One such situation would be where a client has not had legal representation, and a medical payments insurer makes payment directly to the SEHP before an attorney becomes involved. Here is how I think this should be addressed.

SEHP not entitled to med pay coverage

One argument to make is that SEHP should not have ever received the med pay.

The statute talks about liens against settlement from “liable third parties” and we know that SEHP does not expect reimbursement from worker’s comp (not a liable third party) nor from the client’s UM/UIM (not a liable third party).

So if the med pay is from your clients own insurance, it is not from a “liable third party”. 

Because of that, the client should clearly get a credit for the med pay paid to SEHP, AND it should not count as part of the overall settlement (i.e: if the settlement was 30k, plus $1800 in med pay, then SEHP should figure the reduction amount (10k cap here) on the 30k, NOT $31,800)

AN EXAMPLE OF FIRST PARTY MED PAY

Thus:

30,000 TOTAL SETTLEMENT

Assume:

10,000 Attorney fees (1/3 of settlement you obtained)

100,000 SEHP lien claimed

30,000 TOTAL SETTLEMENT

-10,000 Attorney fees

20,000 NET

SEHP should get no more than 50% of the net after reasonable procurement costs (1/3) and so they are entitled to 50% of $20,000, or $10,000 as full and final satisfaction of the lien.

From the $10,000, subtract $1,800 previously paid, so a final payment of $8,200.

Reasoning behind “liable third party”

One of the reasons they collect only from “liable third parties” is that the patient/client/plan member is the one paying premiums for the medpay/UM/UIM, not SEHP. Thus, the SEHP should not get the benefit of the client’s insurance.

Their argument is contrary to the plain language of the statute, and also to the past administration of the lien.

Now, if the medpay came from the liable third party (maybe a passenger as client), then that argument may not work as well. In that case, they should still deduct the previous payments from the lien, BUT, I think they would count the medpay as part of the total settlement. Using the example above, it would look like this:

THIRD PARTY MED PAY

30,000 Settlement

1,800 med pay from liable third party

31,800 TOTAL SETTLEMENT

Assume:

10,000 Attorney fees (1/3 of settlement you obtained)

100,000 SEHP lien claimed

31,800 TOTAL SETTLEMENT

-10,000 Attorney fees

21,800 NET

SEHP should get no more than 50% of the net after reasonable procurement costs (1/3) and so they are entitled to 50% of 21,800, or $10,900 as full and final satisfaction of the lien.

From the $10,900, subtract $1,800 previously paid, so a final payment of $9,100.

-Chris Nichols
www.NicholsTrialLaw.com

Specifically, the Wrongful death Act (N.C.G.S. § 28A-18-2(a) ) was amended to say:

The limitations on recovery for hospital and medical expenses under this subsection do not apply to subrogation rights exercised pursuant to G.S. 135-40.13A.

This subsection becomes effective for deaths occurring on or after October 1, 2006. The Plan is still limited to recovering no more than 50% of the net settlement after “reasonable collection costs” are subtracted from the total settlement. “Reasonable” is presumed to be 33.3% by SEHP.

Chris Nichols
http://www.NicholsTrialLaw.com

The Question

We recently settled a case on behalf of a minor. There is a Medicaid, a SEHP and a hospital lien. Medicaid lien is much greater than the other two, but payment in full of all three would be less than 1/3 of the total net proceeds to the minor.

By way of example (not actual numbers): Assume a $100,000 settlement and attorney fees and costs of $30,000. Liens total $30,000. $15,000 Medicaid, $10,000 SEHP and $5,000 Medical providers. Here’s the catch: parent’s claim had run prior to suit being brought, thus the entire settlement was for minor’s pain and suffering, future lost wages, and future medical expenses. Under Ahlborn it would seem that Medicaid has no right of recovery (a percentage of nothing is nothing) but that the SEHP and Medical Providers would get paid in full.

Have you seen an NC case like this go through the system post-Ahlborn or has the scenario been discussed at any of the meetings you have attended?

MY Answer

You win the award for “best law school exam question on liens”!

No case like yours has come forward yet, but I was expecting one. The folks at SEHP were sort of surprised when I told them this would happen, they seemed to think that if you had SEHP ALL your bills would be paid. They never thought about people losing jobs, losing insurance coverage, etc.

