Medical Liens and Ethics

When it comes to claims by medical providers and government agencies seeking reimbursement from patients' personal injury awards, there is often a blurred distinction between liens and subrogation rights. And what about the ethical considerations and violations that are integrally involved in these cases? By looking at one state's (New York's) attorney ethics code and how it relates to the laws that enable medical liens, we will see the issues many lawyers nationwide must face when deciding how to proceed in these cases.

Statutory Foundations for Medical Liens

Medicare is a federal enabling statute that was enacted as part of President Lyndon Johnson's major legislative enactments in 1964. Recovery provisions were added in 1985 and established the Centers for Medicare & Medicaid Services (CMS) [42 USC '1395y(b)]. The recovery of Medicare payments from personal injury settlements or resolutions is presently handled by a Medicare Secondary Payor Recovery Contractor (MSPRC), an entity that was created in 2006. MSPRC takes the position that it has a “lien” on any and all personal injury recoveries. At least one federal court has formally held that “Medicare's right is superior to a lien.” Zinman v. Shalala, 835 F.Supp. 1170-71 (N.D. Calif. 1993); aff'd 67 F.3d 841 (9th Cir. 1995); United States v. Geier, 816 F.Supp 1332, 1337 (W.D. Wis. 1993) cf: Hadden v. United States, 2009 U.S. Dept. LEXIS 69383 (Aug. 6, 2009). The U.S. Department of Justice recently took a judgment against an attorney for non-satisfaction of a lien out of a personal injury settlement. United States v. Harris (N.D. W. Va. 2008).

Medicaid was included in President Johnson's legislative package in 1964 and requires that medical expenses for residents be paid by the local County Department of Social Services. (42 USC '1396 et seq.) This enabling statute permitted the states to enact their own specific legislation in conformance with the mandates of the federal law. In New York, '104-b of the Social Services Law specifically states that “the public welfare district ' shall have a lien for ' the total amount of public assistance.”

This law was enacted at a time in New York when General Verdicts and Contributory Negligence were still the law. Any recovery at that time in a personal injury case was for full value and included special damages for medical expenses and lost wages. New York state's highest court had [past tense] absolutely and unconditionally ruled that the federal enabling statute, 42 USC '1396a, authorized the creation of a lien on any relevant recovery, see Calvanese v. Calvanese, 93 NY2d 111, 688 NYS2d 479 (1999) and Gold v. United Health Services Hospitals, 95 NY2d 683, 723 NYS2d117 (2001).

Workers' Compensation has been considered to be a “lien” on any personal injury recovery by the injured worker since its enactment in 1922. This right of the carrier against “any” recovery of the employee is created by Workers' Compensation Law '29(1); Moeller v. Associated Hosp. Service of Capital Dist., 304 NY 73 (1952); Granger v. Urda, 44 NY2d 91, 404 NYS2d 319 (1978). The statute further provides that from any such settlement or judgment, the “proceeds ' shall be deemed” for the benefit of the fund.

When these “lien” statutes came into vogue, first with the Workers' Compensation statute in 1922, New York was a “contributory negligence” state. If an injured worker recovered in a third-party action, the defendant was wholly at fault and 100% responsible. Plaintiffs' culpability always had to be zero. If any fault was attributable to a plaintiff, there was no recovery. That also meant that if there were a recovery for personal injuries, the compensation was full, total and not reduced.

In the same time period, juries rendered only “general verdicts.” If a plaintiff was fortunate enough to make a recovery and not be barred by contributory negligence, that recovery came in the form of a single lump sum. The award was presumed to include all items of claimed damage, past and future personal injuries as well as all past and future lost wages and medical expenses. In that context, it was both logical and equitable that if an injured party collected medical expenses and lost wages that had been paid by his employer, they should be remitted to his employer's carrier and the employee should not be permitted to retain/recover those items of damage twice.

The Modern Era

Private health insurers have come to realize that the principles of subrogation should permit them to recover from the tortfeasor. A case was taken to the New York Court of Appeals in 1996 that recognized generally the right of intervention. Teichman v. Comm. Hosp of W. Suffolk, 87 NY2d 514 (1996). Nevertheless, three of New York's four Appellate Divisions held that there was no right of intervention by a private health insurer seeking to recover medical expenses. Humbach v. Goldstein, 229 AD2d 64 (2d Dept., 1997) lv. dismissed 91 NY2d 921; Halloran v. Don's, 47 West 44 St. Restaurant Corp., 255 AD2d 206 (1st Dept., 1998); Berry v. St. Peter's Hosp. of NY, 250 AD2d 63 (3d Dept., 1998).

