Question
I have a case where the plaintiffs were involved in a wreck, lost their jobs, and declared bankruptcy (chapter 7) as a result. Medicare paid for all of the injuries resulting from the wreck. We would like to settle, but I am not sure what kind of priority Medicare would take in the bankruptcy court. Please let me know your thoughts. Thanks.

Tennessee Attorney

Answer
Thanks for your question. The entire settlement amount may be considered an asset of the Chapter 7 bankruptcy estate, depending on timing and disclosure issues. Timing issues refer to when the signature injuries occurred when compared to the time the debtor-client filed the bankruptcy petition. And disclosure issues refer to whether the settlement was listed as a contingent asset (even if not reduced to a judgment or payment) on the bankruptcy schedules. If it was not listed on the Schedules, the bankruptcy would need to be reopened so that the asset could be properly distributed among all creditors who filed a claim. (Medicare may not be the only issue to consider.)

Finally, the Chapter 7 trustee, if in possession of settlement funds will have a duty to reimburse Medicare should conditional payment reimbursement be involved within the meaning of the MSP statutes. Medicare also takes the position that timing is a critical factor in determining whether Medicare has a reimbursement right. In fact, any Medicare claims matters involving bankruptcy are automatically escalated to policy analysts for CMS (at the regional offices). So these cases get flagged by the MSPRC (lead contractor) for further review by Medicare policy specialists to identify (1) whether Medicare's right occurred before or after the petition is filed; and (2) what position, if any, Medicare will take.

From the trustee's perspective, because Medicare is not a general, unsecured creditor, and has priority claims status, in some cases, the Medicare reimbursement portion is not even sent to the bankruptcy estate.

Our team has a classification protocol to identify and address these issues, following a bankruptcy coordination methodology that has worked in both mass tort and single event cases. We would be happy to assist as you deem proper, and upon request by your client.

Best,
Kati Payne

Question
Should a lawyer sign an indemnification agreement with respect to Medicare reimbursement claims?

Answer
There are 8 states that will not permit attorneys to sign indemnification agreements.

Following these eight state ethics rules, attorneys in those states cannot agree to indemnify. The best attorneys can do is have their clients indemnify. The states are North Carolina, New York, Illinois, Indiana, Kansas, Missouri, Arizona and Florida, all of whose ethics bar committees have opined that attorneys signing hold harmless agreements along with their clients is a violation of Model Rules 1.8(e), creating an impermissible conflict of interest, in violation of Model Rule 1.7(a). The ethics opinions are building up. While we cannot opine on such matters, knowing there are 8 hot button states will help us to avoid unpleasant circumstances.

- Illinois State Bar Assn Op. No. 06-01, July 2006 WL 4584284
- Indiana State Bar Assn Op. No. 1 of 2005
- Kansas State Bar Assn Legal Ethics Op. KBA 01-05 (May 23, 2002)
- North Carolina State Bar Ethics Op. RPC 228 (July 26, 1996)
- Advisory Committee of the Sup. Ct. Missouri, formal Op. No. 03-05, 2003
- Florida Bar Ethics Op. No. 70-8, Revised (April 23, 1993)
- New York City Bar Inquiry Reference No. 10-12 (June 1, 2010)
- North Carolina RPC 228 (prohibiting lawyers from agreeing to personally indemnify the insurance company for unpaid liens.)
o RPC 228 quotes Rule 5.1(b). That rule is now 1.7(a), which provides that a lawyer whose personal interest is adverse to the client has a conflict of interest.

If an attorney agrees to be personally liable and later Medicaid sues the attorney based on the indemnification, you may have a legal claim against your client.

Sylvius von Saucken, Esq.

Question
Can a plaintiff's lawyer get into the QUERY ACCESS system? If so, how? If not, how do we develop a system that will satisfy carriers and our client?