MEDICAID

The analysis should start with Ahlborn. Ahlborn tells us that Medicaid can not claim repayment from any portion of a settlement not apportioned to medical payments. Clearly, the settlement in this case has no component of medical bills because the medical bill claim was that of the parents, and the statute of limitations for the parents claim (and therefore Medicaid’s derivative claim) had run before the suit was filed. The only possible argument that Medicaid could make would be to argue that the parents “assigned” the right of collection to Medicaid upon the child’s receipt of Medicaid benefits under 108A-57. As is noted in a recent publication by John Saxon at the UNC School of Government:

It is clear that both statutes involve the recovery of Medicaid payments from third parties who are liable to Medicaid beneficiaries. G.S. 108A-57, however, uses the term “subrogation” to define the state Medicaid agency’s rights against third parties while G.S. 108A-59 defines the State’s right as one arising by virtue of “assignment.” Subrogation and assignment, though, are distinct legal concepts. So, it is not entirely clear whether the State’s claim against a third party is a claim based on subrogation or a claim based on assignment, whether the State may assert a claim based on subrogation and assignment, whether the State must elect to pursue its claim based on subrogation or assignment, and whether the scope of the State’s rights under G.S. 108A-59 is coextensive with, broader than, or narrower than the scope of its right of subrogation under G.S. 108A-57. Nor is it clear whether the “pro rata” and “one-third cap” provisions of G.S. 108A-57 apply if the State’s claim is based on an assignment under G.S. 108A-59 rather than subrogation under G.S. 108A-57.

So at the outset, we have the argument that Medicaid has NO lien or right of subrogation pursuant to Ahlborn. The Ezell case, of course, is directly contradictory to this, with Judge Steelman’s dissent at the Court of Appeals (adopted per curiam by NCSC)saying:

Notwithstanding any other provisions of the law, to the extent of payments under this Part, the State, or the county providing medical assistance benefits, shall be subrogated to all rights of recovery, contractual or otherwise, of the beneficiary of this assistance, or of the beneficiary’s personal representative, heirs, or the administrator or executor of the estate, against any person. . . .

N.C. Gen. Stat. § 108A-57(a) (2005) (emphasis added).

The above language contemplates a broad right of subrogation, which is indicated by the reference to “all rights of recovery.” Subrogation is not limited to tort recovery, as the statute expressly covers contractual rights or “otherwise.” See State v. Shade, 115 N.C. 757, 759, 20 S.E. 537, 537 (1894) (noting that when the words “or otherwise,” follows an explicit example in a statute, the legislature intends to include every other manner of fulfilling the purpose of the statute, for example here, recovery, no matter what might be the attendant circumstances). The causation language discussed by the majority is from the portion of the statute dealing with the duty of a plaintiff’s attorney to distribute settlement proceeds to DMA, not from the portion of the statute defining the scope of DMA’s right of subrogation, which is set forth verbatim above.

STATE EMPLOYEE HEALTH PLAN

The next matter to address is the lien of the State Employee’s Health Plan. Of course, the SEHP lien will attach to the proceeds regardless of whether they are for medical bills or not:

§ 135-40.13A. Liability of third person; right of subrogation; right of first recovery.

(a) Whenever the Plan pays benefits for hospital, surgical, medical, or prescription drug expenses, with respect to any Plan member, the Plan shall be subrogated, to the extent of any payments under the Plan, to all of the Plan member’s rights of recovery against liable third parties, regardless of the entity or individual from whom recovery may be due.

Though, one might argue that the logic of Ahlborn would apply and SEHP would not have a lien on the minor’s damages (though it seems the statute allows the lien to attach to any proceeds).

The Plan’s lien language gives SEHP the “right of first recovery” which would seemingly place SEHP in a higher priority than Medicaid, though Medicaid could argue that because they are federally funded, the state law would be preempted.

The Plan has the right to first recovery on any amounts so recovered, whether by the Plan or the Plan member, and whether recovered by litigation, arbitration, mediation, settlement, or otherwise.

The Plan’s subrogation right is limited to recovering no more than 50% of the net settlement after “reasonable” attorney fees and costs (presumed to be 1/3) have been paid.

There is currently no guidance on how SEHP would “compete” with Medicaid if both have valid liens. SEHP told me during our meeting that they were “working with the AG’s office and Medicaid” on a way to handle this type of situation. My best guess is that if both liens are valid, Medicaid and SEHP would devise some sort of pro-rata sharing.