The issue heated up when New York's Fourth Appellate Department recognized the right of intervention by the health care provider to pursue its subrogation rights and claims. Kaczmarski v. Suddaby, 9 AD3d 847 (4th Dept., 2004); Oakes v. Patel, 23 AD3d 1023 (4th Dept., 2005).

The State's Court of Appeals recently confirmed the position of the Fourth Department in Fasso v. Doerr, MD, et al, 12 NY3d 80, 875 NYS2d 846 (2009). It held that there may be an independent subrogation claim asserted by the health care provider, either joined with the personal injury action or independent of it. It defined the “made whole” rule and then held that the rule is applicable in New York. It observed that the health insurer assumes a risk of loss when it issues a policy, whereas the injured party does not willingly assume the risk of injury. As such, it concluded that only after the insured had fully recovered could the insurer recover on its reimbursement claim. The insured has the “priority of interests,” which takes precedence over the subrogation rights of the insurer.

Medicaid has been subjected to a similar epiphany, but is resisting its application vigorously. Arkansas Department of Health and Human Services v. Ahlborn, 547 US 268 (2006), was specifically directed at Medicaid and the various state “lien” statutes that were enacted. In New York, Ahlborn effectively overruled the section of the New York Medicaid statute (Social Services Law ' 104 b) that had provided that the entire amount of “any verdict, decision, decree, judgment, award or final order” was subject to the county's “lien” for the county's medical expenditures. That precept had been the “law” in New York, as specifically set forth in the statute and in Calvanese and Gold v. United Health Services Hospitals, 95 NY2d 683, 723 NYS2d117 (2001).

Importantly, Ahlborn recognized that claims for personal injuries and claims for medical expenses are separate claims. The application and approach by plaintiffs' attorneys and county attorneys relative to apportionment of recoveries or waiver of claims has been and continues to be conflicted, inconsistent and varied from county to county.

Medicare is taking the absolute position that CMS is entitled to full reimbursement from the personal injury action, after attorneys' fees but before the injured party receives any compensation. It maintains this position despite the fact that the Medicare statute clearly states that the federal government, the Medicare provider, has an independent right of action and “The United States shall be subrogated ' ” [42 USC '1395y (b)(2)(B)(iv)] relative to any and all monies it has paid and might in the future pay for treatments relative to a third-party liability action.

Workers' Compensation

Workers' Compensation is considered to have an “assignment” and has the right to start its own action to recover its expenditures if an injured worker does not bring his own action. (Workers' Compensation Law '29.2). The statute itself has “subrogation” in its title.

The Workers' Compensation carriers, and to date the courts, have taken the position that this “lien” is “inviolate” and the carrier must be reimbursed, after attorneys' fees have been deducted, up to the full amount of their expenditures. (See Traska v. Allied Frozen Storage Inc., Erie Supreme, J. Sconiers, decided 8-7-09). The carriers take an intransigent position despite the fact that the laws that existed relative to tort actions in 1922 have changed radically.

Comparative negligence came into existence in 1973 in New York with Dole v. Dow Chemical Co., 30 NY2d 143, 331 NYS2d 382 (1973). Legislatively, comparative negligence was formally enacted by Article 14 of the CPLR in 1975. These changes impact all personal injury cases in the State. Routinely now, verdicts and even settlements are reduced by considerations of comparative fault. A subrogee “stands” in the shoes of the plaintiff with the same rights and limitations.

Furthermore, the practice of a jury issuing a “general verdict” has totally disappeared. Due to legislative enactments and case law, itemized verdicts are the required norm. The appellate courts routinely adjust jury awards for specific items of damage and leave others as they were rendered. Jury awards for future damages, including lost wages, are statutorily modified by CPLR 50-a and 50-b, which were enacted in 1985. Article 16 of the CPLR has affected many cases relative to apportionment and, therefore, monetary payments, since 1986. These changes often result in an injured plaintiff collecting less than the full jury award, or even less than the full value of his injuries and losses.

Conclusion

In next month's issue, we will discuss the interplay between medical liens, medical subrogation rights and the ethics rules applicable to lawyers practicing in the State of New York.

J. Michael Hayes is an attorney in Buffalo, NY, practicing plaintiff's personal injury law. This is a modified version of an article that first appeared in the New York Law Journal, a sister publication of this newsletter.

