Could North Carolina's New Litigation Funding Ban Disrupt Medical Liens and Letters of Protection?

North Carolina's newly enacted Prohibit Litigation Investments Act has drawn significant attention from attorneys, insurers, and litigation finance companies. The law broadly prohibits many forms of third-party, outcome-contingent litigation funding and has positioned North Carolina as a national leader in restricting outside investment in lawsuits.

An important question remains unanswered: Does the new law affect hospitals, physicians, and other medical providers who treat personal injury patients on liens or letters of protection rather than billing Medicare or private health insurance? The answer is not yet clear.

North Carolina has long recognized statutory medical liens. Under N.C. Gen. Stat. § 44-49, healthcare providers may assert liens against a patient's personal injury recovery for medical services rendered in connection with the injury. North Carolina courts have consistently enforced these liens and recognized their importance in ensuring providers are compensated when treating injured patients who may not be able to pay immediately.

The strongest argument that traditional medical liens remain lawful is that medical providers are supplying medical services, not money. The new litigation funding statute is directed at the provision of money or financial support tied to the outcome of litigation. A physician treating an injured patient and later asserting a statutory lien is providing healthcare, not funding the lawsuit itself.

That distinction may become less clear when treatment is provided through a letter of protection (LOP) or other contractual arrangement. Unlike a statutory lien, an LOP is often a privately negotiated agreement among the patient, attorney, and provider that delays payment until the case resolves. In some circumstances, defense counsel and insurers may argue that these arrangements begin to resemble outcome-contingent financial transactions, particularly when providers bypass available health insurance and seek substantially higher recovery-based charges.

The issue is especially significant because the new statute does not appear to contain an explicit exemption for healthcare providers or medical lien arrangements. While attorneys, insurers, certain nonprofit organizations, and several other categories are expressly excluded from the statute's reach, medical providers are not specifically identified as exempt.

On the other hand, the state's existing medical lien framework remains firmly embedded in North Carolina law. Courts have repeatedly recognized healthcare providers' rights to assert and enforce liens against personal injury recoveries, and those liens serve an important public policy function by encouraging providers to treat injured patients who lack immediate resources to pay for care.

As a result, the most likely outcome is that traditional statutory medical liens survive the new law, while more aggressive lien and letter-of-protection arrangements receive closer scrutiny. Providers who avoid billing available health insurance, condition payment entirely on case outcomes, or structure agreements that resemble investments in litigation may face increased challenges from defendants and insurers.

For now, there are no reported North Carolina decisions interpreting the new statute in the context of medical liens or letters of protection. Until courts provide guidance, healthcare providers, plaintiff attorneys, and insurers should carefully review lien-based treatment arrangements to ensure they cannot be characterized as prohibited litigation investments.

The battleground may no longer be limited to the reasonableness of medical bills. The legality of certain lien-based treatment arrangements themselves may become the next major issue in North Carolina personal injury litigation.

Questions? Contact Steven Lucente with TLG Law at slucente@tlg-law.com or (704) 626-6552.