SEHP and Medical Liens

SEHP claims to have priority over all Medical Provider liens. Thus, because SEHP’s lien formula is almost exactly the same as the Medical Provider lien formula, if SEHP’s lien is equal to 50% of the NET settlement (after reasonable collection costs) then the Medical providers would not be entitled to any payment under the statute (though their balances would still be owed by the client).

If SEHP’s lien was LESS than 50% of the NET (after reasonable costs of collection) then the question would first be to determine if there is a valid Medicaid lien. If there is a valid Medicaid lien, AND Medicaid does NOT have to share with SEHP, then the Medicaid and Medical provider liens would be prorated up to 1/3 of the settlement (for Medicaid) or 50% of the net after Attorney Fees (for Medical providers).

MEDICAL LIENS

Finally, you have medical liens under NCGS 44-49 and 44-50. Medicaid must share “pro-rata” with any unpaid medical providers pursuant to the requirements of:

§ 108A-57. Subrogation rights: withholding of information a misdemeanor

(a) . . . Any attorney retained by the beneficiary of the assistance shall, out of the proceeds obtained on behalf of the beneficiary by settlement with, judgment against, or otherwise from a third party by reason of injury or death, distribute to the Department the amount of assistance paid by the Department on behalf of or to the beneficiary, as prorated with the claims of all others having medical subrogation rights or medical liens against the amount received or recovered, but the amount paid to the Department shall not exceed one-third of the gross amount obtained or recovered. (emphasis added)

This was discussed in the previous section. Further, SEHP claims that they do NOT pro-rate with medical providers within the 50% of Net after attorney fees limitation.

Thus, I see two scenarios that could result from your case:

1. Medicaid Valid, SEHP Valid, Medical Liens Valid

In this scenario Medicaid and SEHP would first need to determine if one or the other had priority in payment or if they prorate within the 1/3 limitation set by medicaid. If SEHP has first priority, then the question would be does Medicaid get 1/3 of what is left after SEHP is paid or are they limited to no more than 1/3 of the total settlement minus what SEHP has been paid. Medical providers would receive the remainder, pro-rated with Medicaid up to the 1/3 limit of medicaid or the 50% after attorney fees of Medical Provider liens.

2. Medicaid INVALID, SEHP Valid, Medical Liens Valid

If our courts apply Ahlborn as written, then Medicaid should have no lien on the minor child’s pain and suffering or future medicals recovery. Then SEHP would recover it’s full lien, up to 50% of the net after “reasonable costs of collection” and then Medical providers would share among themselves, pro-rata, up to 50% of the net after attorney fees. (Which is essentially the same 1/3 that SEHP claims). Medical providers could argue that their share should be 50% of the NEt AFTER SEHP is paid, but I don’t see any real basis for that argument.

I think that you will probably need to litigate this matter. In that regard, you need to give Medicaid notice of all hearings. My guess is that you would make these arguments at the minor settlement hearing and that Medicaid (AG) would need to participate.

If you have not read my posts on these issue on my Blog, you might want to check it out: Ahlborn Resources

Chris Nichols
Nichols Law Firm

I met with the folks at the SEHP along with the top brass from the NC Academy of Trial Lawyers two weeks ago. Our meeting was designed to discuss some of the wrinkles in interpretation of the “new” lien.

LIEN FORMULA

The SEHP agrees that the lien cutting formula is essentially the same as the medical providers lien formula. You take the settlement, subtract out “reasonable” attorney fees and costs. Of the net, the SEHP will never take more than 50% of that to fully satisfy their lien.

“REASONABLE” ATTORNEY FEES AND COSTS

The SEHP is working with the assumption that reasonable attorney fees AND costs are 33.3%. That means that if you want them to subtract a 40% fee plus a lot of costs in the above formula, they won’t do that without you making a special request and justifying why that should be done. Remember, the statute leaves the definition of “reasonable” entirely in the hands of SEHP.

MEDICAL PROVIDER LIENS

The SEHP takes thew position that the statute says, quite clearly, that their lien takes priority over medical provider liens under NCGS 44-49 and 50. Thus, if you have a SEHP lien that exceeds 50% of the NET proceeds and you have medical provider liens, the SEHP will be paid their lien (and it will be satsified) but the medical providers will get nothing based upon their formula. Of course, the medical providers can still attempt to collect from the client, because the medical provider lien is a distribution lien, not a “satisfaction” lien.