When it comes to claims by medical providers and government agencies seeking reimbursement from patients' personal injury awards, there is often a blurred distinction between liens and subrogation rights. And what about the ethical considerations and violations that are integrally involved in these cases? By looking at one state's (New York's) attorney ethics code and how it relates to the laws that enable medical liens, we will see the issues many lawyers nationwide must face when deciding how to proceed in these cases.

Statutory Foundations for Medical Liens

Medicare is a federal enabling statute that was enacted as part of President Lyndon Johnson's major legislative enactments in 1964. Recovery provisions were added in 1985 and established the Centers for Medicare & Medicaid Services (CMS) [42 USC '1395y(b)]. The recovery of Medicare payments from personal injury settlements or resolutions is presently handled by a Medicare Secondary Payor Recovery Contractor (MSPRC), an entity that was created in 2006. MSPRC takes the position that it has a “lien” on any and all personal injury recoveries. At least one federal court has formally held that “Medicare's right is superior to a lien.” Zinman v. Shalala , 835 F.Supp. 1170-71 (N.D. Calif. 1993); aff'd 67 F.3d 841 (9th Cir. 1995); United States v. Geier , 816 F.Supp 1332, 1337 (W.D. Wis. 1993) cf: Hadden v. United States, 2009 U.S. Dept. LEXIS 69383 (Aug. 6, 2009). The U.S. Department of Justice recently took a judgment against an attorney for non-satisfaction of a lien out of a personal injury settlement. United States v. Harris (N.D. W. Va. 2008).

Medicaid was included in President Johnson's legislative package in 1964 and requires that medical expenses for residents be paid by the local County Department of Social Services. (42 USC '1396 et seq.) This enabling statute permitted the states to enact their own specific legislation in conformance with the mandates of the federal law. In New York, '104-b of the Social Services Law specifically states that “the public welfare district ' shall have a lien for ' the total amount of public assistance.”

This law was enacted at a time in New York when General Verdicts and Contributory Negligence were still the law. Any recovery at that time in a personal injury case was for full value and included special damages for medical expenses and lost wages. New York state's highest court had [past tense] absolutely and unconditionally ruled that the federal enabling statute, 42 USC '1396a, authorized the creation of a lien on any relevant recovery, see Calvanese v. Calvanese , 93 NY2d 111, 688 NYS2d 479 (1999) and Gold v. United Health Services Hospitals , 95 NY2d 683, 723 NYS2d117 (2001).

Workers' Compensation has been considered to be a “lien” on any personal injury recovery by the injured worker since its enactment in 1922. This right of the carrier against “any” recovery of the employee is created by Workers' Compensation Law '29(1); Moeller v. Associated Hosp. Service of Capital Dist. , 304 NY 73 (1952); Granger v. Urda , 44 NY2d 91, 404 NYS2d 319 (1978). The statute further provides that from any such settlement or judgment, the “proceeds ' shall be deemed” for the benefit of the fund.

When these “lien” statutes came into vogue, first with the Workers' Compensation statute in 1922, New York was a “contributory negligence” state. If an injured worker recovered in a third-party action, the defendant was wholly at fault and 100% responsible. Plaintiffs' culpability always had to be zero. If any fault was attributable to a plaintiff, there was no recovery. That also meant that if there were a recovery for personal injuries, the compensation was full, total and not reduced.

In the same time period, juries rendered only “general verdicts.” If a plaintiff was fortunate enough to make a recovery and not be barred by contributory negligence, that recovery came in the form of a single lump sum. The award was presumed to include all items of claimed damage, past and future personal injuries as well as all past and future lost wages and medical expenses. In that context, it was both logical and equitable that if an injured party collected medical expenses and lost wages that had been paid by his employer, they should be remitted to his employer's carrier and the employee should not be permitted to retain/recover those items of damage twice.

The Modern Era

Private health insurers have come to realize that the principles of subrogation should permit them to recover from the tortfeasor. A case was taken to the New York Court of Appeals in 1996 that recognized generally the right of intervention. Teichman v. Comm. Hosp of W. Suffolk , 87 NY2d 514 (1996). Nevertheless, three of New York's four Appellate Divisions held that there was no right of intervention by a private health insurer seeking to recover medical expenses. Humbach v. Goldstein , 229 AD2d 64 (2d Dept., 1997) lv. dismissed 91 NY2d 921; Halloran v. Don's, 47 West 44 St. Restaurant Corp., 255 AD2d 206 (1st Dept., 1998); Berry v. St. Peter ' s Hosp. of NY , 250 AD2d 63 (3d Dept., 1998).

