A letter of protection in Texas is a three-party contract among an injured patient, their personal injury attorney, and a healthcare provider that lets the patient receive treatment on credit while a lawsuit is pending. The provider agrees to wait for payment. The attorney agrees to pay the provider from any settlement or verdict before releasing funds to the client. The patient agrees to owe the debt personally if the case produces no money. Texas has no mandatory form for these agreements, but Chapter 146 of the Civil Practice and Remedies Code and a line of Texas Supreme Court authority shape what a provider can actually collect and what a jury will ever hear about the bills.
What the Agreement Should Say
Because no statute prescribes a template, the terms are whatever the three parties write down. A workable agreement covers a handful of concrete points:
- The identities of the patient, the law firm, and the treating provider or facility.
- The scope of treatment covered, whether specialist referrals are included, and any cap on charges.
- That payment comes from gross settlement or judgment proceeds, and only after the case resolves.
- That the patient remains personally liable for the full amount if the case produces no recovery.
- That the provider will furnish itemized bills and medical records to the attorney for use in the litigation.
- What happens if the attorney withdraws, the patient changes lawyers, or the case is dismissed.
Providers who treat personal injury patients regularly often present their own form. The billing-rate language in those forms is worth close attention, because it drives how much of the settlement ends up with the client.
Who Owes What
The Patient
The patient is the debtor from the moment treatment begins. The letter of protection does not erase the bill; it defers collection. If the case produces nothing, the charges revert to an ordinary debt the provider can pursue through normal collection channels.
The Attorney
The attorney holds settlement funds in trust and must distribute them according to the agreement and applicable law before releasing any balance to the client. Handing the client the full check and letting them sort out the medical bills is not an option. When an attorney refers a client to a specific provider, Texas Disciplinary Rule 1.08 requires the arrangement to be fair to the client, fully disclosed, and consented to in writing.1University of Houston Law Center. Texas Rules of Professional Conduct Rule 1.08
The Provider
The provider treats now and waits for payment. In return, it gets a contractual claim on the settlement. Providers working under these agreements typically bill their full undiscounted rates rather than the negotiated rates they accept from insurers. That gap is where most of the friction with Texas law lives.
Chapter 146 Limits on What a Provider Can Collect
Chapter 146 of the Texas Civil Practice and Remedies Code, added by the legislature in 2023, restricts what healthcare providers can collect from personal injury patients in certain circumstances. Under Section 146.003, a provider who violates the requirements of Section 146.002 loses the right to recover any amount the patient would have been entitled to receive as payment or reimbursement under a health benefit plan, or any amount the patient would not otherwise have owed had the provider followed the rules.2State of Texas. Texas Civil Practice and Remedies Code Section 146.003 The bar extends to family members who would otherwise be responsible for the debt.
The practical effect: if a patient has health insurance and a provider bypasses that coverage through a letter of protection without meeting the Section 146.002 requirements, the provider can be barred from collecting the difference between what insurance would have paid and what the provider billed. Confirm the provider has satisfied its statutory obligations before treatment starts, not after.
How Haygood Cuts Down the Billed Amount at Trial
Even a clean agreement runs into a separate problem at trial. In Haygood v. Garza de Escabedo (2011), the Texas Supreme Court held that Section 41.0105 of the Civil Practice and Remedies Code “limits a claimant’s recovery of medical expenses to those which have been or must be paid by or for the claimant.”3Justia Law. Haygood v. Garza de Escabedo The court read “actually paid or incurred” to mean expenses the provider has a legal right to be paid, not whatever appears on an invoice.
Under the letter of protection, a provider billing $15,000 for imaging and physical therapy can argue those charges are incurred because the patient contractually owes them. Defense counsel will challenge whether that number reflects a reasonable amount the provider has a legal right to collect. Only evidence of recoverable medical expenses is admissible, and inflated charges can be excluded.3Justia Law. Haygood v. Garza de Escabedo
This is where cases quietly lose value. A plaintiff with $80,000 in charges under a letter of protection may only be allowed to present $35,000 in medical damages to the jury if the defense convinces the court the rest is inflated. The contract still obligates the patient to pay the full amount. The jury just never sees the higher number.
How the Money Gets Distributed
When the case settles or the verdict is paid, funds go to the attorney’s trust account and come out in a specific order: contingency fee and litigation costs first, medical liens next, remainder to the client. When the settlement is big enough to cover everything, the process is straightforward.
