Treat Now, Pay Later: The Truth About Letters of Protection

You don’t have to choose between getting treated and getting paid

If you’ve been in an accident and are seriously injured, you probably have two major concerns: What medical treatment do you need, and how are you going to pay for it? 

When an injured person approaches a personal injury lawyer, their first question is usually along the lines of, “I need an MRI and my insurance won’t cover it. How am I supposed to pay for this?” 

It’s not a great spot to be in, for sure. But for most injured people, the answer involves one of two tools: a medical lien or a letter of protection. Each allows you to receive the treatment you need now and pay later, out of your recovery. The difference between these tools matters; each comes out of your pocket in a different way when your case is resolved.

What’s a medical lien?

A medical lien is a legal claim against your settlement or verdict. It’s asserted by someone who paid for or provided your care. 

A lien can arise from a variety of sources:

Hospital lien statutes

Most states provide a statutory lien on personal injury recoveries for emergency treatment by hospitals. Typically, the hospital will record the line and provide notice within a set window. Many liens fail because the hospital didn’t follow the procedure.

Medicare

Medicare pays “conditionally” with a statutory right of recovery against your settlement under the Medicare Secondary Payer Act, 42 U.S.C. § 1395y(b)(2). This is neither optional nor negotiable—the Centers for Medicare & Medicaid Services (CMS) must be notified, a conditional payment demand obtained, and the lien resolved before funds are disbursed. 

There is good news, though. Recovery under Medicare is reduced for a proportionate share of attorney’s fees and costs (42 U.S.C. § 411.37).

Medicaid

Federal law requires the state to seek reimbursement  from a liable third party. Historically, recovery was limited to the medical-expense portion of a settlement, but the Supreme Court expanded recovery in 2022 (Gallardo v. Marstiller, 596 U.S. 78 (2022)). This permits states to reach amounts allocated to future medical care, as well as previous.

ERISA health plans

The Employee Retirement Income Security Act (ERISA) is a U.S. federal law that sets minimum standards for retirement and health benefit plans in private industry. If your health insurance is through a self-funded employer plan, the plan document controls. The U.S. Supreme Court held in 2013 that clear plan language trumps equitable defenses (US Airways v. McCutchen, 569 U.S. 88 (2013)). However, where the plan is silent on attorney’s fees, the common-fund doctrine applies and the plan shares in the cost of recovery. 

The common fund doctrine is a legal rule that requires anyone who benefits from a shared pool of money that results from a lawsuit to pay a fair share of the legal fees. 

But there’s a limit: A 2016 court decision held that a plan may not chase your general assets after the identifiable settlement fund is dissipated.

What is a Letter of Protection?

A Letter of Protection (“LOP”) is different from a lien—for one thing, it’s a contract, not a statute. Your attorney can write a Letter of Protection to a treating provider; it promises that if you recover, the provider’s bill will be paid from the settlement proceeds before you receive your share. In exchange, the provider treats you now and defers billing. That means no down payment, no calls from collections, and no credit hit while the case is pending. 

An LOP is how uninsured and underinsured claimants can get orthopedic care, injections, imaging, and surgery that they can’t afford otherwise. This is legitimate and a common practice—but you need to understand the tradeoffs:

• The billed amount will likely be higher than what an insurer would have paid for the same service. This isn’t interest, but it is because the provider is carrying risk and waiting. 
• Defense lawyers will attack them. Expect questions about who provided you the referral, whether you had insurance you didn’t use, and whether the provider has a financial relationship with your attorney’s firm. 
• Some states now regulate them directly. For example, Florida requires disclosure of the LOP, itself. This is along with itemized coded billing, whether the receivable was sold to a factoring company and at what price, whether you had health insurance, and who referred you—this makes the referring relationship admissible to show provider status.

Does a hospital lien or Letter of Protection change your net recovery?

An injured claimant needs to know that the settlement number isn’t the amount they take home. From the gross recovery, there are attorney’s fees, case costs, and then liens and LOP balances. The personal injury lawyer’s job is to maximize the top-line figure and compress everything that falls beneath. 

Your lawyer will likely ask you to do two things:

1. Tell them about every provider you see for treatment, and every source that pays a bill; and
2. Do not sign anything a provider sends you without your lawyer reviewing it first.

Remember this: Your lawyer can’t negotiate a lien they don’t know about—if it only comes up at disbursement, then there’s no leverage. It’s important to tell your lawyer about any claims, bills, or payments due. They can’t help you unless you help them.