A case, decided in an Alabama federal court in 2010, involving Medicare 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 Medicare liens can create a real problem when settlements are reached involving personal injury claims. Medicare is a payer of last resort, which simply means any entity with a duty to pay, such as an insurance company, must pay before Medicare does. Generally, a payment may not be made by Medicare if payment has been made, or could be made, by another responsible party. If Medicare 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 Medicare by enacting statutory reforms that restated Medicare’s status as a payer of last resort. But these statutes, Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA), brought about the largest and most intensive reporting requirements in Medicare history. For example, MMSEA requires that all entities that pay, either by settlement or judgment, to any personal injury Plaintiff, must report that information to the Centers for Medicare and Medicaid 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 Medicare Secondary Payment Statute (MSP). This is a section of the Social Security Act that is used by Medicare to assert its payer of last resort status. The Defendants in the case had been involved in a settlement resolving a large toxic tort lawsuit. The government alleged in the case before Judge Bowdre that the Defendants had failed to reimburse Medicare for conditional payments which had been made for injuries to Medicare beneficiaries.

The government could have brought suit against the individual Medicare 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 lawsuit 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 Medicare beneficiaries and that the Defendants failed to reimburse Medicare for conditional payments made by the Medicare 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 Medicare-eligible individuals on whose behalf Medicare was entitled to recover any conditional payments.” It was alleged further that the Defendants failed to reimburse Medicare 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 Medicare 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 Medicare beneficiaries, and to ensure that they make appropriate payments to Medicare 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 claims where there is the potential that Medicare beneficiaries are to receive payments under the settlement. Stricker can be considered as a guide and a warning to all lawyers who handle personal injury claims, either for the Plaintiff or on the Defense, where Medicare beneficiaries are Plaintiffs.

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

Source: Insurance Journal