In December the Centers for Medicare and Medicaid Services (CMS) signaled a new policy of more aggressive enforcement of the obligation of self-insureds, insurers and attorneys to make sure past Medicare payments get repaid from personal injury settlements.

 

On December 1, 2009 the case of U.S. v. Stricker, et al was filed in the U.S. District Court for the Northern District of Alabama.  Defendants include Monsanto Company, Pharmacia Corporation, Solutia Inc., Travelers Indemnity Company, AIG and several plaintiffs’ attorneys.  The allegations are that in 2003 the corporate defendants and their insurers entered into settlement of a personal injury action. The plaintiffs in the personal injury action included Medicare beneficiaries whose medical treatment was paid at least in part by Medicare. When the personal injury case was settled, apparently, no one took steps to determine what Medicare had paid for the related treatment nor took action to reimburse Medicare.

 

The government therefore is suing the personal injury claim defendants, their insurers and the attorneys for the Medicare beneficiaries for failing in their duties under the Medicare Secondary Payer statute -42 USC 1397y(b)(2).  Damages sought in the case include double the amount paid by Medicare in medical treatment related to the underlying tort case, plus interest.

 

This may be the first time the government has gone after insurers, insureds and plaintiffs’ attorneys all in the same case. But it certainly won’t be the last time.  As mandatory insurer reporting of personal injury settlements paid to Medicare beneficiaries gears up during in 2010, the government will be building a powerful new database it –and qui tam bounty hunters- can use to find new targets for recoveries.

1. Resolving the Medicare lien is the claimant’s problem. 

 

Resolving Medicare’s right to reimbursement of payments for medical treatment related to an injury upon which a negligence, workers’ comp, malpractice, no fault or other civil law claim has been made is the obligation of every party to the injury claim.

 

The Medicare Secondary Payer (MSP) statute -42 USC 1395y(b)(2)-, regulations under that statute -42 CFR 411.21 et seq.- and the Medicare, Medicaid and SCHIP Extension Act of 2007 -42 USC 1395y(8)- create obligations on the part of the Medicare beneficiary, the beneficiary’s attorney, the party against whom a civil claim is made by a Medicare beneficiary and the insurers of both the beneficiary and the claim respondent. Those obligations include reporting the claim to the Centers for Medicare and Medicaid Services (CMS), reimbursing past payments made by Medicare related to the claim and protecting Medicare’s interests related to future payments related to the claim.

 

2. The personal injury claim respondent and its insurer need not worry about the Medicare lien if there is no finding or admission of liability for the injury that was treated by Medicare.

 

The MSP statute makes clear that the party / insurer claimed to be responsible to cover treatment that in fact has been provided by Medicare becomes primary to Medicare and thus owes reimbursement by making any payment in settlement of the claim, even if liability for the injury/treatment is never established and in fact is denied. 42 USC 1395y(b)(2)((ii).

 

3. No one needs to worry about a Medicare lien unless Medicare takes some affirmation action to notify parties of the lien and requests reimbursement.

 

Medicare is not required to notify anyone of its right to reimbursement and is not required to make a request for reimbursement in order to enforce its right to recovery.  Federal law obligates the parties to the injury claim to notify Medicare of the claim and to take specific action to determine the amount of the reimbursement amount and to make reimbursement within a specified period of time.

 

4. Medicare is only entitled to recover reimbursement from that portion of the settlement allocated to medical expenses.

 

Medicare’s right to reimbursement is not dependent on whether or to what extent there is any allocation of the settlement to various types of loss. However, Medicare does recognize allocations of settlements to nonmedical losses when payment is based on a court order on the merits of the case and will not seek recovery from portions of court awards designated as payment for nonmedical losses. Medicare Secondary Payer Manual, section 50.4.4.

 

5. Initiating contact with Medicare regarding resolution of its right to reimbursement should not be done until the claim is settled.

 

Resolving a Medicare lien is a multi-step process that can take months to complete and should be started well before settlement is reached.  Those steps include reporting the claim to Medicare’s Coordination of Benefits Contractor, communicating with the Medicare Secondary Payer Recovery Contractor to determine what Medicare payments were and were not related to the underlying claim and, when required, asking that the Medicare lien amount be compromised or waived in order to allow the claim to settle. In many cases it makes more sense to handle lien waiver and compromise negotiations before settlement is reached.

