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When someone is injured in a car accident, workplace accident, or incident caused by someone else's negligence, medical treatment often begins long before compensation is received by the treatment provider.

A medical lien is one method used to help ensure that healthcare providers are eventually paid for the treatment they provide to injury victims. Rather than requiring immediate payment from the patient, a healthcare provider may agree to wait until the patient's legal claim or insurance settlement has been resolved.

Medical liens are most commonly associated with personal injury cases in the United States, but similar arrangements exist in many other countries, under different names and with different legal requirements.

Understanding how these arrangements work can help patients, healthcare providers, lawyers, and insurers avoid misunderstandings about who is responsible for paying the patient's medical expenses.

What is a Medical Lien?

A medical lien is a legal right to make a claim against a patient's personal injury settlement, court judgment, or insurance payment. This legal right arises when a doctor, hospital or other medical care facility provides treatment to an injured patient following the accident or incident while deferring payment for the treatment.

So instead of collecting payment for treatment immediately, the medical care provider reserves their legal right to be paid from any compensation the patient later receives.

For example:

• Jane is injured in a car accident.
• She requires several months of physiotherapy.
• Rather than paying for each appointment as treatment occurs, she signs a medical lien agreement with the physiotherapy clinic.
• After Jane settles her lawsuit against the at-fault driver, the physiotherapist receives payment for the treatments out of the settlement proceeds.

The arrangement benefits both parties. The patient can receive necessary treatment immediately without paying out-of-pocket, while the healthcare provider is assured that payment will eventually be made once the claim is settled.

How Does a Medical Lien Work?

Although procedures vary between jurisdictions, the process typically follows these steps:

1. The patient suffers an injury.
2. Medical treatment is required.
3. A legal claim or insurance claim is expected.
4. The healthcare provider agrees to postpone payment.
5. The patient signs an agreement acknowledging that treatment costs will be paid from future compensation if available.
6. Once the claim settles, the provider receives payment according to the agreement.

Some arrangements also involve the patient's lawyer, who agrees to pay outstanding medical invoices from the settlement funds before distributing the balance to the client.

What's the Difference Between a Medical Lien and Health Insurance?

Health insurance pays medical expenses according to the terms of an insurance policy.

A medical lien is an agreement that determines (i) when and (ii) from what source healthcare providers will be paid for their services.

The patient usually remains responsible for payment of the invoices if compensation is never recovered.

How is a Letter of Protection Different from a Medical Lien?

While a Letter of Protection and a standard medical lien serve similar functions and appear, at least on the surface, to be interchangeable, there is a significant difference between the two. 

A Letter of Protection (LOP) is a legally binding agreement between the injury patient, their lawyer, and the medical provider. It is a private, voluntary contractual agreement that allows the patient to receive treatment immediately, with the provider agreeing to defer payment for their services until the patient's personal injury case or claim is resolved. 

But a medical lien is a statutory right that entitles the medical service provider, payor or government entity that is paying the bills, to claim a portion of the settlement funds to cover the costs of the provider's bills for treating the patient's injuries.

When Are Medical Liens Used?

Medical liens are commonly used following:

• motor vehicle accidents
• slip and fall accidents
• workplace injuries
• product liability claims
• medical negligence claims
• public liability claims

In general, a medical lien is relied on when another person, insurer, or organization may ultimately be responsible for the patient's medical expenses.

What Types of Healthcare Providers Use Medical Liens?

Many healthcare professionals may use these arrangements, including:

• hospitals
• physiotherapists
• chiropractors
• psychologists
• occupational therapists
• massage therapists
• medical specialists
• rehabilitation clinics
• diagnostic imaging providers

The availability of medical liens to a certain type of treatment facility depends on local laws and the policies of individual healthcare providers.

Medical Liens in the United States

The United States has by far the most developed legal framework surrounding medical liens. Depending on the individual State, medical liens may arise through:

• specific statutes
• contractual agreements
• hospital lien legislation
• Medicare reimbursement rights
• Medicaid recovery rights
• Veterans Affairs recovery rights

Many states have passed legislation allowing hospitals or healthcare providers to register liens against personal injury recoveries. Patients involved in a personal injury are therefore often asked to sign lien agreements before receiving treatment.