Answer
The CMS Query Access system is a tool developed by CMS for use by those entities that have registered as an RRE. CMS recognized the difficulties an RRE would have in truly determining who is a current Medicare beneficiary versus who is not a current Medicare beneficiary. Since the reporting obligation under the MMSEA only ripens when the injured individual is a current Medicare beneficiary at the time of settlement, judgment, payment or other award, the RRE needed a way to know when it must report settlements to Medicare. Unfortunately, plaintiff attorneys do not have access to the Query Access System unless they are somehow registered as an RRE. Instead, the way you can develop your system that will satisfy carriers and your clients is to have a standard operating procedure in place at your firm for every case, understanding that formal verification / resolution of Medicare conditional payments remains a plaintiff obligation. To do that, we recommend enhancing your case intake to capture essential information about your client’s government benefits as well as capturing the data points which the RRE will have to report. Capturing this information up front will allow you to start the process of verification / resolution early while simultaneously assisting the settling party responsible for payment to satisfy its reporting obligation by showing that party, at time of settlement, you already started this process. In so doing, you will be moving the case towards settlement as opposed to having these Medicare compliance issues chill the settlement negotiations.

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
I understand that the defendant’s obligation to report is not until after the case settles (and only if it settles). Defendants are allowed (but not required) prior to settlement to access Medicare's Query Access system to find out if the claimant is Medicare eligible. Assuming they need to report at some point in time, the bottom line question is, does the insurance company (defendant) need an authorization signed by my client in order to access the Medicare Query Access System? Several companies are claiming they must have the authorizations signed by our clients before they can get the information from Medicare.

-Ohio Attorney

Answer
The defendant (RRE) does not need a release to obtain the five data points to perform the query function to obtain entitlement information. CMS has stated that their response to the RRE will only tell the RRE entitlement status. It will not provide the RRE with why the injured party is entitled, when the injured party became entitled or the SSDI status. The response will only tell the RRE whether there was a match and that the injured party is entitled or that there was no match.

We have seen many RREs requesting that a release be signed. This is absolutely not necessary for the query function or for the submission process.

My best,
Matt Garretson

Question
Is anybody sufficiently familiar with Colorado law to know OTOH whether they have an anti-subrogation statute like we do? Just hoping...

Colorado Attorney

Answer
Our firm focuses exclusively on healthcare compliance (we resolve liens for PI attorneys on a broad basis nationwide). From our research, CO does not have anti-subro currently. There has been a bill introduced that may take them in that direction.

See below:

House Bill 10-1168 Introduced

Proposed addition under Insurance Title of Colorado Statutes

Codifies Made Whole and Common Fund
If insurer disputes they must file motion and court decides

Subrogation is prohibited

Third party settlor cannot add insurer as co-payee on any settlement check

The bill introduced in the House seeks to eliminate all subrogation and permit reimbursement ONLY when the injured insured is made whole (fully compensated for injuries and damages). If the insurer disputes the argument of made whole they may motion the court with underlying jurisdiction to decide whether fully compensated. Such motion must be brought within 60 days after the insurer is notified that the recovery is exceeded by the damages. IF insured receives full compensation (made whole) then insurer MUST reduce for proportionate share of fees and expenses. Also any reimbursement MUST be applied to the lifetime cap of the policy.

Hope this helps. My best,
Tate Johnson, Esq.

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
If a plaintiff is receiving Social Security Disability payments as a result of being disabled in a motor vehicle accident, and receives a settlement from the driver of the other vehicle to end the plaintiff's lawsuit, does the SSA have a lien on the lawsuit settlement?

Answer
Section 224 of the Social Security Act (42 U.S.C. 424a) requires that if an individual receives SSDI payments and workers compensation payments during a given month, his/her SSDI payments are reduced by a certain dollar value for that month based on a formula that takes into account work history and other factors for reduction. This statute, however, excludes by its operation and meaning third party settlements because the reduction is intended to avoid double payments to a Social Security Disability Insurance (under Section 223 of the Social Security Act) beneficiary where that person receives periodic payments in the form of SSDI and from a workers’ compensation or similar program. (See excerpt below).

