Deasey, Mahoney, Valentini & North a national defense litigation law firm headquartered in Philadelphia PA

MEDICARE SECONDARY PAYER ACT UPDATE: Tackling the Most Common Obstacles to Settlements

INTRODUCTION

Since amendments to the Medicare Secondary Payer Act (“MSP Act”) went into effect earlier this year, defense counsel, insurance adjusters, and Responsible Reporting Entities (“RREs”) have faced many challenges and obstacles to resolving claims and lawsuits amidst the sometimes overwhelming confusion as to certain requirements imposed by the Act. This article will address the five most common points of contention and confusion with solutions for each.

1. The Position Taken By the American Association for Justice

(formerly ATLA©)

Recently, American Association for Justice President Anthony Terracone issued a message to the Plaintiff’s bar titled “Emergency Medicare Set-Aside Information.” In this two-page publication, Mr. Terracone wrote:

It has come to our attention that some defense firms and insurance providers are now claiming that CMS requires MSAs in liability cases pursuant to Section 111 reporting requirements included in the Medicare Medicaid & SCHIP Act of 2007 (MMSEA), Public Law No. 110-173. This is false. Section 111 contains reporting requirements for responsible reporting entities (RREs) only. Section 111 does not impact or change the requirements for Plaintiffs’ attorneys.

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CRS’ analysis of the Section 111 reiterates that it is a reporting requirement, and makes no mention of the need for set-asides in liability cases. . . .”

We believe Mr. Terracone misses the point of the MSP Act and that his guidance places claimants, insurers and attorneys at risk. Mr. Terracone is correct that neither the black letter of the MSP Act nor the corresponding CFR sections specifically requires that a Medicare set-aside account (MSA) be established in liability cases. The law is clear, however, that all attorneys and Responsible Reporting Entities (“RREs”) have a duty to report to CMS claims in which Medicare recipients and Medicare-eligible claimants are involved. It is then up to CMS to decide on a case by case basis whether an MSA will be required.

The Act does not expressly limit Medicare’s recovery to those conditional payments made prior to the date of settlement of a liability claim. To the contrary, it is abundantly clear that the Act is intended to protect Medicare’s rights to recoup conditional payments that have been made and those that “can reasonably be expected to be made,” and that this requirement extends beyond workers’ compensation plans to include automobile and liability insurers, including self-insureds. 42 U.S.C. § 1395y(b)(2)(A)(ii).

Despite Mr. Terracone’s advice to the Plaintiff’s bar, it will be important that defense counsel and RREs remain firm in requiring Plaintiffs’ cooperation in protecting Medicare’s present and future interests when resolving claims and settling lawsuits.

2. Plaintiffs’ Attorneys Will Be Held Responsible Where Medicare’s Interests Are Not Protected

In the recent case of U.S. v. Harris, 2009 U.S. Dist. LEXIS 23956, 2009 WL 891931 (N.D. W.Va. 2009), the U.S. District Court for the Northern District of West Virginia held that this Plaintiff’s attorney became liable to Medicare immediately when he made payment to his client, a Medicare beneficiary. Mr. Harris’ client in a personal injury case had received Medicare benefits in the amount of $22,549.67. Mr. Harris settled the personal injury action for $25,000. He then distributed the settlement proceeds without reimbursing Medicare for its conditional payments. Medicare reduced its claim to $10,253.59, taking into account Mr. Harris’ attorney’s fees, costs, and the amount of the settlement. Having already disbursed the settlement funds, Mr. Harris ignored Medicare’s rights. Thereafter, Medicare pursued Mr. Harris in Court to recover its conditional payment. Summary judgment was entered in favor of the government.

42 U.S.C. Section 1395y(b)(2)(B)(iii) provides, in part, that “the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.” 42 CFR § 411.24(g) provides that “CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment.”

Accordingly, anyone (including attorneys) who exercises control over settlement funds would be well-advised to take every measure and precaution to protect Medicare’s rights. During settlement negotiations, RREs and defense counsel should stress to claimants’ and plaintiffs’ attorneys that they can be held personally liable for their clients’ conditional Medicare payments.

