Source: http://www.haddadtrialbook.com/adjudication-of-liens/
Timestamp: 2019-04-23 00:47:11+00:00

Document:
Wherever possible and within the bounds of discretion, judges may be helpful in facilitating settlement by assisting the parties in resolving liens issues bearing upon the case at the mediation stage. The parties should try to resolve lien issues prior to judgment---and most certainly prior to distribution of the “res”. Once the money is “disbursed” to plaintiff’s counsel, certain rights may vest to the lienholder. For example, a federal court may accept jurisdiction under ERISA, or an insurer/subrogee may file an action for subrogation, or the medical providers may file collection actions. In some circumstances, oversights have resulted in lawyers being exposed to suits for fraud and conversion. Here are some practical steps in approaching the resolution of liens at settlement or verdict.
1. When in doubt, accept the notice of lien. Technical defects in the notice are often disregarded by the courts and, significantly, notice is implied in certain statutes such as ERISA, Workers Compensation, Medicare/Medicaid.
Comment: A lawyer may be exposed to suit or even disciplinary action for ignoring a lien after proof of notice. In Cirrincione v. Johnson, 184 Ill. 2d 109 (1998) the lienholder had a cause of action for breach of contract and conversion with punitive damages as against an attorney who ignored lien and disbursed funds to client. Same result in suit by insurer against attorney who disbursed to client who went bankrupt, in Western States Ins. V. Louis Olivero, 283 Ill. App. 3d 307 (3d Dist 1996). Technical defects in notice are disregarded in most courts and, significantly, notice is implied in certain “super lien” statutes as ERISA, Workers Compensation, Medicare/Medicaid See Cirrincione v Johnson, 287 Ill App 3d 683 (1st Dist 1998). In Gallagher v Lenart, 226 Ill. 2d 208 (2007), the supreme court held that a general release of the third party claim with an employer “would not be sufficiently explicit to waive workers' compensation lien… We do not believe general language is sufficient to effect such a waiver. On the contrary, the waiver of a workers' compensation lien must be explicitly stated. Gallagher at 237-238.
2. Identify any unpaid medical providers, regardless of whether liens were asserted, in that the client remains liable to them. Be sure to identify any plans or policies of insurance applicable.
a. Lien reduction will induce quick settlement and quick money.
inducement to settle, and also causing an unfair result.
appearance and justification or proof of validity of lien.
2. Notify the lienholder that any agreement to reduce the lien is (a) contingent upon settlement and (b) forgives to the entire debt.
3. If there is an agreement, follow it up with a letter or written confirmation that the lienholder will execute a release of lien and debt.
conference with the court, or keep them “on call” by telephone during any pre-trial conference.
5. If early settlement is achieved based upon agreements with the lienholders, make sure the court retains jurisdiction, you must then promptly confirm the agreements in writing. If the lienholder objects or reneges on its agreement, then the court can vacate the dismissal and reroute the case, or even hold a formal hearing (or informal discussion) with the lienholder.
a matter prior to disbursement of funds.
c. Notifying the respondent of the petitioner’s basis to seek reduction of the lien.
3. The Notice of the Petition may be delivered via registered and first class mail within the statutory time. See Jayko v. Fraczek, 2012 Ill App (1st ). It should contain allegations challenging the validity of the lien and proposing reductions, including the amounts “claimed” and the amounts “owed” after reduction.
1. Pre-hearing Disposition of Liens: More often than not, the filing of the Petition is the “final inducement” for settlement of the liens and a hearing is unnecessary. Also, lienholders often fail to appear for the hearings.
2. No Shows: Courts are reluctant to automatically “default” the respondent for failure to appear and adjudicate the lien to zero. More often the courts will still make determination based upon available evidence on how to proceed. The problem for the plaintiff is that the reduction, even if to zero or by default, often does not relieve the client from exposure to suit at a later time. If notice was proper and the court had jurisdiction, funds allocated should be disbursed and the client ought to be notified of any future exposure in writing and with the client’s written acknowledgement of receipt of same.
3. “All parties present”: This stage presents yet another opportunity to induce the lienholder to settle, perhaps with court participation.
party should not be obligated to pay a provider the “retail price” for services, for example an aspirin, but instead should pay the price the provider charges organizations and plans like an HMO.
