Question
Abstract: There has been a considerable amount of commentary among personal injury practitioners on listservs regarding the McKinney v. PHA decision and what it means for attorneys in Pennsylvania as well as for practitioners throughout the country. The objective of this Practice Tip is to use McKinney to reference two familiar methods for determining allocation for past medical expenses, and illustrate how courts may not adhere to either due to a move toward a more equitable determination based on the thought that a settlement is a compromise for all.

A Memorandum and Order issued last week, on August 24th by Judge Schiller of the U.S. District Court, E. D. Pa. answered the question of how much the Department of Public Welfare (DPW) is to be reimbursed from personal injury settlements.

Answer
Some of the main points and key facts McKinney v. PHA are:

- A family filed suit against the Philadelphia Housing Authority claiming that the agency ignored complaints about mold in their housing unit that ultimately resulted in injury.
- A settlement was reached in June for just more than $11.9 million.
- DPW expended over $1.2 million to provide healthcare/ Medicaid benefits for the parties alleging injuries.
- The approved settlement only allocated for attorney fees, costs and amounts for those parties; there was no allocation for past medical expenses.

The Medicaid beneficiary argued for an employment of the 'ratio theory,' as derived from Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006), to determine allocation for past medical expenses by multiplying a ratio (the agreed settlement amount divided by case's true value) to the whole DPW lien.

DPW argued that state statute established a means to determination allocation, 62 Pa. C.S. §1409(b)(11) presumption of one-half of net or the actual Medicaid lien amount, whichever is less.

The Federal Court:

o Reasoned that the Ahlborn 'ratio theory' argued for by the Medicaid beneficiaries is not required to be used by courts in all cases;
o Bypassed the application and constitutionality of 62 Pa. C.S. §1409(b)(11) by his issuance of a court order to allocate the settlement proceeds;
o Found that 62 Pa. C.S. §1409(b)(11) ignores the reality of settlement, which by nature is a compromise for all parties, including DPW; and
o Based on the record, identified the factors and uncertainties leading the parties to settle, along with the reasonable portion of the settlement allocable to past medical expenses; attributing two-thirds of the total Medicaid lien as the portion of the settlement for past medical expenses.

Practice Tips: What does McKinney mean in light of Ahlborn and Tristani?

1. A new means of finding the sweet spot for Medicaid recovery?

The Court in McKinney found that Ahlborn did not require the 'ratio theory' be used in all events to determine allocation for past medical expenses. If the parties are moving toward settlement, we recommend the parties take into account the court's power to determine the parties' (including DPW's) equitable rights. Following McKinney, in Pennsylvania, should the matter of the Medicaid lien be litigated, the courts of competent jurisdiction are more likely to consider the equities of settlement along with the statutory recovery construct. If the record is sufficient, the court will also have the power to weight and consider factors. For settling parties, when working with DPW to identify its recovery rights, it will be even more important to properly document the file, including the bases for settlement, along with the pros and cons of litigation. Consistent with traditional recovery methodologies, information supportive of damages will still be highly relevant to determine, based on a good faith analysis, the reasonable portion of a settlement allocable for past medicals.

The Court in McKinney also confirms that which we already knew “ that Ahlborn was not intended to be a panacea for the Medicaid lien resolution process. Rather than seeking an Ahlborn-allocation hearing, which can cost time and resources, the parties may be well-served in working to identify settlement factors, duly recognizing that the 'black boarded' damage model (of recovery based on a pro rata share of settlement dollars when compared to total stipulated damages) may create one recovery pole star. But, state statutes, such as the 50% net presumption under 62 Pa. C.S. §1409(b)(11) creates another one. Using settlement factors (such as risks of litigation, reasons for settlement, etc.) may help the parties find an answer that recognizes the inherent benefits of settlement for all the parties, including the DPW. Failing to settle among the parties, a properly documented lien resolution process would provide a court of competent jurisdiction with the tools necessary to get the parties the rest of way, if needed, based on McKinney's "compromise" standard.

2. The Influence on Tristani

Settling parties and their counsel, by now well aware, especially in Pennsylvania, of the Tristani v. Richman, 609 F.Supp.2d 423 (2009) interlocutory opinion (since its release last year), have been eagerly awaiting its ultimate fate to be determined by the Court of Appeals for the Third Circuit. DPW third party recovery has created a flexible approach to cases in which a Tristani-type argument, essentially asking DPW to take a more proactive role in its own recovery based on an interpretation of the interplay of the federal Medicaid laws and those of Pennsylvania. When considering the impact of Tristani (noting that story has not yet been completely told), a portion of that opinion found that the 'one-half of net rule' for recovery in §1409(b)(11) is consistent with Ahlborn's holding. Now reading McKinney with Tristani, we can see a further refinement of a lien resolution methodology for Pennsylvania. Clearly, the 'one-half of net rule' no longer guarantees DPW full reimbursement in a case that settles. But that is still not the end of the lien story.

If it appears that the parties are going to settle, a court, if asked, may take the McKinney court up on its offer to use this new settlement tool - taking the nature of settlements and compromise factors into account to determine what portion of the settlement is attributable to past medical expenses. As a result, the settling parties, when dealing with the DPW (Medicaid) lien may be able to reduce that lien beyond a one-half of net standard. If the case proceeds to trial and results in a jury verdict, 62 Pa. C.S. §1409(b)(11) will still serve to identify the lien amount. The parties would presume that where a total Medicaid lien remains less than one-half of the jury award, DPW is likely to be fully reimbursed. However, where the lien exceeds the one-half amount, DPW's reimbursement is likely to be capped at one-half of net.

3. A national shift towards an Equitable Model

It appears that McKinney, when read with Tristani, and taking into account the United States' Supreme Court's 9-0 ruling in Ahlborn, is signaling a potential shift towards the equitable model that is inherent in all compromises.

Attorneys in North Carolina, Ohio and Florida will know that these states also have a statute for determining right to reimbursement based on gross settlement value. These statutes operate on the presumption, much like that in Pennsylvania, that the portion of a settlement allocated to past medical expenses equals the one-half of net proceeds or the actual Medicaid expenditures, whichever is less. When working with these statutes, however, equity also has to come into play, based on a reasonable allocation for past medical expenses.

The Garretson Firm Resolution Group will continue to closely monitor how McKinney may affect the resolution of Medicaid liens in Pennsylvania, and also, any decisions that result in similar developments among other jurisdictions.

Question
I am concerned that signing the agreement to represent the government’s interest may create a conflict of interest if there is a dispute as to the portion of a settlement that represents the government’s recovery. There may be issues as to whether some bills are causally related to the claim or whether the settlement was reduced because of the plaintiff’s comparative negligence, etc. I would prefer to keep the government from intervening and would be willing to sign some acknowledgement of the government’s interest but I am not comfortable signing their agreement to represent.

Florida Attorney

Answer
Signing the agreement means that the govt’s claims will be addressed as part of the process. For example, if an attorney files suit, and then contacts Tricare representatives, signing the agreement means the attorney would need to amend the complaint to include the govt’s claim under 42 USC Sections 2651-53.

Further, depending on which version your state adopted, you are likely held to the same standards under ABA Model Rule 1.15(d), in which if you receive settlement proceeds and are aware of a just and valid third party claim (in this case, Tricare), then you have a fiduciary duty to notify and pay that third party.

So your concerns about conflict are addressed in the Code of Professional Responsibility if you are holding settlement proceeds in your IOLTA account (or once you do). If you are not yet there in your negotiations because the settlement funds have not been delivered, then your concerns can be addressed by adding language in the agreement to represent that all you are doing is protecting the govt’s interests, but not at the expense of your client.

