Not every personal injury plaintiff has health insurance. Those who are involved in automobile accidents may have PIP or med pay coverage to pay medical bills, but these benefits are often not enough to cover all necessary medical treatment. These plaintiffs are presented with a catch-22: they could pay for the medical care they need if their lawsuit settles, but they can’t prove their case without first getting medical care. This problem can often be solved through a letter of protection (LOP), which is not actually a letter at all, but rather a contract between you, your lawyer and your medical provider which allows you to get the treatment you need in exchange for a promise to pay your provider directly from your settlement funds.
How a Letter of Protection Works
The language of a letter of protection will vary from lawyer to lawyer, but the basic terms will provide that:
- Your medical provider will provide treatment while your case is pending.
- Your medical provider will not require immediate payment of his bills, and will not send your account to collections or otherwise hurt your credit while the letter of protection is in effect.
- You instruct your lawyer to pay the medical provider directly from the settlement of your personal injury claim.
- Your lawyer agrees to pay the medical provider directly from his trust account when he receives your settlement funds.
Not all medical providers will provide treatment under a letter of protection. Most chiropractors and general family doctors will. Most surgeons and MRI facilities will not. If your current treating doctors will not accept a letter of protection, your lawyer may be able to direct you to someone who will.
To understand how a letter of protection works, you need some basic information about how settlement funds are handled. When your case settles, your lawyer will receive a check from the insurance company (which most often will require both yours and your lawyer’s signatures to deposit). This check is deposited into the lawyer’s “trust account,” which is a special type of bank account that is regulated by the state bar. After the check clears, and your lawyer obtains your approval of how the settlement funds will be disbursed, he writes checks from the trust account to himself (for fees and costs), to your health insurer, if applicable, to any medical providers who provided treatment under a letter of protection, and finally, to you (whatever is left).
The letter of protection protects the doctor from having to collect his bill directly from you, a/k/a the patient who couldn’t afford to pay him up front. Without a letter of protection, a plaintiff could receive her settlement money, spend it all, and place the doctor in the unenviable position of trying to collect his money from a person who is likely insolvent, and therefore, “judgment proof.” With a letter of protection, if your lawyer fails to pay the doctor directly from the settlement, and gives the money to you instead, the doctor can then sue the lawyer for breach of contract in the event you fail to pay the bill. Doctors are far more comfortable with this scenario, as your lawyer is (hopefully) more than capable of paying the outstanding medical bill.
What a Letter of Protection Does Not Do
A letter of protection, unlike a lawsuit loan, does not relieve you of your obligation to pay the medical provider if you lose your lawsuit. You have to pay the medical bills regardless of your recovery. This also means that if you settle for a low amount, you may wind up still owing part of the medical bills even after your lawyer pays the provider his portion of the settlement.
The letter of protection is not an agreement by your lawyer to pay your medical bills from his own money in the event you lose your case or don’t recover enough to pay your bills. The only way your lawyer would possibly be liable for your medical bills is if he fails to honor the letter of protection and pays the money to you instead. Even in this scenario, you are still liable for the bills — it just makes your lawyer “jointly liable.”
Negotiating Down Medical Bills Owed Under a Letter of Protection
Unless you get a full recovery in your lawsuit (which is pretty rare, as most cases settle), most of the time your lawyer will try to get your medical providers to reduce the bills you owe under a letter of protection. Doctors hate this, but most of them who have been through this process expect it (and many will overcharge in anticipation of the reduction). They know that it’s better to recover 75% of their bill than to potentially have to litigate a billing dispute. If your lawyer successfully negotiates your medical bill down after settlement, you won’t be responsible for paying the difference between the full bill and the negotiated amount. You will be free and clear from the bill. Your lawyer will get the doctor to approve the reduction in writing, and you should ask for copies of these reduction agreements for your own records when your case ends.
If your lawyer and your doctor cannot come to an agreement on how much your doctor should be paid from the settlement, your settlement funds can be held up until this is resolved. You lawyer will have to hold back at least as much as is needed to cover the full amount claimed by your doctor in his trust account (but he can immediately pay you the rest of the settlement funds, if there are any).
Most of the time, your lawyer and your doctor will be able to work something out. If they don’t, they both know that the only option left is for your lawyer to pay these disputed funds into the court in what is known as an “interpleader” action. Basically, your lawyer says to the court, “I have money which belongs to either the medical provider or my client. You hold it and make the decision as to who gets how much.” Because of the time and expense involved in dealing with an interpleader, neither your doctor nor your lawyer want this to happen. However, keep this in mind as a possibility when settling your case. Unless the medical provider with the letter of protection agrees in writing before your settlement to accept less than his full bill, there is no guarantee that he will take less after settlement.
Letters of protection are a godsend to plaintiffs who couldn’t otherwise afford medical treatment. However, a smart plaintiff must keep the amount she owes under letters of protection in mind when deciding how much she should accept to settle her case. Also, unless your lawyer negotiates a reduction of your medical bills in writing before your settlement, you should settle your case as if you will receive no reduction. This way, any reductions your lawyer can negotiate afterward will just be an added bonus.