Can a personal injury lawyer outsource the resolution of health-insurance liens to a lien-resolution company and pass that fee to the client as a litigation cost?

Plain-English summary

Opinion 14-01 answers two questions about a personal injury lawyer who wants to outsource the calculation, verification, and resolution of health-insurance liens and subrogation/reimbursement claims, then pass the outsourced fee to the client as a cost. First, may the lawyer outsource lien resolution? Second, may the resolution fee be treated as a cost to the client?

The Committee concludes it is ethical for a personal injury lawyer to engage a lien-resolution company that provides expert advice, or to associate with a law firm providing the service. Whether the fee may be charged to the client as a cost turns on the nature of the work. If, when properly disclosed in the retention agreement, the resolution services are professional services equivalent to those of accountants or appraisers, the fee may be included as a cost. If the services constitute the practice of law, the lawyer and the company must comply with the fee-splitting requirements of Rule 1.5(c) and (d), the lawyer cannot treat the fee as a cost, and it may be proper for the company to collect a contingency fee.

The Committee surveys how lien-resolution companies describe their work (reporting to agencies, calculating and verifying liens, auditing reimbursement claims, pursuing administrative remedies, and supporting the lawyer in adjudication) and notes many plaintiffs' lawyers may lack competence in attributing medical costs between the accident and the client's general health. It then applies the practice-of-law test from Utah State Bar v. Summerhayes & Hayden, where the Utah Supreme Court treated third-party insurance adjusting, including negotiating a claim, as the practice of law. The lawyer retains responsibility for categorizing the company's services in each case.

On fees, the Committee draws the line: a contingency fee may be proper only where the company is qualified to practice law (a co-counsel arrangement), because Rule 1.5(c) allows contingency fee agreements only among lawyers, and a lawyer cannot pay a contingent fee to a witness (UCA 78B-1-152 bars expert-witness contingency fees; Rule 3.4(b) bars inducements to a witness prohibited by law). A company engaged on contingency therefore cannot also testify as an expert. Where the company practices law, the division of fees must be proportional to services, the combined fee reasonable, and the client's written agreement obtained. Where the company provides expert analysis, testimony, and a legal-research component, those non-contingent fees may be charged as a cost with the Rule 1.5(c) cost disclosures.

In practice

Under this opinion, a personal injury lawyer may outsource health-lien resolution, but whether the fee is a client cost or a divided attorney fee depends on whether the company's work is the practice of law. Per the opinion, if the services are the equivalent of accounting or appraising and disclosed in the retention agreement, the fee may be a cost; if they constitute the practice of law (for example, advising on the application of contract or statute, or negotiating claims in adversarial administrative settings), the lawyer must comply with Rule 1.5(c) and (d) fee-splitting, cannot treat the fee as a cost, and must keep the combined fee reasonable and proportional with the client's written agreement. The opinion holds a contingency arrangement is appropriate only where the company is qualified to practice law, and that a company paid on contingency cannot serve as a testifying expert because of the bar on expert-witness contingency fees. The lawyer retains responsibility for categorizing the services in each case. The opinion was issued in 2014; confirm the current text of Utah Rules 1.5 and 3.4 before relying on the numbering here.

Common questions

Q: Can a personal injury lawyer hire a lien-resolution company to handle medical liens?

A: Yes. The opinion concludes it is ethical to engage a lien-resolution company that provides expert advice, or to associate with a law firm providing the service.

Q: Can the lien-resolution fee be billed to the client as a cost?

A: Only if the work is not the practice of law. The opinion states the fee may be charged as a cost, with disclosure in the retention agreement, when the services are the equivalent of accounting or appraising; if the services constitute the practice of law, the fee cannot be treated as a cost and Rule 1.5(c) and (d) fee-splitting applies.

Q: When does lien-resolution work become the practice of law?

A: When it involves rendering legal advice. The opinion applies Utah State Bar v. Summerhayes & Hayden, under which negotiating claims and third-party insurance adjusting is the practice of law, and leaves the lawyer responsible for categorizing the company's services in each case.

Q: Can the lawyer pay the company a contingent fee?

