recovery Act (FMCRA) establishes standards generally applicable to claims of all federal departments and agencies. Significantly, while the government may exercise its recovery rights under the statute by making claims directly against third-party tortfeasors, the statute authorizes no such claims against a beneficiary. The statute provides, inter alia, that in any case in which the United States furnishes or pays for medical or dental care and treatment under circumstances creating third-party tort liability for such expenses, the United States shall have a right to recover from the third party the reasonable value of such care and treatment.
In New Jersey, as well as in many other states, there is a lien against real and personal property of a person who has been assisted by or received support from any municipality or county. This is true whether a person has been in a county facility or at home.
MENTAL HEALTH LIENS
Many states provide mental health services to its residents and usually the state has a lien against persons who receive treatment in a psychiatric facility. For example, in New Jersey a person with a mental illness who is over age 18 and is being treated in a state psychiatric hospital shall be liable for the full cost of his treatment, maintenance, and all necessary related expenses.
VICTIMS OF CRIME COMPENSATION
Many states, such as New Jersey, have statutes providing for compensation for victims of certain crimes. These state statutes are modeled on the Federal Crime Victim Compensation Act. The state programs are partially funded by the Federal Government. These programs offer compensation to victims and survivors of victims of criminal violence, including drunk driving and domestic violence for:
- Medical expenses
- Loss of wages
- Funeral expenses
Many states have statutes imposing liens for child support against any proceeds recovered from a personal injury action. For example, the New Jersey statute provides, “[a] judgment for child support entered and docketed with the Clerk of the Superior Court shall be a lien against the net proceeds of any settlement negotiated prior or subsequent to the filing of a lawsuit, civil judgment, civil arbitration award, inheritance, or workers’ compensation award.
FEDERAL TORT CLAIMS ACT
Personal injury actions against the U.S. government are brought pursuant to the Federal Tort Claims Act. The remedy against the United States for personal injury or death arising from a negligent or wrongful act or omission of any employee of the government while acting within the scope of office of employment is exclusive of any other civil action or proceeding for money damages.
Liens are generally enforceable against the settlement of the injured party on whose behalf benefits are paid, but are unenforceable against derivative claims of others related to the incident.
 Arkansas Dept. of Health and Human Servs. v. Ahlborn, 547 U.S. 268, 126 S. Ct. 1752 (2006).
 42 U.S.C. §1396k(a)(1)(A).
 42 U.S.C. §1396k(a)(1)(A).
 42 U.S.C. §1396k(a)(1)(A).
 42 U.S.C. §1396k(a)(1)(C).
 42 U.S.C. §1396p(a); 42 C.F.R. §§433.135 et seq.
 W.S.A. §49.89.
 Ahlborn at 1756.
 42 U.S.C. §1395y(b)(2)(A)(ii) and (B).
 42 U.S.C. §1395y(b)(2)(B)(iii).
 42 C.F.R. §411.24(c)(2).
 42 C.F.R. §411.24(e).
 42 C.F.R. §411.24(g).
 Medicare Reimbursement Claims, Frank Verderane, American Association for Justice teleseminar (April 24, 2007), firstname.lastname@example.org.
 42 C.F.R. §422.108(d).
 42 U.S.C. §1395mm(e)(4).
 42 U.S.C. §1395y.
 Eight Ways to Defeat or Minimize ERISA Reimbursement Claims, Roger M. Baron, American Association for Justice teleseminar (April 24, 2007).
 29 U.S.C. §1101 et seq. (ERISA).
 Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 122 S. Ct. 708 (2002) (largely overturned by Sereboff v. Mid-Atlantic Med. Servs., Inc., 547 U.S. 356, 126 S. Ct. 1869 (2006)).
 29 U.S.C.A. §1003(b).
 Admin. Comm. of the Wal-Mart Stores, Inc. v. Gamboa, 479 F.3d 538 (8tth Cir. 2007).
 38 U.S.C. §1729.
 38 U.S.C. §1729(a)(1).
 42 U.S.C. §§2651-2653.
 5 U.S.C. §§ 8131 and 8132; 20 C.F.R. § 10.705-719.
 N.J. Stat. Ann. § 2A:44-36.
 38 U.S.C. § 1725(a)(1).
 5 C.F.R. § 890.
 Empire HealthChoice v. McVeigh, 547 U.S. 677 (2006).
 42 U.S.C. § 2651.
 42 U.S.C. § 2651(a).
 N.J. Stat. Ann. § 4:4-91.
 N.J. Stat. Ann. § 30:4-60(c)(1).
 42 U.S.C. § 10602.
 42 U.S.C. § 10602(b).
 N.J.A.C. 2A:17-56.23b.
 28 U.S.C. §§ 1346(b), 1402(b), 2401(b), and 2671-2680.
 28 U.S.C. § 2679.
 Admin. Comm. of the Wal-Mart Stores, Inc. v. Gamboa, 479 F.3d 538 (8th Cir. 2007).