Cutting Through the Red Tape

Can you imagine an elderly person waiting for her slip-and-fall case to settle because the Centers for Medicare and Medicaid Services (CMS) is investigating a $1.59 claim? That's what Congress discovered at a recent oversight hearing.

The problems stem from the Medicare Secondary Payer Act of 1980, which makes Medicare the secondary insurer on all claims, so that Medicare must be reimbursed when another source of insurance exists. But getting Medicare to be responsive and/or to cooperate in the reimbursement process has been a huge problem over the years.

Panelists at the congressional hearing presented horror stories of CMS taking months, sometimes more than a year, to finalize the details to collect even just a couple of dollars. Deborah Taylor, chief financial officer and director of CMS' Office of Financial Management, indicated that claims weren't given any priority due to the amount. Other testimony showed that its' policies (or lack thereof) were causing Medicare to recover less than it should, at the same time that there is talk about its potential insolvency.

Marc Salm, vice president of risk management for Publix supermarkets, spoke of the example of Mr. Jones, a 76-year-old Medicare beneficiary, injured in a slip-and-fall incident at Acme store. He incurs $50,000 in medical bills, which Medicare pays on the terms of the settlement being "conditional payment." Mr. Jones then files a negligence lawsuit. Mr. Jones is prepared to accept $120,000. Acme's insurer is unwilling to settle with Mr. Jones without resolving the Medicare reimbursement issue first. However, none of the parties can act because Medicare will not put in writing what it is owed and, as Salm said, "there is no mechanism for Medicare to provide that information before settlement," despite a telephone-sized book of regulations that was nearly impossible to follow. He concluded that today's system harms beneficiaries, retailers and other businesses wanting to resolve claims while the Medicare Trust Fund actually loses money.

Rep. Cliff Stearns, R-Fla., chairman of the House Energy and Commerce Oversight Subcommittee, chastised Taylor of CMS for not being able to address simple questions on this subject, such as Medicare reimbursement totals for liability cases, the average delay in providing final amounts or how much time and money is spent processing small claims.

The day before the hearing, the RAND Institute for Civil Justice, a California think tank on which I sit as a director, released an in-depth study detailing the problems that were brought before the congressional committee. RAND concluded that to exempt claims involving reimbursement of under $5,000 "would have almost no effect on recovery."

HR 1063 attempts to address these problems. Some recommendations from congressmen and the panelists included:

• CMS should be required to adhere to strict time limits to provide parties the amount of the "conditional payment" as early as possible so the settling parties know how much money Medicare is expecting in reimbursement when they are negotiating the settlement.
• A de minimus threshold should be imposed on Medicare reimbursement claims because it is counter-productive and inefficient for Medicare to pursue claims that will yield less than the recovery.
• Impose a two-year statute of limitations so Medicare can't seek reimbursement for an infinite period of time from an unsuspecting elderly person, often times for medical claims that are unrelated to the initial accident.
• Stop requiring Medicare beneficiaries to provide their Social Security numbers to defendants and 200 other pieces of information that insurers and defendants don't otherwise need and don't normally collect.

The courts, too, are trying to fix the mess. In Bradley v. Sebelius, 2010 WL 3769132 (11th Cir., Sept. 29, 2010), the 11th U.S. Circuit Court of Appeals ruled that there are limits to what Medicare can claim out of survivor's wrongful death benefits. Bradley involved the case of Charles Burke's 10 surviving children bringing a claim against a Gainesville, Fla., nursing home for his wrongful death from sepsis and wound infection. Noting the "paltry sum" of the $52,500 settlement due to the available insurance, the court found that the probate court's allocation of $787.50 to satisfy Medicare's $38,000 claim was proper and the children were entitled to the remaining sum for the surviving children's loss of parental companionship. To do otherwise "would have a chilling effect on settlement" and "allow tortfeasors to escape responsibility."

In Haro v. Sebelius, CV 09-143 (U.S.Dist.Ariz., May 5, 2011), Judge David C. Bury ruled that Medicare cannot charge interest on any unpaid Medicare reimbursement claims where the beneficiary is actively pursuing an appeal waiver or compromise. Bury ruled that Medicare can no longer demand that lawyers withhold from their clients all settlement proceeds prior to making reimbursement to Medicare.

Some creative lawyers have found ways to get around CMS' dilatory attitude and have filed motions asking that an amount be put in escrow and payment of other funds be made while CMS tries to figure out how much it is owed. The good news is that Congress is looking further into the issue.