In addition, federal programs such as Medicare and Medicaid have statutory rights to recover certain medical expenses from personal injury settlements.

Medical Liens in Canada

Due to the universal healthcare system in Canada, the concept of a medical lien is seldom seen in Canada.In fact, in some provinces such as Alberta, creditors are prohibited from creating a lien against a personal injury settlement (Alberta Limitations Act, R.S.A. 2000, c. L-12). 

Instead, healthcare providers and lawyers may use a contractual arrangement with a patient to defer payment, such as:

• direction to pay
• assignment of settlement proceeds
• acknowledgement of debt
• payment authorization agreement

All of these agreements can be used by the patient to direct their legal counsel to pay the provider's bills from the settlement or insurance amount. The specific legal requirements vary from province to province.

Canada's publicly funded healthcare system means many hospital and physician services are already covered by provincial health insurance.

However, private healthcare services—including physiotherapy, chiropractic care, counselling, occupational therapy, and other rehabilitation treatments—are usually paid out-of-pocket or by private medical insurance claims. Unpaid invoices will accrue interest until paid, and if they remain unpaid, will probably be sent to a healthcare collection agency.

Healthcare collection agencies in Canada must comply with the provisions of The Personal Information Protection and Electronic Documents Act (PIPEDA), provincial health acts and privacy regulations, and professional regulatory standards.

Medical Liens in the United Kingdom

Medical liens are not a recognized legal concept in England, Wales, Scotland, or Northern Ireland. Like Canada, the UK has a universal healthcare system—the National Health Service (NHS).

However, the private healthcare market has been expanding in the UK. Accordingly, there is a growing trend of unpaid healthcare bills, which often go to collection. Healthcare debt is almost exclusively confined to the private healthcare market.

Healthcare collection agencies must respect the patient-practitioner relationship and privacy and data protection laws, and must comply with the rules set by the Financial Conduct Authority (FCA). Failure to do so can lead to severe financial penalties and reputational damage.

Learn more about healthcare debt collection in the UK.

Medical Liens in Australia

Australia operates under a shared public-private model underpinned by the Medicare system, the national single-payer funding model. Australian residents, and even some visitors, are eligible for health services under the Medicare system. 

Doctors and medical facilities across Australia must follow ethical considerations in recovering debts from patients. These considerations include:

• fairness and transparency
• clear, honest communication
• respectful conduct
• compliance monitoring
• clear billing and debt recovery policies

Failure to comply with the legal and ethical guidelines can have serious legal and economic consequences.

Medical Liens in New Zealand

There is no such thing as a medical lien in New Zealand. This country has a mixed public-private healthcare system for all residents. The Accident Compensation Corporation (ACC) covers the costs of treatment for cases deemed to be "accidents".

According to Wikipedia, ACC is "the sole and compulsory provider of accident insurance in New Zealand for all work and non-work related injuries." Since this is a no-fault scheme, personal injury patients do not have the right to sue at-fault parties, except for exemplary damages.

Advantages of Using Medical Lien Agreements

Medical lien agreements can benefit both patients and healthcare providers.

For patients:

• access to treatment without immediate payment
• continuity of rehabilitation
• fewer financial barriers during recovery

For healthcare providers:

• increased likelihood of payment
• ability to treat patients who might otherwise delay care
• documented repayment arrangements

Potential Risks

Medical liens are not risk-free. Patients need to understand that:

• They remain personally responsible for medical bills if their claim is unsuccessful, or if the settlement amount is not sufficient to cover the entire amount of the bills.
• Settlement funds may be reduced by outstanding medical accounts.
• Interest or administrative charges may apply if permitted by the agreement.
• Signing a lien does not guarantee compensation from an insurer or defendant.

Healthcare providers also assume a certain amount of risk, because it may take months or even years to settle the claim and their bills will remain unpaid during that period.

Frequently Asked Questions

1. Does signing a medical lien mean I automatically win my lawsuit?

No. A medical lien does not affect the outcome of a legal claim. It simply addresses payment for medical treatment if compensation is later received.

2. Can I refuse to sign a medical lien?

Usually, yes. However, a healthcare provider is generally not required to offer to provide treatment on a deferred payment basis. Other payment arrangements may be available.

3. Are medical liens available in every country?

No. The legal concept varies significantly between jurisdictions. In some countries, similar arrangements are created through contracts rather than statutory lien legislation.