I told the SEHP folks that medical providers may disagree. 

MEDICAID LIENS and MEDICARE LIENS

SEHP is “working with” the AG’s office to figure out some sort of sharing arrangement when there are Medicaid and SEHP liens. We were told to “be on the lookout” for some sort of update about that agreement. The same is true for Medicare. I don’t have any suggestions at the moment for how one would divide up money between the liens, other than to say that Federal Law trumps state law, so I think that Medicaid and Medicare will get there money.

UM/UIM INSURANCE

SEHP agrees that their lien does not apply to UM/UIM coverage because those payments would not be from a “liable third party” as the lien statute requires. That’s good news.

WORKERS COMPENSATION

SEHP agrees that the SEHP lien does not apply to workers compensation settlements. More good news.

That’s the sum and substance of our meeting. The folks at SEHP were very nice, and understood our concersn and seemed genuinely concerned with the welfare and well being of their policy holders (our clients). SEHP is balancing the Plan’s interests in keeping the plan funded with the plan member’s interests in being made whole after an accident.

Stay tuned for updates on Medicare and Medicaid.

Chris Nichols:
Nichols Law Firm

David’s email correctly points out:

The calculation should be:

30,000 settlement

10,000 atty fees

250 costs

125,000 SEHP lien

FIRST: Subtract out atty fees and costs to determine “total damages recovered by the Plan member”(not total amount paid by 3rd party)

30,000

-10,000

-250

19,750 SUBJECT TO LIEN

SEHP not to exceed 50% of “total damages recovered by the Plan member”

THEREFORE: SEHP lien is $125,000 > $19,750

LIEN IS REDUCED TO 50% of $19,750 = $9,875.00

Final Disbursement:

30,000 Settlement

-10,000 Attorney Fees

-250 Costs

-9875.00 FINAL LIEN

$9,875.00 to CLIENT

I think you nailed this analysis, David.

Chris Nichols
www.NicholsTrialLaw.com

The governor signed the SEHP bill (Session Law 2006-264** SB 602) yesterday on the last possible day to sign the legislation. Great news, right? Well, maybe. Looks like SEHP is interpreting the statute in a very odd manner.

SEHP is not reading the new statute correctly

It appears that the lawyers at the SEHP have consulted with the collection agency they use and have decided that their interpretation of the statute is nothing like mine (or what the law says). Basically, what SEHP is saying is that while they will reduce the lien for attorney fees, they won’t reduce it beyond the 50% of gross cap.

Examples of the WRONG interpretation

I think SEHP is not interpreting this correctly because in their version, if the lien is $1 more than the 50% gross cap, then the atty fee deduction does not apply. I think that SEHP has sort of made this into an “either or” approach, which it is clearly not designed to be. It seems that the only place they would allow the attorney fee reduction would be if the lien does not exceed the 50% cap.

Example 1 of how they have it wrong

30,000 Settlement
10,000 Attorney fees
250 costs
16,000 SEHP lien
Is the 16,000 Lien > 15k ( 50% of the gross settlement): YES
THEN: Reduce lien to 15 k
NO ATTY FEE DEDUCTION BECAUSE Reduced to 50% cap

Example 2 of how they have it Wrong

30,000 Settlement
IS the $3,000 Lien < 15k ( 50% of the gross settlement): YES
THEN: Reduce lien by atty fees/costs:
Figure %ratio of atty fees plus costs to Settlemet: 10,250 / 30,000 = 34.15 %
THEN: reduce lien by ratio $3,000 (lien) x .3416 = $1,024.80 (REDUCTION AMOUNT)
FINAL LIEN AMOUNT: 3,000 – $1,024.80 = $1,975.20 LIEN
10,000 Attorney fees
250 costs
3,000 SEHP lien

My Analysis of why they are Wrong

I think that this interpretation is completely contrary to what the statute is trying to get to. I think the “purpose” of the statute was to make sure that the SEHP paid their fair share of the “collection” costs. It is easy to understand if you think of the Plaintiff’s attorney as a “collection agency” for the SEHP. The Attorney should get “paid” our collection “percentage” which should only be taken off what SEHP actually “receives”. (Of course, the client gets the “collection costs”)

This means that SEHP should pay their fair share on what is actually “collected,” meaning that they even have to pay on the 50% of the gross. I’m sure they don’t pay their collection agents on the “total claimed lien” but only on the “collected” lien. We all know that 33.3% of 0 is 0.