A: Only if the company is qualified to practice law. The opinion notes Rule 1.5(c) allows contingency fee agreements only among lawyers, and that a company paid on contingency cannot testify as an expert because a lawyer cannot pay a witness a contingent fee (UCA 78B-1-152; Rule 3.4(b)).

Background and rules framework

The opinion interprets Utah Rule of Professional Conduct 1.5 (fees), specifically the contingency-fee and fee-division provisions of Rule 1.5(c) and (d), and Rule 3.4(b) (fairness to opposing party and counsel; inducements to witnesses), corresponding to ABA Model Rules 1.5 and 3.4. It applies the practice-of-law standard from Utah State Bar v. Summerhayes & Hayden, 905 P.2d 867 (Utah 1995), and cites Utah Code provisions on hospital liens (UCA 38-7-1 et seq.) and expert-witness contingency fees (UCA 78B-1-152). Footnotes reference the competence, diligence, and safekeeping duties of Rules 1.1, 1.3, and 1.15.

Citations and references

Rules of Professional Conduct:

• MR 1.5 / Utah RPC 1.5(c), 1.5(d) (contingency fees; division of fees)
• MR 3.4 / Utah RPC 3.4(b) (inducements to a witness)
• Utah RPC 1.1, 1.3, 1.15 (competence, diligence, safekeeping; cited in footnotes)

Statutes:

• Utah Code Ann. 38-7-1 et seq. (hospital liens)
• Utah Code Ann. 78B-1-152 (prohibiting expert-witness contingency fees)

Cases:

• Utah State Bar v. Summerhayes & Hayden, 905 P.2d 867 (Utah 1995), negotiating and adjusting third-party claims is the practice of law
• Arkansas Dept. of Health & Human Servs. v. Ahlborn, 547 U.S. 268 (2006), Medicaid recovery from third parties (cited in a footnote)

See also

• Utah Ethics Op. 18-05: Lawyer Employed by a Registered Investment Adviser
• ABA Formal Op. 464: Fee Division With a Lawyer Who Shares With Nonlawyers
• ABA Formal Op. 506: Responsibilities Regarding Nonlawyer Assistants

Source

• Landing page: https://www.utahbar.org/ethics-opinions/2014-01/
• Original PDF: https://www.utahbar.org/wp-content/uploads/2022/12/2014-01.pdf

Original opinion text

Best-effort transcription from a two-column PDF, reassembled in the opinion's own paragraph order. Minor errors may remain; the linked PDF is authoritative.

Opinion No. 14-01

Utah Ethics Opinion

Utah State Bar Ethics Advisory Opinion Committee

Issued January 15, 2014

ISSUE

1. Under what conditions is it appropriate for a personal injury lawyer to "outsource the calculation, verification and resolution of alleged health insurance liens and subrogation/reimbursement claims" and pass the outsourced resolution fee to the client as a "cost." There are two questions posed to the committee. First, can the lawyer appropriately outsource the lien resolution? Second, is the treatment of the lien resolution fee appropriately treated a "cost" to the client?

OPINION

2. It is ethical for a personal injury lawyer to engage the services of a lien resolution company that can provide expert advice or to associate with a law firm providing this service.

3. If properly disclosed in the retention agreement, fee resolution services may be included as "costs" to the client provided the resolution services are professional services equivalent to accountants or appraisers.

4. If the services provided constitute the practice of law, the personal injury lawyer and the lien resolution company must comply with the fee splitting requirements of Rule 1.5(c) and (d). Then, the lawyer cannot treat the lien resolution fee as a cost to the client. If the services constitute the practice of law, it may be proper for a lien resolution company to collect a contingency fee.

BACKGROUND

5. The federal or state government pays many, if not most, seriously injured plaintiffs' medical bills through Medicaid[1] or Medicare.[2] Insurers, industrial unions and other private third-party payers have subrogation rights to monies collected from solvent third parties. Finally, in Utah, Utah Code Annotated 38-7-1 et seq provides for hospital liens on judgments, settlements or compromise in certain accident cases.[3]

6. In straightforward simple cases, little difficulty arises. However, in order to settle complicated injury cases, plaintiff's counsel must account for these liens. This may require substantial expertise. Counsel must ascertain the correct amount payable for each lien.[4] The assistance of experts in lien resolution advances the laudable goal of fair resolution to both the client and the lien holder.

