Medicare Secondary Payer Recovery by the Centers for Medicare and Medicaid Services (CMS) has been reasonably consistent since the contract was awarded to a single contractor, but the processes at the Medicare Secondary Payer Recovery Contractor (MSPRC) do change.  In particular, Medicare's MMSEA Section 111 Mandatory Insurer Reporting promulgated under the SCHIP Extension Act of 2007 required Responsible Reporting Entities (insurers, not defendants) to a payment, judgment or award has had big impact the MSPRC and the industry as a whole.  CMS released their first guidance in 2008 and user guide in 2009 (this author participated in its development).  Since that time, CMS has held numerous teleconferences and issued several updates to their user guide.   There remain controversies within the implementation of the Act and so we can expect further change.  Please see Mandatory Insurer Reporting Current News and  Updates for articles about reporting.

In addition, Medicare Secondary Payer (MSP) case law and internal CMS decisions drive changes to the recovery process.  Articles that deal more specifically with MSP can be found in these articles.

The Impact of Haro v Sebelius may have a direct impact on Medicare's right to recover from a plaintiff attorney

New Medicare Reporting Impacts Plaintiff Attorneys

The Impact of Haro vs Sebelius

As a result of the US District Court of Arizona’s decision in Haro vs Sebelius, CMS has temporarily suspended mailing Rights and Responsibilities Letters and Demand Letters until the text of these documents can be revised.  Since the Rights and Responsibilities Letter is the gatekeeper to receiving a Conditional Payment Letter, the impact on the legal community will be a virtual shut down in negotiating settlements involving Medicare beneficiaries. The suspension of Demands will stop the distribution of funds until this is resolved.  As it is a Court mandated change, it would be reasonable to assume that senior CMS executives and their Office of General Counsel (OGC) will be involved in drafting the new language -- the new letters may take some time to publish.  The MSPRC recently projected the that R&R letter will be published by 10 June 2011.

Although the Court’s decision has stalled settlements, the plaintiff’s bar is pleased with second decision in Haro.  In deciding whether  “... Defendant [HHS] can hold plaintiffs-attorneys financially responsible for MSP reimbursement if they do not hold or immediately turn over to Medicare their clients’ injury compensation awards,”  the Court found that “... she [HHS] may not preclude plaintiffs-attorneys from disbursing undisputed portions of settlement proceeds to their beneficiary clients.”

Re-writing the Medicare Secondary Payer Recovery Letters

The court was asked to decide, “...whether Defendant [HHS] can require prepayment of a MSP reimbursement claim before the correct amount is administratively determined where the beneficiary either appeals or seeks a waiver of the MSP reimbursement claim.” 

Wording of the Demand may be draconian, but as can be found in the body of the case, Medicare did not and does not literally require prepayment of disputed claims; Medicare retained the right to charge interest on disputed claims if those claims where in fact valid claims. To substantiate that statement and as a review for those not as intimately familiar with the MSPRC processes, perhaps a quick summary of the process is in order.  After a Demand is issued, if the beneficiary does not pay or dispute the claims within 60 days, then the MSPRC sends out an Intent To Refer (ITR) letter and interest begins accruing.  If the beneficiary, does not pay and does not dispute the claims after another 60 days, then the beneficiary is sent Referral To Treasury (RTF) letter.   If the beneficiary disputes the claims, then the collections process is halted (as averred to by CMS in the body of the case)  until the disputes are resolved.  Depending on the time period, either the ITR or RTF will not be sent until the matter of the disputed claims are resolved.  If the beneficiary is unsuccessful in disputing the claims after the MSPRC dispute process has been exhausted, then the MSPRC essentially decides if the dispute was specious or not and at their discretion, may impose or back out the interest that began accumulating from the date of the ITR.  In general, it was the practice to err on the side of equity and good conscience and interest even on questionable disputes was backed out.  In other words, the beneficiary is not generally penalized for disputing claims.

Surety not money -- The language of the letters and the implied practice were meant to increase the implied risk of submitting specious disputes, not to recover additional funds that would unduly burden the beneficiary.