The problem: the govt cannot hire counsel to protect its reimbursement rights. It has the right to intervene. So if you do not sign, JAG will likely take the necessary steps to intervene. And once that happens, there will be no offset to Tricare’s reimbursement claim for attorney fees or expenses. It will be every party for itself. For that reason, we have recommended attorneys add the language they feel comfortable adding, send it back as a modified agreement, and then work out the details. To date, we have not had a denial of modified agreements, but that is also because we helped prep the Tricare representatives so they knew about the changes and were comfortable with them from a recovery standpoint.

Hope this helps…

My best,
Matt Garretson

Question
I am concerned that signing the agreement to represent the government's interest may create a conflict of interest if there is a dispute as to the portion of a settlement that represents the government's recovery. There may be issues as to whether some bills are causally related to the claim or whether the settlement was reduced because of the plaintiff's comparative negligence, etc. I would prefer to keep the government from intervening and would be willing to sign some acknowledgement of the government's interest but I am not comfortable signing their agreement to represent.

Florida Attorney

Answer
Signing the agreement means that the govt's claims will be addressed as part of the process. For example, if an attorney files suit, and then contacts TRICARE representatives, signing the agreement means the attorney would need to amend the complaint to include the govt's claim under 42 USC Sections 2651-53.

Further, depending on which version your state adopted, you are likely held to the same standards under ABA Model Rule 1.15(d), in which if you receive settlement proceeds and are aware of a just and valid third party claim (in this case, Tricare), then you have a fiduciary duty to notify and pay that third party.

So your concerns about conflict are addressed in the Code of Professional Responsibility if you are holding settlement proceeds in your IOLTA account (or once you do). If you are not yet there in your negotiations because the settlement funds have not been delivered, then your concerns can be addressed by adding language in the agreement to represent that all you are doing is protecting the govt's interests, but not at the expense of your client.

The problem: the govt cannot hire counsel to protect its reimbursement rights. It has the right to intervene. So if you do not sign, JAG will likely take the necessary steps to intervene. And once that happens, there will be no offset to TRICARE's reimbursement claim for attorney fees or expenses. It will be every party for itself. For that reason, we have recommended attorneys add the language they feel comfortable adding, send it back as a modified agreement, and then work out the details. To date, we have not had a denial of modified agreements, but that is also because we helped prep the Tricare representatives so they knew about the changes and were comfortable with them from a recovery standpoint.

Hope this helps.

My best,
Matt Garretson

Question
I have a client who had her bills paid by TRICARE. Is this treated the same as Medicare in that we have an obligation to notify TRICARE about the case and obtain a lien amount?

Thanks.
Maryland Attorney

Answer
The U.S. military's rights arise under the Medical Care Recovery Act (42 U.S.C. Sections 2651-53). The MCRA states that when the Federal Government provides treatment or pays for treatment of an individual who is injured or suffers a disease, the Government is authorized to recover the reasonable value of that treatment from any third party legally liable for the injury or disease. The statute provides an independent right of recovery, but only for those payments actually made. The statute does not contemplate any recovery for future payments to be made. (32 C.F.R. Section 757.14(a) and (d)).

Each service branch has a slightly different model agreement, but the basics are all here, namely, that:

1.the federal government has a right to assert a separate cause of action to recover for injury-related care paid by TRICARE/CHAMPUS on a conditional basis;
2.federal law precludes the service branch from being able to hire civilian counsel so they ask for counsel to sign an agreement, protecting the military's interests;
3.the primary benefit to the agreement is the access to medical records to help prove the case, provided there is reasonable advance notice (two weeks);
4.the primary drawback is the regular status reports (which is not a large time commitment, but is an added step to settling a Tricare case);
5.absent this agreement, the govt. can intervene in your action, causing more grief than it is worth (in not signing the agreement); and
6.there is nothing unusual about the language of the agreement. We can send relevant statutes for your review, noting the agreement is consistent with federal law.

Hope this helps.

My best,
Matt Garretson, Esq.

Question
Pa. R.C.P. 229.1 requires disbursement of settlement proceeds within 20 days of receipt of the signed release; if no Medicare waiver of no lien [is achieved] by that date does an insurer/defense lawyer have a right to retain settlement proceeds in violation of Pa. R.C.P. 229.1?

Answer
Despite the fact that federal law provides a reimbursement right for Medicare (42 U.S.C. §1395y), the timing of such reimbursement would not, in our opinion, lead to federal preemption such that state laws governing distribution of net settlement proceeds can be ignored. The question presupposes that plaintiff's counsel did not open a tort recovery record with the Medicare Secondary Payer Recovery Contractor (MSPRC) such that at least a list of conditional payments was not provided prior to the 20 day period provided under PA law. Presuming that were the case, the insurer would deliver the settlement proceeds to plaintiff's counsel for holding in its IOLTA or trust account pending resolution of the Medicare reimbursement claim. Plaintiff's counsel would, having been placed on notice of a just, third party claim (Medicare) have an ethical responsibility under Pa Rul Prof. Conduct 1.15(b) to notify the third party and to deliver those funds. Comment 6 of those rules specifies that lawyers may have a duty under applicable law (in this case, federal law), to protect third party funds against wrongful interference by their own clients. (See excerpts below).

Rule 1.15 Safekeeping Property
(a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a client-lawyer relationship separate from the lawyer's own property. Such property shall be identified and appropriately safeguarded. Complete records of the receipt, maintenance and disposition of such property shall be preserved for a period of five years after termination of the client-lawyer relationship or after distribution or disposition of the property, whichever is later.

(b) Upon receiving property of a client or third person in connection with a client-lawyer relationship, 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 or third person, a lawyer shall promptly deliver to the client or third person any property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

[6] Paragraph (c) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer's custody such as a client's creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client unless the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party. When there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.

Given the duties imposed on an attorney with respect to delivering funds to Medicare, the parties can address the timing issue of Pa. R.C.P. 229.1 as follows: (1) add in the release recital language describing the Medicare reimbursement issues; (2) use condition precedent language to trigger payment under the settlement agreement such that the insurer pays the attorney upon proof a tort recovery record has been established, noting that 42 C.F.R. §411.24(g) creates transferee liability where the insurer pays the attorney, who then has a duty under the Medicare regulations to reimburse Medicare; and (3) use as a condition subsequent, proof of satisfaction of the Medicare reimbursement obligation. By following the formalized process to verify, resolve and satisfy, and by starting early, counsel can avoid the catch-22 suggested by the questioner.

Please let me know if you have any follow up questions.

Our best,
Sylvius von Saucken, Esq.

Question
A driver in NY was involved in an accident. His hospital bill was mistakenly paid by Medicare (instead of No-fault). The driver eventually settled his bodily injury liability claim against a third party. Does Medicare have any reimbursement claim against the settlement for the money it paid out since in NY the third party in a car accident pays only for pain and suffering and not for medical bills?

New York Attorney

Answer
Yes. Medicare has a right to recover for pain and suffering and other nonmedical services. The only situation in which Medicare recognizes liability payments to nonmedical losses is when payment is based on a court order on the merits of the case. Since liability payments are considered to have been made "with respect to" medical services related to the injury event when the settlement does not expressly include an amount for medical expenses and non-medical expenses.

Federal law takes precedence over State law and private contracts. Medicare is the secondary payer regardless of state law or plan provisions. These Federal requirements are found in Section 1862(b) of the Social Security Act {42 USC Section 1395y(b)(5).

Section 42 CFR 411.23 states that a beneficiary must cooperate in any action taken by the Centers for Medicare and Medicaid Services in recovering conditional payments. Failure to do so or not protecting the Medicare program during and after settlement negotiations may result in CMS taking action against the beneficiary to collect the mistaken payment.

