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Case Settled. Now What?

Determining how injury settlement proceeds must be distributed is often challenging. Many entities in addition to the injured parties and their attorneys may have their fingers in the pie. Liens may be found in Oklahoma and federal statutes. Subrogation may arise by statute, pursuant to a contract or in equity.

Purpose of Liens

The basis of statutory liens is to protect medical providers when patients cannot pay their bills and have no health insurance. Providers, of course, do not like accepting the reduced amounts paid by insurers and often file liens instead — hoping they will recover the billed amount. The Oklahoma Supreme Court has indicated liens should only be filed when there is no other payment forthcoming. Vinzant v. Hillcrest Medical Center, 1980 OK 50, 609 P.2d 1274, 1277; Balfour v. Nelson, 1994 OK 149, 890 P.2d 916, 919; Kratz v. Kratz, 1995 OK 63, 905 P.2d 753, 758. “The purpose of the lien is to encourage physicians to provide medical treatment to injured persons without regard to their ability to pay at the time the services are rendered.” Broadway Clinic v. Liberty Mutual Ins. Co., 2006 OK 29, 139 P.3d 873, 876.

Statutory Liens & The Lawyer’s Duty

Procedures to validate statutory liens are strictly construed. See, Young v. Columbia Southwestern Medical Center, 1998 OK CIV APP 124, 964 P.2d 987; Republic Bank & Trust Company v. Bohmar Minerals, Inc., 1983 OK 29, ¶ 5, 661 P.2d 521, 523; In re Woodward, 234 B.R. 519 (N.D.Okla.,1999). If a proper lien has been filed prior to payment of a settlement or judgment, it must be honored. Saint Francis Hospital v. Vaughn, 1998 OK CIV APP 167, 971 P.2d 401. Lawyers owe a duty to medical lien claimants to see liens are satisfied out of a settlement. State ex rel. Oklahoma Bar Association v. Bedford, 1997 OK 83, 956 P.2d 148, 152; State ex rel. Oklahoma Bar Association v. Taylor, 2003 OK 56, 71 P.3d 18, 27; Oklahoma Rules of Professional Responsibility 1.15; ORPC Rules 8.4(c); ORPC Rule 4.1(b). If lawyers have a good faith doubt about who is entitled to funds coming into their hands, they should deposit them in their trust accounts for a reasonable length of time pending resolution of the dispute or interplead the funds into court. Taylor, 71 P.3d at 27.

Liens and The Make-Whole / Made-Whole Rule

Liens are superior to the injured party’s claim. See, State ex rel. Department of Human Services v. Allstate Insurance Company, 1987 OK 91, 744 P.2d 186 (attorney’s lien superior and attaches to entire settlement; other lienholders then become superior to claim of injured party); Young, 964 P.2d at 989 (Oklahoma Health Care Authority entitled to entire lien even if it was a compromised settlement). Lienholders do not have to pay a pro rata share of the attorney fees and costs. Allstate, 744 P.2d at 188; Fugate v. Mooney, 1998 OK CIV APP 48, 958 P.2d 818, 819; Hillcrest Medical Center v. Fleming, 1982 OK CIV APP 17, 643 P.2d 868, 870.

Bankruptcy Exemption

Plaintiffs who have filed bankruptcy have a $50,000 exemption for personal injury or wrongful death proceeds. 31 O.S. §1(A)(21). However, the exemption applies only to general creditors — not to lienholders if they have properly filed their liens before the bankruptcy petition is filed. Woodward, 234 B.R. 519; In re Innis, 181 B.R. 548 (N.D.Okla. 1995); Broadway Clinic, 139 P.3d at 879-880.

