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self-study / Torts

Feb. 2, 2024

Liens, insurance and attorney referrals

Allen P. Wilkinson


Allen is a retired lawyer, with many years of experience involving personal injury and medical malpractice cases

A medical lien is a binding legal contract whereby the physician agrees to treat the client immediately and in return defers payment of his bill until the case is resolved, whether by verdict, arbitration award, settlement, or otherwise. Statutory, contractual, express and equitable, Medi-Cal, Medicare, workers' compensation, and ERISA are examples of statutory liens or liens that exist by operation of law, regardless of whether the injured person signed an agreement or acknowledgment.

A contractual lien is an agreement between a client (and sometimes also the attorney), and a medical provider wherein the provider agrees to treat the patient immediately and defer payment until such time as the case is resolved. A contractual lien should be in writing and signed by the patient and the physician. Some medical providers may insist on having the patient/client's attorney sign the document as well.

After the client (and sometimes the attorney) signs the agreement, the medical provider should perfect the lien by sending a notice to the insurance company, the patient's attorney, and other involved parties. After the patient's (plaintiff's) attorney has obtained a favorable verdict, arbitration award, or settlement, the plaintiff's attorney will pay the full medical bill directly from the amount obtained - at least that's the way it's supposed to work. If the case is not resolved in the patient's favor, the patient is nonetheless still liable to the physician for the full amount of the bill.

When the lawyer signs a lien agreement with an independent medical provider, the lawyer has both legal and ethical duties to protect the medical lienholder's interest under contract law. Where the attorney has signed the lien agreement, the attorney has a clear ethical duty to satisfy the lien before disbursing the remainder of the settlement or award. (Matter of Riley, (Rev. Dept. 19943 Cal. State Bar Ct. Rptr. 91.) If only the client signs the lien agreement, the lawyer may still have legal or ethical obligations, or both, to protect the medical lienholder's interests. In such a situation, questions include: Is there a pre-existing relationship between the attorney and the independent medical provider? Does the lawyer regularly send clients to treat with this provider? Has the lawyer made any promises, before or during the negotiation of the lien? Did the provider forgo rights or remedies on the attorney's representations?

Suppose the case is resolved in the client's favor but the client instructs the attorney not to pay the physician his or her fees pursuant to the lien agreement, saying that the client will pay the physician himself. The attorney then has competing interests: the lawyer cannot pay the disputed amount to the client because he owes a duty to the lienholder, nor may he pay the amount in question to the physician because he doesn't have the client's consent to do so. What can or must the lawyer do?

The lawyer may not simply hold the disputed amount in his trust account indefinitely. Two options that may be available to the attorney are: (1) with the consent of both the client and the physician, the attorney may hold the monies in his trust account until the parties can come to a resolution, or (2) the lawyer may interplead the disputed amount with the court and perhaps withdraw from the case. The lawyer may not represent either party in attempts to resolve the dispute. (State Bar of Calif. Standing Committee on Professional Responsibility and Conduct, Formal Opinion 1988-101.) At least one Bar association's opinion suggests it would be unethical for an attorney to pay the client any portion of the settlement proceeds to which he is not entitled. (Los Angeles Bar Ass'n Formal Opinion 478 (1994).)

Duty to investigate existence of liens

The plaintiff's attorney has a duty to conduct an investigation to determine where the money to pay the plaintiff's medical bills are coming from. In one matter before the State Bar Court (Matter of Riley, supra, 3 Cal. State Bar Ct. Rptr. 91), the attorney contended that he did not violate the duty to uphold the law because he never knew his clients were Medi-Cal recipients until after the settlement proceeds were disbursed. The court rejected this defense, ruling that an attorney has an affirmative duty to investigate who paid for his client's care to determine if there might be a lien claim.

The attorney failed to present any evidence that he made any effort whatsoever to determine how much of his client's medical bills had been paid. On the contrary, the attorney admitted at the time in question, his office did not have a practice of interviewing clients regarding the source of payment for their medical care. The lawyer has a duty to exercise due diligence to discover whether there may be any potential liens including, in some instances, notifying the potential lienholder about a third-party claim and any impending settlement. As for statutory liens, the attorney will be charged with notice regarding the relevant statutory requirements.

Insured clients treating with in-plan providers

When dealing with a new client who has been injured in an accident, it is imperative that the client get the appropriate and timely medical care and treatment. If a client has health insurance, a question may arise as to whether the client should be treated by doctors in his plan, or whether the client should be treated by independent medical providers on a lien basis. It is the client's right to be treated by the doctor of his choosing, even one who is not in his insurance plan.

In Howell v. Hamilton Meats & Provisions, Inc, ((2011) 52 Cal. 4th 541), the California Supreme Court held that in a tort action for economic damages, an award of past medical expenses is limited to the lesser of (1) the amount paid or incurred and (2) the reasonable value of the services rendered to a plaintiff with health insurance. (Howell, supra, 52 Cal.4th at 5). The Court held that the injured and insured plaintiff, who had been treated with only in-plan providers, may not recover economic damages that exceed the amount paid by the insurer for the medical services provided.