CMS has a direct right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency, or a private insurer that has received a third party payment, 42 CFR 411.24. Medicare is a claimant against the no-fault insurer to the extent that Medicare has made payments to or on behalf of the beneficiary for services related to claims against the no-fault insurer.

Mary Skinner

Question
If the last know exposure is prior to December 5, 1980, is the plaintiff required to notify CMS?

Answer
See answer below. If the plaintiff or plaintiff's attorney can show, by uncontroverted evidence that the last date of exposure occurred on or before the effective date of the MSP statute (Dec. 5, 1980), Medicare does not have a right of reimbursement, and the RRE does not have a duty to report. However, we have advised both parties to settlement that "wordsmithing" will not remove a duty where one exists, so plaintiffs have to be ready to stand by their screening process, and defendants must be able to reasonably rely on that process if they are to take the position no reporting need occur.

Answer: Provided you have a formalized screening process designed to prove the last date of exposure occurred on or before December 4, 1980, a Responsible Reporting Entity will not have a reporting obligation under the MMSEA. Medicare may have a recovery claim only where there was asbestos exposure on or after the effective date of the MSP statute, December 5, 1980. Medicare's claim would be for all Medicare reimbursed services on or after December 5, 1980, which are related to the liability settlement, judgment, or payment. Medicare's recovery claim is based upon specific Medicare reimbursed services rather than some percentage of the liability settlement, judgment, or payment. Further, Medicare has stated in liability recoveries, (but not Workers Compensation), that "If the asbestos exposure ended before December 5, 1980, Medicare will not pursue recoveries from asbestos liability settlements, since the MSP liability provisions were not effective until that date." However, please note that once a post-1980 exposure date is determined, Medicare requires that exposure claims are submitted based on the "date of first exposure."

Sylvius von Saucken, Esq.

Question
The vast majority of cases, at our firm, are asbestos exposure cases. Are defendants required to report when the last exposure alleged is prior to December 5, 1980?

Answer
Provided you have a formalized screening process designed to prove the last date of exposure occurred on or before December 4, 1980, a Responsible Reporting Entity will not have a reporting obligation under the MMSEA. Medicare may have a recovery claim only where there was asbestos exposure on or after the effective date of the MSP statute, December 5, 1980. Medicare's claim would be for all Medicare reimbursed services on or after December 5, 1980, which are related to the liability settlement, judgment, or payment. Medicare's recovery claim is based upon specific Medicare reimbursed services rather than some percentage of the liability settlement, judgment, or payment. Further, Medicare has stated in liability recoveries, (but not Workers Compensation), that if the asbestos exposure ended before December 5, 1980, Medicare will not pursue recoveries from asbestos liability settlements, since the MSP liability provisions were not effective until that date. However, please note that once a post-1980 exposure date is determined, Medicare requires that exposure claims are submitted based on the date of first exposure.

Sylvius von Saucken, Esq.

Question
In a situation where an injured party on Medicare has ongoing medical treatment associated with a personal injury claim or suit that may not settle for many months or a year or more, does requesting Medicare payment information prior to settling a claim or lawsuit start the clock running on interest owed on Medicare's lien amount for medical payments made by by Medicare? What benefit is there if any to requesting this information at the outset of a cae or before a case settles as opposed to waiting until after settlement occurs and thereby avoiding interst accruing on Medicare's lien amount?

Answer
The MSPRC (Medicare Secondary Payer Recovery Contractor) begins identifying claims for recovery when it receives notice of a pending no-fault, liability, or WC matter. However, it does not issue a formal recovery demand letter until there is a settlement, judgment or award. It is against the date of that formal “Final Demand Letter” that interest accrues. Resolving Medicare’s interest in a settlement takes time so starting early will allow you to have an ongoing accounting of Medicare’s interest in your case so starting early is crucial.

Sylvius von Saucken

Question
Regarding a plaintiff attorney's contractual obligation, can we tell our clients that, when a settlement payment comes in, we plan to process our attorney fees and hold the rest until the lien has been satisfied, or must the entire settlement amount, including our fees be held?

Answer
According to the Medicare contractors at MSPRC, they presume attorneys will take their fees and expenses from the gross settlement, prior to Medicare reimbursement. Having said that, if there is any concern that there may not be sufficient funds to cover that reimbursement obligation, we recommend you escrow the entire settlement, provided there are no needs-based government benefits(such as SSI and/or Medicaid) to protect.

Sylvius von Saucken

Question
What is the new submission process for WCMSAs?

Answer
Recently, the Centers for Medicare & Medicaid Services (“CMS”) announced a new submission process in development for Workers’ Compensation Medicare Set-aside Arrangements (“WCMSAs”). As CMS has previously suggested, it will be moving forward with the development of a web portal. Once introduced, this web portal will enable WCMSA submitters to submit WCMSA proposals electronically via the internet. The web portal should allow for WCMSA proposals to be viewed by CMS on a more expedited basis. Scheduled to be introduced in first quarter 2011, the web portal would provide submitters with a real-time receipt acknowledgement from CMS. CMS will announce further developments regarding the web portal at a later date.

GFRG will continue to monitor CMS communications and provide this new information to the settlement community as it becomes available. To view the CMS announcement in its entirety, click here

Question
What is the procedure for calculating life expectancies for MSAs?

Answer
The Centers for Medicare & Medicaid Services (“CMS”) recently announced a new procedure regarding how life expectancies for Medicare Set-aside Arrangement (“MSA”) purposes should be calculated. As of April 12, 2010, CMS will begin referencing the 2005 United States Life Tables recently published by the Centers for Disease Control (“CDC”) for Workers’ Compensation (“WC”) MSA calculations.

Practically speaking, the settlement community should begin referring to the CDC’s Table 1: Life Table for the total population, United States, when calculating a claimant’s life expectancy for MSA purposes. CMS will be applying this table for WCMSA proposals received on or after April 12, 2010 as well as any WCMSA case reopened on or after April 12, 2010.

GFRG will continue to monitor CMS communications and provide new information to the settlement community as it becomes available. To view the CMS announcement in its entirety, click here

Question
What is the Medicare Secondary Payer Enhancement Act of 2010?

Answer
Recently, Congressmen Patrick Murphy (D-PA) and Tim Murphy (R-PA) introduced HR 4796, a bill titled the “Medicare Secondary Payer Enhancement Act of 2010.” This piece of legislation purports to provide a seemingly less complicated approach to reimbursing Medicare for conditional payments made for injury-related care under the Medicare Secondary Payer (“MSP”) Act (42 U.S.C. §1395y(b)). Additionally, this bill purports to allow for less onerous requirements for entities obligated to report to Medicare under the recently enacted Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”).

If passed by Congress and signed into law, the Medicare Secondary Payer Enhancement Act of 2010 would provide for the following:

•Voluntary Calculation and Payment of Conditional Payments. Claimants and plans would be able to submit a payment to Medicare, calculated in good faith, as full satisfaction of any reimbursement obligation to Medicare for conditional payments made by Medicare if submitted within ninety (90) days of the anticipated settlement, judgment, award or other payment.

•Secretary’s Ability to Contest Amount of Payment. Medicare would have the ability to contest the payment made according to the above procedure within seventy-five (75) days of receipt of such payment from the claimant or plan if Medicare determines that the payment made was not the total amount owed by submitting a final demand to the claimant or plan for the remaining balance owed.

•Request for Final Demand for Reimbursement. The claimant or plan would be able to request a final demand amount from Medicare within 120 days prior to the expected date of settlement, judgment, award or other payment. Within sixty (60) days of receiving such final demand request, Medicare would provide that final demand. The claimant and plan would then have sixty (60) days from the receipt of that final demand from Medicare to provide payment as satisfaction of that final demand amount.

