Here is what you need to know about medical lien claims, a system of legally sanctioned claw backs from your personal injury recovery—at your expense.
We don’t like it either. You paid premiums that generated profits for insurance companies and their executives, and now those carriers want more—from your settlement.
Suffering an injury subjects you, the plaintiff, to a set of laws that are fundamentally unfair and, in our view, a corruption of justice. As plaintiffs’ lawyers, we have challenged these outdated legal constructs for decades. One essential truth remains: while you cannot control what happens to you, you can control how you respond. That’s where power lies. Here is how we recommend fighting back against medical insurance liens.
Health insurance carriers often assert reimbursement rights for payments made on your behalf, demanding repayment from the damages you recover from the at-fault party. By law, they get a free ride on your attorney’s fees and case costs—you pay; they don’t. By contrast, Medicare and Medi-Cal acknowledge the work that goes into obtaining a settlement. Medicare shares equitably in fees and costs, while Medi-Cal provides a partial allowance.
Medical insurance liens are, by nature, questionable. They’re based on inflated figures that may not reflect what insurers actually paid. Patients are not told what confidential arrangements insurance companies make with hospitals and medical providers. For instance, carriers renegotiate and readjust payments quarterly based on their private contracts with healthcare systems. These side deals benefit the carriers—not you.
This is particularly true for Kaiser Permanente patients. Kaiser typically generates bills only when it anticipates third-party reimbursement—that is, a recovery from the person who injured you. Otherwise, Kaiser patients see no bills. In the past, Kaiser has pressured patients to sign documents acknowledging its contractual lien rights—documents that also waive the right to sue Kaiser for malpractice in California courts. Never sign such documents under threat or otherwise. If the lien is valid, no further acknowledgment is needed.
Once your lawyer subpoenas medical records, providers must notify insurance companies, which then assert lien rights. Medicare and Medi-Cal are protected by laws requiring your attorney to notify them of any claim or settlement. This legal framework puts payors in control of the process. Kaiser collection agents routinely demand lien recognition—but we treat them like any other claimant. They are not allies. They are adversaries.
Bear in mind that lien collection companies compensate employees with commissions for collecting from you. These collectors face quotas—monthly, quarterly, and annually—and earn bonuses for surpassing them. The implication: you can often negotiate a better lien reduction near the end of a reporting period. Holding firm and delaying resolution can work in your favor. In a catastrophic burn injury case, for example, Kaiser asserted a lien of $3,502,820. After protracted negotiations, citing many of the arguments outlined below, we secured a final payment of $1,250,000. Every case is different but pushing back matters.
Lien notices typically cover all expenses from the injury date forward, including unrelated care. Demand that the lienholder remove unrelated treatment and excessive charges, especially where hospitals assert special liens under California’s emergency care statutes.
California law allows for recovery of damages reduced by your percentage of fault. Lienholders stand in your shoes and must accept reductions based on comparative fault. If you are deemed 33% at fault, the lien must also be reduced by 33%. A savvy attorney can incorporate a finding of fault into a judicially approved settlement, especially following mediation or a settlement conference. Some insurers insist on a court determination of comparative fault. If they do, a declaratory relief action may be necessary to compel compliance. Often, carriers relent—collection employees want their commissions sooner, not later.
Making a claim for loss of consortium (your spouse’s loss of companionship, comfort, and care) may reduce a lien by allocating a portion of the recovery to your spouse. This requires separate releases from the defendant’s insurer and may support a hardship-based lien reduction. While this has limited effect on Medicare liens, it can be valuable in Medi-Cal and private lien scenarios by supporting “Made Whole” and “Common Fund” arguments.
The “Made Whole Doctrine” limits lien rights when your recovery is disproportionately low. For example, if your medical bills total $100,000 but the defendant only carries a $50,000 policy and cannot contribute more, claw back rights may be barred. This doctrine supports a full waiver of the lien when you have not been fully compensated.
If you paid for your own insurance, the carrier must contribute a proportional share of attorneys’ fees and costs—reducing the lien accordingly. This is the “Common Fund Doctrine,” codified in California Insurance Code § 3040, which also limits medical liens to one-third of the insured’s settlement or judgment.
If your medical coverage was employer-provided, the policy is likely governed by federal ERISA law (Employee Retirement Income Security Act of 1974). ERISA, as interpreted by the U.S. Supreme Court in McCutchen v. U.S. Airways (2013), allows insurers to demand full reimbursement—even your entire recovery. Ironically, the insurer’s claim in that case was later discredited, and the matter quietly settled under a gag order. Nevertheless, the decision stands, despite its troubling origins.
ERISA carriers are legally permitted to ignore the common fund discount. Yet in practice, many do negotiate. Why? Because they rely on plaintiffs and their lawyers to recover funds for them. And their collection agents want bonuses. When faced with an unreasonable demand, we’ve at times invited the insurer to sue, placed the disputed lien in trust, and waited out the statute of limitations. After four years, we returned the funds to our client.
Failing to pay a Medicare lien exposes everyone involved to liability—the insurer, the plaintiff, defense counsel, and plaintiff’s counsel. That’s why settlement agreements often require the plaintiff to guarantee satisfaction of all outstanding liens.
Medicare can sue for double damages. Federal law requires notice to Medicare at the start of a case so that it can communicate with your lawyer about the lien. Upon settlement, the Centers for Medicare & Medicaid Services (CMS) issues a notice of “conditional payments”—the agency’s term for its lien. Medicare is intended as a secondary payer; others must pay first. Once the final lien amount is determined, 42 C.F.R. § 411.37 governs the deduction for procurement costs (attorneys’ fees and expenses). That proportion is applied to reduce the lien. The remainder is Medicare’s recovery amount.
Under Haro v. Sebelius, 747 F.3d 1099 (9th Cir. 2014), attorneys must resolve Medicare liens before disbursing client funds. This often causes weeks of delay, as the final lien statement must be reviewed for non-injury-related charges.
Medicare’s liens are usually reasonable. Typically, they represent about 20% of the hospital’s billed charges—known as the “chargemaster” amount. Clients are often shocked by large medical bills post-surgery and hospitalization, only to find Medicare’s lien is much smaller. Medicare negotiates fair rates—a strong argument for expanding Medicare eligibility.
Medi-Cal operates similarly and acknowledges that, without your attorney’s work, it would recover nothing. Medi-Cal caps attorneys’ fees it recognizes at 25% and reduces liens proportionally.
Medi-Cal liens are federally funded under the Affordable Care Act’s “expansion” population. When Medi-Cal reduces a lien more than 50% due to hardship, California must repay the federal government from its general fund. That obligation affects how much the state is willing to reduce.
Medi-Cal liens can also be reduced under the U.S. Supreme Court’s 2006 decision in Arkansas v. Ahlborn, which held that Medicaid programs can only recover from the portion of a settlement attributable to past medical expenses. California codified this rule in Welfare and Institutions Code § 14124.76(a), limiting Medi-Cal’s recovery to the amount allocated for medical care.
Other lawyers may reach different conclusions. We welcome discussion, comments, and constructive suggestions.
