Reimbursement Issues

Paul J. Harris, a West Virginia lawyer, represented a client who had pursued a liability claim against a retailer after falling off of an allegedly defective ladder.  He obtained a $25,000 settlement from the defendant in July 2005.

Medicare paid $22,549 from medical services on behalf of the injured man, a Medicare beneficiary.

After Harris provided Medicare with the details of the settlement payment, the Centers for medicare and Medicaid Services (CMS) calculated that it should be paid $10,253.59 of the settlement amount.  Harris then distributed the settlement funds to the client without retaining the funds for Medicare or paying it from the client’s funds out of the payment.

Because the amount was not paid within the 60-day statutory deadline, CMS sought a total of $11,367.78, which included interest.  The client never paid the government at all, and it then filed a declaratory judgment action against Harris for the damages owed to CMS under 42 U.S.C. 1395y(b)(2)(B)(ii), which provides for the right to collect conditional payments from any entity that received money from the “primary plan or proceeds of the primary plan.”

Harris filed a motion to dismiss, arguing that an attorney cannot be held individually liable when distributing third-party settlement funds to clients.

The U.S. District Court for the Northern District of West Virginia rejected the motion ans stated that Section 42 of the U.S. Code provides that the government may recover payment from “any entity that has received payment from a payment plan” U.S. v. Harris, N.D.W.Va., No. 5:08CV102 (decided Nov. 13, 2008).

Since 1980 and the passage of the Medicare Secondary Payer Act, Medicare has had a right to reimbursement of money it pays for medical care rendered to any injury victim and to ensure that the victim’s future medical expenses are first paid by the recovery obtained from defendants.

This decision should be kept in mind in light of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) that is set to go into effect July 1 of this year.  The new law now provides that insurance companies must register on behalf of a Medicare claimant in an injury case to ensure that Medicare is compensated or be subject to stiff monetary penalties of $1,000 per day.

Payments made by Medicare to beneficiaries in this situation are called “conditional payments” and are recoverable from the tort-feasor who is the primary payer.  Under 42 U.S.C. 1395y(b)(3)(A), Medicare has a cause of action for double damages if it does not receive appropriate reimbursement.

The new law apparently does not deal with identifying future costs of care that are potentially covered by Medicare.  That is left to Medicare Set Aside analysis.  The question then is how a client who received Medicare benefits is to be efficiently paid once a settlement has been reached.

Although the government certainly is entitled to reimbursement, lawyers are fearful that overreaction to the new July 1 rule could take years of red tape and at the expense of the injured plaintiffs.

And what about due process for the injury victims?

Tort victims fear that insurance companies will put Medicare on settlement checks as a payee, which will considerably delay the ability to promptly pay out cases to a client.

Partners at my firm were part of an ad hoc committee made up of plaintiffs and defense counsel selected by Chief Judge William Maddux who met with Judge James Flannery to ensure that procedures are in place to provide the expeditious conclusion of settlements in the Law Division.

One possible solution for plaintiffs’ attorneys is to inform the defendants that their law office has a firm Medicare compliance process in place, including the verification and resolution of Medicare’s reimbursement claim.

Plaintiff attorneys also need to include written Medicare allocations in their clients’ settlement agreements along with an explanation of why the allocation is reasonable for the injury victim.

Perhaps a trust could be set up whereby, with court oversight, arrangements could be made to put aside sufficient money to cover the Medicare lien.

Certainly, strict adherence to statutory time lines in necessary, but lawyers also need to be aware that they must have open and continuing dialogue with Medicare representatives in order to negotiate any outstanding conditional payments that are alleged right from the start of the lawsuit ,even if the plaintiff is only Medicare eligible and hasn’t yet received any money from the government.

Further regulatory guidance from CMS on how the new reporting procedures will work is expected in the coming months, so that all of the parties involved can be assured they are properly following the directives without draconian recourse against an unsuspecting lawyer who is trying to do what is right.