In interpreting these rules, the Program Operation Manual System (POMS) directs SSDI case workers to exclude any third party settlements from these SSDI offset rules.

As a result, liability cases which have no workers’ compensation component to them are not off settable – so there is no SSDI offset for a liability case.

That is not, however, the same as saying there can be no SSDI reduction in a liability case. For example, 42 U.S.C. 1395y(b)(2) (aka The Medicare Secondary Payer Act) provides that Medicare beneficiaries are required to reimburse Medicare for injury-related medical expenses paid by Medicare on a conditional basis for which recovery has been made as part of a third party settlement. In that instance, where the beneficiary and his/her attorney fails to properly resolve Medicare’s statutory claims, SSDI benefits can be reduced as part of a Taxpayer Recovery Offset Program (TROP) initiative.

Overall, SSDI does not have a lien which attaches to liability settlements. As can be seen from a review of the statutes and regulations, SSDI offsets occur in workers’ compensation. cases because of the intent to avoid a payment for lost wages from SSDI, and a duplicate payment for lost wages from workers’ compensation. The same cannot be said of liability cases, in which a different paradigm and rationale for recovery exist. At the same time, any case involving a Medicare beneficiary must be handled with care, as following the MSP Act, plaintiffs’ attorneys have an affirmative duty to verify and resolve Medicare’s conditional payment reimbursement obligations arising from date of injury to date of settlement. Where those obligations are not met, the same fate might await a client’s SSDI payments, albeit for different reasons that SSDI offset.

Please let me know if you have any follow up questions. Thanks.
Michael D. Russell

Question:
The facts of the case:
1.Settlement proceeds have been disbursed to client and spent.
2.Attorney fees were deposited in our general account and eventually disbursed for expenses and salaries.

Does the 8th Circuit allow the plan under a constructive trust theory or any other theory to recover anyof the funds? Is it possible to trace such funds?

Missouri Attorney

Answer:
The plan MAY be able to recover such funds from your client and even from yourself. I would first direct you to an article I recently wrote regarding a 6th circuit case. If you go to our website www.garretsonfirm.com and look to the bar on the right you will see an article entitled "What you should learn from the Longaberger case". This article provides some insight into an ERISA situation which may be similar to the facts posed in your question.

First, the plan may have a right to seek recovery from your client. The plan's right will be dictated by the strength of the plan language. If there is strong language, i.e. there are no defenses such as the made whole doctrine and the plan's language creates the right to an equitable remedy, the plan may recover from your client. The plan also may have the right to offset its interest against your client's future benefits.

Second, if the plan provided you with notice and you failed to set aside such funds they may be able to seek recovery for a portion of their interest from you. This was the case in Longaberger.

Third, the fact that funds are disbursed is irrelevant and tracing is not required. An equitable lien does not require tracing or maintenance of a fund in order for equity to allow repayment. In Sereboff, the Supreme Court stated, "Barnes confirms that no tracing requirement of the sort asserted by the Sereboffs applies to equitable liens by agreement or assignment: The plaintiffs in Barnes could not identify an asset they originally possessed, which was improperly acquired and converted into property the defendant held, yet that did not preclude them from securing an equitable lien. Id. at 365, 126 S.Ct. 1869. The focus is on the fact that when those settlement proceeds were received, the plan's equitable interest can vest."

In conclusion, without knowing more facts it is hard to predict the plan's right of recovery. While Longaberger has raised considerable concern among PI attorneys it is important to remember that the facts of that case were very specific. While these scenarios are not common, it certainly does illustrate the importance of taking ERISA liens seriously and properly addressing any claims for which you have received reasonable notice. If you have any additional or follow up questions please do not hesitate to contact me and we can discuss further. Thank you.

Michael D. Russell

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

Question
In light of the enactment of NY's anti-subrogation law (GOL 5-335 and CPLR 4545), what effect does that have on a Self-Funded ERISA plan's attempt to assert a lien on a personal injury settlement (note: notice of the lien was asserted prior to passage of the legislation?

