The benefits of “on lien” compensation models in PI cases

Most personal injury (PI) lawsuits fail at trial over evidence that plaintiffs did not seek medical attention soon enough or follow through on their treatment plans and medication. The failure of plaintiffs to "mitigate their damages" in this sense has posed an age-old problem that many members of the plaintiff's bar confront - and one that can torpedo the judgment and settlement values of their cases if not addressed.

Lawyers often assume important costs around transporting clients to and from doctor appointments and arranging for medication to be non-compensable case expenses. A close reading of California law raises a workaround that allows lawyers and clients to claim these expenses as part of a client's damages. Doing so comes down to how lawyers delegate nonrecourse transportation, prescription cards, and more to third parties "on lien" or under a letter of protection (LOP).

How California law treats "on lien" arrangements under letters of protection

Make no mistake: directly bankrolling a client's funds will raise the ire of defense counsel and compromise a client's case. Doing so can be viewed as counsel directing medical care and inflating medical damages. It can also raise serious ethics issues; Rule 1.8.5(a) of the California Rules of Professional Conduct prohibits the payment of personal expenses for an existing client, and that doing so constitutes professional misconduct and would result in serious consequences. Sanctions for violating the rule include suspension from the California State Bar.

Fortunately, this tenet does not impact the efficacy of services provided on a "lien basis." The measure of medical damages is the lesser of the amount paid or incurred, or the reasonable value of the medical services provided. Pebley v. Santa Clara Organics, LLC. (2018) 22 Cal.App.5th 1266. Clients seeking medical treatment on a "lien basis" are treated synonymously as uninsured clients, and thus the measure of damages is determined by the "reasonable value" of the services rendered. An uninsured plaintiff, or plaintiff seeking treatment on a lien basis, may introduce evidence of the amounts billed for medical services to prove the reasonable value of those services. Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, 1330-1331, 1335. Allowing unpaid medical bills as evidence for medical costs incurred was further reaffirmed in the 2021 Appellate Court case of Qaadir v. Figueroa (2021) 67 Cal.App.5th 790.

Ultimately, an attorney must satisfy any lien filed against a party upon reaching a legal settlement. Executing a lien requires the signatures of both the attorney and their client. Thus, the attorney assumes a fiduciary relationship with the third party and must satisfy those liens once they realize a settlement. Johnstone v. State Bar (1966) 64 Cal.2d 153; In the Matter of Nunez (Review Dept. 1992) 2 Cal. State Bar Ct. Rptr. 196, 200-201. This framework permits vendors who provide services on a lien basis or file a lien under a LOP for patient transportation fees, pharmacy coverage cards and more to collect related debts from a settlement - so long as the fees requested are reasonable.

There are workarounds for this as well, such as fully disclosing in writing and seeking independent counsel. But once again, it does not apply here unless the attorney has some pecuniary interest in the relationship between the healthcare provider and the client. By allowing an outside vendor to bill out transportation costs to clients under a lien or LOP, lawyers can leverage this approach to tack these costs onto any damages they assert.

How courts treat "on lien" arrangements that amount to loans

It's indisputable that lawyers can also pay third parties with valid liens from any settlement amount arrived at from a matter, so long as the client consents. Attorneys often obtain this consent through their retainer agreements with clients, and can satisfy outstanding liens under this authority.

Although lawyers are barred from paying for a client's personal or business expenses, they can advance costs for a case if the costs are contingent upon a case's outcome. Rules of Professional Conduct 1.8.5(b)(3). Courts have long acknowledged the ethical and legal permissibility of the Rules of Professional Conduct permitting a lawyer to make a contingent advance of costs to the client. Ojeda v. Sharp Cabrillo Hospital (1992) 8 Cal.App.4th 1, 21-22. Additionally, once a client retains a lawyer, they can agree to lend money to the client based on the client's written promise to repay the loan. Rules of Professional Conduct 1.8.5(b)(2).

Despite the openness of California courts regarding allowing lawyers to front certain costs and allowing medical treatment on liens, there are clearly limits. Lawyers should be careful about being the referral source for costs and treatment on a lien basis to avoid any potential issues of bias, as the credibility of a witness is determined in part by the existence of "a bias, interest or other motive," and thus the credibility of those costs can come into question. Evidence Code § 780 (f). Additionally, lawyers should be particularly diligent if choosing to be the referral source for their clients to certain medical providers on a lien basis, as it is well established that some medical providers with liens may overtreat patients to run up medical special costs. Lovett v. Carrasco (1998) 63 Cal.App.4th 48, 56. Further, if the medical provider, or other third party lien-holder, routinely accepts a sum less than the amount billed as "payment in full," defense counsel will utilize that discoverable information to undercut the reasonableness of the medical billing, transportation costs and prescription costs. With the increase in popularity of treatment and other related costs on a lien basis, defense firms and courts are addressing such occurrences with significant scrutiny to ensure their reasonableness.

These, of course, are just a few concerns that California attorneys must consider when addressing client medical transportation, and prescription costs and pharmacy coverage cards. In the end, lawyers do have options under California law when seeking compensation for medical transportation costs and prescriptions that firms typically expense out.