The total amount billed was $189,978.63. Due to a pre-negotiated agreement between the insurance company and the medical providers, the bills were reduced by $60,000 to $130,286.90. The jury nevertheless awarded the full billed amount of $189,978.63. The Supreme Court held that the plaintiff could not recover the $60,000 difference for the simple reason that the injured plaintiff did not suffer any economic loss in that amount. The high court of California declared that in such an event the full billed amount is not itself relevant and was thereby inadmissible to prove the amount of past medical expenses. Instead, only the actual amount paid by the insurer - usually a discounted price from the fair, reasonable, and customary charge - is recoverable. (Howell supra, 52 Cal 4th at 548).

Insured clients treating outside of insurance plan

In Pebley v. Santa Clara Organics, LLC ((2018) 22 Cal. App. 5th 1256.), the plaintiff was seriously injured when the RV he was riding in was stopped at the right side of the road after a tire blew out, and it was struck from behind by a large heavy truck. Although he was covered by health insurance, the plaintiff chose to be treated on a medical lien basis by doctors outside of his plan. (The plaintiff testified that he went to the outside doctors at the urging of members of his Men's Club; the defense lawyers said he was referred to them by his attorney.)

Pebley held that when an insured plaintiff chooses to seek medical care outside of his or her insurance plan, the plaintiff is considered "uninsured" (or noninsured), making the incurred but unpaid medical bills potentially relevant to prove past and future medical expenses so long as additional evidence - usually in the form of expert witness testimony - is also presented on the reasonable value of the medical services provided. When a plaintiff is not insured, medical bills are relevant and admissible to prove both the amount incurred and the reasonable value of the medical services provided. (Pebley, supra, 22 Cal. App. 5th 1266, 1275-77).

In Pebley, the court ruled that the plaintiff, who was treating outside his insurance plan, could introduce evidence of his medical bills, which his experts confirmed represented the reasonable and customary costs in the community for the services provided. Further, the plaintiff testified that he was liable for the full medical costs regardless of the litigation, and his treating surgeons stated they expected to be paid in full. The court explained it would be inequitable to classify a plaintiff as insured when the plaintiff, and not the insurance carrier, is obligated to pay the bills. Indeed, precluding the plaintiff from recovering the reasonable value of services for which he or she is entitled would result in both under compensation for the plaintiff and a windfall for the defendant. (Pebley, supra, 22 Cal. App. 5th at 1277-78.).

The Pebley court rejected the defense argument that the plaintiff failed to mitigate damages by using medical providers who did not accept his insurance. The court ruled that a tortfeasor cannot force a plaintiff to use his or her insurance to obtain medical treatment for injuries caused by the tortfeasor. That choice, the court stated, belonged to the plaintiff. The court reasoned that plaintiffs have multiple reasons to seek treatment outside of their insurance plan, including choosing specialists who do not accept their insurance or choosing doctors who may be more willing to participate in the litigation process. (Pebley, supra, 22 Cal. App. 5th at 1269, 1275.).

In Qaadir v. Figueroa ((2021) 67 Cal. App. 5th 760), the plaintiff was severely injured in a rear-end traffic collision. After treating with his in-plan health care plan providers for a month, the plaintiff went to an out-of-plan pain management doctor to whom he was referred by his personal injury attorney. At a trial on the damages, the plaintiff introduced full medical bills totaling $835,320.02, including the initial services rendered by his insurer. At the time of trial, no payments had been made for the care he received from the lien providers. Plaintiff's billing expert opined that the reasonable value of his medical bills totaled $632,456, using benchmark databases for medical services in the local geographical area. The defense's billing expert opined the reasonable value of plaintiff's medical care was $174,111. This figure was based on an average of what private insurers, Medicare, and workers' compensation would agree to pay and medical providers would agree to receive for those services. The jury's award included $532,000 for past medical expenses and $500,000 for future medical expenses.

The main holding of Qaadir is that evidence of the full amount of the medical bill is relevant in cases of uninsured plaintiffs to prove or disprove the "paid or incurred" prong of past medical damages if it can be established that the bill was actually paid or incurred. (Qaadir, supra, 57 Cal. App. 5th at 804). The Qaadir court observed that, under Pebley, the full billed amount is only admissible if the billed amount equals its reasonable value. The Qaadir court stated that it saw no reason to read such a limitation into Pebley: "Indeed, such a limitation would completely ignore the reason why the billed amount is material and relevant to prove past medical damages - which is to prove the amount paid or incurred." (Qaadir, supra, 67 Cal. App. 5th at 803-04.)

