Car Insurance company is sending check attorney states Medical lien is larger then payout, what are my options

Assuming you are in the U.S.

Sounds like your wife has a Uninsured Motorist Bodily Injury claim (UMBI). Frankly, I'm surprised the company is covering this since there was no contact with the other car. What state are you in. Most states that I've handled UMBI claims in require contact between the cars and verification that the other party actually did not have insurance. What state are you are you in?

There are two things that should happen here.

1. The lawyer should be asking the company with the medical lien to drop their lien due to the fact that your wife will "not be made whole" by the available funds. If they don't drop the lien they should at least reduce it. Make sure the lawyer attempts to do this. If they tell you it can't be done ask for a copy of the statute or "case law" that proves that. Make the lawyer earn their fee.

2. The lawyer should reduce their fee in a limits case like this. You're are right the only one making any money here is the lawyer, but that is way too common in these cases. If the lawyer has a decent bone in their body they will reduce their contingency from the standard 1/3 to something much less to help make the numbers work.

Good Luck and I hope things go well for your wife.

EDIT

YOU WROTE:
"Do you have suggestion on approaching the laywer? I know him personally but not on a "friend" basis. He was the president of my country club that I was employed at."

MY RESPONSE
I've never been in the position of the injured party but as an adjuster I have many times asked lawyers to consider reducing their fee in the interest of doing what is best for the injured person. I think you need to forthright with him and ask if what he has done is really worth 1/3 of the settlement. Yes, it will be an uncomfortable conversation but it has to be done in order to protect your wife and your financial future. FYI it is always best to hire a lawyer that you have no connection to. If the lawyer refuses to reduce his fees then you need to make sure that they do EVERYTHING they can to get the medical lien reduced or dropped. You might even want to consult with another lawyer just to see if your lawyer has an ethical duty to reduce their fees.

YOU WROTE:
"Am I correct in stating that according to normal procedures getting any money out of UM without another party sustaining damage is a "good" job by the attorney?"

MY RESPONSE
Here's my full disclosure disclaimer. I am not a licensed FL adjuster and don't handle FL claims. It might have been a good job by the lawyer, but to be honest with you I don't know. I suspect that in FL that an impact is not required in order to make a UMBI claim.
(There are some FL adjusters who post answers here and I hope they answer your ?)
I suspect this because if the law allowed the company to deny the claim due to no impact etc, then the insurance company would have denied the claim and made the lawyer file a lawsuit before they would have just offered up the policy limits.

Again, I wish you good luck in this complex situation.