Personal injury liens constitute a severe problem in resolving cases. As almost everyone knows by now that Medicare is requiring notification to CMS of any and all resolutions in personal injury actions involving Medicare clients. Their position is that they will then determine the amount of related medical they paid and the victim’s attorney then must pay CMS that amount minus attorney fees. Medicaid and all health care providers take the same position that upon a recovery in a personal injury action, the medical provider must be repaid, again, minus attorney fees.
The inherent assumption is that the resolution was “global”. That is, the settlement or verdict included compensation for medical expenses. Before that premise is explored, it is necessary to establish and analyze a few basic definitions and statutes.
Personal Injury Liens – Types:
A “Right of Subrogation” gives the medical provider essentially the same rights as the insured as against a tortfeasor.
A “Statutory Lien” is an enforceable right that may be filed in the County Clerk’s office and is a binding instrument.
An “Equitable Lien” is predicated upon one individual recovering funds that belong to another. Those funds may not be retained and must be remitted to the subrogee. If they are not, then a suit may be instituted to pursue those funds.
Statutes Authorizing Personal Injury Liens
The Medicare statute specifically provides that the Federal government, the Medicare provider, has an independent right of action and “The United States shall be subrogated…” [42 USC § 1395y (b)(2)(B)(iv)] relative to any and all monies it has paid and might in the future pay for treatments relative to a third party liability action.
Medicaid has also been defined as subrogation statute in the Supreme Court case Arkansas Department of Health and Human Services v. Ahlborn, 547 US 268 (2006). There is was held that “the State can require an assignment of the right, or chose in action, to receive payments for medical care.” Note: “chose in action” is a 16th century term for “subrogation”.
The APIP statute in New York provides that “the company is subrogated to the extent of any payment for additional first party benefits.”
Workers’ Compensation statute provides that the failure of the injured party to initiate a claim “shall operate as an assignment of the cause of action”. New York Workers’ Compensation Law§29.2. Furthermore, statute itself has “subrogation” in its title.
Private Health Insurers in New York may have an independent subrogation claim which they may either join with the personal injury action or be initiated independently. The New York Court of Appeals in Fasso v Doerr, MD, et al, 12 NY3d 80, 875 NYS2d 846 (2009) further ruled that the “made whole” doctrine must also be considered. The health insurer assumes a risk of loss when it issues a policy whereas the injured party does not willingly assume the risk of injury. As such, only after the insured had fully recovered may the insurer recover on their reimbursement claim. The insured has the “priority of interests” which takes precedence over the subrogation rights of the insurer.
ERISA, the Employee Retirement Income Security Act of 1974, is a Federal statute that permits multi-state employers to construct their own medical insurance plans for their employees unimpeded and unrestricted by State law and State insurance regulations. 29 USC §1132(a)(3) provides that for plans enacted thereunder, the plan is entitled “to obtain other appropriate equitable relief”.
“A lawyer who represents two or more clients shall not make or participate in the making of an aggregate settlement of or against the clients.” New York Rules of Professional Conduct, Rule 1.8:(g).
On the question of whether an attorney may ethically represent the injured party and the insurer on the medical recovery claim, the Court of Appeals in Fasso observed that “the injured party’s goal is to maximize recovery without regard to whether its insurer recoups any monies it expended for the plaintiff’s medical bills.” In a like manner, “the insurer cares only about its own recovery”. “Cleary, [there is] an adversarial posture between a plaintiff/insured and its insurer.”
“Because the[tortfeasor] took responsibility for the payment of [plaintiff’s] medical services, demonstrated by a…release…for items or services included in a claim…, the government can now seek reimbursement for the medical services …‘from any entity’…including an attorney.” USA v Harris, N.D.W.Va., 2008. Here, the plaintiff’s attorney was ordered to repay Medicare money that had been in his custody which he had given to the client rather than reimbursing the Government for its medical payments.
However, where CMS sought garnishment against social security recipients who had recovered for “pain and suffering only” and there was not allocated recovery for medical expenses, the government accepted the findings of the Court and an Administrative Law Judge and did not further seek reimbursement for their clients. Their right of action was preserved as against the tortfeasor. Merrifield v USA, U.S.D.N.J., 2008.
In the Medicaid realm, the Ahlborn case is clear and is being followed. If there is a recovery in a personal injury action that includes medical expenses and a general release is provided, the State is entitled to reimbursement. If, however, the pleadings and release specifically are for pain and suffering only, then no monies are due or owing to the State. This is the consistent application.
The ERISA language has been interpreted as creating Personal Injury Liens or an “equitable lien by agreement” as opposed to subrogation, Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869(2006). Contracts that seek “to impose personal liability …for a contractual obligation to pay money” are not equitable for the purposes of §1132(a)(3), Sereboff v. Mid Atlantic Medical Services, Inc., 126 S. Ct. 1869, at 1873-73 (2006). The “equity” component was manufactured by observing that there was a “specifically identifiable fund” from which the plan was “entitled” to a particular share of the recovery. In that specific situation, a “constructive trust or equitable lien” was established for the purposes of §1132(a)(3).
While the case law seems powerful, it should be noted that the attorney is not privy to the ERISA contract. As such, that medical provider has no power or authority over the plaintiff’s attorney. He may distribute all the money recovered on the personal injury claim directly to his client. If the ERISA provider argues that the attorney “must” represent them or protect their interests, the simple counter is that there is a conflict of interests and he may refuse to commit an ethical violation. Let them pursue their own recovery.
Practical Applications and Interpretations
In all these statutes, with the possible exception of ERISA, the enabling legislation authorizes the medical provider to initiate its own independent action for recovery of expenses pursuant to the principles of subrogation. There is no incentive for any of these subrogees to pursue their own claims while plaintiffs attorneys voluntarily assume all the risks of loss and then remit to the medical providers a proportionate share of any and all recoveries. The general practice is for the injured party’s attorney, clearly representing two claimants, to negotiate an aggregate settlement, allocate the money between those competing parties and take a fee from each. The medical provider does no work and takes no risks. However, if it and the Plaintiff’s attorney work together, it recovers from the gross award and more money is available for attorney fees. That this is a clear ethical violation is of little import so long as the Government is recovering money. The governmental enforcement arm for attorneys, the Grievance Committee, simply need not consider this issue and there is no violation. The only one who comes up short in this scenario is the injured party. His personal injury recovery is reduced by the amount his attorney agrees to pay the medical provider on the subrogation claim. As this practice has been going on for many years and as a local plaintiff’s attorney recently observed: “Clients are not sophisticated enough to understand those issues.”
The simple conclusion is that there is both an inherent and obvious conflict of interest for an attorney attempting to resolve Personal Injury Liens to represent two claimants for independent claims arising out of the same incident, obtain a single lump sum settlement and then allocate the respective amounts while taking a fee from both clients. Clients tend to be reassured when their attorney tells them that none of their recovery is going to the Government. Clients are reassured when advised that none of their recovery is going to repay the medical provider. The medical provider has its own, independent right of action. Let it represent itself. Clients like this approach. Attorneys would be well advised to seriously consider and analyze these issues.