•Failure of the Secretary to Provide Final Demand for Conditional Payment. If Medicare failed to provide final demand as set forth above, the claimant or plan would not be liable for submitting payment to Medicare to satisfy any outstanding reimbursement claims asserted by Medicare.

•Right of Appeal. Medicare would establish a right of appeal and appeals process for the payment procedures set forth above, including review through an Administrative Law Judge and access to the U.S. District Court.

•De Minimus Threshold. There would be no reimbursement obligation when the settlement, judgment, award or other payment did not exceed $5,000.

•Reporting Requirement Safe Harbors. The MMSEA would be amended to allow Medicare the discretion not to apply the statutory $1,000 penalty for each day of noncompliance with respect to a responsible reporting entity’s reporting obligation. This section would also allow for the creation of safe harbors from penalties asserted under the MMSEA.

•Use of Social Security Numbers and Other Identifying Information in Reporting. The MMSEA would be amended so that responsible reporting entities would not be required to access or report social security numbers or health identification claim numbers (i.e., Medicare numbers) of claimants.

•Statute of Limitations. A three (3) year statute of limitation, measured from the date of reporting, would be established within which time the federal government must bring any action associated with compliance under the MSP.

•User Fee. Each person or plan that submits a payment to fulfill a MSP reimbursement obligation or each person or plan that submits a request for a final demand letter as set forth above would be subject to a $30 fee, payable to Medicare.

We will continue to follow the progress of this legislation, in addition of other pieces of legislation that may affect the settlement community. Please check www.garretsonfirm.com often for updates as well as new client advisories and practice tips. A copy of HR 4796 may be found by clicking here

Question
Regarding dollar reporting threshold of $5,000, in mass tort cases or where there are multiple settlements paid out over time, is the reporting requirement for $5,000 in aggregate or only for a single $5,000 payment or above?

Answer
The answer is that the reporting threshold is considered in the aggregate, but where exceeded, each payment is to be reported separately. For liability settlements, the threshold for settlements, judgments, awards or other payments on or after January 1, 2010 through December 31, 2011 is any amount up to and including $5,000. In response to your question about how the threshold amount is applied, Section 11.4 of Version 2.0 of the User Guide states that “Where there are multiple TPOCs associated with the same claim record, the combined, cumulative TPOC amounts must be considered in determining whether or not the reporting threshold is met. However, multiple TPOCs must be reported in separate TPOC fields as described later in this guide.” This section goes on to state that “The threshold dollar and date ranges apply to the date when the threshold is met (the most recent TPOC Date). The COBC will use the most recent TPOC Date supplied on the claim report when checking the threshold ranges. Timeliness of reports will be determined based upon the applicable date for the TPOC which caused the threshold to be met (the last, latest, most recent TPOC Date reported on the claim record).

Section 11.10.2 of the User Guide reinforces the above and states that “…the sum of all TPOC amounts must be used when determining whether the claim meets the applicable reporting threshold. Use the most recent, latest TPOC Date associated with the claim when determining whether the claim meets the interim reporting thresholds defined in Section 11.4.”

Section 11.5 of the User Guide provides a detailed description of how multiple TPOCs need to be reported. The definition as used in the User Guide references above for TPOC is the Total Payment Obligation to the Claimant. The TPOC refers to the dollar amount of a settlement, judgment, award or other payment in addition to/apart from ongoing medicals. A TPOC generally reflects a one time or lump sum payment. A complete definition of TPOC is in Section 2 of the User Guide.

Sylvius von Saucken

Question
We have been trying to reach a settlement of a medical negligence claim with substantial past medical expenses but relatively little in anticipated future Medicare-eligible expenses. The client has significant deficits but future needs primarily are for attendant care rather than the kind of medical care Medicare will pay for.

The defendant's insurer is insisting that we either set up a Medicare set aside trust or get a release from Medicare. Do you have any suggestions on how best to deal with this?

Missouri Attorney

Answer
Certainly, your fact pattern is one commonly encountered these days due to the vast amount of misinformation promulgated towards the insurance community regarding Medicare compliance under the Medicare Secondary Payer ("MSP") Act. Because of their new reporting obligations under Section 111 of the MMSEA (Medicare, Medicaid and SCHIP Extension Act of 2007, found at 42 USC Sec. 1395y(b)(8)), insurance companies want to ensure that Medicare will not chase them for reimbursement of any interest, either past (represented by conditional payments made by Medicare from date of injury to date of settlement) or future (represented by payments made by Medicare for injury-related care post settlement). In their zeal for satisfying Medicare's interests, they often miss the forest for the trees.

Nowhere in currently enacted law or guidance from CMS are we told that a Medicare Set-Aside ("MSA") must be established as a part of our third party liability settlement. The obligation under the MSP Act is to "consider and protect" Medicare's interests, both past and future. Many insurance companies fail to understand that considering and protecting Medicare's interests does not always mean that you pay Medicare money. In fact, in the third party liability context for MSAs, it rarely means that. What it does mean is that the settling parties should be documenting their files to show what steps have been taken to consider and protect Medicare's future interests, including MSA evaluations, letters from treating physicians indicating exactly what care the injured individual will require, and other items.

Another concept most insurance companies do not realize yet is that the obligation to consider and protect Medicare's future interests falls on the claimant as opposed to the defense. In short, the obligation to satisfy Medicare’s future interests via a MSA or any other vehicle is the responsibility of the claimant and claimant’s attorney, not the defendant. As support for that position, we can look to the federal regulations at 42 CFR 411.46, which contains no language placing liability on the defense (unlike 42 CFR 411.24). Furthermore, evidence exists on the CMS website under the Intro to WC tab of the WCMSA site. If we look at the Future Medical Services portion in the final paragraph, we see that Medicare asserts that the liability to consider and protect Medicare’s future interests extends to those entities that RECEIVE a primary payment (as opposed to liability for conditional payments made date of injury to date of settlement as promulgated under 42 CFR 411.24 whereby Medicare may recover its conditional payment interest from any entity that MAKES/RECEIVES a primary payment).

To sum up, the insurance community appears to be receiving misinformation about Medicare compliance, and requires a re-education as to the appropriate scope of their obligations. For starters, I would forward to them our MSA White Paper and Act Two articles (attached) supporting the proposition that MSAs are rarely appropriate in the liability context, and when they are appropriate, they are plaintiff oriented obligations to handle. Further, share with them the language of the CMS website about Future Medical Services. These tools should make the insurer more comfortable with the notion that it does not face exposure to Medicare on these future interest issues. Finally, I make myself available to you for a conference call to discuss these issues.

My best,
John Cattie

Question
What is the general consensus about providing a client's SS # to an insurance company "because Medicaid now requires reporting."

I was told the following: “Write a letter back to the insurance company asking them to put in writing that they will use the SS# for the sole purpose of running it through the CMS Query Access System. Additionally, ask the insurance company to put in writing that they agree not to disseminate the SS# to anyone or entity other than Medicare and also those they agree to indemnify your client for attorney's fees and damages should they breach these terms. If they agree to the terms, provide the SS# before settlement. Otherwise, provide the SS# after settlement as is required by the statute. This usually ends the conversation.”

Ohio Attorney

Answer
I agree completely. I would just add that in order for the insurance company (known as the Responsible Reporting Entity “RRE” for purposes of Section 111 Reporting”) to run the query system, they need four data points: Name; DOB; Gender; and SS# or Medicare #. I would suggest you provide these 4 pieces of information with exactly the same limited use language articulated below. I would encourage you to provide this in your very first communication with the insurance company. This will allow them to ping the query system right away, which tells them YES or NO as to your client’s Medicare entitlement (it tells them nothing else). Instead of relying on your client to tell you whether or not they are on Medicare, you can use the defendant to tell you (assuming you tell them to provide you with their results of the query search).