If They Want to Borrow the Money -- They Should Pay Interest.  It is obvious that the MSPRC internal practices adhere to the spirit of the Court’s decision -- it was not in equity and good conscience to charge interest on successfully disputed claims, but I have to disagree with the Court’s statement that, “... it unnecessarily chills a beneficiary’s right to seek a waiver or to dispute the reimbursement claim”.  The Court can have no knowledge of whether honest beneficiaries and their representative refrained from disputing claims because they risk paying interest until the matter was resolved or if an unscrupulous beneficiary sees an opportunity to take out a large interest-free loan.  Remember, the beneficiary has a very significant appeals process including multiple reviews by the MSPRC, review by the Qualified Independent Contractor (QIC), Administrative Law Judge, Medicare Appeals Council and finally the District Courts.  What I can share is that by opening the door to frivolous disputes whose sole intention is to retain the use of funds by the beneficiary until the last minute, the Court has unduly burdened Medicare and the MSPRC.  The Medicare budget is fixed by law -- there is no going to Congress for more appropriations.  That means the MSPRC’s budget is limited.  Based on my experience, the MSPRC is not going to hire 10 more people to work disputes, they are probably going to have to move 10 people from Conditional Payment Letters or some other critical task to handling disputes, which will ultimately impact the entire industry.

The Court later states that, “The Secretary is armed with an arsenal of powerful recovery mechanisms...”  -- minus one.

Plaintiff attorneys have reason to be happy -- for now
According to published order, the matter before the court was Plaintiffs-attorneys challenge of “... the Secretary’s authority, to bring a direct action, pursuant to 1395y(b)(2)(B)(ii), to impose these requirements on them, which they argue places the attorney in ethical conflict with their Medicare clients.”  In addition to this filed complaint, that direct action by the Secretary imposed an ethical conflict on plaintiff attorneys, the Court expanded their inquiry to address the separate issue as to whether or not HHS has the right to recover from any entity that has received payment from a primary plan, whether or not the attorney retains the primary payment or has passed it along to the beneficiary. The court dealt with the original complaint, the ethical conflict, by referring to State law without first establishing it jurisdiction in the case and therefore might be best viewed as dicta.

The heart of the matter is: does Medicare have a direct right of action to recover from a payment pursuant to 1395y(b)(2)(B)(ii) from an attorney and the answer is clear in the plain language of the statute -- yes.

In developing it’s position, the Court states, “First, the Court notes that Congress never expressly made attorneys responsible for reimbursement under section 1395y(b)(2)(B)(ii) as “an entity that receives payment from a primary plan.” Congress originally included statutory examples of entities such as physicians or providers, 42 U.S.C. § 1395y(b)(2)(B)(ii) (2002), and in 2003, Congress omitted examples all together.”  The Court subsequently cites Chevron, 467 U.S., “Where ambiguity exists, the statutory interpretation of the agency charged with implementing it is entitled to judicial deference, Chevron, 467 U.S. at 844; the second step under Chevron is for the Court to consider whether the Secretary’s interpretation of the law is permissible. Zinman, 67 F.3d at 843.”  It seems clear that Congress deleted the references from whom Medicare can recover (an ambiguity) to intentionally allow CMS to develop governing regulations, which the Court recognized in subsequent discussions “...The Secretary defines an “entity” as: “a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment.” 42 C.F.R. § 411.24(g).  Given these two statements of fact, any further arguments made by the Court to the contrary seem unsupportable.

Does Medicare have the right to demand the entire settlement amount from the plaintiff attorney if the attorney does not protect Medicare’s interest -- no.  US vs Harris is oft cited as an example of an attorney denying Medicare’s right to recovery after he disbursed the funds to the plaintiff.  Unfortunately, it is of no value when considering Medicare’s right to recovery from an attorney. Harris, brought the wrong matter before court and the judge issued a summary judgment against him for the entire settlement amount (including the beneficiary’s procurement costs -- attorney fees).  It might make things clearly to consider the intent of 42 C.F.R. § 411.24(g).  It is to create what in the MSA industry is incorrectly called a “Super Lien.”  If an insurer (or self-insured entity) makes a payment, Medicare under the aegis of strict liability may recover the individual disbursements to the parties until they have recovered the entire amount they are owed regardless of how the funds are apportioned.    This includes trumping the Internal Revenue Service, provider liens or any other entity that was a party to the settlement proceeds.  While the Court’s reference to the applicability of 42 U.S.C. § 1395y(b)(2)(B)(ii) to a group health plan third-party administrator (TPA) is interesting, the genesis of amendment to that statute that precluded TPAs is not terribly persuasive with respect to this case.  However, the Court’s reference to Baxter, 345 F.3d at 907 (finding escrow agent was clearly not of like kind entities, such as those receiving payment under a claim of right or entitlement to retain it, because escrow agent acts in a purely ministerial role to make payments to beneficiaries in a class action), is telling.  It is clear that plaintiff-attorneys hold settlement funds in trust for their clients and therefore are acting in an ministerial role.  How about their attorney’s fees and procurement costs?

