A recent U.S. district court order has moved self-insurers and insurance carriers—i.e. the primary payers—into a more prominent position as the targets for collection efforts by Centers for Medicare & Medicaid Services ("CMS") in seeking reimbursement for payments made from liability settlement proceeds before the Medicare lien is finally adjudicated.
U.S. District Court Judge David Bury, sitting in Tucson, Az., issued an order in the case of Patricia Haro, et al. v. Kathleen Sebelius, Secretary of U.S. DHHS, CV 09-134 TUC DCB, which did two significant things.
First, it granted class-action status to a group defined as "persons who are or will be subject to [Medicare Secondary Payer ("MSP")] recovery, and from whom defendant [CMS] has demanded or will demand payment of MSP claims before there have been determinations of the correct amounts through the waiver or appeals process."
Second, it enjoined MSP from demanding reimbursement of payments with threats of commencing collection actions before there is a resolution of an appeal or waiver request.
The first potential reaction to this order was the posting of the following notice on the Medicare Secondary Payer Recovery Contractor ("MSPRC") website, www.msprc.info/:
The demand letter for liability insurance (including self-insurance), no-fault insurance, and workers' compensation has been temporarily suspended while this letter is under review. The MSPRC is still working cases, and demand letters will be mailed out once this review is complete. Review of the Rights and Responsibilities letter ("RAR") is complete. Issuance of the RAR is anticipated to resume on June 10, 2011. A copy of the revised RAR will be made available by that time on this website.
From the perspective of the liability insurer or the self-insured, the impact of this ruling on the settlement process is significant.
Heretofore, until such time as all appeals as to the amount of the CMS lien were resolved or a waiver granted, claimants and their attorneys could be compelled to pay to CMS the full amount of the estimated lien within 60 days of receipt of settlement proceeds or risk penalties and the accrual of interest. The claimants' attorneys were deemed to be the recipient of settlement proceeds. Therefore, their exposure was equal to that of the primary payer and of the claimant.
The ruling has done away with that. CMS is now prevented from:
- Demanding that claimants' attorneys withhold undisputed proceeds from their clients pending resolution of disputed MSP reimbursement claims; and
- Seeking payment of an MSP reimbursement from the claimant who receives settlement proceeds while there is a pending appeal or waiver request.
The judge interpreted the statute as allowing the CMS to collect double damages from a primary payer who settles directly with the claimant; and collect from the beneficiary after resolution of all appeals and waiver requests.
However, according to the judge, CMS can only collect from the claimant's attorney to the extent that the attorney is an "end-point recipient of settlement proceeds," or by suing to enforce an equitable lien.
The net effect of the ruling with regard to claimants' attorneys is that they are only exposed to the extent of their fees. As to any amounts over that, the claimant and the primary payer are the targets. CMS can only pursue claimant's counsel for amounts over his fees by asserting an equitable lien.
The law and procedures for CMS reimbursements are evolving quickly. It is important that primary payers and their attorneys monitor this evolution on a national basis. Decisions are made in jurisdictions that may be far from the home base of the primary payer or insurance-oriented law firms that have a strong impact on their exposures.
It is likely that two or more years could pass before the Haro litigation and the class-action lawsuit that it has spawned will be resolved. In the meantime, primary payers must be extremely cautious in settling any case where the MSP claim has not been determined or a waiver has not been received.
If this ruling in its present form stands for anything, it is that the primary payer will be, by far, CMS' easiest target for a reimbursement action. The claimant's attorney will have no greater real exposure than his contingency fee. Therefore, regardless of any agreement that the attorney will be responsible for CMS' lien, the primary payer will be first in line to pay.
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