Common Liens & Subrogation Rights

Many state and federal liens might be involved in settlements. The procedures and application of various liens and rights depend on the wording of the statutes and the common law interpreting them. Following are brief (and incomplete) descriptions of some potential liens:

Attorney liens (5 O.S. § 6) are superior to all other statutory liens in recognition of the role played by attorneys in obtaining a settlement or judgment: “… [I]t is the efforts and skill of the lawyer which result in the recovery of anything for the patient and the hospital.” Vinzant, 609 P.2d at 1277. The statute provides if the adverse party settles with a person without the consent of their attorney who has perfected a lien as set out in the statute, the adverse party will be liable to the attorney for the fee that would have been due. Attorneys must sue to enforce a lien within 1 year after becoming aware of the settlement or payment of a judgment. An attorney’s lien attaches to the entire settlement, but if the settlement consists of liability and UM proceeds, attorneys must “marshal” the funds by first satisfying their liens from UM proceeds (in which hospitals do not have an interest). Allstate, 744 P.2d at 188. When the attorney’s lien is extinguished, the other lienholders can be satisfied from liability proceeds. Fugate, 958 P.2d at 819.

Ambulance service provider liens (42 O.S. § 49): Ambulance liens apply when an injured person makes a claim against a tortfeasor or insurance company.

CHAMPUS/Tricare (32 C.F.R. §§199.1, 199.12, 220.11): Certain U.S. government employees, the armed forces, and veterans may be covered by CHAMPUS/Tricare, which have the right of reimbursement. Also, consult the Federal Medical Care Recovery Act (42 U.S.C. §2651 et seq.) and 38 U.S.C. §1729 (care to veterans for non-service related conditions).

Crime Victims Compensation lien (21 O.S. § 142.12): Crime victims must notify the Victims Compensation Board if they have been compensated by the Board and sue for damages related to the criminal conduct. The Board may require claimants to seek or accept available funds from collateral sources, which include the perpetrator; workers’ compensation; medical, disability, burial and life insurance; and government benefits such as Medicare and Medicaid.

ERISA carrier’s subrogation right, 29 U.S.C. §1001 et seq. (Employee Retirement Income Security Act of 1974): ERISA is probably involved if the client has health coverage through an employer. If the person is a government or a church employee, ERISA does not apply. Subrogation and reimbursement rights are generally enforced, but the make-whole rule applies if the policy does not have a clear priority-of-payment provision. Equity Fire and Cas. Co. v. Youngblood, 1996 OK 123, 927 P.2d 572, 577.

Federal Employees Health Benefits Act (FEHBA) (5 U.S.C. § 8901 et seq.): Reimbursement actions are governed by state law. Empire Healthchoice Assur. Inc. v. McVeigh, 547 U.S. 677, 126 S.Ct. 2121, 165 L.Ed.2d 131 (2006). A bad-faith action against a FEHBA carrier may also be brought in state court. Kincade By and Through Linville v. Group Health Services of Oklahoma, Inc., 1997 OK 88, 945 P.2d 485, 492. The make-whole rule applies if there is no priority-of-payment provision. Southerland v. Liberty Mut. Fire Ins. Co., 2007 OK CIV APP 13, 152 P.3d 260, 262.

Hospital liens (42 O.S. § 43) apply to judgments or settlements with a tortfeasor and may not be asserted against UM proceeds. Kratz, 905 P.2d at 756, 758; Broadway Clinic, 139 P.3d at 879. Hospitals cannot have a lien if a patient is covered by workers’ comp and then recovers from a third party. Thomas v. Oklahoma Orthopedic & Arthritis Foundation Inc., 1995 OK 47, 903 P.2d 279, 282.

Medicaid – Oklahoma Health Care Authority (OHCA) lien (63 O.S. §5051.1): OHCA, the state agency designated to administer Oklahoma’s Medicaid Program, has a right of reimbursement because of both federal and state laws. Although OHCA has the ability to reduce liens, they cannot be forced by court order to do so. Young, 964 P.2d at 989. Medicaid’s lien is superior to the recipient’s right to the money. Allstate, 744 P.2d 186; Young, 964 P.2d at 988 (the make-whole rule does not apply). An important issue when settling a case for a Medicaid client is if the settlement puts them over their monthly limit on resources to qualify for Medicaid, they may become ineligible for the benefits they need. There are ways to avoid the problem, such as purchasing exempt assets or establishing a special-needs trust.

Medicare (42 U.S.C. §1395y): “Medicare Secondary Payer” provides payment cannot be made under Medicare if the individual has a claim for the particular medical care against a liability policy (including a UM policy), workers’ compensation or any kind of no-fault insurance, such as med pay. However, when Medicare determines payment from those sources will take more than 120 days, it will pay conditionally and recoup its money when the payments are made from the insurance. Medicare in such cases is entitled to subrogation or reimbursement and pays a proportionate share of the fees and costs. Attorneys may be personally liable for failing to reimburse Medicare. 42 C.F.R. §411.23(g).