The Court stated: "Our conclusion comports with California's statutory scheme for economic damages awards since the measure of damages recoverable in tort is 'the amount which will compensate for all the detriment proximately caused' by the tort. [Civil Code section 3333.] The unpaid medical bill is a detriment proximately caused by the tort only if a plaintiff has incurred the full amount of the bill. Thus, even in the scenario where the billed amount potentially exceeds its reasonable value, the billed amount is generally relevant because the plaintiff is financially liable for it. Our conclusion also comports with Pebley, which held that an unpaid medical bill is relevant to prove economic damages for medical services when: (1) the plaintiff is 'uninsured' and (2) the 'uninsured' plaintiff is obligated to pay the medical bill." (Qaadir, supra, 67 Cal. App. 5th at 805.)

In cases involving a plaintiff who has insurance but elects to be treated outside of his or her insurance plan, evidence that the plaintiff was covered by a health insurance policy is properly excluded under Evidence Code section 352 (relevancy), as evidence of the plaintiff's insurance status would only confuse the issues and mislead and prejudice the jury. (Qaadir, supra, 67 Cal. App. 5th at 810.)

Referral by attorney of client to lien-physician

Quite frequently, personal injury plaintiff's lawyers will refer injured clients to specific physicians and medical groups who will treat the client on a lien basis, even if the clients have health insurance that would cover the treatment and care of the plaintiff. As stated above, there are a number of reasons for having the client treat with a lien physician, and the client is under no obligation to reduce, or mitigate, his or her medical expenses by treating with a medical provider that is covered by his or her insurance plan.

Defense lawyers have long and loudly criticized this practice, arguing that it creates an "unholy alliance" between the attorney and physician. They contend that the lien provider over treats and overcharges clients referred to them by plaintiff's lawyers, and that the physician will essentially have a stake in the case and therefore will inflate their fees. The lien-physician knows that not only his or her fees will be greater the higher the amount of the medical damages, but the attorney's fee will also be higher. And in an effort to win the attorney's business in the future, the physician will over treat and overcharge the client and thereby help the attorney achieve a higher verdict, which in turn means that the attorney's fee will be larger.

In Qaadir, the defendant contended that the trial court committed prejudicial error when it excluded evidence that plaintiff's attorney referred him to the lien-physicians. Defendants argued that the referral evidence was relevant to how the amounts of the medical bills were set, i.e., to how the lien-physicians set their billed charges was influenced by the fact that the amounts they recovered was directly linked to what Plaintiff recovered at trial. In short, the defendants contended the referral evidence was relevant to demonstrate the lien-physicians' incentive to inflate the bills.

The appellate court agreed that the trial court erred by excluding this evidence, stating that "the referral evidence was relevant to the question of the reasonable value of the lien-physicians' medical care because it may show bias or financial incentives on the part of the lien-physicians. If a lien-physician wants future referrals from a lawyer and understands that the lawyer benefits from inflating a client's medical bills, that incentive might encourage the lien-physician to inflate its current bill to please the lawyer and win future referrals." (67 Cal. App. 5th 790, 808 (citing Evidence Code sections 210 and 350)).

The appellate court, however, concluded that this error was not prejudicial, as the defense attorney had raised this issue during his opening statement and closing argument. During his opening statement, defense counsel advised the jury, without objection, that the plaintiff was advised to go see the lien-physicians by his lawyer. Later, defense counsel asked plaintiff's billing expert and plaintiff himself whether his attorney referred him to the lien-physicians. Plaintiff's attorney objected on relevance grounds and the trial court sustained both objections.

The appellate court noted that "[a]t trial, defense counsel ably explored the lien-physicians' incentive to inflate their bills due to the nature of the liens." The jury was advised that the doctors provided medical care on a lien basis. In his closing argument, defense counsel highlighted the medical providers' charges "in excess of $600,000 on a lien" and questioned where there was bias from this. At closing, defense counsel argued that plaintiff's billing expert had an incentive to overstate the reasonable value of the services rendered due to his connection with the lien-providers. (Qaadir, supra, 67 Cal. App. 5th at 808.).

Although not evidence, defense counsel's opening statement and question to plaintiff's billing expert alerted the jury to the potential that the plaintiff was referred to the lien-physicians by his attorney. The court concluded that, "[a]s a result, the jury was aware of 'how the lien-physicians get their billed charges was influenced by the fact that the amount they recovered was directly linked to what the plaintiff recovered at trial." (Qaadir, supra, 67 Cal. App. 5th at 808.)

Because of the negative effect defense strategy can have on the jury, plaintiff's attorney must be prepared to counter it from the beginning. If at trial plaintiff's attorney lets defense counsel be the one to introduce this issue first, the jury will believe that it is very damaging information to the plaintiff's case and will tend to be very conservative in the amount they award the plaintiff for medical expenses. Plaintiff's counsel may want to bring up the issue as early as voir dire, asking jurors how they feel about situations where the attorney refers the client to a specific physician or other medical provider, especially if the attorney has referred clients to the same physician or provider in the past. Plaintiff's attorney must explain to the jury that they have used this particular doctor before because he is a specialist in treating the type of injuries sustained or is familiar with the litigation process.


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