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Medical Malpractice Newsletter

Medical Liens and Filing Proper Notice

A person injured in an accident caused by the negligence or fault of another may eventually be able to recover damages from the person at fault. However, accident injuries usually require immediate treatment. If the injured party lacks medical insurance and the resources to pay for such treatment, a “medical lien” may provide a viable alternative.

Medical Liens

A medical lien basically reflects an agreement between the injured party and others, such as the health care providers, to defer payment until settlement with an insurance company or a court judgment. Upon completion of specified procedures (called “perfection”), this lien can become legally effective to require that the injured party keep the promise and pay the outstanding debt out of the proceeds of the settlement or lawsuit, often before the injured party receives such funds.

Without perfection, the health care provider may still pursue collection against the injured party, but may not be able to force payment from those particular proceeds, which could be spent by the injured party. Statutory procedures and requirements must generally be met in order to perfect the lien. These requirements and procedures are usually created and regulated by state law and include proper “perfection” and “notice” procedures, which can vary significantly. A local attorney may thus be advisable when creating, evaluating, and handling medical liens. An attorney may also be able to negotiate a reduction in the medical expenses subject to the lien.

Perfecting by Written Notice

A common way of perfecting a medical lien in some jurisdictions is sending a written notice of the debt to all parties, their attorneys, and/or the insurance company for the injuring party, which will pay the settlement or judgment. Who must receive notice and what information the notice must contain varies from state to state. Generally, however, notices must include some or all of the following information:

  • The amount of the debt and a description of the services received (some states require that the charges be “reasonable and necessary”; other states limit charges to a percentage of the recovery).
  • Acknowledgment of the debt and responsibility for payment by the injured party.
  • Agreement by the injured party that the debt can be paid from an insurance settlement or lawsuit judgment proceeds.
  • Agreement that the injured party’s attorney be instructed to pay the creditor out of such proceeds.

Filing a Notice of Lien

In some states, the medical lien must be filed with a designated public agency, such as a county clerk. This can be in addition to or as an alternative to giving the above-described notice. Where filing is required, there may be specifications as to the size of the paper, margins, whether the signatures must be notarized, etc.

Requirements specifying the content of the filed lien also vary from state to state, but generally include:

  • The name and address of the injured party.
  • The name and address of the debtor (the person or entity who provided the services).
  • Name and address of the insurance company (of the person causing the injury).
  • The person or entity liable for the debt.
  • An itemized statement of the amount of the debt.

Enforceability of Lien in Bankruptcy

Proper perfection determines the enforceability of the medical lien. In two cases, U.S. Bankruptcy Courts have held that if proper filing and notice requirements have not been satisfied and the injured party files for bankruptcy, the lien holder is not entitled to enforce payment of the debt directly from the proceeds of the lawsuit. The medical lien became an ordinary debt payable from the assets of the bankruptcy estate. The result in both cases was that the lien holder (health care provider) was only able to recover a small portion of the debt.

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