Claim Upside Down Because of Liens? Patience is a Virtue.
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A plaintiff lawyer’s trial practice must move quickly—and the economics of each case matter. Unfortunately, that urgency sometimes results in clients with righteous claims receiving no representation and no recovery.
Here’s a classic example:
A potential client—an older gentleman—comes in with a clear liability motorcycle case. He was badly injured, took an ambulance to the ER, and was hospitalized for two days. After three months of follow-up care, he was released with lingering symptoms. The client is solid, and you feel an immediate connection. You sign him and start working up the case, only to discover that the third party has a $15,000 policy limit and no measurable assets. The client has no Uninsured Motorist (UM) coverage.
Worse yet, the client is “Medi-Medi,” meaning his primary coverage is Medicare, with Medi-Cal (DHS) covering the remainder. After reviewing hospital statements, you determine that CMS paid just over $20,000 on a $55,000 hospital bill. DHS asserts a separate lien for approximately $20,000 related to follow-up care. Then the hospital jumps in with a Civil Code § 3045 lien—effectively balance billing—seeking another $35,000.
You do the math: $75,000 in liens against a $15,000 recovery. You now have to give your client the bad news. Proceeding may not be economically feasible.
We see these scenarios all the time. You can add as many zeros as you like—when the claim is upside down, the lien issues present ethical concerns for any attorney who proceeds. Once you move forward, it’s hard to back out.
Timing Matters
We received a call from a San Diego trial lawyer facing this exact scenario. Here's how we helped:
1. We killed the hospital’s § 3045 lien.
Balance billing is disfavored in California and barred under federal law in this context. The hospital had accepted CMS payments, making the lien unenforceable. The lien itself was also fatally flawed in its drafting and service. We served a Consumer Legal Remedies Act “Safe Harbor” notice. Within weeks, the hospital zeroed out the patient account.
2. We neutralized the Medi-Cal lien.
Dealing with the DHS Third Party Recovery Unit can feel like entering a bureaucratic black hole. But sometimes, they respond—and even make reasonable decisions. We explained:
- CMS’s lien takes priority due to federal preemption.
- Any net to the client would be subject to an Ahlborn motion.
- DHS’s own 50% of net recovery rule would leave them with nothing.
After six months of persistence, DHS confirmed in writing that it would not pursue any lien against the third-party recovery.
3. We negotiated with CMS.
This is always the hardest nut to crack. We began with the standard notice of third-party claim and informed CMS that the maximum available recovery was $15,000, with multiple lien claims asserted.
CMS produced a Conditional Payment Ledger showing $20,000 in payments. We then submitted a Conditional Notice of Settlement, emphasizing that the claim could not be resolved without client compensation.
We formally requested a Pre-Settlement Compromise under:
- MSP Manual, Pub. 100-5, Ch. 7, § 50.4.2
- Federal Claims Collection Act of 1996 (31 U.S.C. § 3711)
- CFR § 401.613
We asked the central question:
How can an attorney fulfill their fiduciary duty if CMS gets paid, counsel gets paid, and the client gets nothing?
Since CMS only reduces for procurement costs, attorneys cannot simply reduce their fee without risking misrepresentations to CMS or running afoul of fee-splitting rules. In other words:
No compromise = no recovery.
We proposed splitting the $15K evenly:
- $5,000 to CMS
- $5,000 to the client
- $5,000 to counsel
The Outcome
The trial lawyer kept the client informed throughout the process. The client was grateful, not only for the effort but for not being abandoned when the economics got tough. Over the following year, the client referred two additional cases—both viable.
After nearly 15 months, we received confirmation from the CMS regional director: Compromise accepted.
The client netted $5,000. He felt vindicated. The recovery wasn’t enormous, but it meant something. The cup of justice may not have been full, but it wasn’t empty either.
More importantly, the client learned to carry UM/UIM coverage, just in case.
Lien resolution like the one described above is transactional in nature. We push paper—something quite different from the demands of trial work. So the next time a lien issue pushes you toward walking away from a case, call The Lien Project. We’re here to help.
Over and over again, we’ve seen that calm persistence pays off. Patience truly is a virtue gained through experience.
Explore More Resources with Lien Project Network
For a deeper dive into lien resolution strategies, settlement planning, and reimbursement challenges, explore our educational modules. Lien Project Network serves as a trusted resource for plaintiff attorneys, providing insights on financial planning, public benefits, and structured settlements in the context of lien management.
Need Assistance? Work With The Lien Project, PC
If you need expert legal assistance in navigating lien resolution, reimbursement claims, or settlement planning, our team at The Lien Project, PC is ready to help. As an LPN member, you earn credits that can be applied toward lien reduction and resolution services provided by The Lien Project, PC, allowing you to offset up to $900 per year. Your investment in continuing education through Lien Project Network not only enhances your lien resolution skills but also reduces the cost of engaging legal experts when needed.
Schedule a Consult today to see how we can help maximize your client’s recovery.