Answer
ERISA expressly preempts state laws insofar as they relate to employee benefit plans (29 U.S.C. 1144(a)).HOWEVER, under ERISA this preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC 1144(b)(2)(A).This is known as the savings clause. Thus; for a state law to apply, it must be found to regulate insurance. Click here to find a summary piece we distributed after the passing of this new law.We feel that the NY law regulates insurance as we discuss in the piece below.The rub is that if state law regulates insurance (and thus is not preempted) it will apply to insurance companies. Unfortunately, the Supreme Court in FMC Corp v. Holiday, 498 US 52, 61 (1990) held that the "Deemer clause" exempts self-funded plans under ERISA from state laws that "regulate insurance" within meaning of the saving clause, and thus self-funded ERISA plans are exempt from state regulation insofar as that regulation relates to the plans. Thus, a self-funded plan would most likely NOT be effected by the new legislation.Until case law begins to build based upon this new legislation I believe this is the reasonable interpretation.

I hope you find this response helpful.
Michael Russell

It relates to the Governor’s mandate-relief bill, S6068/S52205/A9052, which passed both the Senate and Assembly on Tuesday night. The law passed the Assembly by a vote of 135 – 0 and the Senate by a vote of 59 - 2, and now awaits Governor David Paterson’s expected signature. Part F of the bill amends both the CPLR and GOL as well as repeals certain provisions of CPLR relating to collateral source payments. This synopsis was prepared by Mike Russell, the attorney in our firm who spearheads our Private/ERISA lien resolution practice. Mike’s summary follows:

The rationale of a modified version of the collateral source rule, C.P.L.R. § 4545, has been discussed by New York courts for years. The general consensus is that the thrust of the collateral source rule was to prevent double recoveries by plaintiffs. Additionally, there has been agreement that the “question of whether the defendants' liability insurance carriers should be held ultimately responsible for all of the plaintiff's damages, even for damages specified in section 4545 which have been compensated from collateral sources, is a question best left to the Legislature, and not the courts” (Humbach v. Goldstein, 229 A.D.2d at 67-68). That question has been answered by the Legislature after the passage of a new bill which 1) amends subdivision (c) of section 4545 of the Civil Practice Law and Rules and 2) adds section 5-335 to the General Obligations Law.

· §4545(c) – In actions for personal injury, injury to property, or wrongful death, the law allowed for the admission (and subsequent reduction of awards) of evidence pertaining to collateral source benefit payments. The amendment adds clarity and exempts only life insurance and payments for which there is a statutory right for reimbursement from the definition of collateral source.
· §5-335 – This new section limits and essentially eliminates the non-statutory right of benefit providers to reimbursement and subrogation in the case of third party settlements and claims (personal injury and wrongful death). Benefit providers are defined as any insurer, health maintenance organization, health benefit plan, preferred provider organization, employee benefit plan or other entity which provides for payment or reimbursement of health care expenses, health care services, disability payments, lost wage payments or any other benefits under a policy of insurance or contract with an individual or group. Those parties entering into a third party settlement would not be subject to subrogation or reimbursement claims or liens of a benefit provider unless such provider had a statutory right to reimbursement. Furthermore, it would be presumed that settlements would incorporate the modified collateral source rules of §4545- i.e. settlement would not include damages which were compensated by benefit provider unless provider had statutory right.

IMPORTANT ISSUES

Collateral Source Provider’s Rights of Recovery Greatly Limited

For several years there have been efforts to pass the above amendments and to essentially eliminate a collateral source provider’s right to recovery unless such provider had a right set forth by statute. Today the right of recovery is limited to only those provider’s who have a “statutory right to reimbursement.” This statutory right is conferred upon worker’s compensation benefit providers and government benefit providers including Medicare and Medicaid. Such providers are granted liens according to the law. However, health insurance providers or those defined as “benefit providers” are not granted such a statutory right and hence their rights of recovery are effectively eliminated. In the state of New York there is currently no statute which addresses a provider’s rights to reimbursement/subrogation for benefits or payments made pursuant to an insurance policy or other agreement.