Additionally, if you wait until settlement time to provide this information, it will cause significant disbursement delays. If you refuse to provide the information, the insurance company will either not fund the settlement, or they will put Medicare’s name on the check which will cause a minimum of 10-12 week delay.

I would also note that these new insurer reporting requirements ONLY affect Medicare Parts A&B; not Medicaid or any other parts of Medicare (C&D).

Thanks,
Tate G. Johnson

Question
I am pursuing a medical malpractice claim against a California nursing home and a VA hospital, both of whom were partly responsible for a single injury. The VA provided all care to fix the injury, on its own dime; it is now asserting a lien regarding this care. Am I reading 38 USC 1729 too narrowly if I argue that a medical malpractice liability insurer is not among the third-parties to whom this section applies?

California Attorney

Answer
You raise an interesting argument, but one that is not likely to be agreed upon by a court. Technically, the term third party is defined under 38 U.S.C. §1729(i)(3)(D) to include a “person obligated to provide, or to pay the expenses of health services under a health-plan contract.”

The definition of a health plan contract under 38 U.S.C. §1729(i)(1)(A) includes a contract, medical or hospital service agreement (under which services are provided). Depending on the long-term care agreement that had your client receiving treatment at the nursing home, the nursing home is likely to be considered a third party within the meaning of the statute.

Even if you could argue that the statute is intended to be read to exclude the nursing home, arguably, the statute itself is going to be broadly construed as a statute providing recovery by the United States of cost of care and services furnished to a veteran for non-service-related injuries as part of Congress’ power to raise and support armies. A state’s argument that the statute violated the U.S. Constitution (Tenth Amendment) failed based on this very same rationale adopted by the federal court (U.S. v. State of Md., 914 F.2d 551 (1990)).

A more intriguing challenge is the argument that the United States remains partially to blame for the injuries for which it now claims to be able to be reimbursed. Clearly, the United States is not a third party within the meaning of the statute. If, for example, the United States wishes to recover against the nursing home for the nursing home’s share of medical expenses the United States incurred, it might do so by intervening in a separate cause of action, depending on whether the statute of limitations remains open for it to do so. However, the United States should not be able to recover for any medical expenses it incurred for which responsibility lies at the feet of the United States, through its representatives.

Helpful?
Sylvius von Saucken

Question
I have a client who was involved in a serious automobile accident and is now paralyzed from the waist down. He will be in the hospital for months and his medical bills are already in excess of $500,000. Medicare is his primary health insurer and the no-fault Med Pay of $10,000 is exhausted. There is only $125,000 available from the tortfeasor and my client's underinsured motorist coverage.

I have heard that it is possible to affect a pre-settlement compromise with Medicare and/or CMS in these types of situations. However, despite extensive research, I cannot seem to find any information on who to contact or how to attempt to negotiate a settlement of Medicare's interest prior to settling the case. Is that possible and, if so, how can I go about doing this? Otherwise, I fear that Medicare will be entitled to all of the funds, less procurement costs, leaving my client with nothing.

Thank you so much for your time and your invaluable questions and answers forum!!!

Nevada Attorney

Answer
In order to request a compromise you must go through all the hoops in securing Medicare's conditional payments. The first step is reporting the case to the COB at 800-999-1118. They will assign the case to the Medicare Secondary Payer Recovery Contractor (MSPRC). Once the case has been assigned to the MSPRC you will need to provide them with the proper authorization and in return they will provide you with Medicare's conditional payments. It is at this point that you can move forward with your pre settlement compromise request. The request would be sent to the MSPRC who in turn will forward it to the appropriate CMS Regional Office.

To request a compromise, you must specify the amount you want Medicare to accept in writing and the reason for the compromise and how you determined the amount to be repaid. A full reduction cannot be requested. A compromise may be requested any time after it has been determined that Medicare has made conditional payments, before or after settlement.

CMS is given authority to consider the compromise of Medicare's claim under the Federal Claims Collection Act (FCCA) at 31 USC, 3711 et seq. and 42 CFR 401.613. The MSPRC is not permitted to compromise a claim. Compromise requests are reviewed and determined by CMS Regional Office. A compromise decision made by CMS is final and is not subject to appeal.

If you need further assistance please don't hesitate to contact me.

My Best
Mary Skinner

Question
I represent a man seriously injured due to the negligence of a state employee in a car wreck. Medicare has paid a lot of his medical bills and under federal statute has a right of subrogation. However, under R.C. 2743.02(D), recoveries against the state "shall be reduced by any collateral recovery received by the claimant"- construed to mean that the state is immune from subrogation claims from those entities which have paid the plaintiff's medical bills (see Community Ins. Co. v ODOT, (2001)92 Ohio St. 3rd 376). If the client receives no money from the state for the bills paid by Medicare, there is no money to satisfy Medicare's subrogation claim, other than whatever money is otherwise received from the state in settlement of the claim. Since non-economic damages in claims against the state are capped at $250,000, a claim against the state where Medicare has paid a significant amount may leave little or no money for the client if Medicare's subrogation claim must still be satisfied. The State is adamant that the U.S. Sup. Ct. Case of Alden v Maine supports its claim that insurance companies and Medicare may not maintain subrogation claims against the State of Ohio and that R.C. 2743.02 is not preempted by a federal law passed in the exercise of Article I, Sec. 8 authority is this correct?

Does the federal statutory right of subrogation for Medicare supersede the Ohio state law on this matter? Is Medicare still entitled to receive out of the proceeds of a settlement the amount it paid, despite the Ohio statutory and case law above? I think the answer to both questions is yes, but I'm hoping there are counter arguments supported by case law.

Thanks.
Ohio Attorney

Answer
Unfortunately Medicare is entitled to reimbursement for all injury related conditional payments made from date of injury to date of settlement, period. Having said that, I would highly recommend you consider one of several administrative remedies available to you and your client – Pre-settlement compromise, Post-settlement Compromise, or Post-settlement waiver. These remedies are great for situations where the client would end up with little or nothing if they had to pay back the entire conditional payment amount to Medicare. These are based on hardship and the general ideas of fairness and equity.

Please let me know if you need further information or would like our firm to assist.

Tate Johnson

Question
In Florida, do insurance providers argue for Medicare to be a payee on a settlement check just because there is a Medicare lien to be paid back out of a settlement?

Connecticut Attorney

Answer
Our firm has been seeing the fact pattern of the settling party putting Medicare’s name on the check more and more in recent weeks, not only in Florida but around the country. The reason for this increase is because those entities are misunderstanding their Medicare compliance obligations in light of the MMSEA. They believe that, by putting Medicare’s (or Medicaid’s) name on the settlement check, Medicare’s interests (as well as themselves) have been fully protected. This is neither the intent of the MMSEA nor is this the most effective way to protect Medicare’s interests. In fact, there is no legal requirement to put Medicare’s name on the settlement check as a payee. Medicare was not a party to the legal action, merely an entity entitled under the Medicare Secondary Payer Act to be repaid for conditional payments made from date of injury to date of settlement.

As evidence that it is not required under law to put Medicare’s name on the check, we look to Tomlinson v. Landers, 2009 WL 1117399 (M.D.Fla.). The case and memo are available here. This was an auto accident case which was being settled for the $100K policy limit where Medicare had made some conditional payments. The defendant added Medicare’s name to the settlement check without discussing this prior with the plaintiff. The plaintiff returned the check, asking that it be re-issued without Medicare’s name on the check. The defendant insisted that it had no choice under federal law (namely 42 CFR 411.24) but to put Medicare’s name on the check. The plaintiff assured the defendant that Medicare would be reimbursed out of the settlement proceeds and agreed to indemnify defendant for any Medicare claims. The defendant refused to remove Medicare as a payee on the check.