7. In recent years, third party entities have held themselves out as "Lien Resolution" companies. The services offered are often a significant value enhancement for the client. Many plaintiffs' personal injury lawyers might lack the necessary competence in reading medical bills for the purpose of attributing costs to the plaintiffs general health as opposed to the accident.

8. The issue of whether such services should be treated as "costs" or as "attorney's fees" depends upon the factual nature of the work performed. One company describes its services as addressing "Medicare conditional payments, Medicaid, Tricare[5], Veterans Affairs, FEHBA[6], ERISA[7], Private Insurance and Hospital/Provider lien claims."[8] The services offered include reporting to the appropriate government agency, calculation of the amounts due, verification of the accuracy of the lien, and final resolution of the claim. This firm charges a flat fee for simple Medicaid/Medicare resolution. It charges a contingency fee based upon percentage of saving in cases that are more complex.

9. Other lien resolution companies describe their staff as medical billing specialists, nurses and attorneys familiar with federal law beyond the knowledge possessed by the ordinary plaintiffs personal injury lawyer. They claim that their services include a determination of the personal injury lawyer's affirmative obligation to notify healthcare plans. They "will assess the healthcare plans' rights of recovery and audit the reimbursement claims to 'carve out' items unrelated to injury/settlement." They will then pursue administrative remedies, such as damage allocation, waiver and compromises to ensure the appropriate 'net recovery' for the claimant. If the claim is not resolved administratively and goes to adjudication, they provide legal authority and support for the personal injury attorney in dealing with the agency. Those companies charge a flat fee based upon the amount of the total settlement or verdict. They characterize their service as providing the personal injury lawyer with sufficient facts and familiarity with the law. This allows the personal injury lawyer the ability to negotiate liens on equal terms with the lienholder's lawyer. In essence, they believe that they are providing expert advice coupled with specialized legal resources for the personal injury attorney.

ANALYSIS

10. May attorneys properly use lien resolution companies to assist in the determination of appropriate sums of money owed to third party lien claimants?

11. The propriety of the structure of the lien resolution agreement in any particular case depends upon the relationship between the injury attorney and the lien resolution company. The personal injury lawyer must evaluate her case. If the lien resolution company is providing "legal advice as to contract or statute", that conduct most likely constitutes the practice of law. The practice of law would require compliance with Rule 1.5(c) and (d) as fee splitting between law firms. On the other hand, if the lien resolution services are the substantial equivalent of accounting or appraising services, such services may not constitute the practice of law.

12. The key determination is when a "lien resolution company" is providing legal services. That question is factually based and unique to each personal injury case. The Utah Supreme Court has stated:

The practice of law, although difficult to define precisely, is generally acknowledged to involve the rendering of services that require the knowledge and application of legal principles to serve the interests of another with his consent. It not only consists of performing services in the courts of justice throughout the various stages of a matter, but in a larger sense involves counseling, advising and assisting others in connection with their legal rights, duties and liabilities.

Utah State Bar v. Summerhayes & Hayden, 905 P.2d 867, 869-870 (Utah 1995). (emphasis added).

13. In Summerhayes, the Court found the practice of third party insurance adjusting as the practice of law. Importantly, the court found negotiating a claim is the practice of law.[9]

14. In both examples set forth above, the lien resolution companies are advising on the applicability of contract and statutory law. Both provide services in administrative settings that are adversarial in nature. The scope of unauthorized practice is beyond this opinion. Nevertheless, depending upon the services provided in a particular case, the personal injury lawyer must determine if the lien resolution company's services constitute the practice of law. The personal injury attorney retains responsibility for categorizing the nature of the lien resolution company's services. She may treat such services as a cost to the client but only if the services are the equivalent of accounting and assistance falling short of legal advice.[10]

