Wall Street Journal, January 8, 2020
By Sara Randazzo
One day in 2011, Dave Pebley and his wife were in their motor home on the side of the highway with a flat tire when a big rig slammed into them. The jolt sent Mr. Pebley to the hospital with injuries to his face, neck and lower back.
The California resident sued the driver and his employer. But instead of using his Kaiser health insurance to continue treatment, Mr. Pebley enlisted medical specialists who treated him for no upfront cost. Instead, they agreed to recoup their fees only once his lawsuit resolved.
The arrangement paid off for Mr. Pebley, his lawyers and his doctors when a jury awarded him $3.6 million in damages, including $644,000 in past and future medical costs. The defendants challenged the verdict, arguing the medical bills were excessive.
The courts ultimately sided with Mr. Pebley, a ruling that helped a little-known practice flourish in California: Doctors treating on liens tied to personal-injury litigation instead of billing through insurance.
So-called lien doctors have existed in parts of the country for years. But a spate of legal and legislative changes has led to a proliferation of the practice in California and other states, including Florida, Colorado, Texas and Georgia, lawyers say. Financing companies that buy liens from doctors before litigation is resolved are also becoming more prominent.
The lien arrangements are legal and don’t violate ethical rules, medical experts say. Still, defense lawyers and those in the liability insurance industry argue they drive up litigation costs and expose plaintiffs to large bills if their lawsuits don’t succeed.
“This is totally to enhance the bank accounts of the plaintiffs’ lawyers,” said Anthony Kohrs, a defense lawyer in Los Angeles.
Plaintiffs’ lawyers, meanwhile, say doctors who treat on liens provide patients with broader treatment choices and, for the uninsured, are often the only viable option.
“In reality, it’s better care than they would have had” through Medicare or other options, said Robert Simon, a southern California personal-injury lawyer whose firm represented Mr. Pebley.
Many people are unaware lien doctors exist until they hire a personal-injury lawyer to take on a car-accident or slip-and-fall case. The arrangements can be appealing for the uninsured or for those with coverage, because they require fewer logistical hurdles and have options beyond what insurance might pay for.
Lawyers can refer interested plaintiffs to specific lien doctors or to online directories such as Doctors on Liens, Power Liens or Global Lien Doctors. The networks include orthopedists, plastic surgeons, dentists, chiropractors and other specialists.
The fine print of typical contracts bar patients from submitting claims to insurance and hold them responsible for the full bill no matter the outcome of their lawsuit.
“It is unclear whether plaintiffs are informed of the substantial risk they undertake when entering such contracts,” a Colorado judge wrote in a recent opinion detailing the practice.
In reality, lawyers and doctors say, the liens are often negotiated down if a case fails. The doctors receive nothing while a lawsuit is under way and often must take part in the litigation; they collect on the lien when a settlement or verdict is reached.
At the heart of nearly every personal-injury lawsuit lie medical bills, which are used as benchmarks by juries to determine damages. Personal-injury lawyers typically receive contingency fees of between one-third and 40% of any settlement or verdict, meaning they benefit if their clients are awarded higher damages.
A 2011 decision in California’s highest court curtailed plaintiff payouts by creating a distinction between the sometimes low negotiated rates insurance pays and the higher amounts often charged by doctors. The court found plaintiffs can recover the lesser of either the amount paid or incurred for medical services or the “reasonable market value” of the care. With insurance, the court found, the “amount incurred” is what insurance actually paid, even if a medical provider billed a higher amount.
Initially viewed as a win for the defense, the decision, known as Howell, made it more attractive for plaintiffs’ lawyers to send clients to lien doctors. Instead of juries being restricted to seeing only insurance-discounted bills, when a lien doctor is used, the full bill comes into court.
In Mr. Pebley’s case, an appellate court found that even though he had insurance, because he chose to use lien doctors, he would be considered “uninsured” and the jury would see only the lien-doctor bills. The decision has made it even more appealing for plaintiffs to forgo using insurance, those in the industry say.
“It is so lucrative to provide lien care,” said Henry Lubow, a California doctor who has been a medical-billing expert for the defense in more than 5,000 personal-injury cases. Dr. Lubow said lien bills can be as much as seven to 25 times higher than what insurance will pay.
Some feel the premium is justified because of the uncertainty involved in litigation. “You’re going to pay a much higher price because the doctor is choosing to wait and risk nonpayment,” said Joseph Barrett, a Los Angeles personal-injury lawyer.
Gerald Alexander, an orthopedic spine surgeon who treated Mr. Pebley, said his rates are about the same on a lien or through insurance, but insurers increasingly ignore bills and pay only what they want. “Just because third parties underpay us for our services doesn’t mean that’s reasonable,” he said. About 10% of his practice is litigation-related, he said, a proportion that has risen over the years.
Doctors are entitled to set rates they determine are reasonable, experts say, and aren’t ethically obligated to bill to insurance.
Mr. Pebley, a 71-year-old owner of a construction-materials business, said he was nervous about having a spine operation after his accident but had much more confidence in Dr. Alexander than doctors available through his insurance. “Everything went perfect,” he said, and the surgery helped restore mobility to his hands and arms.
He said he never expected his case to take seven years but that he pressed on because early settlement offers of $100,000 wouldn’t have come close to paying off more than $250,000 in medical bills. “I knew I was the one financially responsible and on the hook for this,” he said of the liens. In the end, his lawyers took half his judgment, the medical liens were repaid and he got the rest.
Mr. Pebley said he has been surprised by the impact his case has had on the use of lien doctors. “It seemed like it would be pretty simple,” he said of pursuing the lawsuit. “It turned into this monster.”