The court held that: 1) federal law does not mandate that a primary payer (i.e. the defendant) make payment directly to Medicare; 2) the defendant would not have violated federal law by omitting Medicare’s name from the check; and 3) a primary payer may be liable to Medicare if the beneficiary/payee does not reimburse Medicare for any amounts owed within 60 days. In the end, plaintiff prevailed as the parties failed to reach a meeting of the minds with regard to this issue of reimbursing Medicare and the settlement was rejected.

As a practical matter, we know that Medicare prefers that settlement proceeds not be sent to them until the final claim determination (i.e. final demand) has been calculated. The final demand is that conditional payment amount less procurement cost offset allowed by Medicare in that particular case. This calculation cannot be performed until the final demand is requested from Medicare and this cannot be done until the settlement has been finalized. Thus, putting Medicare’s name on the check is not only unnecessary, but impractical.

If you have more questions about Medicare compliance, please feel free to give me a call to discuss further.

My best,
John Cattie

Question
In Missouri, a hospital does not have a valid hospital lien on a wrongful death case. The wrongful death proceeds belong to the heirs. In our case, 120 days passed and the hospital filed a lien which is not being recognized by the liability carrier. The hospital then files a claim against the estate of the deceased. There are no assets in the estate.

What is the time limit for the hospital to bill Medicare? If the hospital admits it its claim against the estate that it doesn't intend to bill Medicare, is that binding? Does it prevent the hospital from later billing Medicare?

Missouri Attorney

Answer
Depending on the date of service, providers can have up to 26 months to bill Medicare. The lien is not binding; the provider can remove the lien at any time and then submit a claim to Medicare for a conditional payment. The provider cannot have a lien in place and also submit a claim to Medicare, the lien must be removed first.

If the provider chooses to bill Medicare, then it becomes the Medicare Secondary Payer Recovery Contractors responsibility to recover payment from the settlement for any injury related care that they have paid.

I hope this helps.
Mary Skinner

Question
By receiving "supplemental" interrogatories from defense firms; is there an obligation to report to Medicare to satisfy insurance companies' obligations? You already answered that plaintiffs do not need not sign authorizations. Can you list what information plaintiffs are required to provide. I can understand name, date of birth, HIC# and whether enrolled in Medicare and receiving Medicare benefits. Do we have to give Social Security numbers? How about answering whole series of questions re Social Security Disability? Questions re end state renal disease and Lou Gehrig's disease? Thanks for your help!

New Jersey Attorney

Answer
Thank you for reaching out to us with your question. There is much confusion surrounding the requirements under Section 111.

The information that the defense is allowed to obtain to determine Medicare entitlement includes the following:

• First letter of first name
• First six characters of last name
• Gender
• Date of birth; and
• Health Insurance Claim Number (HICN) OR the Social Security Number (Medicare prefers that the HICN be used, if available)

The above information is what the defense needs to query the Medicare system to determine whether the claimant is a Medicare beneficiary. The response that Medicare will provide to the defense will only include whether there was a match and the claimant is a beneficiary; or that there was no match. The defense will not receive information about when the claimant became entitled or why they are entitled. The defense is allowed to query the system as soon as they receive notice of a claim, but the trigger date for reporting is whether the claimant is a beneficiary on the date of the settlement.

There is additional information that the defense needs for the Section 111 reporting if there is a settlement with a Medicare beneficiary. This information does not need to be provided to the defense until there is a settlement. There is no reason why the defense needs information about a claimant’s disability or illness. This is protected information and is not required for Section 111 reporting. Click here to view the list of the data points that are needed for the query and also for the reporting.

Please let us know if you need anything further.

My best,
Marlene Wilson

Question
Here is the latest I am hearing from defense counsel. They are saying that “at the early stages of the case (and by mail or phone request, so they don't have to do it by written discovery) they call or write and ask for the full name, birth date, social security #, etc. of the plaintiff" because of the new Medicare reporting requirements.

What is this about? Is it legit? Does Medicare run the business of personal injury law practice now?

West Virginia Attorney

Answer
Insurers now have to report all settlements with Medicare beneficiaries to CMS in the quarter following settlement. In order to determine which settling claimants are Medicare entitled, they have to submit 4 data points to a Query system, which will simply tell them Yes or No as to Medicare entitlement. The four data points are Name, DOB, SS# or Medicare #, and Gender.

It is in your and your clients best interest to provide these initial data points as early as possible so that the insurance company (or self insured entity), otherwise known as the Responsible Reporting Entity (RRE) can search the query system and determine your client’s Medicare status well ahead of settlement. This will help move things along at settlement time. We also advise firms to stipulate with defense at the time of settlement as to the 50 or so data points they will ultimately report to CMS (Medicare) post settlement IF your client is Medicare entitled. The collaborating as to the injury information is critical to ensure the RRE is not reporting different injuries to CMS than what you/your client have satisfied in payment of the tort recovery obligation.

Assuming the insurance company is not requesting anything more than those 4 data points noted above, they are not overstepping at this stage of litigation. Some firms provide them with “limited use” language that says you are providing them for the sole purpose of determining Medicare entitlement so as to allow the RRE to find out whether they will have to report in accordance with Section 111 reporting requirements.

Please let me know if you want more detail, and I can provide offline. Additionally, our website has an entire section regarding MMSEA (Section 11 Insurer Reporting Requirements) and exactly what it requires of RREs (and more importantly what it DOES NOT require).

My best,
Tate G. Johnson, Esq.

Question
I have read with interest, your article on the Garretson Firm Resolution Group website regarding the Longaberger case and its meaning.

I do have a question - suppose in the liability case I did not seek medical expense recovery and settled the case for pain and suffering only. Would the plan still have a claim for reimbursement? I see the wording of the sample given in the article refers to "any recovery" but have any courts weighed in this aspect?

Thanks for your time.

Answer
That is a very good question. Courts have weighed in on this matter and generally they will defer to the express language of the policy and the fact that ultimate discretion will lie with the administrator in interpreting plan language. In using the words "any recovery" it is a pretty safe bet that this includes recoveries which do not specifically provide for past medicals. Many plans do not stop there and will actually have additional provisions that state that regardless of how a settlement is allocated they will still have a right of first recovery and the participant must not do anything to prejudice the plan's rights. Thus the allocation technique is most effective when dealing with plans that limit their rights to recoveries for medical expenses. This is less common but something that we still see. This discussion really emphasizes the importance of carefully evaluating the plan language.

While this may seem to be a bit unjust I believe that this type of issue will be fought out in the coming years. Particularly in the scope of the meaning of "appropriate equitable relief" (as designated by ERISA) and states which limit or prohibit the recovery for medical expenses.

Thanks for the question and please let me know if you have any follow ups.

Michael Russell

Question
What are the 50 data points?

Answer
The 50 data points are comprised of the following data categories:

1) Injured party data;
2) Primary plan data;
3) Injured party attorney data;
4) Incident data; and
5) Settlement data.

The particular data points to be reported will change depending on the case-specific facts, and may be as many as 131 data points in rare cases. For more information, including the detailed list of data points, visit our website at www.garretsonfirm.com.

Sylvius von Saucken

Question
In our state, wrongful death awards belong to the family and are not subject to claims of the estate -- and the medical expenses incurred by the decedent prior to death are not part of the measure of damages. I am trying to discuss/communicate with MSCRP to get an acknowledgment that the insurance company can pay the settlement without having Medicare liability. Fax communication with MSPRC regarding this issue is going nowhere. Any pointers?