COMMENT: Check Bill - Where Medicaid/Public Aid and WorkersCompensation liens are statutory, health care plans and insurers must express the subrogation/reimbursement rights in writing Schultz v.Gotlund, 138 Ill.2d 171 (1990). As such, check itemization of bills to see if insurer paid amount billed and look for healthcare provider’ discounts. Seek service contracts between the insurer and the provider if necessary.
COMMENT: If they are enforcing a lien, they should be able to defend the bill. Be sure all charges relate to treatment causally connected with accident injuries.
c. Were the services provided “medically necessary”?
Again, this may require expert testimony.
Was the final settlement or verdict reduced based upon other conditions treated that the finder of fact decided were not related to this accident? Should then the lien for treatment be reduced in proportion to the settlement?
(2) Failure to provide proof of lien during a lien adjudication proceeding. Either way, this is a 20-day statutory requirement. If the provider fails to promptly comply, or the report fails to document a nexus between the injury and the care, then the provider may be compromised in asserting the lien.
1. That the lienholder is attempting to withdraw acceptance of an offer to reduce lien after the petitioner reasonably relied upon that acceptance in achieving a settlement of the matter.
3. That the health care provider accepted payment from Medicare [Medicaid] and, therefore, has agreed to be bound by a contract that satisfies the debt, making the lien unenforceable.
5. Because recovery represents less than the full value of the case…, the Petitioner demands proof that the medical bills were for treatment that was medically necessary for injuries causally connected to this accident. Alternatively the Petitioner seeks a reduction of the amount of lien to reflect the reduction of the recovery.
Comment: A physician should be able to demonstrate a causal connection between an underlying event and the services he rendered before his lien can attach to funds related to a patient's tort action. Dollieslager v Hurst, 295 Ill App 3d 152 (3d Dist 1998).
7. Petitioner seeks a reduction of the amount of lien to reflect the statutory limits to health providers and professionals of 33-1/3% separately or and 40% in the aggregate (with proportional distribution) pursuant to§ 770 ILCS 23/10 of the Health Care Services Lien Act.
Comment: Liens and reimbursements recovered through the efforts the injured party’s attorney are subject to reduction reflecting attorney’s fees (retainer fee contract amount, or 25% by statute in workers compensation matters, or even 30% under Lien Act where the 40% maximum cap is utilized.) See also, Burrell v Southern Truss, 176 Ill 2d 171 (1997).
Insurance Company’s lien was $950 but agreed to reduce to $475.
Naprapathic Center’s lien was $4,700 but agreed to reduce to $2,350.
9. The lien is void because the insurer has failed to produce the insurance policy despite the insured’s demand for the production of the policy of insurance or other such agreement to subrogate.
10. The lien is void because the lienholder failed to produce a medical report as required under 770 ILCS 23/25 of the Health Care Services Lien Act which requires that the medical service provider furnish a written statement of the nature and extent of injures, the related treatment for the injuries and the manger the injuries were received within 20 days after receiving an authorized request to produce the statement.
11. The lienholder insured the Petitioner and did violate its fiduciary duty under the insurance agreement with its insured by improperly sharing information of past and subsequent medical payment claims with the defendant through a claims index, greatly reducing the recovery and negating its rights to enforce its insurance agreement.
13. Liens and reimbursements herein are not applicable to Petitioner who is a beneficiary in wrongful death claim.
Comment: But see exception with ERISA (where minor is specifically covered) or suits with counts under Family Expense Act. Be careful of bad faith settlements excising the Family Expense Count to avoid duty to pay. See Estate of Aimone v. State Health Benefit Plan/Equicor, 248 Ill. App. 3d 882 (3rd Dist. 1993); *See also Sosin v. Hayes, 258 Ill. App. 3d 949 (1st 1994) where both parents expressly executed assignments showing intent to maintain minor as third party beneficiary under obligation of the reimbursement clause of the health policy.
15. That the respondent is an assignee of the lien rights which are not assignable by law.
17. That Medicare's subrogation rights are subject to a reduction by a pro rata share of the procurement costs borne by the Petitioner, and also the court may issue an “advisory order” where waiver provisions may apply.