 

6. There is no process for review or appeal from a determination on a Medicare lien determination.

 

There is an established, multi-level review and appeal process from the determination of the amount Medicare is entitled to recover.

 

7. The new mandatory insurer reporting law requires the use of Medicare set-asides in settlement of non-workers’ compensation cases.

 

The Medicare, Medicaid and SCHIP Extension Act of 2007 imposes new requirements for reporting of negligence, no fault, malpractice, uninsured motorist and other non-workers’ compensation claims of Medicare beneficiaries.  The law does not expand the requirement for the creation of Medicare set-aside accounts beyond the current requirement for use of set-asides in settlement of certain workers’ compensation cases.

 

Implementation of the new reporting requirements has led to greater awareness of the already existing obligation of the parties to personal injury claims of all kinds to protect Medicare’s interests in settlement of those claims. Even in non-workers’ compensation settlements, Medicare set-asides may be used to demonstrate that the parties took Medicare’s interests into consideration in the settlement. However, there are other ways to protect Medicare’s interests in non-workers’ compensation settlement short of creating a set-aside account.

 

8. Where the Medicare lien exceeds the amount of the settlement (or exceeds the amount of the policy limits) the entire settlement amount will be taken by Medicare.

 

Medicare’s final reimbursement demand will reflect reductions in consideration of attorney fees and costs incurred in prosecuting the personal injury claim under 42 CFR 411.37 and Medicare has a process for waiving its reimbursement or compromising the amount of its recovery depending on the individual facts and circumstances of the case. 42 CFR 411.28; 42 CFR 401.613

 

9. Attorneys representing parties to personal injury claims don’t have to worry about penalties or sanctions directed at them if their clients don’t comply with Medicare reimbursement and reporting requirements.

 

CFR 411.24(g) makes an attorney who receives funds from a primary payer liable to reimburse Medicare conditional payments.  The federal courts have recognized the attorney’s obligations and liability for payment to Medicare when reimbursement requirements are not met. U.S. v. Paul J. Harris, 2009 WL 891931 (N.D.W.Va.)

 

In most states rules are in effect governing attorney conduct modeled on ABA Model Rule 1.15(d), requiring attorneys to notify third parties (such as Medicare) when client funds in which the third party may have an interest come into the attorney’s hands and to deliver client funds to the third party once the third party’s interests are established.

 

Attorneys have an established obligation to Medicare and May 2009 amendments to the federal False Claims Act create the opportunity for expanded sanctions against attorneys for failing to comply with an obligation owed to an agency of the federal government.

 

10. Medicare reimbursement requests only include payments made by Medicare that were for treatment related to the injury involved in the underlying personal injury claim.

 

Although Medicare is only entitled to reimbursement of payment made for treatment of the injury involved in the personal injury claim the reality is that many Medicare requests for reimbursement include payments made by Medicare to treat medical conditions that pre-existed the claim injury or were otherwise unrelated to the claim injury.  It is important to audit the reimbursement requests to identify and then challenge the request for reimbursement of payments for unrelated treatment.

 

We all know that the Medicare Secondary Payer (MSP) statute -and regulations promulgated thereunder- requires personal injury claim parties (including plaintiffs, defendants, insurers and attorneys) to take certain steps to protect Medicare’s interests in the settlement of those claims.  Those steps include at a minimum reporting the claim to Medicare if the claimant is a Medicare beneficiary and reimbursing any payments made by Medicare for treatment of the injury or illness involved in the claim.

 

After settlement of litigation against the tobacco companies a few years ago a qui tam action was brought against those companies for failure to comply with the MSP reporting and reimbursement requirements.  Some of the smokers who received settlements from the tobacco companies were Medicare beneficiaries, and the Medicare payments for treatment of illnesses caused by smoking cigarettes were-supposedly- never reimbursed.

 

The qui tam action was dismissed since failure to pay an obligation owed to the federal government was deemed not to give rise to a qui tam claim.  In other words, the tobacco companies and their insurers had not violated the False Claims Act since they did not present a false claim to Medicare; at most they failed to pay an obligation owed.

