Medical lien reductions in California: hospital, Medi-Cal, Medicare and ERISA

A settlement isn't finished until the liens are. The client's net depends on them, carriers ask about them before paying, and a time-limited demand has to offer to satisfy them (CCP 999.1(b)). Each kind of lien comes from a different source of law, with its own notice rules, caps and reduction formula. Knowing which one you're dealing with is most of the work.

This is general information, not legal advice. The figures below come from the statutes and regulations cited; check the current text and the facts of the case.

Know which kind of lien you have

The glossary has short definitions of each: hospital lien, Medi-Cal lien, Medicare conditional payment and ERISA lien.

Hospital liens

Under the Hospital Lien Act, an entity that maintains a licensed hospital and gives emergency and ongoing care to a person injured by another's wrongful act has a lien on the damages the person recovers, for the reasonable and necessary charges for that care (Civil Code 3045.1). It does not apply to injuries covered by workers' compensation.

• Notice. The lien isn't effective unless the hospital gives written notice, before money is paid to the injured person or their lawyer, to each person believed liable and to their known insurer. The notice states the patient, the date of the accident, the hospital, and the amount claimed, and is delivered or sent by registered mail, return receipt requested (3045.3).
• The 50 percent cap. A person who pays after receiving notice is liable to the hospital only for the amount that can be satisfied out of 50 percent of the moneys due under the judgment, compromise or settlement, after paying any prior liens (3045.4).
• Enforcement. The hospital may sue the payer within one year after payment (3045.5).
• Discounted payments. A hospital that accepted a health plan's payment as payment in full can't recover the difference through a lien on the tort recovery. Howell v. Hamilton Meats (2011) 52 Cal.4th 541 relies on Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595 for that point.

Ask for the itemized bill, check whether the hospital billed the client's insurance, and check that the notice met 3045.3.

Medi-Cal liens

The Department of Health Care Services can recover the reasonable value of Medi-Cal benefits paid for injury-related care.

• Notice. A beneficiary who files a claim or action against a liable third party must notify the director within 30 days, with the court or agency, the date of injury, the Medi-Cal number and the carrier's details (14124.73). Notices about the action and any settlement also go to the director (14124.79).
• No final settlement without notice. No settlement, judgment or award is final until the director has notice and a reasonable opportunity to perfect the lien (14124.76(a)).
• Fees and costs. When the beneficiary pays attorney's fees and costs, the lien is reduced by 25 percent for fees and by a pro rata share of litigation costs (14124.72(d)).
• Medical portion only. The lien reaches only the part of the recovery that pays for medical expenses. If the parties can't agree on that portion, either may ask the court to decide, guided by Arkansas Dept. of Health and Human Services v. Ahlborn (14124.76).
• A ceiling tied to the client's net. Section 14124.78 limits the recovery by reference to what the beneficiary keeps after fees and costs, and the director recovers the lesser of the amounts under 14124.72, 14124.76 and 14124.78 (14124.785).
• Compromise and waiver. The director may compromise, settle or waive a claim, in whole or in part, including where collection would cause undue hardship (14124.71(b)).

Medicare conditional payments

When Medicare pays for care that a liability settlement should cover, the payment is conditional. Under the Medicare Secondary Payer statute, a primary plan and any entity that receives payment from one must reimburse Medicare, and interest may be charged if repayment isn't made within 60 days of notice (42 U.S.C. 1395y(b)(2)(B)(ii)). The government can sue to recover, including from an entity that received payment from a primary plan (1395y(b)(2)(B)(iii)).

The process, as CMS describes it: the case is reported to the Benefits Coordination and Recovery Center; a Conditional Payment Letter lists the claims Medicare paid that it considers related, which you can dispute; after settlement, you report the amount and the fees and costs; and CMS issues a final demand. Interest accrues from the date of the demand if it isn't resolved in time, and requesting a waiver or appeal doesn't stop it.

The demand is reduced for procurement costs under 42 CFR 411.37. When Medicare's payments are less than the settlement:

When Medicare's payments equal or exceed the settlement, the recovery is the settlement minus the procurement costs (411.37(d)). The Medicare lien procurement cost calculator runs the formula.

Health plan and ERISA liens

Insured plans. Civil Code 3040 limits liens of health care service plans and insurers regulated by California, and of medical groups and IPAs. The lien can't exceed the amount actually paid to the treating provider (or, for capitated care, 80 percent of the usual and customary charge) plus the reasonable cost of perfecting it, and it is capped at one-third of the recovery if the client hired a lawyer, or one-half if not. It is reduced pro rata for the client's attorney's fees and costs, and by the client's share of fault if a judgment includes that finding. It doesn't cover workers' compensation, Medi-Cal or hospital liens (3040(g)).

Self-funded ERISA plans. State law limits like section 3040 generally don't reach a self-funded plan: FMC Corp. v. Holliday (1990) 498 U.S. 52 held that self-funded plans are not treated as insurers for state insurance regulation, and section 3040(h) says it doesn't make a preempted plan lien enforceable. The plan's terms control. In US Airways v. McCutchen (2013), the Supreme Court held that clear plan terms override equitable defenses, but the common fund doctrine applies where the plan is silent on fees. In Montanile v. Board of Trustees (2016), it held that a plan can't use an equitable lien to reach a participant's general assets once the settlement funds are spent on things that can't be traced.

Ask for the plan document itself, not just the summary plan description, to learn whether the plan is self-funded and what its reimbursement clause says.

Provider liens and letters of protection

A provider who treated on a lien or a letter of protection has whatever rights the agreement gives it. Reductions are negotiated. The arguments that move them: the size of the recovery against the total medical bills, the fees and costs the client paid to create the fund, the limits available, and what the client nets. Put any reduction in writing before disbursing.

A lien reduction checklist

• List every lienholder at intake and update the list at each phase.
• Confirm each lien's legal basis and whether its notice was proper.
• Get itemized statements, and dispute charges unrelated to the incident.
• Report Medicare and Medi-Cal cases early; their final figures take time.
• Calculate the statutory reduction for each lien before you ask for more.
• Send reduction requests with the settlement amount, fees, costs and the client's projected net.
• Get every final amount in writing.
• Pay liens from the settlement only after the final figures are in.

Liens in PlaintiffStack

On a personal injury case in PlaintiffStack, the liens page records each lien with its asserted and negotiated amounts and its status, so a reduction request shows as requested until it's answered. The settlement statement computes the fee at 33.33 percent, costs, liens and the net to the client, and the Finances app totals asserted liens across the firm. PlaintiffStack doesn't do trust accounting; disbursement stays in the firm's trust account system. See Finances.