What is Medical Lien Factoring and Why Does it Matter?

What is Medical Lien Factoring and Why Does it Matter?


Medical liens arise where an uninsured or underinsured person “is injured and needs medical care that he or she cannot afford to pay up front,” and thus, “enters into a lien agreement that allows the consumer to receive treatment funded by a third party, which is repaid following resolution of the consumer’s personal injury lawsuit.”[i]  With medical lien factoring, “companies partner with plaintiffs’ attorneys and work with physicians to: (1) elicit inflated bills from a healthcare provider; (2) pay the provider a discounted amount to satisfy the bills; and (3) assert a lien for the inflated amount.”[ii]

This process works to drive up the costs of plaintiffs’ medical care, often through scheduling appointments with a wide range of specialist providers regardless of actual need for such treatments.  This increased cost of medical treatment ultimately drives up the perceived value of the claim.  At face value, medical liens may seem like an attractive option to locate providers who can treat an injured person’s needs without the barrier of upfront costs.  However, many plaintiffs do not realize “unnecessary medical procedures may be performed and . . . many factoring companies, attorneys, and participating medical providers are playing a shell game with the medical billing to secure huge profits for themselves.”[iii]

Medical lien factoring should be a top concern of Colorado defense attorneys as an ever-increasing number of plaintiffs firms in the state are sending their clients to medical lien companies (also referred to as medical factoring companies or medical finance companies).  This practice has arguably led to a rise in Nuclear Verdicts®, as it drives up the cost of the plaintiff’s treatment.  Recently, Colorado’s legislature amended the state’s collateral source rule, making it increasingly difficult to get plaintiffs’ medical lien factoring agreements into evidence.[iv]


Admissibility of Medical Lien Factoring Agreements in Colorado

Colorado’s collateral source rule has two components:

 (1) a post-verdict setoff rule, which requires a trial court to set off tort verdicts by the amount of certain collateral source payments received by the plaintiff unless the payments were made because of a contract entered into and paid for on the plaintiff’s behalf, and (2) a pre-verdict evidentiary component, which bars evidence of a plaintiff’s receipt of or entitlement to benefits received from a collateral source.[v]

Collateral sources include payments made by a health insurer pursuant to the “contract exception.”  In Colorado, personal injury plaintiffs are permitted to claim the full amounts billed by their health care providers as damages, with an evidentiary exclusion at trial for amounts actually paid and no allowable post-verdict set-off (where the contract exception applies).

Plaintiffs’ attorneys whose clients have entered into agreements with medical lien companies argue these arrangements should be viewed the same as where a plaintiff purchased health insurance prior to injury, and defendants should be precluded from admitting the amounts paid versus the amounts billed into evidence, pursuant to the collateral source rule.  The contract exception to the collateral source rule operates to prevent a plaintiff’s damages award from being reduced by the amount of benefits already received from a third-party with whom he or she had entered into a contract for benefits.  This exception applies almost exclusively to health insurance policies purchased before an accident-causing injury.  Health insurance benefits and the insurer’s cost savings agreements in place prior to the injury are not set-off from a plaintiff’s damages award.

Unlike health insurance policies, a contract between a plaintiff and a medical finance company typically provides the finance company will pay a plaintiff’s medical bills (only from participating providers) when due, and the plaintiff will repay the company at the conclusion of the underlying litigation.  While the company does negotiate a lower payment with the medical providers, the plaintiff does not benefit from those negotiations.  Instead, the plaintiff remains liable for the full amount billed.  The finance company profits by paying a discounted rate for the plaintiff’s medical care while collecting the full amount billed from the plaintiff at the conclusion of litigation, regardless of whether she is fully compensated by the underlying litigation.  Therefore, medical finance companies do not constitute collateral sources, because they do not provide the benefits contemplated by the collateral source rule, they do not negotiate with medical providers for the benefit of plaintiffs, they expect payment from a plaintiff that exceeds the amounts actually paid, and plaintiffs must pay the full amounts billed regardless of whether he or she is fully compensated in the underlying litigation.

Colorado case law precludes evidence of collateral source payments to prevent “the fact finder [from] improperly reduc[ing] the plaintiff’s damages award on the grounds that the plaintiff already recovered his loss from the collateral source.”[vi]  In the case of medical factoring companies, there is no danger of a jury improperly reducing a plaintiff’s damages award on the ground he or she already recovered from the medical lien company, because a plaintiff owes the medical lien company the full amounts billed.


Changes to Colorado’s Collateral Source Rule

Colorado trial courts have historically been split on a courtroom-by-courtroom basis regarding whether medical factoring companies’ invoices fall under the collateral source rule.  Courts that have held these agreements fall outside of the collateral source rule’s purview typically find the benefits conferred by such companies are not contemplated by the collateral source rule.  However, the Colorado legislature recently enacted a statute confirming the inadmissibility of amounts paid and eliminating the post-verdict offset in cases involving medical lien factoring entities.[vii]  C.R.S. § 38-27.5-103, entitled: Assignment of Health-Care Provider Liens – Not Admissible as Evidence, states in pertinent part as follows:

(2) any amount paid by an assignee of a health-care provider lien for the assignment, the fact of the assignment, and the terms of the assignment are not discoverable or admissible as evidence in any civil action or claim that the injured person asserts against third parties or under an uninsured or underinsured motorist insurance policy for any purpose, including as evidence of the reasonable value of a health-care provider’s services.