 

In May 2009 the Fraud Enforcement and Recovery Act (FER) was passed, amending the False Claims Act to make it a violation to avoid an obligation to pay money to the federal government.

Accordingly, failure to reimbursement Medicare is now a violation of the False Claims Act.

 

Penalties for violating the False Claims Act include civil penalties of $5,000 to $10,000 per violation, plus treble damages, plus attorney fees.  In the context of failure to reimburse Medicare, each Medicare payment not reimbursed could be counted as a single violation giving rise to the monetary penalty.  The typical Medicare reimbursement in settlement of a personal injury claim involves dozens if not hundreds of Medicare payments.

 

Beginning in the first quarter of 2010, insurers and self-insureds for liability, workers’ comp and no fault claims will begin reporting their claims involving Medicare beneficiaries pursuant to the Mandatory Insurer Reporting law.  Those who are sophisticated in making qui tam claims under the False Claims Act will be waiting with open arms for those reports. They will identify which claimants, attorneys, defendants and insurers failed in their obligation to reimbursement Medicare.

 

The treasure map will soon be here.

One of the health care reform proposals pending in Congress is to increase medical coverage for Americans by expanding eligibility for Medicare.  Today, Medicare is- in general- available to those of any age on Social Security Disability benefits for a certain period of time plus those who are age 65 or older.  One proposal is to lower the eligibility age from 65 to 55.

As of July 2008 the U.S. Census Bureau estimate of living Americans age 65 and older was about 39 million. The number of Americans between the ages of 55 and 65 was 34 million.  Lowering the Medicare eligibility age as suggested could dramatically increase the number of folks on Medicare.

Of course, not everyone eligible for Medicare opts to take advantage of the program, and many between the ages of 55 and 65 will already have health coverage in place. Nevertheless, a large influx of new Medicare beneficiaries would mean many more cases in which Medicare coordination of benefit issues will arise. 

The current discussion of expanding health care options through federal legislation deals primarily with big issues - like how to pay for the new coverage and how proposed reforms would change the current medical care system.  One of the smaller questions not showing up on many radar screens is how health care reform would impact coordination of benefits issues.

 

The current method of paying for health care in the U.S. is comprised of many different medical coverage “silos”.  Any given individual- depending on the nature of the disease or injury and how it arose- may be entitled to have medical treatment paid for by any one of many different plans that provide for payment of medical expenses: group health, workers’ compensation, automobile no-fault,homeowner’s, liability and a government-sponsored plan like Medicare or Medicaid.

 

When Uncle Larry was hurt in a motor vehicle collision while making a delivery for his employer, the hospital that treated his broken arm could have conceivably billed Larry or Larry’s employers’ workers’ compensation insurance carrier or Larry’s group health insurer or Larry’s auto no-fault insurance carrier or Medicare. Traditionally, those potential payers have operated within separate silos, with little or no sharing of information between them about who had coverage for Larry and about the circumstances of Larry’s arm getting broken. Any one of those health coverage plans could have ended up being billed for and paying the hospital charges.

 

Under the existing Medicare Secondary Payer statute Medicare is not obligated to pay Larry’s hospital bill and would only be responsible for payment if none of the other coverages was in force. Any workers’ compensation,liability, no fault and group health plan or policy in effect for Larry must pay before Medicare is obligated to pay.

 

Currently, systems are in place for Medicare to discover what other health care coverages are in effect for its beneficiaries, to find out what payments other health coverages have made on behalf of its beneficiaries and to recover reimbursement for Medicare payments made when a primary coverage is in effect.  The Centers for Medicare and Medicaid Services, the federal agency tasked with administering the Medicare program, has a rather robust system in place for enforcing the secondary payer rules and minimizing the number of cases in which Medicare pays for treatment that another payer is obligated to pay.

 

Medicaid, on the other hand, is administered by state agencies.Due in part to very low-income-eligibility standards, the typical Medicaid beneficiary would not have other, private medical payment coverages in force.Accordingly, there is no single, effective process in place to coordinate benefits between Medicaid and any other medical treatment payers available to a Medicaid beneficiary.

