How Government Code Section 985 Affects Your Settlement

When a hospital provides medical care for an injury, it may have a right to be reimbursed from any subsequent settlement or judgment the injured person receives. This process is governed by California’s Hospital Lien Act, which dictates when and how a hospital can claim a portion of your personal injury award. The existence of this claim, called a lien, means a part of your settlement proceeds may be designated to repay the hospital for the services you received. This reimbursement system is structured by law to balance the hospital’s right to recovery with the injured party’s right to be compensated.

Which Hospitals Can File a Lien?

California law allows any licensed hospital, both public and private, that provides emergency and ongoing care to an injured person to place a lien on their personal injury recovery. The lien is a mechanism for them to recover costs when a patient later receives a financial award for the same injuries from a third party.

The claim is strictly tied to the medical care provided for the specific injuries that are the subject of your personal injury case. This means the hospital cannot seek reimbursement for treatment you received for a pre-existing condition or any unrelated illness. If your case is unsuccessful and you do not receive any financial compensation, the hospital has no settlement funds from which to recover its costs through this process.

What a Valid Lien Notice Requires

For a hospital’s lien to be valid, it must follow a formal notification procedure. The hospital is required to send a written notice of its claim to the parties involved, which includes the injured person, their attorney, and the at-fault party or their insurance company. This formal communication officially asserts the hospital’s financial interest in the outcome of the personal injury case before the funds are distributed.

The notice itself must contain specific, detailed information. It must include an itemized statement listing each service provided, the date the service was rendered, and the corresponding charge. This level of detail allows you and your attorney to verify that the charges are accurate and directly related to the treatment for the injuries in question. The total amount claimed by the hospital must be clearly stated.

How a Hospital Lien Is Reduced

The Hospital Lien Act requires the hospital’s lien to be reduced to account for the costs of litigation. This principle recognizes that the injured party’s attorney did the work to secure the settlement funds from which the hospital is being repaid. Therefore, the hospital must share in the cost of that recovery.

The calculation is a multi-step process. First, total attorney’s fees and litigation costs are deducted from the gross settlement amount. For example, on a $100,000 settlement with a 33% attorney’s fee ($33,000) and $7,000 in costs, the total deductions are $40,000, leaving a net recovery of $60,000. This $40,000 represents 40% of the total settlement.

The hospital’s lien must then be reduced by that same percentage. If the initial lien was for $20,000, it would be reduced by 40% ($8,000), making the final lien amount $12,000. The law also sets a ceiling, stating that the lien payment cannot exceed 50% of the patient’s net recovery after attorney’s fees and costs are deducted.

Satisfying the Lien

Once the correct, reduced lien amount has been calculated and agreed upon, the payment process is handled by the plaintiff’s attorney. After the settlement funds are deposited into a client trust account, the attorney will issue a check for the reduced lien amount directly to the hospital. This payment is made before the final net settlement funds are disbursed to the injured client.

After the hospital receives the payment, it is required to provide a formal document confirming the lien has been paid in full, often called a “Satisfaction of Lien” or a release letter. This document is important as it serves as official proof that the debt has been cleared and the hospital has no further claim on your settlement funds. Your attorney will secure this letter and provide you with a copy for your records.