Had the statute intended SEHP’s interpretation, it would have said that the attorney fees are to be deducted from the total lien amount and then if that reduced amount was greater than 50% of the gross settlement, the lien would be reduced to 50%, and no less.

Therefore, I don’t think that SEHP is even following an “alternative” view or interpretation of the lien statute. They are making up their own statute where the “reasonable costs of collection” are sometimes paid, and sometimes not paid. This means that the “reasonable costs of collection” are being paid in varying amounts.

Possible Constitutional Violation by SEHP

Of course, we are somewhat at their mercy because the statute says that they decide on what is “reasonable” and I suppose they can say that if the lien amount is greater than 50% of the gross, “reasonable” collection fees are always Zero.

I think that we might be able to mount a constitutional challenge to that interpretation. When the lien was first enacted, we approached SEHP and said, “hey look, can’t we look at each case individually and then arrive at an agreement as to what is a ‘fair’ reimbursement?” We gave examples of a family where the bread winner is killed, leaving three children and an unemployed widow, and the insurance policy only covers $30,000 of damages and the lien exceeds the coverage. Under the old statute, SEHP got all the $30,000 and the widow and children got NOTHING.

SEHP said, “Sorry folks, we can’t ‘bargain’ with individual SEHP members because that is unconstitutional. We have to treat every citizen/member the same. It’s in the NC Constitution. We’ve been sued for that.” So when the new SEHP legislation was passed in one house, SEHP started to “accomodate” by voluntarily accepting the 50% cap, but not reducing for attorney fees. So in the above example, the SEHP got 15,000, and the widow got $5,000. And SEHP got their money because the widow paid an attorney to get it for them. How generous of SEHP, right? And when I say SEHP, what I really mean is OUR STATE. SEHP is the State of North Carolina.

Well, sure. Maybe you’ll get sued again. I think this is a ridiculous argument. The Attorney General’s office “settles” discretionary matters every day, from State Tort Claims to tax deficiencies. I think this was classic bureaucratic whimpiness on the part of SEHP.

Anyone up for a Constitutional Challenge? I love the smell of “founders intent” in the morning. Smells like victory.

Chris Nichols
www.NicholsTrialLaw.com

We are all waiting on the new State Teacher’s and Employees Health Plan Lien to be signed into law by the Governor. A lot of us lawyers are impatient for this to happen because we have been waiting since 2004 for the “new” legislation to give a makeover to this “super lien”.

Things Look Good

The Governor has not signed off on the bill yet, which is part of a much bigger package that must be reviewed. Holly at the NC Academy of Trial Lawyers says she has no indication that there is any sort of veto lurking, so it’s just a matter of waiting.

The Situation is in Control

I’ve driven past the Governor’s mansion a few times in the last week or so, and I saw Holly camped out on the sidewalk in a small village of lobbyists that sleep in cardboard boxes and tents while legislation waits to be finally approved. It looks like Krzyzewski-ville (K-Ville) over at Duke University. 

Holly had a megaphone in one hand, and a cardboard sign in the other that said “Sign the Bill!” She was chanting with the others, ‘Hey, Hey, Ho, Ho, Super Lien has Got to Go!” It was a truly moving sight that brought a tear to my eye. That’s dedication, and I just happened to have my handy Nikon Coolpix 5 digital camera there to capture the moment . 

I’ve heard through the grapevine that she may be staging a hunger strike if this technique does not work. 

All kidding aside, Holly is monitoring this closely and will let us all know ASAP when the bill becomes law.

-Chris Nichols

Here are some simple steps to follow to protect your client’s rights:

Read the Background and In-Depth Analysis of the Lien

Get caught up with the basics of the law by reading the article I wrote for the North Carolina Academy of Trial Lawyers magazine, Trial Briefs

• Download SEHP_Trial_Briefs_Article_by_Chris_Nichols.pdf (2430.4K)

Read the Current Law

Now that you know the background of the law, you need to catch up on the latest developments (like the law being amended) so read the posts on this blog listed in the left column in the category “NC State Employees Health Plan”.Or click HERE for a chronological (most recent first) listing of all the posts from this Blog covering the lien.