 

The health care reform proposals now being debated in Congress would –in very basic terms- expand health care coverage in four ways:

 

• increasing the number of people who qualify for Medicare (e.g. dropping eligibility age from 65 to 55)
• increasing the number of people who would qualify for Medicaid (e.g. increasing maximum income levels to 150% of the federal poverty level)
• easing qualification requirements for existing private insurance policies, and
• creating a new publicly-administered health insurance plan.

 

Clearly, enactment of legislation expanding the number of people covered by health insurance will increase the incidence of overlapping or duplicative coverage. That will increase opportunities for payment of medical expenses by the wrong payer. That will increase the need for effective information sharing among the payer silos and enforcement of payment priorities.

 

One aspect of the health care reform movement that will be particularly helpful in the coordination of benefits is expansion of electronic data exchange between the health care payers. If the hospital that treated Uncle Larry’s broken arm was able to put Larry’s social security number and a few other key data elements into a web-based database accessed and fed by all potential health expense payers, it could be a pretty simple process to determine who the bill should be sent to, avoid payment by the wrong payer and find opportunities for reimbursement when payment is made by the wrong party.

 

Federal law (42 USC 1320d-2) already requires CMS to develop a system for electronic data exchange of health information for the purpose of improving the operation and reducing the costs of the health care system.  The principle health care reform bill pending in Congress – H.R. 3200- covers over 1,000 pages of text.  One sentence of that bill deals with coordination of benefits:

 

“Not later than 1 year after the date of the enactment of this Act, the Secretary of Health and Human Services shall promulgate a final rule to establish a standard for health claims attachment transaction described in section 1173(a)(2)B of the Social Security Act (42 U.S.C.1320d-2(a)(2)B and coordination of benefits.”

 

Bingo.

 

Get everybody on the same (web) page, and make sure that includes Medicaid (since expanding eligibility for Medicaid will increase opportunities for duplicative coverage and need for coordination.)

H.R. 2641 (“Medicare Secondary Payer and Workers’ Compensation Settlement Agreements Act of 2009”) was introduced by Rep. John Tanner (D-TN) on May 21, 2009.  The bill has been referred to the House Ways and Means Committee (of which Rep. Tanner is a member and chair of the Social Security subcommittee).

 

Major changes (long overdue) to Medicare set-asides in workers’ compensation cases provided for in the bill are:

 

a. No MSA would be required in settlements with a present value of $25,000 or less (presently, those low-value settlements of Medicare beneficiaries require an MSA but are not reviewed by CMS).

 

b. No CMS approval of the MSA would be required in settlements with a present value of $250,000 or less if the MSA is 10% of the present value of the settlement.

 

c. Excluded in determining “present value” of a settlement would be claimant’s attorney fees, procurement costs incurred by a party to the agreement to secure the agreement, payments to satisfy third party claims or liens and payments to satisfy previous unpaid medical expenses.

 

d.  The MSA would be reduced by the amount of the direct costs and expenses incurred in establishing, administering and securing approval of the MSA as well as a proportional share of other costs and expenses (including fees for attorneys, third-party vendors and administrators) incurred by the claimant or the settlement payer in entering into the settlement.

 

e. In the case of a compromise settlement (i.e. settlement of a denied or disputed claim) the parties would have the option to reduce the MSA by a percentage equal to the denied or disputed portion of the case.

 

f. CMS could only reject an otherwise qualified MSA if there was a “substantial material error” in the calculation of the MSA and was not supported by the documentation submitted.

 

g. CMS determinations on MSAs submitted for approval would be required within 60 days of submission, and disapprovals would require specific explanation for each deficiency in the submission.

Technorati Profile

Damages sought in personal injury cases typically include medical expenses, wage loss and pain and suffering. But there are additional damages that can be claimed and can be overlooked by plaintiff's attorneys.

Where the plaintiff is a Medicare beneficiary, for example, it is often found that the medical expenses related to the injury were paid by Medicare instead of by an appropriate "primary payer" (group health insurer, no fault insurer, workers' comp insurer, negligent party or insurer for the negligent party.)