(3) An injured person treated on a health-care provider lien basis may not seek to recover, as the cost of medical services or treatment, more than the health-care provider’s usual and customary billed charges.

(4) Amounts awarded for medical bills subject to a health-care provider lien shall not be subject to offset or reduction in any post-verdict proceeding under section 13-21-111.6.[viii]

Alas, in December 2021, the Colorado Supreme Court decided Ronquillo v. EcoClean Home Servs., Inc., holding a medical finance company’s lien agreement did not confer a benefit that could qualify it as a “collateral source.”[ix]  The Court noted the importance of the plaintiff’s continued individual liability to the medical finance company “for the full amounts billed by her healthcare providers whether or not she obtains a favorable verdict.”[x]  The Court correctly deduced the plaintiff had “not received a benefit from [the company] for purposes of the collateral source rule because her arrangement with [the company] [did] not reduce her financial obligations.”[xi]  Finally, the Court clarified its conclusion remained unaffected by the newly enacted statute.[xii]

Although the new statute precludes discovery of certain evidence pertaining to medical finance companies, it also fundamentally changes the nature of lien agreements going forward by requiring lien companies, before creating the lien, to notify the injured party that they will not be liable to the lien holder for any portion of the lien beyond any judgment or settlement obtained.[xiii]  The Ronquillo Court concluded the lien agreement fell outside the scope of the new statute because plaintiff’s financial obligation to the lien factoring company would not necessarily be discharged upon the resolution of the underlying litigation.[xiv]

Notably, Ronquillo only analyzed the pre-verdict evidentiary exclusion and did not discuss the post-verdict set-off component of the collateral source rule.[xv]  Although presently unchallenged in the appellate courts, a simple reading of C.R.S. § 38-27.5-103 should allow a plaintiff to claim medical lien factoring entity payments would fall under the contract exception, and thus, defendants would no longer have the benefit of a post-verdict set-off for those amounts.



The new statute applies to all cases filed after January 1, 2022.  Ronquillo was narrowly decided on the individual terms of the plaintiff’s lien agreement, and therefore the terms of such agreements may be critical to each individual case’s application of the holding.  Defense attorneys should carefully analyze plaintiffs’ medical lien factoring agreements to determine whether the agreement contains the specific language required under C.R.S. § 38-27.5-104(1)(c)(I).[xvi]


Madison Miller co-authored and is a law clerk in Tyson & Mendes’ 2022 clerkship program.



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[i] State of Colorado Dep’t of Law, Administrator’s Opinion Re: Medical Lien Transactions 1 (2017), https://coag.gov/app/uploads/2019/07/2017-09-22_medical_liens.pdf.

[ii] Michael D. Drews, In Colorado, Defendants May Seek the Discovery and Admissibility of Medical Lien Companies’ Amounts Paid Versus Amounts Billed, Tyson & Mendes (Nov. 5, 2019, 8:00 AM),  https://www.tysonmendes.com/in-colorado-defendants-may-seek-the-discovery-and-admissibility-of-medical-lien-companies-amounts-paid-versus-amounts-billed/

[iii] Julie Lambeth, Factor This: Exposing Predatory Practices of Medical Factoring Companies and Related Injury Litigation, PartnerSource (last accessed Sept. 12, 2022), https://www.partnersource.com/news-insights/newsletters-insights/factor-this-exposing-predatory-practices-of-medical-factoring-companies-and-related-injury-litigation/.

[iv] See C.R.S. § 38-27.5-103.

[v] See C.R.S. § 13-21-111.6, Construction and Application, Scholle v. Delta Air Lines, Inc., 486 P.3d 325 (Colo. App. 2019).

[vi] See Wal-Mart Stores, Inc. v. Crossgrove, 2012 CO 31, ¶ 12 (citing Carr v. Boyd, 229 P.2d 659, 663 (Colo. 1951)).

[vii] See C.R.S. § 38-27.5-103

[viii] Id.

[ix] 2021 CO 82, ¶ 2.

[x] Id.

[xi] Id.

[xii] Id.

[xiii] see C.R.S. § 37-27.5-104(1)(c).

[xiv] Ronquillo, 2021 CO at ¶ 2.

[xv] See generally id.

[xvi] “(c) That, except in the event of fraud or misrepresentation by the injured person: (I) If the injured person does not receive a judgment, settlement, or payment on the injured person’s claim against third parties or under an uninsured or underinsured motorist policy, the injured person is not liable to the holder of the health-care provider lien for any portion of the health-care provider lien.”