by Thomas D. Begley, Jr., CELA
This is the first of a series of three articles dealing with lien resolution in personal injury cases.
Types of Liens
Prior to making distribution in the settlement of a class action or mass tort lawsuit, a number of lien issues may need to be addressed, depending on the nature of the case, the elements of the recovery, and the population of claimants. These issues may include reimbursement claims asserted by Medicaid, Medicare, Medicare Advantage and Prescription Drug Plans, ERISA Plans, Federal Employee Health Benefits, Federal Medical Care Recovery Act, Veterans Administration and TRICARE Claims, Welfare Liens, Mental Health Liens, Traumatic Brain Injury Fund, Catastrophic Illness and Children’s Relief Fund, Victims of Crime Compensation, State Worker’s Compensation Claims, Federal Employee Compensation Act, Hospital Liens, Child Support and Division of Disabilities (DDD).
It is important to understand the differences between these two related concepts.
— Subrogation. Subrogation is the substitution of one party (an insurer) for another party (the insured) in the assertion of rights against a third party. It allows the insurer to assert the rights and claims of the insured. Subrogation rights may arise from contract (“conventional” subrogation), from legal principle or doctrine (“legal” or “equitable” subrogation), or from legislation (“statutory” subrogation).
— Reimbursement. Reimbursement allows the insurer to seek repayment from the insured when the insured receives funds from another party. Reimbursement rights arise from contract, with their scope and enforceability determined by the contract’s terms, subject to applicable limiting law.
Liens are generally enforceable against the settlement of the injured party on whose behalf benefits are paid, but it is unlikely they are enforceable against proceeds of derivative claims of others arising from the incident. For example, wrongful death claims would not generally be subject to liens because they are property of persons other than the decedent; in contrast, a survival claim, as property of a decedent’s estate, may be subject to a lien. Similarly, allocation of loss of consortium claims to those who do not have responsibility for medical bills, such as a spouse or child of an injured party, may in some circumstances serve to reduce the amount attachable by a health care lien.
Assignment to State of Rights against Third Parties
As a condition of Medicaid eligibility, a Medicaid applicant is required to assign to the state any rights to payment of medical care from any third party. This is essentially a statutory right of subrogation. Federal law further requires that each state Medicaid program have procedures for determining the legal liability of third parties to pay for medical assistance provided by the state’s Medicaid plan, and for reimbursement of the cost of medical assistance provided, whenever recovery is feasible. In New Jersey, the Attorney General is responsible for enforcing any rights against third parties or recovery of liens. When an individual brings an action for damages against a third party, written notice must be given to the director of the Division of Medical Assistance and Health Services. In addition, such individual must promptly notify the Division of any recovery from a third party. The recipient of a third-party recovery must immediately reimburse the division from the proceeds of any settlement, judgment, or other recovery.
Extent of Lien
A Medicaid lien applies only to the extent of medical assistance related to the injury and only to payments made from the date of the injury to the date of the settlement.
Reduction of Lien
There are two ways to reduce a Medicaid lien.
— Procurement Costs. The Medicaid lien is subject to an automatic reduction for a pro rata share counsel fees, costs, or other expenses incurred by the recipient or the recipient’s attorney. It is important not to overlook costs. If the attorney’s fee is 33% and the costs of the case represent 5% of the recovery, the procurement-cost reduction is 38%, not 33%.
— Ahlborn Reduction. The United States Supreme Court has held that a state Medicaid agency may recover only from that portion of a settlement earmarked as compensation in respect of medical expenses, and where there is no such allocation, the agency may only recover a proportionate share of its claim, determined by the ratio that the settlement amount bears to the reasonable value of the total claim.
The Medicare Secondary Payer Act (MSPA) governs all claims for recovery of Medicare payments for accidents or injuries. Under the MSPA the federal government has a statutory lien.
Responsibility for Payment
— Party Making Payment. The MSPA provides that Medicare may not make payments when payment has been made or can reasonably be expected to be made under a workers’ compensation program, under an automobile or liability insurance policy or plan (including a self-insured plan), or under no-fault insurance, unless the Medicare payment is made as a “conditional payment.” When there is a “conditional payment,” the United States may bring an action against the “primary plan” responsible for payment and the United States shall be subrogated for payment of those expenses from the primary plan. If it is necessary for CMS to take legal action to recover from the primary payer, CMS may recover double damages.
— Party Receiving Payment. CMS also has a right of recovery from any person or entity that receives a third-party payment. These include a beneficiary, provider, supplier, physician, attorney, state agency, or primary insurer that has received a third party payment.
— Timing of Payment. If a beneficiary or other party receives a third party payment, the beneficiary or other party must reimburse Medicare within 60 days.
Medicare will grant a credit against its reimbursement claim for a proportionate share of the necessary procurement costs incurred in obtaining the underlying personal injury settlement. Procurement costs are court costs and attorneys’ fees. The attorneys’ fees and expenses are calculated as a percentage of the total settlement sum and serve as the same percentage reduction of the conditional payment amount (total attorneys’ fees and costs/total settlement amount = percent reduction).
Cases will be compromised where there is questionable liability. In such cases, counsel notifies Medicare of the strengths and weaknesses of the defendant’s case in order to justify a reduction of the Medicare claim. The beneficiary is entitled to an appeal of an adverse decision on the request for waiver or compromise pursuant to § 870c of the Social Security Act. The request can be pre- or post-settlement. Requests for compromise must be accompanied by the amount of the pre-settlement offer.
 Admin. Comm. of Walmart Stores, Inc. v. Gamboa, 479 F.3d. 538 (8th Cir. 2007).
 Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010).
 42 U.S.C. § 1396k(a)(1)(A); N.J.S.A. 30:4D-7.1(c).
 42 U.S.C. § 1396a(a)(25)(A), (B), (H).
 N.J.S.A. 30:4D-7.1(a).
 N.J.S.A. 30:4D-7.1(b).
 N.J.S.A. 30:4D-7.1(b).
 Arkansas Dept. of Health and Human Servs. v. Ahlborn, 126 S. Ct. 1752 (2006).
 42 U.S.C. § 1395y(b)(2).
 42 U.S.C. § 1395y(b)(2)(B).
 42 U.S.C. § 1395y(b)(2)(B); 42 C.F.R. § 411.24(b).
 42 C.F.R. § 411.24(c)(2).
 42 C.F.R. § 411.24(g).
 42 C.F.R. § 411.37c.
 42 U.S.C. § 1395y.