Are Plaintiff-Attorney Fees At Risk?
The Court makes a leap of faith when they imply that attorney’s fees and procurement costs are not recoverable when, typographical errors aside, they cite  42 C.F.R. § 411.37(a)(1) (or rather 42 C.F.R. § 411.37(a)(i)) as evidence for the following passage: “This Court agrees with the Baxter court, except for the conclusion as it applies to an attorney, who retains as a right or entitlement only that portion of settlement proceeds that pay for his or her services, an attorney has no right or entitlement to retain any other portion of the settlement awarded his client. The Secretary does not pursue reimbursement from procurement proceeds and, in fact reduces her reimbursement claim “to take account of the cost of procuring the judgment or settlement.” 42 C.F.R. § 411.37(a)(1). Unlike any other claim against an end-point recipient of third-party insurance proceeds, a reimbursement claim against an attorney seeks an other “entity’s” property.”   Although Medicare regulations require a beneficiary to take action when another insurance plan may be primary (e.g., file a claim under workers’ compensation or file a tort suit), they want to compensate the beneficiary for their efforts by paying for the attorney fees and procurement costs through an equivalent reduction in the amount of the demand.  It is neither rational, nor consistent with the statutory scheme that a reduction in the demand amount owed by the benefit equates to a reduction of the actual payment, which is the substance of 42 U.S.C. § 1395y(b)(2)(B)(ii).

However, crediting the Court with missing a fine point of law, since Medicare can only recover a payment made to an attorney through civil action, CMS may be considering a re-write of 42 C.F.R. § 411.37(e) which states, “ If CMS must bring suit against the party that received payment because that party opposes CMS's recovery, the recovery amount is the lower of the following:
(1)    Medicare payment.
(2) The total judgment or settlement amount, minus the party's total    procurement cost”

While it is clear that in situations where the Medicare payment is less than the total judgment or settlement amount, Medicare can recover any apportioned attorney’s fees and procurement costs.  What Medicare may do under 42 C.F.R. § 411.37(e)(2) when litigating with the actual party (plaintiff attorney) that is the source of the procurement cost is less clear.

The Court later states that, “The Secretary is armed with an arsenal of powerful recovery mechanisms...”  -- minus two?

The Court Does Not Understand the Business of MSP.   Unfortunately,  the Court felt compelled to answer the case as a matter of statutory construction, some of which has been shown to be rickety.  If the Court understood that Medicare’s resources are operationally limited and their reliance on their “arsenal of powerful recovery mechanisms” is critical, perhaps the Court would have seen the logic behind CMS’s implementation of the statutes and regulations.  It would not have attempted to destroy two of their most powerful weapons -- letters written as if authored by the Marquis de Sade and the use of the carrot and the stick on plaintiff attorneys to get them to cooperate.

What will CMS do? We know they are busy re-writing their letters to bring them more in line with actual practice, but it is unlikely they will take to kindly to any attack on their right to recover from a payment.  I anticipate an appeal.

SIDEBAR:  Can the Court certify a Class Action using Legal Construction?  See, In re: HYDROGEN PEROXIDE ANTITRUST LITIGATION
United States Court of Appeals, Third Circuit 552 F.3d 305 (2009)
"First, the decision to certify a class calls for findings by the court, not merely a "threshold showing" by a party, that each requirement of Rule 23 is met. Factual determinations supporting Rule 23 findings must be made by a preponderance of the evidence. Second, the court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits—including disputes touching on elements of the cause of action. Third, the court's obligation to consider all relevant evidence and arguments extends to expert testimony, whether offered by a party seeking class certification or by a party opposing it."

As always, the opinions express hear are those of the author and do not reflect the opinion of CMS or any other entity.

Don't be surprised at settlement by Medicare's Interest in your case.

Section 111 of Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) adds new mandatory insurer reporting requirements for liability and workers compensation settlements. Insurers and self-insured agencies will now be reporting all payments, judgments or awards involving enrolled Medicare beneficiaries to Medicare. This applies whether, or not, there has been an admission or determination of liability. Payment may be demonstrated by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release of payment for items or services included in a claim against the primary plan or the primary plan's insured, or by other means. This new statue, does not relieve an attorney's obligation to report cases to the Coordinator Of Benefits Contractor (COBC) and it is very much in the best interest of the attorney to report.

Medicare will demand the funds it paid for injury-related medical payments, whether, or not, the attorney reported the case. This means that if the attorney did not consider Medicare's interest when litigating the case, the final settlement will be lower than anticipated and the attorney may face a suit for failure to comply (see US v Harris), as well as a malpractice suit.