15. The collection of a contingency fee may be proper if the relationship with the lien resolution company is viewed as a co-counsel lawyer agreement. However, if the lien resolution company provides expert testimony, it must be borne in mind that a lawyer cannot pay a witness a contingent fee. UCA 78B-1-152 prohibits expert witness contingency fees. Rule 3.4(b) precludes offering an inducement to a witness prohibited by law. Further, Rule 1.5(c) allows for contingency fee agreements only among lawyers. Thus, a contingency fee agreement is appropriate only where the lien resolution company is qualified to engage in the practice of law. If the lien resolution company is engaged on a contingency fee basis, the lien resolution company could not provide testimony in any adjudicatory proceedings as an expert witness. Obtaining a testifying witness would be an additional cost to the client and likely require disclosure of the additional cost in the fee agreement.

16. If the lien resolution company is practicing law, the injury lawyer must comply with the dictates of Rule 1.5(c) and (d). A contingency fee agreement must be in writing, signed by the client and state the method by which the fee is to be determined. The division of fees between the personal injury lawyer and the lien resolution services lawyer must be in proportion to their individual proposed services.[11] The combined fee must be reasonable. The rules require the written agreement of the client.

17. If, on the other hand, the lien resolution company provides expert analysis and ultimate testimony along with a legal research component, it would be appropriate to charge those non-contingent fees as a cost to the client. The lawyer however must comply with the cost disclosure provisions of Rule 1.5(c). The lawyer must notify the client in writing of any expense to be deducted from the recovery and "whether such expense are to be deducted before or after the contingent fee is calculated."

CONCLUSION

18. The propriety of a lien resolution agreement will vary from case to case depending upon the services to be rendered. If the lien resolution company is engaged in the practice of law, the personal injury lawyer must comply with the fee-splitting requirements of Rule 1.5 (c) and (d). If there is a contingency fee involved, the personal injury lawyer cannot use the lien resolution company as a witness in subsequent adjudicatory proceedings.

19. If the lien resolution company were providing non-legal services such as accounting or appraising, it would be appropriate to charge the lien resolution fees as costs to the clients provided proper disclosure of the treatment of the cost is disclosed in the contingency fee agreement.

Notes:

[1] Medicaid is a joint federal/state program providing medical care for the indigent. Given the amount of medical bills generated in severe personal injury claim, often the injured party will fall into poverty. Thus, Medicaid is often the source of initial payment of such claims. The state government as paying party is responsible to collect Medicaid payments from solvent third parties. See generally Arkansas v. Ahlborn, 547 U.S. 268 (2006).

[2] Medicare is a federally administered medical services program. It covers not only the elderly but also any person who is disabled and receiving social security disabilities payments. The federal government has the same obligation to collect payments for injury from solvent defendants.

[3] Complicating hospital liens is the requirement for the liable party or its insurer to pay the hospital directly. See UCA 38-7-3.

[4] Proper resolution of liens implicates the duty of competence (Rules of Professional Conduct Rule 1.1) and diligence (Rules of Professional Conduct Rule 1.3.) Upon receipt of settlement funds belonging to a third party lien claimant, an attorney must safeguard the funds as provided by Rule 1.15. "Upon receiving funds ...in which a third person has an interest, a lawyer shall notify the...third person. Except as otherwise permitted by law, a lawyer shall promptly deliver to...the third person any funds...that the third party is entitled to receive, and upon request by ...the third person, shall promptly render a full accounting regarding such property." Rule 1.15(d).

[5] Tricare is a federal program for military service members and their dependents.

[6] Federal Employees Health Benefits Act.

[7] In this context, ERISA is the federal law governing employee benefits including insurance.

[8] Utah law does not allow a provider lien. See UCA 38-7-1 for the extent of a hospital lien.

[9] A third party adjuster is a layperson who advices a client on legal principals including comparative fault, statutes of limitations, jurisdictional issues. "[T]he acts of negotiating, evaluating and settling third-party personal injury or property claims constitutes the practice of law." Summerhayes at 870.

[10] Accountants often give advice as to tax treatment. Giving advice to the personal injury attorney as to the proper treatment of contingent liens in some cases may be equivalent conduct and not the practice of law. This determination is beyond the scope of this opinion.

[11] See Rules of Professional Conduct 15(e).