Get your Client’s Authorization

You need to have your client give the SEHP authorty to release information to you. This is essantially a HIPPA form for SEHP.

• Download SEHP_Authorization_Form.pdf (47.2K)(HIPPA essentially)

Request the Lien

Download the SEHP Lien request form.

• Download SEHP_Lien_Request_Form.pdf (23.0K)

You are on your way to negotiating the lien.

Chris Nichols
www.NicholsTrialLaw.com

The Legislature has passed a revision to the State Employee and Teachers Health Plan lien and has sent that bill to the Governor for signature. Refer to this post for the text of the bill.

Up until now, the SEHP limited itself to no more than 50% of a gross settlement. Now the lien law limits SEHP to 50% of the settlement AFTER attorney fees have been paid. The Amendment to the original legislation allows a reduction for “reasonable attorney fees” but leaves the decision regarding “reasonableness” in the sole discretion of the SEHP.

EXAMPLES of how the “old” lien and the “new” lien operate

The current law which is not followed (Actual “old” SEHP lien law says this):

Assume SEHP claims $20,000 lien

30,000 settlement
10,000 Attorney fees
20,000 SEHP lien (paid $20,000)
$0 Client

NOW, before the “new” bill is in effect: (Note, new bill signed on August 31, 2006 and applies retroactively)

Assume SEHP claims $20,000 lien

30,000 settlement
10,000 Attorney fees
15,000 SEHP paid in full (50% of 30,000, reducing $20,000 lien by $5,000)
5,000 CLIENT

THE “NEW” Lien Law when signed by the Governor:

(NOTE: These examples below were edited on 9.6.06 because the previous post was incorrect. What is below is now correct.)

Example 1: Lien exceed 50% of the settlement

30,000 settlement
-10,000 Attorney fees
$20,000 Subject to SEHP lien
SEHP can take no more than 50% AFTER attorney fees, so
$20,000 > $10,000 (1/2 after attorney fees), thus
-$10,000 SEHP Lien ($20,000 reduced to 50% of 20,000 after atty fees)
$10,000 To CLIENT

Example 2: Lien does NOT exceed 50% of the settlement

Assume SEHP claims Lien of $9,000
30,000 settlement
-10,000 Attorney fees
$20,000 Subject to SEHP lien
SEHP can take no more than 50% AFTER attorney fees, so
$ 9,000 < $10,000 (1/2 after attorney fees)
-$9,000 SEHP Lien (NO REDUCTION IN LIEN)
$11,000 To CLIENT

As you can see, the Amendment increases the client’s recovery when the lien exceeds half of the recovery AFTER attorney fees. The old law was working with 50% of the GROSS recovery and now the formula works with (essentially) the NET recovery. Also, this Amendment provides an excellent reason for the client to hire you because the “attorney fee” cut is not available to unrepresented SEHP members.

Below is a quick review of the application of the lien:

For payments made from January 22, 2003 to July 20, 2004, the SEHP claims a right of equitable subrogation. The SEHP has not done much to enforce this, sending a few notice letters out on cases where they thought there was third party insurance, mostly car wrecks.

The SEHP, to my knowledge and by all reports, has not litigated the equitable subrogation right. I do not think that a right of equitable subrogation is recognized by North Carolina law.

If payments were made for related health care after July 22, 2004, then I think you must request a statement of the lien, which may prompt the SEHP to claim the equitable subrogation for payments made before July 2004.

There is also a good argument that for equitable subro to even exist, there must be direct notice of the claim to the lawyer or client. There does not need to be “notice” for the lien arising after July 2004.

If you do get caught up in the equitable subro claim because of post July 2004 payments, the SEHP has significantly negotiated on the equitable subro claims.

Also, the date that the SEHP uses to determine the lien is the date of their payment, not the date of service. The lien does not apply to UM or UIM recoveries.

If you have questions, please email Chris Nichols.

Chris Nichols
www.NicholsTrialLaw.com

Client is ready to settle a personal injury case. Healthcare providers do not have lien and refuse to file on the client’s State Employees Health Care insurance. NC State BC/BS (the administrator of the State Health Plan) states in letter that they have not paid any money on this claim. Client does not wish to pay the medical providers. Is the lien retro-active if providers file AFTER settlement? Can they hold my firm responsible?

