New Notice and Timing Requirements for Medical Liens

July 15, 2015

To:                      Chief Financial Officers and Legal Counsel

From:                  Zosia Stanley, Policy Director, Access
Taya Briley, General Legal Counsel

Staff Contact:     Zosia Stanley, or (206) 216-2511

Subject:               New Notice and Timing Requirements for Medical Liens

The purpose of this bulletin is to provide an overview of new requirements to the medical lien law.  Please share with your financial assistance staff as appropriate.

A new law (HB 1053) on medical liens was enacted this session. The law creates new requirements to provide notice of the use of medical liens and to remove liens following payment. This provision applies to all Washington state hospitals that use medical liens. The law goes into effect on July 24, 2015.

If someone is the victim of an accident or other wrongful act, their health insurance company will generally not pay for medical services once it is determined that another party will ultimately be liable. Because of this non-payment, current law allows hospitals and providers, such as doctors, to file a lien against the future personal injury settlement. These liens are known as medical liens.

A lien is a form of security interest over real or personal property to secure the payment of a debt. Liens can be voluntary, such as mortgages, or involuntary, such as tax liens or medical liens.

Washington State’s current medical lien law, RCW 60.44, dates from 1937 and has been updated rarely since then. Under current law, hospitals, providers, and ambulance services that provide care to a person with traumatic injury are entitled to place a lien upon any claim, right of action, or money to which the injured person may be entitled against any responsible party for the value of the services rendered. Someone seeking to place a medical lien must record a lien with the county auditor in which the care was rendered either within 20 days after the date of injury or receipt of care or, if settlement has not been made, then at any time before settlement and payment (RCW 60.44.020). A patient and responsible party may not settle without including payment to the holder of the lien.

HB 1503 adds notice and timing requirements to the existing medical lien law. WSHA supported the additional transparency and notice requirements. We also worked closely with the bill’s sponsor to remove burdensome and unsuitable sections. WSHA successfully negotiated the removal of a section that would have triggered the Consumer Protection Act and treble damages.

HB 1503 makes three substantive changes to current state law:

1.     Third parties collecting on behalf of lien-holders must be licensed debt collectors.

If a hospital hires a third party to handle enforcement of medical liens, that third party must be a licensed debt collector under RCW 19.16. However, a hospital enforcing medical liens on its own behalf does not need to meet this requirement. WSHA worked closely with the sponsor of the bill to prevent legislation that would have required hospitals and providers to be licensed debt collectors, as this would be an onerous and inappropriate requirement. A person seeking to enforce a medical lien, other than the person originally entitled to the lien, is added to the definition of “collection agency” in RCW 19.16.100.

2.     Notice is provided to patients regarding the use of medical liens.

Hospitals that use medical liens must disclose this use as part of the hospital’s billing and collection practices. WSHA understands that not all Washington State hospitals chose to use medical liens. For those that do use medical liens, notice should be clear and explicit. The language of the bill requires a general notice, rather than notice only when the hospital intends to file a lien in a specific case.

For nonprofit hospitals that are federal 501(c)(3) entities, consider adding this notice as part of a larger revision to billing and collection policies and procedures to comply with federal IRS 501(r) regulations. While medical liens are not considered to be “extraordinary collection activities” under 501(r) regulations, new state law under HB 1503 requires notice of the use of medical liens to be provided.

3.     Liens are released within 30 days of payment and acceptance of the amount due under the lien.  

Once a hospital accepts payment of an amount due under a medical lien, the hospital has no more than 30 days to prepare and execute a release of lien. The release must be provided to the patient. If a court finds that the deliverance of a release of lien was unjustifiably delayed, the court may order the release of lien be delivered and may award costs and damages to the patient. This language is borrowed in part from existing law in the mechanics’ and materialmen’s lien statute (RCW 60.04.071). Note that the 30-days period is triggered by both payment and acceptance, providing time for checks or other payment methods to clear before the lien release is executed and delivered.

WSHA recommends that hospitals review policies and procedures to ensure they comply with the new requirements. If your hospital uses third parties to enforce medical liens, you should determine that they are licensed debt collectors under Washington State law.

Background and References 

HB 1503 (enacting legislation)


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