Failing to Ensure Complete, Proper Resolution of Medicare Conditional Payment Claims is Very Risky Business

One of the most common and oftentimes difficult issues parties face when settling claims with Medicare beneficiaries is how to best resolve Medicare conditional payment claims.  This is true in liability, workers’ compensation, no-fault or any other type of claim.  Some defendants simply allow claimants and their attorneys to deal with Medicare and choose not to include a discussion of the same in settlement documents.  Others opt to include language in settlement documents assigning the responsibility of handling conditional payments entirely to claimants and their attorneys.  Taking it one step further, some defendants will include Medicare on settlement checks.   As the cases discussed hereinbelow clearly illustrate, anything short of repaying Medicare directly for conditional payments that are legally due to be reimbursed is risky business.

Below are some very important points that parties in any type of case should remember. 

If Medicare has made conditional payments related to the injuries at issue, Medicare is entitled to reimbursement.  This is true even if liability is highly disputed.  The mere fact that a claimant is receiving money in settlement of a claim for which it has paid medical expenses is sufficient to grant a right of recovery to Medicare.

Medicare is not bound to language in state settlement documents or state court orders.  Parties to a claim are unable to legally bind Medicare to any terms regarding who will or will not repay Medicare or the amount that will be repaid.  The reality is that Medicare is entitled to recover conditional payments “from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.”  42 U.S.C. § 1395y(b)(2)(B)(ii).  This right to recover extends to claimants’ attorneys who fail to ensure that Medicare is fully reimbursed from settlement proceeds.  See United States v. Harris, Civil Action No. 5:08CV102, 2009 U.S. Dist. LEXIS 23956 (N.D. W. Va. March 26, 2009).

How Medicare conditional payment claims will be handled and resolved should be discussed, in writing, during settlement negotiations and be included in final settlement documents.  While Medicare is not bound to any state settlement agreement to which it is not a party, a clear discussion of who will be responsible for researching and/or resolving Medicare conditional payments may be used to enforce agreements in state courts.  Written communications during settlement negotiations and specific language in settlement documents has been used in several cases to enforce agreements in which claimants and their attorneys accepted responsibility for resolving Medicare claims and reimbursing Medicare from settlement proceeds.  In one recent case, the claimant sought to have a settlement agreement deemed unenforceable because, when the claimant agreed to the settlement terms, he believed the Medicare conditional payment claim was $2,732.  Forbes v. Benton Cnty. Agric. Soc'y, No. 20-1250, 2021 Iowa App. LEXIS 405, at *10 (Iowa Ct. App. May 12, 2021).  The final claim turned out to be $25,482, which exceeded the total settlement amount of $12,500. Id. at 4*.  Since Medicare is entitled to recover an amount equal to the entire settlement proceeds (less claimant’s attorney’s fees in some situations), no money was left to compensate the claimant.

Any attempts by counsel to circumvent Medicare’s right to recover by creative lawyering may subject him or her to disciplinary action by the state bar association.  Particularly before the Medicare Secondary Payer Act became so well known, working as aggressive advocates for clients, many attorneys tried to “draft” around obligations to the Medicare program.  Medicare nor the courts are very fond of that approach.  In fact, one court stated that “the purposeful avoidance by an attorney of a pay off of a federal lien can expose counsel to potentially troublesome personal and ethical consequences.”  Pollo Operations v. Tripp, 906 So. 2d 1101, 1105-1106 (Fla. Dist. Ct. App. 2005). 

The right to reimbursement of conditional payment claims extends to Medicare Advantage Plans and Prescription Drug Plans.  The existence of any Medicare Advantage Plan and/or Prescription Drug Plan claims must be determined completely independent of claims that traditional Medicare may have.  Until the Provide Accurate Information Directly (PAID) Act becomes effective in December of 2021, that process will continue to be time-consuming and somewhat painstaking.  Numerous courts have upheld Medicare Advantage Plans’ rights to reimbursement under the Medicare Secondary Payer Act, however, so those liens must be handled appropriately in settlements with Medicare beneficiaries.  See, e.g., In re Avandia Mktg.,685 F.3d 353 (3d Cir. 2012).

Medicare’s final conditional payment claim amount will only be given after final settlement information and documents have been provided to Medicare, and the amount due may change up until that time.  Being unable to obtain the “final” amount of a Medicare conditional payment claim absolutely puts claimants and defendants at a disadvantage when it comes to settlements.  The parties are, however, able to obtain interim amounts which, when combined with some additional research concerning medical treatment received by the claimant, can help parties get a close estimate of the total amount that will be due.  Some discussion in settlement documentation to account for increases in the amount of Medicare’s claim is advisable.

Case Illustrations

One of the most interesting cases that illustrates several of the above points is Pollo Operations. This case arose from a slip and fall.  The parties settled the matter at mediation for $55,000.  At the time of settlement, Medicare had paid $37,000 in medical bills for Tripp. 906 So. 2d at 1102.  The Settlement Agreement prepared at mediation provided that the claimant would satisfy all liens from the settlement funds and indemnify and hold the defendant harmless from the same. Id.  After the Settlement Agreement was executed but before proceeds were paid, the claimant and her counsel tried to avoid repaying Medicare by having the defendant Pollo write a check directly to Tripp instead of having the insurance company, Liberty Mutual, write the check. Id. at 1102-1103.  The lower court sanctioned the plan to avoid reimbursing Medicare for its conditional payments.  Id. at 1103. 