This is an excellent question to use to analyze the language of the State Health Plan lien.

It appears there are two substantial questions here:

• How does the settlement affect the client?
• How does it affect the attorney?

Let’s assume none of the providers submit to the health plan before the settlement.Let’s also say that none of the providers have medical liens (NCGS Sect. 44-49 & 50).

Here is the Statute (broken into sections) and MY interpretation:

§ 135-40.13A. Liability of third person; right of subrogation; right of first recovery

Whenever the Plan pays benefits for hospital, surgical, medical, or prescription drug expenses, with respect to any Plan member, the Plan shall be subrogated, to the extent of any payments under the Plan, to all of the Plan member’s rights of recovery against liable third parties, regardless of the entity or individual from whom recovery may be due.

ANALYSIS: At this point the Plan has paid no bills, though the lien says “whenever” which could mean even after a settlement.“To the extent of any payments under the plan”:at this point there are no payments, so it seems that there is currently no subrogation. Also, the subrogation is to “all of the Plan members rights of recovery against liable third parties”.If you have a settlement, there are no further rights against a third party so at that point the Plan can not be “subrogated” to anything.The last part that says “regardless of the entity or individual from whom the recovery may be due” is a bit problematic to me.It seems that it is further defining “third parties” from the previous clause, saying that it doesn’t matter who that third party may be.So could that third party be the client?I don’t think the client could be a third party in this instance, so I’m choosing to basically ignore that last part.

The Plan member shall do nothing to prejudice these rights.

ANALYSIS: Well, I don’t think taking the settlement can prejudice rights that are not currently in existence because the plan has not paid anything yet.

The Plan has the right to first recovery on any amounts recovered, whether by the Plan or the Plan member, and whether recovered by litigation, arbitration, mediation, settlement, or otherwise.

ANALYSIS: Again, even though the lien means that the Plan takes FIRST, at this point they don’t have a right to take anything because they have not paid anything.

If the Plan is precluded from exercising its right of subrogation, it may exercise its rights of recovery to the extent allowed by law.

ANALYSIS: I don’t exactly know what this means.I don’t see the plan as being “precluded” because, again, at this point the have nothing to subrogate. I actually think this line is basically meaningless.

If the Plan recovers damages from a third party in excess of the claims paid, any excess will be paid to the member, less a proportionate share of the costs of collection.

ANALYSIS: If the plan steps into the place of the Plaintiff, they pay anything above the Plan lien to the client, MINUS atty fees for them (nice that they get paid but we don’t, huh? At least until the new version of the lien is signed by the Governor)This does not affect your situation.

In the event a Plan member recovers any amounts from a third party to which the Plan is entitled under this section, the Plan may recover the amounts directly from the Plan member.

ANALYSIS: This is the most troubling section to me in regard to your client. This section does not put any qualifying language on “plan member recovers any amounts” as to the timing of those amounts recovered. This seems to authorize the plan to attempt to collect directly from the member (which is basically what “lien” means).It seems the worst case scenario for your client is that this section authorizes the Plan to attempt to collect from your client at any time.

The Plan has a lien, for the value of claims paid related to the liability of the third party, on any damages subsequently recovered against the liable third party.

ANALYSIS: Ok, we know this is a lien statute.“Related to” is the language that means that “unrelated” medical bills can not be part of the lien, basically the causation element to the subrogation.“…on any damages subsequently recovered against the liable third party” is interesting to me.This may be what protects your client from retroactive collection efforts.

I would rearrange the sentence for better understanding:For the value of claims paid related to the liability of the third party, the Plan has a lien on any damages subsequently recovered against the liable third party.

I would want to read this as saying:1)The Plan must pay the claim. 2)Only when the claim is paid does a lien then arise,3)If the lien is then created by the payment of the claims, “the Plan has a lien on any damages subsequently recovered.”Thus, the lien is only on damages recovered AFTER the lien arises, hence the use of the words “subsequently recovered”, i.e recovered AFTER the lien arises.

If the Plan member fails to pursue the remedy against a liable third party, the Plan is subrogated to the rights of the Plan member and is entitled to enforce liability in the Plan’s own name or in the name of the Plan member for the amount paid by the Plan.

