Show table of contents · 12 sections▾
- The General Priority Order
- Attorney Fee Priority
- Medicare (Statutory Federal Lien)
- Medicaid (State Statutory Lien with Federal Overlay)
- Hospital Liens (State Statutory)
- ERISA-Plan Reimbursement
- Contractual Medical Liens (LOPs)
- Pre-Settlement Funding Advances
- Practical Closing Statement
- Attorney's Duty to the Client
- The Bottom Line
- Related Resources
This guide is general reference material. It is not legal advice and does not create an attorney–client relationship.
The General Priority Order
When a settlement check arrives, the attorney disburses funds in a specific priority order that reflects both legal requirements and practical necessity. The general order across most jurisdictions:
- Attorney's fee and case costs. Attorney's contractual entitlement.
- Statutory federal liens. Medicare, VA benefits (federal preemption).
- Statutory state liens. Medicaid, hospital liens with statutory basis.
- ERISA-plan reimbursement. Federal law preempts state anti-subrogation.
- Contractual medical liens and LOPs. Provider-signed liens for medical care.
- Pre-settlement funding advances. Contractual assignments to funders.
- Net to plaintiff. Remainder.
Attorney Fee Priority
The attorney has a possessory lien on settlement funds via the IOLTA and a statutory attorney's charging lien in most states. This gives the fee highest priority. Case costs are typically included with the fee disbursement.
Medicare (Statutory Federal Lien)
Medicare Secondary Payer Act (42 USC §1395y(b)) creates a strict statutory lien on personal injury recoveries. Medicare must be reimbursed for conditional payments (payments Medicare made for injury-related care that the tortfeasor was legally responsible for). This is federal preemption — state anti-subrogation rules do not apply. See our Medicare Secondary Payer piece.
Medicaid (State Statutory Lien with Federal Overlay)
Medicaid has a right of reimbursement under 42 USC §1396a(a)(25) and state Medicaid statutes. The Arkansas Dept. of Human Services v. Ahlborn Supreme Court decision (2006) held that Medicaid liens are limited to the portion of the settlement attributable to medical expenses — not the entire settlement. See our Medicaid Ahlborn piece for detail.
Hospital Liens (State Statutory)
Most states have statutory hospital lien provisions permitting hospitals to file liens against personal injury recoveries. Priorities vary by state — some require attorney fee reduction before lien, others do not. NC's 50% cap is notable. See our hospital liens matrix.
ERISA-Plan Reimbursement
ERISA employer-sponsored health plans have a right of reimbursement under §502(a)(3), which the Supreme Court has held as strong (US Airways v. McCutchen; Sereboff v. Mid Atlantic). ERISA federal preemption blocks state anti-subrogation. See our ERISA lien piece.
Contractual Medical Liens (LOPs)
Letters of protection and provider-signed liens are contractual, not statutory. They rank below statutory liens in priority. Aggressive negotiation reduces these substantially before final payment.
Pre-Settlement Funding Advances
Pre-settlement advances are contractual assignments and rank near the end of the priority chain. They are paid after fees, statutory liens, and negotiated medical liens. This is why sizing matters — over-sized advances risk consuming plaintiff net.
Practical Closing Statement
Example of a $200,000 settlement:
| Line | Amount |
|---|---|
| Gross settlement | $200,000 |
| Attorney fee (33.3%) | -$66,667 |
| Case costs | -$4,500 |
| Medicare conditional payments | -$8,200 |
| ERISA plan reimbursement (negotiated) | -$14,500 |
| Hospital lien (negotiated from $22K) | -$11,000 |
| LOPs (negotiated) | -$18,000 |
| Pre-settlement advance payoff | -$14,700 |
| Net to plaintiff | $62,433 |
Attorney's Duty to the Client
Attorneys have ethical obligations to negotiate liens aggressively to maximize client net. The Model Rules require attorneys to protect client interests — including negotiating reductions on medical liens where feasible. See our lien reduction playbook.
The Bottom Line
Settlement disbursement priority is not arbitrary — it reflects legal hierarchies and practical necessity. Attorneys who negotiate liens aggressively maximize plaintiff net. Understanding the priority order helps set expectations for the final closing statement.
For firms looking for a funder that treats the attorney relationship with the same care as the plaintiff relationship — no referral fees, no guarantees, transparent rates and caps — our attorney resources page walks through the process. Individual cases can be submitted via the application portal.
Frequently asked questions
Typically the attorney's fee and case costs. Statutory federal liens (Medicare) next, then state statutory (Medicaid, hospital), ERISA-plan reimbursement, contractual liens (LOPs), advances, then plaintiff net.
No. Medicare Secondary Payer Act creates federal preemption. Failing to reimburse Medicare exposes both attorney and plaintiff to significant penalties.
Yes, in most cases. Aggressive negotiation is standard practice and often reduces liens 30%–60%.
Yes. US Airways v. McCutchen and other Supreme Court decisions have solidified ERISA federal preemption. State anti-subrogation laws do not apply.
Varies. Some states require lienholders to bear a proportional share of the attorney fee (common fund doctrine). Others do not.
Yes, especially for Medicaid liens under Ahlborn apportionment. Talk to your attorney.
Your attorney via the closing statement disbursed from IOLTA.
No. Contractual advances rank behind statutory liens and negotiated medical liens.