The District Court of Appeals declared that the “lower court’s proposed structuring of the settlement payment [wa]s . . . at its core, unjust.  If Tripp keeps the entire amount of the settlement proceeds, which was the logical outgrowth of the medical bills she accrued at the taxpayers’ expense, she would receive a windfall.”  In addition, the court noted that it was not appropriate to allow Tripp to avoid payment of the bills in the first place and then use them to “justify and inflate her demand for a settlement, and then, if she can successfully deceive Medicare, which has been paying for her benefits all along, she would be able to unfairly keep the entire proceeds.”  Id. at 1104-1105.

In its opinion, the district court observed that third party payers who are, or should be, aware that Medicare has made conditional payments yet still pays an entity other than Medicare, typically the beneficiary, are still liable for repaying Medicare.  The court noted that, if the recipient of settlement funds fails to reimburse Medicare within sixty days, as required under the regulations, then the “’third party payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.’”  Id. at 1105 (quoting 42 C.F.R. § 411.24(i)(1)).  Because Liberty Mutual and Pollo were aware that Medicare had paid medical bills for Tripp, the court noted:

the decision of the lower court places Liberty Mutual in a catch-22 and exposes the company to additional liability.  If it follows the directives of the lower court and has its insured, Pollo, deliver to [Tripp] a check in hopes that [Tripp] will turn around and pay Medicare, Liberty Mutual exposes itself to paying off Tripp’s Medicare lien in the event Tripp herself does not.  Leaving Liberty Mutual to then try to enforce the Settlement Agreement’s indemnity clause to get justice is likely a vain hope with the normal plaintiff, who by then will probably have spent the proceeds. 

Id. at 1105.

Another case which provides exceptional clarity regarding how Medicare conditional payment claims and Medicare Advantage Plan payments should be handled is Humana Med. Plan v. Western Heritage Ins. Co., 94 F. Supp. 3d 1285 (S.D. Fla. 2015).  In this case, the claimant, Mary Reale, suffered injuries in a slip and fall accident.  Humana, operating in the capacity of a Medicare Advantage Plan, paid medical expenses on Reale’s behalf in the amount of $19,155.41.  Thereafter, Reale sued Hamptons West Condominiums, the place at which she was injured.  Hamptons was insured by Western Heritage.

Reale and the defendant entered into a settlement agreement to resolve the claim in the amount of $115,000.00.  In the settlement agreement, Reale attested that there were no Medicare claims that could be asserted against the settlement proceeds.  In fact, Reale had received a letter from CMS dated December 3, 2009 stating that Medicare had not made payments on behalf of Reale.  Id. at 1287.

At some point after the agreement had been reached but prior to the payment of settlement proceeds, Western Heritage learned of Humana’s lien and attempted to include Humana as a payee on the check.  Reale opposed such effort, though, because she disagreed with the amount Humana claimed it was owed.  The state court judge ordered Western Heritage to pay the settlement proceeds without including Humana on the check.  The judge further ordered Reale’s attorney to “hold sufficient funds in a trust account to be used to resolve all medical liens/rights of reimbursement.” Id.  Western Heritage paid the full settlement funds as ordered.

Thereafter, Reale and Humana were unable to agree on the amount Humana was due to be reimbursed.  Humana filed suit against Reale and her attorney, but subsequently dismissed the action.  Reale then sued Humana seeking a declaration of how much was truly owed.  Before that matter was resolved, though, Humana sued Western Heritage for reimbursement of the full conditional payment claim, seeking double damages under the Medicare Secondary Payer Act’s private cause of action provision. Id. at 1288.

Humana filed a motion for summary judgment against Western Heritage, which was granted.  The Court noted the regulations which provide that, if Medicare is not reimbursed as required, “the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.”  42 C.F.R. § 411.24(i)(1).  Because Western Heritage knew that Humana had made payments on behalf of Reale, it had an absolute obligation to reimburse Humana as part of the settlement.  As such, judgment was entered in favor of Humana in the amount of $38,310.82, which represented a double damages award. Id. at 1292-1293.

Conclusion

To be sure, dealing with Medicare conditional payment claims and Medicare Advantage Plan liens is not at the top of anyone’s list of favorite things to do.  Taking the time to conduct appropriate research and resolve all claims, by dispute, appeal or repayment, however, is the best way to avoid substantial, and costly, headaches down the road.  Ensuring that Medicare issues are properly resolved in connection with settlements involving Medicare beneficiaries is a win-win for all parties involved.

By Melisa C. Zwilling

Melisa Zwilling is a shareholder with Carr Allison and is a resident in its Birmingham, Alabama, office.  Her practice for over 20 years has focused on Medicare Secondary Payer Compliance.  Melisa has published numerous articles in major journals nationwide and has been a guest speaker at countless seminars and conferences across the country.  When she isn’t working, Melisa enjoys spending time outdoors with her daughter, son and French Bulldog.

Share This Article: