How to increase trauma collections with medical liens

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Most trauma programs operate at a loss due to inadequate reimbursement. But according to a leading trauma systems consultant, there are several underutilized sources of payment that can help trauma centers increase collections significantly. One of the most commonly overlooked sources is also among the easiest to access — financial settlements resulting from injury lawsuits.

“Because trauma is so disabling, it is very common for injured patients to get a lawyer and go after some source to pay for their own livelihood,” said Connie Potter, RN, BSN, MBA. “And if the patient has a significant injury, the chance of getting some sort of settlement is quite high.”

According to Potter, trauma centers not only have the right to settlement money, they have a priority claim. “In virtually every state, the ‘first cut’ of any settlement goes to medical care,” she said. “That means number one in line for the money is the hospital.”

But the only way to ensure access to settlement money is to file a medical lien. Essentially, a medical lien asserts the hospital’s right to be paid for services out of settlement proceeds.

“Not every lawsuit results in a financial settlement, and settlements may take two or three years,” Potter said. “But if you have filed a lien, any case that does settle will produce ‘free money’ for the trauma center.”

Is it worth the effort?
As an illustration, consider a hospital that treats 1,200 trauma patients per year.

  • Approximately 900 of those patients are blunt trauma cases such as motor vehicle crash.
  • Out of these 900 patients, 400 are uninsured or underinsured.
  • Out of these patients, 300 hire a lawyer and pursue legal action.
  • Eventually, half of these patients — 150 individuals — are awarded a financial settlement.

Say the average outstanding hospital bill for each patient is $50,000. If the trauma center had filed medical liens against these 150 cases, it would recoup $7.5 million.

How to file medical liens
Potter recommends setting up a simple process for filing medical liens on a regular basis.

First, obtain the appropriate medical services lien forms from your state or local jurisdiction. “The form itself is usually pretty simple,” Potter said. “Typically, it will ask for the patient’s name, address and insurance company, a very short description of the injuries, and some information about the outstanding balance.” Then assign a staff member to file a batch of liens at the local courthouse every week or two.

The filing deadline for medical liens is usually 180 days after the date of discharge, Potter noted. (The exact deadline should be listed on your jurisdiction’s form.) Lien forms should be notarized, and there will typically be a small filing fee.

Which patients are “lien worthy”? MVC patients are usually the most likely to file a lawsuit. However, penetrating injuries and fall injuries should also be evaluated for potential settlements. “You should consider filing a lien for any injury that occurs on private or commercial property — for example, the shooting that takes place in a restaurant or even the fall that occurs at home,” Potter said. “Businesses have business liability insurance that includes injury coverage for anyone on the premises. And homeowners will have homeowner’s liability insurance that can also cover these injuries.”

For trauma program managers that want to simplify the process, Potter suggests a “quick and easy” method: “Any time an attorney makes a request for medical records, that is a tip-off that you should file a medical lien.”

Two questions about medical liens
According to Potter, trauma program managers often ask two questions about medical liens:

Q. Doesn’t tort reform limit injury liability?
A. It is true that various tort reform measures limit potential settlements for injured patients. “However, tort reform in no way limits the amount of a settlement for medical payments,” Potter said. “These laws place limits on personal and punitive damages, but not on what a hospital can get as payment for services.”

Q. If we file a lien, how can we write charges off as charity care?
A. In some hospital accounting systems, patient accounts must be zeroed out at the end of the fiscal year for the sake of reporting costs to Medicare. To do this, hospitals will typically classify trauma patient balances as charity care. But according to Potter, this should not interfere with filing medical liens.

“If you need to close out an account in order to complete your Medicare Cost Report, that’s fine,” she said. “Classify the unpaid amounts as charity care, send off the report, and then roll the amounts back into the account. The important thing is that you need a mechanism for showing the true balance in a patient’s account. It may be as simple as keeping track of charity care amounts for each individual patient.”

Tracking these amounts is critical to the success of a medical lien effort. “I once visited a hospital that had received an $80,000 check from an injury settlement,” Potter said. “But the balance on the account was zero, so they just sent the check back.”

Careful recordkeeping is also important in case the hospital needs to make restitution to other payment sources. For example, a hospital may receive partial reimbursement from Medicaid for services to an injured patient. If the hospital eventually receives full payment for services out of settlement money, it will have to return earlier reimbursement amounts to Medicaid.

Two cautions
“Once you have a streamlined process, filing medical liens takes little effort,” Potter said. “And that little amount of effort is well worth the outcome.” However, trauma program leaders need to keep two things in mind:

“First, if you don’t charge for services, none of this matters,” Potter said. “You can’t file a medical lien for an amount that has not been charged.” She recommends that trauma programs develop comprehensive systems for (1) capturing trauma-related charges and (2) billing in a manner that spreads the charges out across hospital services.

Second, make sure payments captured through medical liens are recognized as trauma revenue. “The key is to bill using the FL 14 ‘type 5’ trauma center patient identifier,” Potter said. “That way, when money comes in through a settlement, it can go into the trauma program revenue stream. Ultimately, this will help get hospital leadership to look at the trauma program as a revenue center, not just a cost center.”

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