18. That Medicaid’s Public Aid Lien is subject a reduction by a pro rata share of the procurement costs borne by the Petitioner.
Comment: Unlike Medicare, Illinois gives the court jurisdiction to use equitable authority to reduce or negate public aid liens 305 ILCS 5/11-22. Medicaid is administered by the Illinois Department of Public Aide and governed by local statute as it is funded by both state and federal funds.
19. FELA, SSI, and the Supremacy Clause: Where federal lien laws conflict with state laws, explicitly or implicitly, they generally will pre-empt state laws as provided through the Doctrine of Pre-emption pursuant to the Supremacy Clause of the United States Constitution. U.S. Const Art. VI, CL. 2, Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992). The right of reimbursement has been held to apply as against economic as well as non-economic recoveries. U.S. v. Lorenzetti, 467 U.S. 167 (1984). However, in Federal Employers’ Liability Act (FELA) cases under 45 U. S. C. Section 55, the railroad’s right to recover indemnity depends entirely upon state law. See Dorward v. Consolidated Rail Corp, 500 F. Supp. 99 (E.D. Pa – 1980). Also, Supplemental Security Income (SSI) provides no subrogation or reimbursement rights.
20. Petitioner seeks a reduction of the amount of lien to reflect attorney’s fees, court costs, and litigation expenses borne by the Petitioner in this suit as is required under the Equitable Common Fund Doctrine in Illinois.
Comment: Attorney’s fees and court costs apply under the fund doctrine. To sustain a claim under the common fund doctrine, the attorney must show that (1) the fund was created as the result of legal services performed by the attorney, (2) the subrogee or claimant did not participate in the creation of the fund, and (3) the subrogee or claimant benefited or will benefit from the fund that was created. Bishop v. Burgard, 198 Ill. 2d 495 (2002) In Scholtens v. Schneider, 173 Ill. 2d 375 (1996) and Bishop the Supreme Court held that the Employee Retirement Income Security Act of 1974, 29 U.S.C.S. § 1001 et seq. (1994) (ERISA) does not pre-empt the Equitable Common Fund Doctrine. This is consistent with the Court’s holding in Baier v. State Farm Ins. Co., 66 Ill. 2d 119 (1977), which held that insurance policies and plans do not pre-empt the fund doctrine, even where the agreements expressly state that the insured is responsible for attorney’s fees and costs. The Fund Doctrine, the court held, is not based upon the relationship between the insured party and his insurer, but rather upon the rights of the attorney to recover fees for creating a fund that “enriches” the lienholder, thus asserting the equitable principals of unjust enrichment and quantum meruit. See also, Ritter v Hachmeister, 356 Ill. App. 3d 926 (2nd Dist – 2005), where health insurance policies and plans through ERISA and other subrogated entities did not pre-empt the equitable fund doctrine, even where the policies, plans and agreements specifically provide that the injured participant or insured is responsible for attorneys fees and costs. (*Note: This is consistent with the recent U.S. Supreme Court decision in Sereboff v. Mid Atlantic Medical Services, 126 S. Ct. 1869 (2006), where the court recognized the employer’s right under ERISA to “equitable reimbursement” from a settlement fund to reimburse the insurer for medical bills paid on the claim, even though the fund was not identified at the time the provision was executed.) However, the attorney’s equitable fund doctrine may be avoided in subrogation claims where the insurer expressly opts out and actively intervenes to create its own fund; See Tenny v. American Family, 128 Ill.App.3d 121 (4th Dist 1984); However, “passive” intervening or non-action in pursuit of its own interests is insufficient to negate the fund doctrine. See Wajnberg v Wungluec, No. 2-211-0190 (2nd Dist - 12/9/12), Taylor v. State Farm, 311 Ill App. 3d 1034 (5th Dist. 2000) See also, Richmond v. Caban, 324 Ill. App. 3d 48 (2nd Dist 2001) and Evanston Hospital v. Hauck, 1 F 3rd 540 (7th Cir – 1993) where liens were barred where providers “accepted plan payments or failed to opt out of plan. Perez v. Kujawa, 234 Ill. App. 3rd 957 (1st Dist 1992) Finally, with ERISA plans, be sure the plan is truly en employer “self-funded” plan and check its language on how and to whom it asserts its rights of subrogation---it might be the tortfeasor and not the participant.
