One of the most common questions clients ask is why an insurance company, doctor or hospital has placed a lien on the proceeds from their claim settlement or lawsuit verdict? A lien is a type of claim seeking to recover money spent by a healthcare provider to treat a plaintiff’s injuries. The lien allows the provider to be reimbursed for these expenses from the proceeds of any settlement or judgment in connection to the event that caused these injuries. Under Illinois law, a lien is a valid way for medical providers to be reimbursed for outstanding expenses made on a plaintiff’s behalf. See 770 ILCS 23/10. Most health care providers also assert lien recovery rights as a condition of coverage in a health insurance policy.
Example of a lien: The most common example of a medical lien occurs when a health insurance company pays for a plaintiff’s medical care after the plaintiff was injured due to the fault of a third party. These situations commonly occur after auto accidents. For example, when a person is taken to the emergency room following an accident, his or her own individual health insurance policy general pays for the emergency services. When another person is at fault for the accident that caused this emergency treatment (referred to in the insurance industry as the “third party liable”), the injured person (the “plaintiff”) can generally recover the cost of their medical care from the insurance company of the responsible party. At the same time, his or her health insurance company will file a lien seeking reimbursement for the cost of his or her care. The plaintiff then satisfies the lien by refunding his or her own health insurance company for any amounts that were paid for their care. Such an arrangement is fair public policy as without a lien and subsequent refund, a plaintiff would recover their expenses twice: first, through the payment by their health insurance company and a second time when the insurance company for the responsible party reimburses the plaintiff for his or her medical expenses.
There are two important rules that affect how medical bills and liens are determined and compensated:
Plaintiffs’ are entitled to be reimbursed for the full cost of care: A plaintiff is entitled to recover from a responsible party the entire, reasonable cost of care; not simply the amount of money his or her individual insurance company paid for the care. Most health insurance companies contract with local hospitals to pay a percentage of the full cost for various procedures. This reduction is then passed on to the policyholder who receives this benefit in exchange for paying monthly premiums for insurance. Under a legal provision known as the collateral source rule, any “damages recovered by the plaintiff from the defendant are not decreased by the amount the plaintiff received from insurance proceeds, where the defendant did not contribute to the payment of the insurance premiums.” Arthur v. Catour, 216 Ill. 2d 72, 91 (Ill. 2005).
The collateral source rule protects an injured party from being penalized for carrying health insurance. Put in another way, Illinois courts note that, “the wrongdoer should not benefit from the expenditures made by the injured party or take advantage of contracts or other relations that may exist between the injured party and third persons.” Id. at 92. Therefore, when dealing with calculating medical expenses and subsequent liens following an injury, it is always important to get an itemized statement showing both the full cost of care received in addition to the negotiated rate a health insurance company paid for that care. Generally, while the injured party receives reimbursement for the full cost of care, the medical lien asserted from a health insurance company may only seek to recover the negotiated rate or actual amount paid by the health insurance company.
The total value of liens may not exceed more than 40% of the plaintiff’s settlement: The second important rule governing medical bills and liens is the Healthcare Services Lien Act. 770 ILCS 23. The purpose of this law is to protect an injured party by ensuring that his or her entire settlement or judgment does not merely go to satisfying outstanding liens. Under the Healthcare Services Lien Act, the total of all liens may not exceed more than 40% of the plaintiffs’ settlement. 770 ILCS 23/10. Additionally, no individual provider may receive more than one-third of the plaintiffs’ settlement. Id. In the event that the liens exceed this amount, an attorney will work with all of the lien holders to negotiate fair and proportional reductions so that the liens fall within the parameters set forth in the Healthcare Services Lien Act.