4. Who gets paid first from a settlement?

That depends on the applicable law, court orders, statutory rights, insurance obligations, and the agreements entered into by the parties. In many personal injury cases, legal fees, statutory reimbursement claims, and medical expenses may all need to be addressed before the remaining settlement proceeds are paid to the injured person.

Key Takeaways

A medical lien is a mechanism that allows healthcare providers to defer payment for treatment until a patient receives compensation from a legal claim or insurance settlement. While the concept is well established in the United States, similar arrangements do not really exist in many other jurisdictions.

Anyone asked to sign a medical lien or deferred payment agreement should understand its terms carefully and seek legal advice if they are uncertain about their obligations.

Additional Resources

• Worksite Incident / Injury Report Form
• Assignment and Direction to Pay Settlement Proceeds
• Colorado Doctor's Lien and Patient Consent
• Arizona Medical Lien Agreement
• The importance of travel medical insurance

You cannot invest capital without being exposed to one or more types of risk.

We’ve all heard the expression “don’t put all your eggs in one basket.” The objective is to ensure that no single event could significantly reduce the value of your assets. It’s impossible to avoid risk entirely when investing – but you can manage that risk through diversification of those assets.

Five Major Risks of Investing

• Capital Risk: The loss of a portion of your investment capital on equity investments due to declining prices.
  
  
• Capital Default Risk: Failure by a debtor to repay the principal on a debt instrument such as a GIC or bond.
  
  
• Currency Risk: Your investment is in a country whose currency is declining in value.
  
  
• Interest Rate Risk: The risk of locking into a long term debt instrument when interest rates subsequently rise or, alternatively, locking into a short term debt instrument when interest rates subsequently decline.
  
  
• Inflation Risk: Loss of purchasing power due to rising inflation.

How Diversification Can Improve Your Returns Over the Long Term

Let’s assume that Bill and Sarah each decided to invest $100,000. Bill decides he will invest his capital in a fixed income investment for twenty years earning an 8% interest rate. Sarah has decided to diversify by investing her capital equally in 5 different investments at $20,000 each. The table below is a conservative estimate of how their investment returns could look in 20 years’ time.

Allocating Your Assets Among a Variety of Investment Types

As you accumulate assets for retirement, your objective is to achieve an adequate return on these assets at a risk level that is comfortable for you. A portfolio consisting entirely or mostly of one type of asset is not going to perform as effectively or efficiently as a portfolio with a mix of assets.

You can diversify your investment capital in a number of different ways:

• First, a mix of asset classes of cash, fixed income and equity.
• Second, geographic diversification which provides a mix of different performing economies and political situations, as well as currency diversification.
• Third, within a specific asset type, you could utilize different categories such as government bonds and corporate bonds for fixed income, or using large capitalized equity and small capitalized equity.
• Fourth, if you are investing in mutual funds, use a variety of managers with different investment styles.

The Life Cycle of Investing

Your investment strategy should change over time, as you get closer to retirement. As you begin your working life, you have many years to earn an income and are therefore in a stronger position to handle the volatility of equity. As you near the end of your working life, you have fewer years of income generation and should adopt more of a capital preservation strategy. This is called the life cycle of investing.

• As a young investor, your investment strategy can tolerate as much as 75% equity investing, with the balance in cash funds.
• By your 40s you should diversify into a mix of cash, fixed income and equity.
• As you head into pre-retirement, fixed income should make up about 50% of your overall investment portfolio.

Designing Your Portfolio

When designing an appropriate portfolio for yourself, you need to consider both internal and external factors. Internal factors include:

• your risk tolerance
• your investment objectives
• your time horizon
• your needs for liquidity
• your financial circumstances
• your marginal tax rate

External factors that you should take into consideration are:

• outlook for interest rates
• outlook for inflation
• outlook for the domestic economy and global economies
• outlook for your domestic currency
• outlook for national politics
• outlook for federal debt levels.

Review your portfolio each time any of these factors, both internal and external, change significantly.

Don’t fall into the pitfall of making decisions based solely on the risk and potential rate of return, but instead consider them in the overall context of your portfolio. You will want to have some low risk investments in your portfolio for cash emergency purposes. But for higher rates of return, keep some high risk investments as well, so long as these high risk investments are kept to an appropriate percentage of your overall investment strategy.