Answer
If a wrongful death statute does not permit recovering medical damages, Medicare has no claim to the wrongful death payments. When a liability insurance payment is made pursuant to a wrongful death action, Medicare may recover from the payment only if the State statute permits recovery of these medical expenses. Generally, if the statute permits recovery of the deceased's medical expenses, Medicare may pursue its payments, even if the action fails to explicitly request damages to cover medical expenses. Thus, in that event, even if the entire cause of action sets forth only the relatives and/or heirs damages and losses, then Medicare may still recover its payments. When State law permits a full recovery of medical damages but limits the amount of the recovery which is payable to creditors as a result of past medical expenses, Medicare may recover against the entire tort recovery, up to the full amount of past Medicare payments. However, when state law limits the amount of the past medical expenses that may be recovered from the tortfeasor and responsible insurer, Medicare may recover only up to that amount (or the amount of the settlement, if the settlement is less than or equal to Medicare's claim.)

Unfortunately, you will still need to report the case to Medicare and provide them with the documentation advising them they do not have any interest in the settlement based on your state’s WD statute, which includes providing them with a copy of the statute. You might also refer them to their own policy under the Medicare Secondary Payer Manual, Section 50.5.4.1.1- Wrongful Death Statutes, which is where the above instructions are derived.

Sylvius von Saucken

Question
Your blog / posting concerning subrogation was most informative. It leads me to a question, if you don’t mind.

My client is receiving $12,000; $3,000 of that is medical subrogated by BCBS. In her Chapter 7 bankruptcy (now discharged) she listed the possible PI claim as exempt property to the maximum we could exempt (about $20,000).

Although we never listed BCBS as a creditor, case law holds that in a no-asset Ch 7, creditors who were not noticed are discharged. (I have a lovely 5th Cir opinion on that.)

This brings me to my question. You wrote:

They can treat the subrogation carriers as creditors in a Ch 7 or a Ch 11; provided however, they put the settlement money into the estate.

“Into the estate” gives rise to my question: does that mean she cannot exempt the medical subrogation money? Is this over and above that $20,000 already “in the estate” and exempted? It would seem that she has already put all possible money into the estate by claiming the $20,000 exemption.

I really appreciate your help and thank you in advance.
Texas Attorney

Answer
Where you have listed the settlement proceeds on Schedule B and exempted it on Schedule C, my position is that provided the $12,000 represents your client’s gross settlement proceeds, you have already included the amount held back for medical subrogation.

If not, what is the client’s gross settlement amount, as that could bear on a determination whether the client identified the assets as belonging to the bankruptcy (Ch 7) estate. If it turns out that combined, the $3,000 subrogation amount is included as part of the exempt amount, I would feel comfortable paying BCBS out of the settlement proceeds exempted from the bankruptcy estate, if there is a contractual requirement to do so (outside of the bankruptcy context).

Sylvius von Saucken

Question
When a third-party tortfeasor’s personal liability policy limits are insufficient to compensate the victim for his non-medical expense damages (i.e. past and future pain and suffering, physical impairment, disfigurement and lost wages)and pay the government's subrogation claim, whose claim to the homeowner's insurance proceeds have priority? Is this the victim or the governments’ responsibility? Must the victim first be made whole for his non-medical expense damages before the government can he or she recover medical expenses to pay for the victim's medical care? Or can the government deplete the available liability insurance monies in satisfaction of its subrogation claim and leave the victim wholly uncompensated for his non-medical expense damages? In other words, if payment of the government's subrogation claim will leave nothing to compensate the victim for his non-medical expense damages, does the government get it all and the victim get none? How are the answers to these questions different, if at all, if the victim settles with the tortfeasor before Tricare benefits have been paid to the health care providers?

Answer
TriCare derives the authority to assert a subrogation claim under the Federal Medical Care Recovery Act (FMCRA), 42 U.S.C. §§ 2651-2653, which authorizes recovery of the reasonable value of medical care furnished or paid for by the United States under circumstances creating tort liability for such medical care in a third party. 32 C.F.R. § 199.12(b).

Under the circumstances of your question, I would cite the case of Commercial Union Ins. Co. v. US, 999 F.2d 581 (C.A.D.C). The Court here stated that FMCRA is silent as to priority of government's right to recover from tortfeasor medical expenses it incurred on behalf of injured employee over injured employee's right to recover non-medical damages from tortfeasor. The Court also pointed out that 42 USC 2652(c) allows the injured party to recover damages for those damages not covered under FMCRA and giving the government priority would essentially render this section useless. Ultimately the Court held the interpleaded fund would be distributed on ratable basis, such that each claimant received share of fund proportionate to their share of total judgment figure, since FMCRA was silent on question of priority of claimants' rights and since “equity is equality.” While the circumstances of this case may vary from your question, the case certainly provides some guidance.

It is also worth noting that in a case where the injured party pursued the tort claim and the government passively waited for reimbursement, courts have required an equitable reduction in the government’s claim. Mosey v. U.S., D.Nev.1998, 3 F.Supp.2d 113. As a general matter, in our experience, the government is willing to take such matters into consideration and may adjust accordingly so the injured party receives some compensation.

If a settlement took place prior as mentioned in your second question, the priority determination would arguably be the same. Please let me know if you have any questions. Thank you for the question.

Michael Russell

Question:
I enjoyed your informative seminar on Medicare. However; I was not able to get in a question but would appreciate if you could give me your thoughts. Your seminar and materials I have seen from your firm talk about dealing with Medicare through the MSPRC or CMS. We have received a subrogation and/or reimbursement interest letter from INGENIX on behalf of AARP MEDICARECOMPLETE PLUS that they are entitled to the same treatment and rights as Medicare. Is that true? Thanks.

Virginia Attorney

Answer:
Thanks for your question and your kind words. It was my pleasure to attempt to present some clarity with respect to the Medicare compliance questions. Health plans such as AARPMEDICARE COMPLETE PLUS plans are Medicare Part C plans. Although these plans often try to assert the same recovery rights as traditional Medicare Part A or B, Medicare Part C plans, for subrogation purposes, are treated akin to a private plan rather than traditional Medicare. That is because Medicare Part C is not covered within the meaning of the MSP statute (42 U.S.C. 1395y(b)). A very good summary of the laws that do apply to Medicare Part C is contained in the (attachment - click here) U.S. District Court’s ruling in Primax Recoveries v. Yarmosh (U.S.D.C. D. Ct Case No. 3:03CV01931), in which the Court holds that Medicare HMOs are not able to imply a private cause of action to recover funds paid under such plans (through bootstrapping the MSP statute). Instead, the Court held that there is no private cause of action for a Medicare+ Choice HMO (Part C) under the Medicare Part C statute (42 U.S.C. 1395mm(e)(4). Rather, the Court found the HMO’s remedy, if any, is under state contract law. Id., 790; see also Nott v. Aetna U.S. Healthcare, Inc., 303 F. Supp. 2d 565 (E.D. Pa. 2004).

To that end, one must look to the actual plan language itself to determine the plan’s reimbursement rights. Depending on the plan language (which could be strong or weak), the plan may have a right of reimbursement or it may not have a right of reimbursement. Thus, it becomes imperative to review the plan language as opposed to lumping Medicare Part C plans in with traditional Medicare when it comes to reimbursing for injury-related care.

I have copied John Cattie and Michael Russell on this email, each of whom works with me in addressing these issues. Should you have any further questions of John, Michael and/or me, please do not hesitate to ask.

Our best,
Sylvius von Saucken

Question:
How does Medicare handle expenses when they come off the top? Is there a dollar for dollar reduction or are expenses ignored and only % fee reduction applied?

