Guide · Injury · Illinois

Medical Liens and Settlement Planning in an Illinois Injury Case

The settlement figure is not what you take home. How provider liens, Medicare, Medicaid, health plans, and workers’ compensation claims work, and how they are resolved.

By Lincoln Square Law · 7-minute read

A settlement amount is not what an injured person takes home. Before any money reaches the client, the settlement must pay the attorney fee and case costs, and it must satisfy the claims of those who paid for medical care: hospitals, doctors, health insurers, Medicare, Medicaid, and workers’ compensation carriers. Each of those claims follows its own rules. Some are capped by statute, some can be reduced by negotiation, and some must be paid in full or they follow the client and the lawyer after the case closes. Settlement planning is the work of identifying every claim early, testing each one, and resolving them in a way the client can see and understand.

Start with a complete inventory

A lien that is discovered after the settlement is signed is the most expensive kind. The inventory should begin at intake and be updated throughout the case.

• Every provider. List each hospital, physician group, ambulance service, therapist, and pharmacy, with dates of service and balances.
• Every payer. Identify health insurance, Medicare, Medicaid or a Medicaid managed care plan, an employer plan, and any workers’ compensation carrier.
• Every notice. Keep each lien notice received, with the date and method of service.
• Every benefit the client may need later. Note whether the client receives or may qualify for Medicare, Medicaid, or Supplemental Security Income, because the settlement can affect them.

Provider liens under the Health Care Services Lien Act

Illinois allows hospitals, physicians, and other health care providers to assert liens against a patient’s personal injury recovery for the reasonable charges for their services. The Health Care Services Lien Act also protects the patient. The lien notice must be served on both the injured person and the party against whom the claim exists, by registered or certified mail or in person. The total of all liens under the Act may not exceed 40% of the verdict, judgment, or settlement. When the liens reach that limit, the liens of health care professionals together may not exceed 20% of the recovery, and the liens of health care providers together may not exceed 20%, with any unused amount reallocated within the 40% total. The Act does not apply to services paid under the Workers’ Compensation Act (770 ILCS 23/10).

A simple hypothetical shows how the cap works. Suppose a case settles for $100,000, and hospitals and physicians have served liens under the Act totaling $60,000. Because the liens exceed 40% of the recovery, the Act limits them together to $40,000, divided between the two classes of providers as the statute directs. When provider liens reach the 40% limit, the Act also limits attorney liens under the Attorneys Lien Act to 30% of the recovery, so a fee agreed at one third would be reduced to $30,000 for this purpose (770 ILCS 23/10). Negotiation may then reduce the provider liens further. The numbers in a real case depend on the notices actually served, the charges actually supported, and any other payers involved.

In practice, the cap is a ceiling, not a price. Provider balances are often reduced further by showing that charges were billed incorrectly, that an insurer’s contract required the provider to accept a lower amount, or that the recovery is limited.

Medicare

When Medicare has paid for injury-related care, it is a secondary payer to a liability settlement and is entitled to be repaid its conditional payments from the recovery (42 U.S.C. 1395y(b)(2)). The process runs through Medicare’s recovery contractor, which issues a conditional payment summary and, after settlement, a final demand. Medicare reduces its recovery by a share of the procurement costs, meaning the attorney fees and costs of obtaining the settlement (42 C.F.R. 411.37).

Medicare’s claim should not be treated casually. Medicare may recover from the beneficiary and from others who received the settlement proceeds, including attorneys (42 C.F.R. 411.24(g)). Every Medicare conditional payment summary should be reviewed line by line, because it often includes charges unrelated to the injury.

Where a settlement resolves future medical expenses for a Medicare beneficiary, the parties should also consider how Medicare’s interests in future care will be protected.

Medicaid

The Illinois Department of Healthcare and Family Services has a statutory claim against recoveries for medical assistance it paid (305 ILCS 5/11-22), and Medicaid managed care plans may assert their own claims. Federal law limits what a state Medicaid program may take. The United States Supreme Court has held that a state may not recover from the portion of a settlement that represents damages other than medical care (Arkansas Department of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006)), and later held that a state may seek reimbursement from settlement amounts representing future medical care as well as past care (Gallardo v. Marstiller, 596 U.S. 420 (2022)). How the settlement allocates damages therefore matters, and the allocation should be supportable on the record.

Employer health plans and ERISA

Many employer health plans include reimbursement or subrogation terms. For a self-funded plan governed by the Employee Retirement Income Security Act, the written terms of the plan usually control. The Supreme Court has held that an ERISA plan’s clear terms govern its reimbursement claim, but that where the plan is silent, equitable doctrines such as the common-fund rule may reduce the plan’s recovery by its share of attorney fees (US Airways, Inc. v. McCutchen, 569 U.S. 88 (2013)). A plan generally cannot recover from a participant’s general assets once settlement funds have been spent on nontraceable items (Montanile v. Board of Trustees, 577 U.S. 136 (2016)), but no client should rely on that rule as a strategy. Insured plans may be subject to state law rather than ERISA’s rules, which is why the plan documents, not just the plan’s letter, must be requested and read.

Workers’ compensation

If the injury happened at work and a third party is responsible, the employer or its insurer is reimbursed from the third-party recovery for the compensation it paid. The employer pays 25% of the gross amount it recovers as attorney fees, and a proportionate share of costs (820 ILCS 305/5(b)). The settlement of the third-party case can also affect the employer’s obligation to pay future benefits, so the two claims should be resolved together.

Taxes and public benefits

Damages received on account of personal physical injuries are generally excluded from income (26 U.S.C. 104(a)(2)), although interest and punitive damages generally are not. A client who receives, or may need, Medicaid or Supplemental Security Income can lose eligibility if a settlement is paid directly to them. A special needs trust or another planning tool may be needed, and that planning must be completed before the money is paid.

The settlement statement

A client should see, in writing, before approving a settlement:

• The gross settlement.
• The attorney fee and case costs.
• Each lien and reimbursement claim, as asserted and as resolved.
• Any amounts held back for claims not yet final.
• The net amount to the client.

Illinois requires a lawyer to deposit settlement funds in a client trust account and to promptly deliver to the client and to third persons the funds they are entitled to, and to hold disputed amounts separately until the dispute is resolved (Ill. R. Prof’l Conduct 1.15). The statement is how the client sees that it was done.

When to start

The best time to plan the liens is at the beginning of the case, not after an offer arrives. Early requests for itemized bills, plan documents, and Medicare and Medicaid payment summaries give the lawyer time to dispute unrelated charges, and they let the client evaluate any offer on the basis of what they will actually receive.