Image by Gerd Altmann from Pixabay

One of the biggest risks for any small business owner is the possibility of facing a lawsuit or a debt collection from creditors.

If you have invested a lot of your personal assets into your business, you may lose them if your business becomes insolvent or bankrupt. Therefore, it is important to take proactive steps to protect your business from creditors before any financial problems arise.

Here are some strategies that you can consider to safeguard your business assets and your investment from creditors.

1. The time to protect your business investment from creditors is before any financial problems arise.

If you fail to protect your business assets before you (i) borrow money, (ii) incur substantial debt, or (iii) encounter significant financial problems, you may be giving your business creditors a better chance of accessing your assets and challenging any future planning you have done.

2. Understand your exposure as a principal of the business.

If you are a shareholder of the company, your exposure is generally limited to the amount of your investment, including your shareholdings and any shareholder loans you make to the company. However, various situations may arise which impose additional liability upon you.

If you have given a personal guarantee to guarantee the debts and obligations of the business, creditors may be able to sue you and attach your personal assets (by way of garnishment or seizure) to cover the amount guaranteed.

If you are a director or officer of the company, you may also have additional personal liability for such things as unpaid employee salaries, uncollected or unremitted sales or other taxes, unremitted payroll deductions, and/or breach of contract.

3. Protect your personal assets.

Prior to signing a personal guarantee, engaging in a new business opportunity or agreeing to be a director or officer of a company, you should consider the following strategies:

• If you haven’t already done so, incorporate the business as a for-profit company or a limited liability company (LLC) to separate your personal assets from your business’ liabilities, limiting creditor access to business assets only.
• Transfer your personal assets to your spouse or some other party (at fair market value).
• Invest your money in assets which are exempt from creditors’ claims.
• Set up an asset protection trust in a foreign jurisdiction.

4. Protect the company's bottom line.

There are similar steps you can also take to protect the profits of your business:

1. Establish a holding company to hold the shares in the corporation. The profits of the business could then be paid on a tax-free basis to the holding company through dividends on the shares. Those profits can be reinvested or loaned back to the business in the form of a shareholder’s loan, which would ensure that cash flow remains unaffected. The business can grant security back to the holding company for repayment of the loan, making the holding company a secured creditor. In addition, the holding company can purchase equipment or land required by the business and then lease it back to the business, at a profit. These assets could then be out of reach from business creditors.

A holding company is a separate legal entity that owns shares in another company, usually the operating company that runs the business. The profits of the business could then be paid on a tax-free basis to the holding company through dividends on the shares. Those profits can be reinvested or loaned back to the business in the form of a shareholder’s loan, which would ensure that cash flow remains unaffected. The business can grant security back to the holding company for repayment of the loan, making the holding company a secured creditor. In addition, the holding company can purchase equipment or land required by the business and then lease it back to the business, at a profit. These assets could then be out of reach from business creditors.

2. Set up a trust. Any shares in the holding company could be transferred to the trust, and any funds paid by the holding company to the trust by way of a dividend would belong to the trust for the benefit of the trust beneficiaries. These funds would not be available to creditors even if one or more of the beneficiaries signed personal guarantees, or have other personal obligations.

A trust is a legal arrangement that allows a person or an entity (the trustee) to hold and manage assets for the benefit of another person or group of persons (the beneficiaries). Any shares in the holding company could be transferred to the trust, and any funds paid by the holding company to the trust by way of a dividend would belong to the trust for the benefit of the trust beneficiaries. These funds would not be available to creditors even if one or more of the beneficiaries signed personal guarantees, or have other personal obligations.

All creditor proofing strategies require careful consideration of taxation issues so as to avoid income attribution problems or the unexpected triggering of capital or income gains. The above opportunities and strategies represent only a sample of what ought to be considered. Each circumstance will offer its own opportunities and restrictions on planning.You should consult with a professional accountant and a lawyer before implementing any of these strategies to ensure that they are suitable for your situation and comply with the relevant laws and regulations.

3. Make a secured shareholder loan to the business secured by business-owned assets as collateral. You will then have a priority creditor claim against those assets if the business defaults.

Image by Mohamed Hassan from Pixabay.

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