The issue heated up when New York's Fourth Appellate Department recognized the right of intervention by the health care provider to pursue its subrogation rights and claims. Kaczmarski v. Suddaby , 9 AD3d 847 (4th Dept., 2004); Oakes v. Patel , 23 AD3d 1023 (4th Dept., 2005).

The State's Court of Appeals recently confirmed the position of the Fourth Department in Fasso v. Doerr, MD, et al, 12 NY3d 80, 875 NYS2d 846 (2009). It held that there may be an independent subrogation claim asserted by the health care provider, either joined with the personal injury action or independent of it. It defined the “made whole” rule and then held that the rule is applicable in New York. It observed that the health insurer assumes a risk of loss when it issues a policy, whereas the injured party does not willingly assume the risk of injury. As such, it concluded that only after the insured had fully recovered could the insurer recover on its reimbursement claim. The insured has the “priority of interests,” which takes precedence over the subrogation rights of the insurer.

Medicaid has been subjected to a similar epiphany, but is resisting its application vigorously. Arkansas Department of Health and Human Services v. Ahlborn , 547 US 268 (2006), was specifically directed at Medicaid and the various state “lien” statutes that were enacted. In New York, Ahlborn effectively overruled the section of the New York Medicaid statute (Social Services Law ' 104 b) that had provided that the entire amount of “any verdict, decision, decree, judgment, award or final order” was subject to the county's “lien” for the county's medical expenditures. That precept had been the “law” in New York, as specifically set forth in the statute and in Calvanese and Gold v. United Health Services Hospitals , 95 NY2d 683, 723 NYS2d117 (2001).

Importantly, Ahlborn recognized that claims for personal injuries and claims for medical expenses are separate claims. The application and approach by plaintiffs' attorneys and county attorneys relative to apportionment of recoveries or waiver of claims has been and continues to be conflicted, inconsistent and varied from county to county.

Medicare is taking the absolute position that CMS is entitled to full reimbursement from the personal injury action, after attorneys' fees but before the injured party receives any compensation. It maintains this position despite the fact that the Medicare statute clearly states that the federal government, the Medicare provider, has an independent right of action and “The United States shall be subrogated ' ” [42 USC '1395y (b)(2)(B)(iv)] relative to any and all monies it has paid and might in the future pay for treatments relative to a third-party liability action.

Workers' Compensation

Workers' Compensation is considered to have an “assignment” and has the right to start its own action to recover its expenditures if an injured worker does not bring his own action. (Workers' Compensation Law '29.2). The statute itself has “subrogation” in its title.

The Workers' Compensation carriers, and to date the courts, have taken the position that this “lien” is “inviolate” and the carrier must be reimbursed, after attorneys' fees have been deducted, up to the full amount of their expenditures. (See Traska v. Allied Frozen Storage Inc., Erie Supreme, J. Sconiers, decided 8-7-09). The carriers take an intransigent position despite the fact that the laws that existed relative to tort actions in 1922 have changed radically.

Comparative negligence came into existence in 1973 in New York with Dole v. Dow Chemical Co. , 30 NY2d 143, 331 NYS2d 382 (1973). Legislatively, comparative negligence was formally enacted by Article 14 of the CPLR in 1975. These changes impact all personal injury cases in the State. Routinely now, verdicts and even settlements are reduced by considerations of comparative fault. A subrogee “stands” in the shoes of the plaintiff with the same rights and limitations.

Furthermore, the practice of a jury issuing a “general verdict” has totally disappeared. Due to legislative enactments and case law, itemized verdicts are the required norm. The appellate courts routinely adjust jury awards for specific items of damage and leave others as they were rendered. Jury awards for future damages, including lost wages, are statutorily modified by CPLR 50-a and 50-b, which were enacted in 1985. Article 16 of the CPLR has affected many cases relative to apportionment and, therefore, monetary payments, since 1986. These changes often result in an injured plaintiff collecting less than the full jury award, or even less than the full value of his injuries and losses.

Conclusion

In next month's issue, we will discuss the interplay between medical liens, medical subrogation rights and the ethics rules applicable to lawyers practicing in the State of New York.

J. Michael Hayes is an attorney in Buffalo, NY, practicing plaintiff's personal injury law. This is a modified version of an article that first appeared in the New York Law Journal, a sister publication of this newsletter.