Third-party liens have increasingly become an issue in resolving mass litigation events. This is potentially problematic if liens become sufficiently burdensome or costly that potential litigants do not pursue cases. This paper examines the different types of health care liens and trends in prevalence, as well as how liens have changed the landscape of claim resolution.

The Role of Health Care Liens in Litigation and Recovery

Eric Helland

ResearchPublished Nov 19, 2018

Third-party liens have increasingly become an issue in resolving mass litigation events. Traditionally, liens in the civil justice system represent a claim by a creditor against a plaintiff's (the debtor's) cause of action. In recent years, Medicare and increasingly other forms of health insurance have been given far more extensive lien rights, particularly with regard to the obligations they are owed by defendants' insurers. Because these rights extend beyond the plaintiff to the plaintiff's lawyer and the defendant, these rights have made resolving these liens a requirement of settlement. Not surprisingly, anecdotal evidence suggests that liens are becoming more frequent. This is potentially problematic if liens become sufficiently burdensome or costly that potential litigants do not pursue cases. In this paper the author examines the different types of health care liens and trends in prevalence, as well as how liens have changed the landscape of claim resolution. The author uses a unique dataset on the resolution of a number of mass compensation events, as well as smaller claims. He finds that health care liens are relatively common in his dataset of mass compensation events. Moreover, he finds some evidence that smaller-value liens are more prevalent among Medicare liens, which is consistent with the hypothesis that Medicare liens' more extensive rights relative to other lien types lead the Center for Medicare Services to pursue more and smaller liens than private lien holders.

Key Findings

Medicare liens have acquired something of a "super lien" status

  • This allows them to compel parties to notify Medicare if a Medicare beneficiary is involved in litigation and must be included in settlement negotiations in a way that protects Medicare's interest.
  • The effect of this expanded set of lien rights appears in the data in that Medicare liens are, on average, more frequent and recover less money than private liens.
  • This may seem counterintuitive but is consistent with Medicare recovering on liens that other parties would not find as lucrative to pursue.

Medicaid liens, while similar in frequency, recover less than Medicare liens

  • This may be because, during the sample period, the Ahlborn and Wos cases had restricted Medicaid's lien rights relative to Medicare, something Congress reversed in 2013, and after 2017 Medicaid will have similar opportunities to assert greater lien rights as has Medicare.

The current frequency of liens in mass compensation events suggests a potential problem with the push to expand lien rights in non-Medicare statutory liens

  • As lien rights grow, liens will almost certainly become more frequent and command a greater share of recovery funds.
  • This suggests that the risk of plaintiffs' being unwilling to pursue claims is real, even if the data surveyed here do not necessarily suggest that liens are at some sort of tipping point.

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Helland, Eric, The Role of Health Care Liens in Litigation and Recovery. Santa Monica, CA: RAND Corporation, 2018. https://www.rand.org/pubs/research_reports/RR2393.html.
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