The Illinois Supreme Court in Wendling v. S. Ill. Hosp. Servs., 2011 Ill. LEXIS 453, 1-15 (Ill. Mar. 24, 2011) found that the common fund doctrine was not applicable to liens under the Health Care Services Lien Act 770 ILCS 23/10 as the lienholders (hospitals and doctors) were not dependent on the creation of a fund to secure their recovery because they already had a debtor-creditor relationship with the patients based on the services they provided. It also added that the attorneys did not enter into the relevant settlements with the expectation of benefitting the lienholders, such that the lienholders would be unjustly enriched by obtaining some settlement proceeds, but, instead obtained the settlements to benefit the patients.
The question arises what happens “if a hospital contracts (with a health insurer) in such a manner that a debt survives”. Does the lien also survive even though the hospital is compensated at a “contract rate” that’s less than the retail rate it seeks to leverage into a lien? The court in Lopez v. Morley, 352 Ill. App. 3d 1174, 1181 (Ill. App. Ct. 2d Dist. 2004) said that the lien may survive.
Some have argued that these loopholes in the contracts with health insurers in combination with Wendling case will encourage health care providers to forego access to contract rates and seek the higher funds available through a lien without reimbursing the patient’s attorney who collects those funds. Several untested ideas have emerged geared to protect the patient from paying attorneys fees and costs for collection of the premium retail amount of the lien, or to defeat the entire lien.
1. A “reverse Tenney Letter”: In Tenney v. American Family Mut. Ins. Co., 128 Ill. App. 3d 121 (4th Dist. 1984), later followed in Ritter v. Hachmeister, 356 Ill. App. 3d 926, 930 (2nd Dist. 2005), the court held that an insurer must actively “opt out” of an equity fund created by the plaintiff to avoid paying legal fees and costs. This allowed the insurer to “opt out” and seek their own reimbursement through the case. Under similar thinking, it can be said that a creditor hospital or doctor holding a lien under the Health Care Lien Act can be given choices: (1) offered an opportunity to “participate” in the lawsuit to collect their lien/debt, (2) file a separate creditor suit to collect their debt, or (3) agree to pay the patient’s attorney to collect their lien/debt in the underlying law suit.
2. Separate the health care provider’s “debt” by eliminating it from the complaint, or isolating it within the complaint in the separate count. Either way, medical bills can arguably be used during the trial to prove non economic injury to the plaintiff such as pain and suffering. Or, it could be included in a separate count and assigned a separate verdict form or line item on a verdict form for the jury to consider without the benefit of advocacy by the health care provider who refused or ignored an invitation to participate in the trial. If the jury returned a verdict amount for the line item, then it would duly be paid to the lienholder.
If there was no award for the separate economic *medical billing of the lienholder, so identified by name, then it cannot be said that the plaintiff recovered the debt supporting the lien. There is always a creditor’s suit for collection.
3. A Chancery action seeking to require the lienholder to retain counsel to assist the plaintiff’s attorney in the personal injury action concerning the underlying debt owed to the health care provider, or that the court appoint plaintiff’s attorney to represent the “debt” and authorize payment for costs and services, either quantum meriut or contingency fee.
4. The Health Care Lien Act, 770 ILCS 23/25 requires that the medical service provider, on request, produce a “written statement” indicating the extent of injuries, the history of cause of injuries (if known) and the treatment of injuries provided---all within 20 days of the request or the lien “becomes null and void”.
(1) A written statement of the nature and extent of the injuries sustained by the injured person.
(2) A written statement of the nature and extent of the treatment, care, or maintenance given to or furnished for the injured person by the health care professional or health care provider.
(3) A written statement of the history, if any, as given by the injured person, insofar as shown by the health care records, as to the manner in which the injuries were received.
(b) If a health care professional or health care provider fails or refuses to give or file a written statement in conformity with and as required by subsection (a) after being so requested in writing in conformity with subsection (a), the lien of that health care professional or health care provider under this Act shall immediately become null and void.
Comment: This provision can be read two ways: (1) Cooperation with trial counsel during discovery, and/or (2) Providing proof to trial counsel after trial during a lien adjudication process. Either way, this is a 20-day statutory requirement or the lien is voided.

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