3. There is No Safe Harbor for Good-Faith Settlements Based Upon A Doctor’s Note That No Future Care Will Be Needed

It has been suggested that RREs and defense attorneys should not delay a settlement where the plaintiff has presented a letter from a treating doctor that no future treatment will be necessary for injuries related to the cause of action. Obtaining such a letter is certainly a good idea.

However, we must recognize that the law as it stands today provides no safe harbor for good-faith reliance on the doctor’s letter. CMS may still pursue recovery for conditional payments made for the plaintiff’s benefit after the date of settlement if such future recovery was not specifically waived by CMS.

4. Creative Language in Pleadings and Settlement Documents Simply Will Not Work to Sidestep Medicare’s Rights

We are beginning to see more creativity in the way plaintiffs’ Complaints are drafted than we have ever seen before. Some attorneys try to avoid any reference to a personal injury while seeking recovery for lost wages and general damages, including pain and suffering, in civil tort actions. Likewise, release documents categorizing the full amount of a settlement as something other than damages for a personal injury are becoming more common.

The MSP Act and corresponding code sections make no exception for wage loss or general damages. The focus is on Medicare’s rights to recover conditional payments. There is one narrow exception to this proposition. Where a case proceeds and a special verdict is entered in which damages are allocated between medical expenses and other damages, CMS will pursue recovery of only the medical expense portion of the award.

Many jurisdictions have established special units within U.S. Attorneys’ offices to pursue recovery of Medicare conditional payments. Other jurisdictions are expected to follow and we should expect to see more Medicare recovery law suits in the near future.

5. Naming Medicare as a Payee on the Settlement Draft is a Material Term of Settlement

Many RREs seek to impose the obligation for respecting Medicare’s future interests upon the Plaintiff’s attorney by making a settlement draft payable to the Plaintiff, Plaintiffs’ attorney, and Medicare. Under such an arrangement, it would be incumbent upon the Plaintiff’s attorney to obtain CMS’ endorsement on the check. CMS would either waive its future claims or require a set-aside account to be funded by the settlement proceeds based upon post-settlement representations by the plaintiff with regard to future care.

Defense counsel and insurance adjusters are well-advised to discuss naming Medicare as an addition payee as a material term during settlement negotiations. In Tomlinson v. Landers, 2009 WL 1117399, U.S. Dist. LEXIS 38683 (M.D. Fla. 2009), the Court rejected a Defendants’ Motion to Enforce Settlement finding that there was no “meeting of the minds” where Medicare was a named payee on the check. After the parties agreed on a settlement amount, the insurer issued the settlement draft to the Plaintiff, his attorney, and CMS after receiving notice that the Plaintiff had received Medicare benefits. The Court recognized that CMS has recommended naming Medicare as a payee in educational programs but concluded that this practice will be a material term of a settlement.

More recently, the U.S. District Court for the Eastern District of Pennsylvania took a different approach to the situation. In Breitkopf v. Krieger, No. 09-1890 (E.D.Pa. November 2, 2009) the parties entered into a settlement and agreed that Medicare’s rights had to be protected. However, the parties could not agree as to whether Medicare or CMS could be named as a payee on the settlement draft. The defendant’s liability carrier refused to issue the settlement draft directly to the plaintiff and her attorney knowing that CMS could pursue the carrier if Medicare was not reimbursed within sixty 60 days under to 42 C.F.R. § 411.24(h)-(i). In that event, the carrier would end up paying twice. The plaintiff, on the other hand, recognized that it could take Medicare some time to finalize the amount of its conditional payment and she wanted some of the settlement money immediately. The Court resolved the dispute by requiring that approximately half of the settlement to be paid to the plaintiff and her attorney immediately and that the rest would be placed into an escrow account with an independent escrow agent of the defendant’s choosing. The Order required that Medicare would be satisfied from the escrow account with the remainder to be paid to the plaintiff and her attorney after notification was received from Medicare of the amount of its conditional payment.

CONCLUSION

As practices and procedures for protecting Medicare’s interests while settling cases continue to evolve, we will strive to keep our client’s fully informed. Please contact John Morgenstern, Esq. at jpmorgenstern@dmvnlaw.com or any member of this firm at (215) 587-9400 for further information.