Where Medicare has made payments that should have been made by another, the Medicare beneficiary (among others) has a statutory cause of action for damages equal to double the amount of the Medicare payments. And the beneficiary who recovers the double damages doesn't have to share it with Uncle Sam!

The Medicare Secondary Payer law (part of the federal Social Security Act) provides at 42 USC 1395y(b)(3)(A): "There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A)."

This law creates a private right of action with double recovery to encourage private parties who are aware of non-payment by primary plans to bring actions to enforce Medicare's rights.

A primary plan's responsibility for such payment may be demonstrated by a judgment against the primary payer, a settlement by a primary payer (even where liability is denied) or "by other means." 42 USC 1395y(b)(2)(ii).

"By other means" includes but is not limited to a "settlement, award or contractual obligation." 42 CFR 411.22.  Contractual obligations to make payment of medical expenses exist, for example, in insurance policies and self-insurance plans for workers' compensation, liability, no fault and group health coverage.

It is increasingly common, for example, for Medicare beneficiaries injured in auto accidents to add a count for double damages under the Medicare Secondary Payer law in their suits against the PIP carrier. The PIP carrier's status as a primary payer vis-a-vis Medicare is established by the contractual obligation represented by the no fault policy of insurance.

An action for double damages, however, may not be available in the typical third party claim. The law provides no private cause of action against an alleged tortfeasor whose responsibility for payment of a Medicare beneficiary's medical costs has not been previously established by agreement or otherwise. Glover v. Liggett Group, Inc, 459 F2d 1304 (11th Cir, 2006).

Section 1395y(b)(3)(A) has been interpreted to provide that the plaintiff is entitled to the entire recovery - with no obligation to share with the government. United Seniors Assn v. Philip Morris USA et al, 500 F3d 19 (1st Cir, 2007).

 

 

 

Insurers, self-insurers and claims administrators are busy figuring out how to comply with the Mandatory Insurer Reporting rules being developed by the Centers for Medicare and Medicaid Services (CMS) for group health, workers’ comp, no fault and liability claims of Medicare beneficiaries beginning October 1, 2009.

 

To date, CMS guidance on exactly which claims need to be reported has been –at best- fuzzy.

Certainly, claims in which payment to a Medicare beneficiary of a settlement, judgment or award is made on or after July 1, 2009 will need to be included in quarterly reports to the government.  But CMS has suggested in early drafts of reporting guidelines that it will want Responsible Reporting Entities (RREs) to also give information on claims in which the RRE has “accepted responsibility” for ongoing medical payments, presumably including claims in which there is no payment on or after July 1, 2009 and even- possibly- claims in which no payment of any kind has ever been made.

 

Two key problems faced by RREs in determining what claims to report are (A) how to determine if a claimant is a Medicare beneficiary and (2) how to determine which claims of Medicare beneficiaries to report.  Problem A will be resolved by CMS putting into effect a relatively easy system to confirm the Medicare status of claimants identified by the RRE and by the RRE doing a lot of work to get Social Security Numbers and communicate with its claimants to determine their Medicare status.

 

But without clearer guidelines from CMS on which claims of known Medicare beneficiaries must be reported, resolving Problem B is much more difficult.  “Accepted responsibility” for ongoing medical means different things to different people. 

 

If an undisputed workers’ compensation file or auto no fault file is opened for an individual entitled to have medical expenses from that injury paid for life, is that a file in which the RRE has “accepted responsibility” for ongoing medical even if no medical expense has yet been submitted to the RRE?

 

If a general liability insurer or self-insurer has a “med pay” policy (formal or informal) under which it pays for the claimant’s emergency medical treatment regardless of lack of liability, has that RRE “accepted responsibility” for medical payments whether or not medical expenses have been submitted to it?

 

The statutory $1,000 per claim, per day penalty for failure to report a claim has many RREs nervous, leading to discussions of “over-reporting.”  One insurance company executive asked pointblank: “Why shouldn’t I simply report to CMS every claim on my claim system? That way I can not be charged with failing to report.”