-Missouri Attorney

Answer:
Medicare will recognize expenses even if they come off the top. The procurement reduction would not be in the form of a dollar for dollar reduction, but rather a pro-rata share reduction. The formula used by Medicare is as follows:

1. Amount of settlement $__________________
2. Medicare payments $__________________
3. Attorney fees $__________________
4. Other procurement costs incurred $__________________
5. Total procurement costs (lines 3 + 4) $__________________
6. Ratio of procurement costs to settlement (line 5 / line 1) _________________%
7. Medicare’s share of procurement costs (line 2 x line 6) $__________________
8. Medicare’s claim to be recovered (line 2 minus line 7)$____________________

It is important to note that if Medicare payments equal or exceed the amount of the liability insurance payment, judgment or settlement amount, Medicare recovers the entire liability insurance payment, total judgment or settlement payment up to the providers’ charges, minus the total procurement costs.

I hope that helps…

My best,
Carol Brown

Question:
Libby,I enjoyed your seminar today and appreciate your speaking with me afterwards. As I stated, I have the following scenario:

- $400,000 in medical expenses
- $200,000 total available coverage
- 30,000 is the tortfeasor liability limits
- $170,000 is UIM limits
- TRICARE lien claim is $100,000
- VA lien is $67,000

Medicare lien (for amounts spent after SS Disability status) $_____?____

Questions:

1.My research suggests that TRICARE’s recovery is limited to a claim on the $30,000, not bases on $200,000 because the payment was for treatment by a non-military facility. Therefore; they are entitled to recovery only under FMCRA which does not seem to allow liens on UM/UIM benefits (recovery from person liable in tort, or his insurer). Although recovery under 10 USC 1095 would allow recovery of UM/UIM, (recovery from third party payers) that law does not apply since TRICARE's payment was not for treatment at a military facility. My resource, in addition to the plain language, is presentation material from the 2007 UBO/UBU TRICARE Conference. A Cornell Law Institute document also referenced the distinction.

The TRICARE rep has no idea what I'm talking about. Has your office addressed this issue before?

2.Do you have any suggestions about how to deal with all lien holders to best ensure my client gets a good portion of his settlement?

Thanks so much.
Charlotte Attorney

Answer:
Michael Russell, an attorney in our office, recently addressed your first question for another attorney:

I believe the analysis to this question is actually twofold. First and foremost, you are correct in your assertion that the United States does NOT have a right to the proceeds of first party insurance proceeds under the Federal Medical Care Recovery Act [1(a)., 42 U.S.C.A. 2651(a)]. The Court in Government Employees Ins. Co. v. Andujar, 773 F.Supp. 282, held that the United States did not have a direct right to UM proceeds under FMCRA. The FMCRA only gives the government the right to recover from the tortfeasor. In this case neither the injured party nor their insurer, were considered tortfeasors and thus the government did not have a right to recover on any settlement from the Uninsured/Underinsured motorist portion of an auto policy.

While, there is no direct right under FMCRA there MAY be a right under the express terms of the insurance policy and applicable state law. This second prong of the analysis requires an evaluation of the policy itself. If the government can qualify as an "insured" or "third party beneficiary" under the terms of the policy then they will have a right to these proceeds. In the aforementioned Andujar case the Court looked at the specific provisions of the policy. Because it was determined that GEICO's automobile policy could not be interpreted to include the government as an "insured" (policy actually specifically excluded the government from this classification), the Court held that the government could not recover the proceeds under this alternative theory. Thus in your case I would recommend that you obtain the policy for further analysis. If and when you obtain the policy, we would be more than happy to review the express provisions and determine whether the government could be considered an "insured" with potential rights to the proceeds.

For your second question, I consulted with one of our analysts. Medicare is always first. Their recovery right is strongest. They may compromise due to the policy limits or other extenuating circumstances but they will not compromise for the sake of VA and TRICARE. For reductions from VA and TRICARE, the analyst said he has had more luck securing reductions from the VA. He recommends starting there. He said VA and TRICARE each have a compromise process. Ask the caseworker at the VA and TRICARE for a compromise worksheet to fill out. Fill out that worksheet and write a letter (the compelling story I talked about yesterday) describing why you are requesting a reduction and why it's appropriate. In that letter you will need to include the information that is on the worksheet. The caseworkers at VA and TRICARE might have some additional tips...sometimes they can become your advocate.

I hope this helps!
Please let me know if you have any other questions.

My best,
Elizabeth Vish

Question:
I appreciate your informative website. I note in your 10/26/09 posting that you address two methods of obtaining Medicare's endorsement of a multi-party settlement check. You note that, where the check is sent to Medicare for deposit and refund of net proceeds, Medicare will wait 5 days before sending the refund check. MSPRC advises, however, that it may take up to 10 weeks after deposit of the multi-party check before they are given the go-ahead by CMS to pay the refund. In your experience, are they able to get the refund check turned around in 5 days or should I expect to wait the 10 weeks? Thanks, again, for such a great resource.

Louisiana Attorney

Answer:
If a demand letter has been established on the case, then Medicare’s finance department would be able to apply the remitted check and issue a refund for the balance accordingly. The refund process would take at least the 10 weeks. If the demand has not been established, the check is still deposited but would remain in "unapplied check" status until there is an appropriate record set up in the system. In the later scenario, I would advise that you contact Medicare if the issuance of the check preceded the issuance of a demand. Unapplied checks have been known to sit at Medicare for an extensive period of time as the various departments are not always aware of each other's activities.

It would also be imperative for the Claimant’s Medicare number to be on the check so that it can be applied to the appropriate account. All of their systems are driven by this number and can slow down the process further if not provided.

If I can be of any assistance, please call me and I would be happy to discuss any further questions or concerns.

Carol Brown

Question:
Does TriCare have a right of subrogation against Uninsured Motorist funds? I read a 1991 district court case out of Kansas, 773 F. Supp. 282, that appears to say that United States was not entitled under the Medical Care Recovery Act to the proceeds of an automobile victim's uninsured motorist benefits. If that is the case should that fact be verified with the Army through the act out of an abundance of caution?

Tennessee Attorney

Answer:
I believe the analysis to this question is actually twofold. First and foremost, you are correct in your assertion that the United States does NOT have a right to the proceeds of first party insurance proceeds under the Federal Medical Care Recovery Act [§ 1(a)., 42 U.S.C.A. § 2651(a)]. The Court in Government Employees Ins. Co. v. Andujar, 773 F.Supp. 282, held that the United States did not have a direct right to UM proceeds under FMCRA. The FMCRA only gives the government the right to recover from the tortfeasor. In this case neither the injured party nor their insurer, were considered tortfeasors and thus the government did not have a right to recover on any settlement from the Uninsured/Underinsured motorist portion of an auto policy.

While, there is no direct right under FMCRA there MAY be a right under the express terms of the insurance policy and applicable state law. This second prong of the analysis requires an evaluation of the policy itself. If the government can qualify as an “insured” or “third party beneficiary” under the terms of the policy then they will have a right to these proceeds. In the aforementioned Andujar case the Court looked at the specific provisions of the policy. Because it was determined that GEICO’s automobile policy could not be interpreted to include the government as an “insured” (policy actually specifically excluded the government from this classification), the Court held that the government could not recover the proceeds under this alternative theory. Thus in your case I would recommend that you obtain the policy for further analysis. If and when you obtain the policy, we would be more than happy to review the express provisions and determine whether the government could be considered an “insured” with potential rights to the proceeds.

While it may not be necessary to alert the government initially, a proper evaluation of the beneficiary’s automobile policy would help to determine if the government would be able to recover any funds from such a settlement.

Our best,
Jon M. Carmack