Court Watch - Written by Beasley Allen on Thursday, February 9, 2012 7:18 - 1 Comment

A Look At Medicare Liens And Settlements

A case, decided in an Alabama federal court in 2010, involving liens, was brought to my attention last month. That case should be of interest to all lawyers who represent parties – both Plaintiffs and Defendants – in personal injury lawsuits. As you may already know, the existence of liens can create a real problem when settlements are reached involving . is a payer of last resort, which simply means any entity with a duty to pay, such as an insurance company, must pay before does. Generally, a payment may not be made by if payment has been made, or could be made, by another responsible party. If has already made a payment, it has a statutory right, either by subrogation or private cause of action, to recover the payment it made.

In 2007, Congress addressed growing financial problems with by enacting statutory reforms that restated ’s status as a payer of last resort. But these statutes, , and SCHIP Extension Act of 2007 (MMSEA), brought about the largest and most intensive reporting requirements in history. For example, MMSEA requires that all entities that pay, either by settlement or judgment, to any Plaintiff, must report that information to the Centers for and Services (CMS). This reporting requirement places all who are involved in handling the proceeds of a settlement at risk for civil penalties and damages.

In the case referred to above, which was before U.S. District Judge Karon Bowdre (who sits in the Northern District of Alabama, Eastern Division), the U.S Government filed suit in 2009 against two insurance companies and several other Defendants for violations of the Secondary Payment Statute (MSP). This is a section of the Social Security Act that is used by to assert its payer of last resort status. The Defendants in the case had been involved in a settlement resolving a large toxic tort . The government alleged in the case before Judge Bowdre that the Defendants had failed to reimburse for conditional payments which had been made for injuries to beneficiaries.

The government could have brought suit against the individual beneficiaries, but instead, elected to go after the corporate and insurance company payors. While the case was dismissed because the government had failed to file the in a timely manner, the court’s opinion is still important. It provides valuable insight into how the government will proceed against entities accused of violating the MSP statute. The basis of the government’s claim was that the settlement included 907 beneficiaries and that the Defendants failed to reimburse for conditional payments made by the program for medical treatment related to the beneficiaries’ injuries as required under the MSP statute.

The government alleged that the Defendants “knew or should have known that one or more of the Claimants were -eligible individuals on whose behalf was entitled to recover any conditional payments.” It was alleged further that the Defendants failed to reimburse for conditional payments made under the MSP statute. The total settlement involved in the original case that was settled was $300 million. For the claimed violations, by the Defendants, the government sought:

• Reimbursement of the alleged conditional payments, plus interest;

• Double damages against the Defendants; and

• Declaratory relief against the Defendants requiring them to give notice to CMS of all future payments to beneficiaries, and to ensure that they make appropriate payments to before any future settlement payments.

Judge Bowdre wrote the opinion in the case [U.S. v. Stricker (CV-09-2423)] on September 30, 2010. The judge assumed that the Defendants were “primary payers” under the MSP statute, but recognized that the statute of limitation defense raised by the Defendants was valid. The Defendants were subject to the three-year statute of limitations because they had no contractual relationship with the government. The statutory obligation was triggered by the underlying tort claim. Judge Bowdre rejected the government’s argument that the statute of limitations could not begin to run until the Claimants returned sufficient releases to satisfy a participation threshold. Instead, she focused on the plain language of the MSP statute to bar the claim pursuant to the statue of limitations defense.

The unpublished decision in Stricker went out on the government’s failure to file in suit in a timely manner. While the statute of limitations defense protected the Defendants in the case, the result could well have been very different had the suit been filed in a timely manner. The message learned is that lawyers must use great caution when settling where there is the potential that beneficiaries are to receive payments under the settlement. Stricker can be considered as a guide and a warning to all lawyers who handle , either for the Plaintiff or on the Defense, where beneficiaries are Plaintiffs.

Lawyers handling , whether a mass tort, or a single case, must determine if a settlement will involve any beneficiaries. There is still uncertainly regarding CMS’s policy and procedures in pursuing these . A number of issues will have to be answered by the courts. Because of the new enforcement rules, if has paid any portion of a Plaintiff’s medical expenses, all parties must take steps to protect themselves due to the statutory lien. Of course, defense lawyers, as well as insurers, must be extremely careful to protect themselves when lawsuits are settled that involve liens.

Source: Insurance Journal

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Mark Evangelista
Feb 12, 2012 13:55

Thanks for the article. We’re seeing an ever-increasing number of liability carriers becoming more involved in addressing Medicare liens prior to settlement as a result of this case. In a number of instances, liability carriers are even requiring $0 Final Demand Letters be obtained if there is even the remotest chance of the existence of a Medicare lien. Obviously, this lengthens the settlement and distribution processes considerably. Some liability carriers are not waiting for the plaintiff to report the case to Medicare, and they are reporting the matters themselves. Defense attorneys are even beginning to work with plaintiffs’ counsel to manage the Medicare liens in some cases.

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