More often, the numbers don’t work. If attorney fees, costs, and medical liens together exceed the recovery, the attorney negotiates reductions. Most providers accept less rather than get nothing, especially when the alternative is chasing a patient who cannot pay. These reductions are a routine part of case resolution.
If the case produces zero recovery, the payment mechanism collapses. The medical debt does not disappear. It becomes an ordinary obligation between patient and provider, and the provider can pursue collection, refer the account out, or sue. Some providers who work regularly with personal injury attorneys treat this as a cost of doing business. The patient should never assume a lost case means free treatment.
Health Insurance or a Letter of Protection
Patients with health insurance face a real choice after an injury. Running treatment through insurance means the insurer pays the provider at its negotiated rate, which is almost always lower than what a letter of protection provider bills. The trade-off is the insurer’s subrogation claim on any settlement.
Using a letter of protection avoids creating that subrogation claim but produces higher total charges. A provider who accepts $4,000 from an insurer for a procedure might bill $12,000 under the letter. Even after negotiating that number down at settlement, the patient may net less than they would have with insurance and a subrogation lien to resolve.
The right answer depends on the strength of the case, the size of the likely recovery, the plan’s terms, and whether the subrogation right can be limited under Texas law. As a general rule, patients with decent health coverage are often better off using it and letting the attorney negotiate the subrogation claim later. Letters of protection make the most sense for patients without insurance, patients whose plan won’t cover accident-related treatment, or situations where a specific specialist is needed who doesn’t take the plan.
Other Liens That Outrank a Letter of Protection
A letter of protection binds only the three signing parties. Several other claims can take priority over it, and an attorney who pays the letter’s providers first can create serious problems for everyone.
Texas Property Code Chapter 55 gives hospitals and emergency medical services providers a statutory lien on personal injury recoveries. A hospital lien is capped at the lesser of the hospital’s charges for the first 100 days of care or 50 percent of the total recovery, and it must be filed with the county clerk to be enforceable. A hospital lien cannot cover charges barred by Section 146.003, tying the two frameworks together.4State of Texas. Texas Property Code PROP 55.004
Self-funded employer health plans governed by ERISA can seek “appropriate equitable relief” under 29 U.S.C. ยง 1132(a)(3), including an equitable lien on settlement proceeds.5Office of the Law Revision Counsel. 29 USC 1132 ERISA preempts state laws that might otherwise limit the plan’s recovery, which makes these liens harder to negotiate down than those held by state-regulated insurers. An ERISA plan with clear subrogation language takes priority over the settlement funds and must be resolved before the letter of protection providers are paid.
For Medicare beneficiaries, the Medicare Secondary Payer Act adds another layer. Medicare does not pay when payment can reasonably be expected from a liability insurer, and payments it does make while a claim is pending are conditional and recoverable from the settlement.6Office of the Law Revision Counsel. 42 USC 1395y Once a settlement is reached, the attorney reports it to the Benefits Coordination and Recovery Center, which issues a Conditional Payment Notification; the beneficiary or attorney has 30 calendar days to respond, and missing that deadline triggers an automatic demand for the full amount without any reduction for fees or costs.7Centers for Medicare & Medicaid Services. Conditional Payment Information Distributing settlement funds to letter of protection providers without first resolving Medicare’s claim exposes the client and the firm to double-damages liability under federal law.
What the Defense Will Do With the Letter at Trial
Defense attorneys routinely try to introduce the letter of protection to suggest the treating provider has a financial stake in the outcome and may have exaggerated injuries or recommended unnecessary treatment. Courts weigh that argument under a balancing test: relevant evidence can be excluded if the risk of unfair prejudice substantially outweighs its probative value.8Legal Information Institute. Rule 403 – Excluding Relevant Evidence for Prejudice, Confusion, Waste of Time, or Other Reasons
The letter is relevant to bias, but telling a jury the doctor only gets paid if the patient wins can distort the entire damages analysis. Texas courts have gone both ways, and the ruling turns on how central the provider’s testimony is and whether a limiting instruction can neutralize the prejudice. Plaintiff’s counsel should be ready to argue the probative value on bias is small compared to the risk that jurors punish the patient for the financing arrangement. Defense counsel will argue the jury deserves to know the provider has skin in the game. The judge’s call on this motion can meaningfully shift the trial.