Furthermore, there are no statutory rights under ERISA. Any group benefit plan, while falling under the shadow of ERISA (29 USC § 1002(1)), will only have a contractual right to subrogation/reimbursement. This contractual right is rooted in the language of the particular policy and agreement between the Plan and its members. Within ERISA there are no provisions which provide for subrogation or reimbursement. Rather, there is a provision which provides for “appropriate equitable relief” in the enforcement of plan language (29 USC §1132(a)(3)). Hence under ERISA there is not a clause which confers the right of subrogation or reimbursement. A plan’s contractual language controls its rights and thus under ERISA “benefit providers” will have a contractual but NOT a statutory right.

Presumption Established: Collateral Source Principle Extended to Settlements

In Teichman v. Community Hosp. of Western Suffolk, 87 N.Y.2d 514, the Court of Appeals made it very clear that the reach of §4545 extended only to admissibility at trials and actual judgments. The Court took notice of the section’s silence regarding settlements and stated that while parties to a settlement could consider the receipt of collateral source payments, there was nothing in §4545 which compelled “the conclusion that medical expenses were necessarily excluded from [a] settlement” (Id. at 523). It was this decision that provided the insurer with an interest in the matter and ultimately allowed for their intervention.

With the addition of §5-335 there is silence no more. This section very clearly states that “when a plaintiff settles with one or more defendants in an action for personal injuries, medical, dental, or podiatric malpractice, or wrongful death, it shall be conclusively presumed that the settlement does not include any compensation for the cost of health care services, loss of earnings or other economic loss to the extent those losses or expenses have been or are obligated to be paid or reimbursed by a benefit provider except for those payments as to which there is a statutory right to reimbursement.” This presumption language is the driving force behind the exclusion of liens and rights to subrogation/reimbursement.

Interplay with ERISA: Will Preemption Apply?

It is uncontested that almost every single group benefit plan in this country is subject to ERISA regardless of its particular funding structure. The exceptions usually being government plans, church plans, and individual plans. Under ERISA, all state laws are preempted insofar as they relate to employee benefit plans (29 USC § 1144(a)). So the question becomes will this new law be preempted?

ERISA preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC § 1144(b)(2)(A)). This is known as the Savings clause. The Supreme Court in FMC Corp v. Holiday, 498 US 52, 61 (1990) held that self-funded ERISA plans (employer directly pays benefits rather than purchasing insurance to do so) are exempt from state laws BUT that state laws which regulate insurance are “saved” from preemption with regard to insurance companies and that “an insurance company that insures a plan remains an insurer for purposes of those laws.” Thus if this new law “regulates insurance” then ERISA preemption will not apply.

According to the United States Supreme Court’s opinion in Kentucky Assoc. of Health Plans v. Miller, 123 S.Ct. 1471, 1478 (2003), for a state law to be considered a law that “regulates insurance” under the Savings clause it must satisfy the two following requirements: (1) state law must be specifically directed toward entities engaged in insurance and (2) the state law must substantially affect the risk pooling agreement between the insurer and the insured. First §5-335 is specifically directed toward entities engaged in insurance as it defines not only benefit providers (see insurance industry single out above) but it also specifically excludes their liens and rights of reimbursement/subrogation if not statutorily based. Second, by shifting responsibility for a portion of a plaintiff’s damage, there can be no doubt that this new law will substantially affect the risk pooling agreement. In conclusion, we believe that this new law will regulate insurance and thus will not be preempted by ERISA.

I hope this synopsis has been helpful. Should you have any questions regarding the above, or if you would like to discuss Private Health/ERISA, Medicare Medicaid, hospital and/or workers compensation lien resolution issues in general, please do not hesitate to contact me or Mike Russell, the author of this synopsis or visit http://www.garretsonfirm.com/.