Med pay carrier’s right of subrogation against person not a named insured or member of the family (36 O.S. § 6092): An automobile med pay carrier cannot get credit or a set-off for med pay it has paid to an insured or relatives of the insured living in the household. It can, however, deduct the amount of med pay from liability or UM payments to claimants who are not the named insured or members of the household.

Physician’s lien (42 O.S. §46): Physicians have a lien on proceeds from a negligent party or insurer, including UM payments. Broadway Clinic, 139 P.3d 873. The lien benefits only physicians and, for example, does not cover physical therapists. PTS Healthcare, Inc. v. Mid-Century Ins. Co., 2007 OK CIV APP 100, 171 P.3d 924, 926.

State Employees Group Insurance Board’s right of subrogation (74 O.S. §1306.1): State Employees Group Insurance provides health coverage for state employees and some school districts. The lien exists when an injury has been caused by a third party’s wrongful act or negligence. The Board, the Administrator or the Board’s attorney have the authority to waive or reduce subrogation if it would create an extreme financial hardship on the employee or dependent.

Uninsured motorist carrier’s right of subrogation (36 O.S. §3636[F]): If a UM carrier makes a payment to an insured, it is entitled to the proceeds of any settlement or judgment from the tortfeasor or his liability insurer, even an insolvent insurer. If UM insurance is available to injured parties, they should never settle with a tortfeasor unless the UM carrier has waived its subrogation rights. Any payment by an insured tortfeasor does not reduce or act as a credit against the total UM coverage.

Workers’ comp subrogation (85 O.S. §44): In third-party cases brought by those who have collected workers’ comp benefits, the carrier or employer has a right of subrogation against proceeds from the tortfeasor, liability policies or other insurance. Read the statute carefully. If the worker elects to sue a third party, workers’ comp will only be liable for the costs not paid by the third party and “shall contribute only the deficiency”. Actual third-party recovery by a worker is the amount to be used in calculating a deficiency; you do not count attorney fees, a loss of consortium recovery for the spouse or other items not recovered by the worker. Nichols RV World v. Crandell, 2003 OK CIV APP 96, 79 P.3d 1131, 1135; see also, Keeney v. TTC Illinois, Inc., 2002 OK CIV APP 48, 46 P.3d 192, 196. A “compromise settlement” is a compromise by the injured worker with the negligent third party for less than the amount of the workers’ compensation award, for which one must get workers’ comp court approval. Prettyman v. Halliburton Co., 1992 OK 63, 841 P.2d 573, 579. The workers’ comp court does not have to approve a settlement for more than the workers’ comp subrogation claim, in which case the Prettyman formula applies. Id. Subrogation is not allowed against UM. Dennis v. Harding Glass Co., 1996 OK CIV APP 105, 929 P.2d 301; Wise v. Wollery, 1995 OK CIV APP 69, 904 P.2d 151. It is not subject to the make-whole rule. Tomlinson v. Continental Casualty Co., 2003 OK CIV APP, 77 P.3d 628, 632. It can be recovered in a legal malpractice suit against an attorney who failed to file a third-party claim. Nicholas v. Morgan, 2002 OK 88, 58 P.3d 775.

Avoiding Malpractice

Settlement of an injury case presents many potential pitfalls. A clear and thorough understanding of liens and subrogation rights, and knowing when and how they may be compromised or waived, is essential to protect both your client and yourself.

–Lynn Brusin Mares

Indian Healthcare Liens

From otla 4/08:

Do Indian Healthcare providers have a lien that does not require them to comply with 42 O.S.Sec 46(C)? I have the Chickasaw Nation who is asserting a lien through a third party collection agency called “Sovereign Nation Services”. They claim their lien is perfected via the Federal Medical Care Recovery Act (which I thought had to do with Military Healthcare providers). Their lien is in letter format, does not list the insurance policy to which their are making their lien nor is it filed in the county of the service provider.