ANALYSIS: This is basically reiterating the definition of subrogation. If the Plan member does not pursue the case, the Plan can step into the shoes of the Plaintiff (or sue in their own name) and pursue the matter against the liable third party.

CONCLUSION

Issue One: Can the lawyer give the money to the client?Answer:To me, it appears that yes you can, and in fact, must if the client instructs you and there are no liens.

Issue Two: Does the Plan have a lien if the Providers file after the disbursement has been made to the client if there was no payment by the Plan before or at the time of disbursement?

Answer: Based upon my interpretation of the statute, especially the section that says “The Plan has a lien, for the value of claims paid related to the liability of the third party, on any damages subsequently recovered against the liable third party.”The Plan only has a lien on proceeds that are recovered AFTER the Plan makes a payment.

I would advise my client that it is possible that the Plan might try to sue them, and that the statute is not absolutely clear, but there is certainly a good argument that the lien would not allow recovery after the attorney had made a settlement. I would also advise the client that the Plan might deny payment to the providers after the settlement has been accepted, but that would have to be based upon some language in the contract between the providers and the Plan.The Providers might still sue the client for the medical bills if the Plan refuses to pay, but again, that suit would, to some degree, be controlled by the language of the contract between the client and the Plan, and also the Plan and the provider.

I’m very interested in any feedback on the interpretation of the above statute in this circumstance.Email privately if you want to nicholsatty@gmail.com or post here.

Chris Nichols
www.NicholsTrialLaw.com

2005 Technical Corrections Act Passes Vote

The 2005 Technical Corrections Act conference report (that contained the “technical” corrections for the lien) has been adopted by both houses, and now goes to the Governor for his signature. There seems to be nothing controversial in the remainder of the bill, so we don’t expect a veto of any sort from the governor.

The technical corrections act from last year is where the subrogation provision was inserted toward the end of the long session, because SB 983 was holed up in the house. It was included in each version of the tech core bill and passed by the respective houses, but there was never agreement on the bill BETWEEN the two houses.

Bill needs to be signed by Governor Easley

The latest action of the General Assembly is that needed agreement, and as soon as the Governor signs the bill, it will be law. The language of the bill makes it “retroactive” to the initial passage of the lien legislation back in July of 2004, so we don’t have to worry about having two “sets” of liens.

This is fantastic news and due in large part to the long term efforts of Holly Bryan and Dick Taylor at the NC Academy of Trial Lawyers.

Chris Nichols
www.NicholsTrialLaw.com

In the meantime, what will the new bill mean? 1) The SEHP can never take more than 50% of the GROSS settlement. 2) The SEHP must then reduce their recovery for “reasonable” attorney fees. 3) SEHP must also pro-rate with unpaid medical providers and other lien holders.

Why is this better? Well before, the SEHP could have taken 100% of any settlement, but they were administratively limiting themselves to 50% of gross, but not reducing for attorney fees. This mean that in a typical personal injury case, the client only received 15% of the settlement. NOT FAIR.

We’ve been waiting for this bill to pass for a very long time. I’VE been working to get this bill passed since 2004 when it was enacted. After a lot of work with NCATL we drafted, redrafted, negotiated, and redrafted, we finally got something passed. Hurray!

No lien? Yes, that’s right, no lien. Do medical providers have to accept NCHC as the only payment for medical care? Yes.And medical providers can not “balance bill” the patient. Its all right here in the enacting statute.

So basically NCHC acts like Medicaid (Doctors have to take it if they accept any NCHC patients), it provides the benefits the SEHP, and there is NO LIEN.

And on top of all of that, its a great program for the citizens of NC. The only problem is that it needs more funding and needs to extend the reach of it’s coverage higher up the economic scale. There is no reason that a State that can afford to “write off” millions of dollars of taxes for Dell Computer to build a plant should not provide low or no cost health insurance for its children. 

It’s the right thing to do. I’m glad we are doing it.

Chris Nichols
Nichols Law Firm
www.NicholsTrialLaw.com

The Statute is being revised right now and the language of the existing and proposed bill is available for download here: Download sehp_lien_legislation.pdf

I will explore how the lien works in other posts.

Chris Nichols
Nichols Law Firm
www.NicholsTrialLaw.com