 

There are many reasons why reporting every claim is not the right answer to compliance with the MMSEA statute, but one good reason: by reporting a claim you are telling CMS: “I am a primary payer on this claim so I am obligated to reimburse Medicare for every payment made for this beneficiary’s treatment.”  When you get the bill from the Medicare Secondary Payer Recovery Contractor for the millions of dollars in past Medicare payments for those claimants you didn’t owe coverage to, don’t call me.

 

CMS officials have promised to provide clearer standards on identifying reportable claims before actual reporting begins but -with the threat of heavy penalties for underreporting- reporting more claims than necessary will still be an issue.

 

Lawyers tend to have a pretty good grasp on the key tenets of their ethical obligations -especially dealing with “The 3 C’s”: confidentiality, conflict of interest and client funds.  Review of decisions of ethics tribunals from around the country, however, suggest that there may not be as good an understanding of the attorney’s duties to non-clients having an interest in funds that come into the attorney’s possession.

 

Most states have adopted some form of the ABA Model Rules of Professional Conduct.  ABA Model Rule 1.15(d) provides: “Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive…” (Emphasis added.)

 

The classic case: an attorney receives a personal injury settlement for the client and places the funds in the attorney’s client trust account. Obviously the attorney must notify and promptly deliver funds to the client.  But the duties to notify and deliver also extend to lienholders.

 

In cases in which the attorney knew of and acknowledged the existence of a lien against a personal injury settlement -such as a doctor’s lien, sanctioning the attorney for failing to promptly notify the lienholder of the settlement and to pay the lien is understood.

 

Less obvious are those cases involving reimbursement rights such as those enjoyed by the Centers for Medicare and Medicaid Services (CMS). If Medicare payments were made to treat a client who settles a personal injury claim based on the treated injuries, CMS has an automatic right of reimbursement.

 

Attorneys clearly have an ethical obligation to notify CMS when settlement funds are received in a case in which Medicare payments were made to treat the underlying injury, and certainly have an obligation to resolve the CMS right to reimbursement. (In Re Gary James Mitchusson, Arkansas CPC Docket 2003-168).

 

An attorney can violate Rule 1.15 by failing to notify and honor CMS’s reimbursement right even if the attorney was not aware of CMS’s interest since the attorney “should have known” that Medicare would have a lien. (Matter of Riley, 1994 WL 413173 – Cal Bar Ct 1994).

 

So, add to the attorney’s To Do List to keep the law license in force: Find out if lienholders are involved / Notify lienholder of settlement / Make reimbursement to lienholder.

West Virginia attorney Paul Harris is learning the hard way that you don't mess with Uncle Sam's efforts to get reimbursement of Medicare conditional payments.

Harris's client was injured by an allegedly defective ladder. Harris sued the retailer of the ladder and settled for $25,000.  Medical expenses for the injury had been paid by Medicare to the tune of $22,000 and change.  Medicare was never reimbursed by Harris or his client.

The Centers for Medicare and Medicaid Services (CMS) started enforcement proceedings, namely a federal court suit against attorney Harris to get reimbursement.  The case is pending in the United States District Court for the Northern District of West Virginia.  Mr. Harris filed a motion to dismiss, arguing that as an attorney for the Medicare beneficiary, he had no duty to protect Medicare's interest and is not liable for failing to reimburse Medicare. The judge assigned to the case disagreed.

U.S. District Court Judge Frederick Stamp, Jr. denied Harris' motion on November 13, 2008.  In his written opinion Judge Stamp ruled that a lawyer can be held individually liable under 42 USC section 1395y(b)(2) when he or she distributes settlement funds without satisfying an existing Medicare reimbursement right.

The court cited approvingly the language of 42 CFR section 411.24(g) which provides that Medicare can recover from any entity that receives payment from a primary payer, including the beneficiary, a medical provider, a supplier, a physician, a state agency, a private insurer OR AN ATTORNEY.  Mr. Harris is an attorney. When the ladder retailer (who became a primary payer as soon as it paid the settlement) sent the settlement check to Mr. Harris and the check proceeds were distributed, Mr. Harris received an attorney fee. He thus became an entity that received payment from a primary payer, thus making him personally liable to Medicare.

The morale of the story:  even the little cases require care in dealing with Medicare liens, and attorneys cannot leave it up to someone else to deal with the issue.