Iowa Appeals Court Rules $12,500 Settlement is Binding Despite $25,482 Medicare Lien

On May 12, 2021, the Court of Appeals of Iowa published its opinion in Forbes v. Benton County Agricultural Society, concluding that the lower court was correct in finding a meeting of the minds and to allocate the risk of any Medicare conditional payment resolution mistake to Forbes. The court therefore finds the district court properly granted summary judgment to Agricultural Society, ruling the settlement agreement between Forbes and the Agricultural Society for $12,500 was binding and should be enforced despite Medicare conditional payments totaling $25,482.

Facts of the Case

A brief rain dampened the Boomtown fireworks at the Benton County fairgrounds in August 2017. While leaving the grandstands, Forbes slipped on a wet wooden ramp. He fell over a guardrail, landing five feet below and striking his head. That strike caused a subdural hematoma requiring emergency surgery.

Nearly two years later, he filed a negligence action. The Agricultural Society answered and advanced a defense of comparative fault. After the parties engaged in discovery, the district court set the matter for an August 2020 trial.

In November 2019, counsel for the Agricultural Society contacted Forbes's counsel to make a settlement offer of $10,000. Her letter stated: "Based on information you have provided to date, Mr. Forbes had an excellent recovery, and his actual medical bills totaled $2,732, for which Tricare apparently had a subrogation interest."

Forbes’ counsel countered with a settlement offer of $12,500. His email said that amount would pay the Tricare lien of $2732 and attorney fees-with the rest going to Forbes. The next day, defense counsel responded that her client's insurance carrier agreed to pay $12,500 in return for Forbes dismissing the suit with prejudice.

Along with the dismissal, defense counsel offered to draft a release in which Forbes would acknowledge his duty to "satisfy any subrogation interests and liens." Her email continued: "As you know, insurance companies are required by law to protect the interests of Medicare and submit information to Medicare regarding a Plaintiff before a settlement can be finalized." To that end, she attached an information sheet for plaintiff attorney to complete and return so that the insurer could perform a "Medicare sweep."

Defense counsel also highlighted the need for plaintiff counsel to request a "final CMS letter, showing the amount owed, if any, in reimbursement to Medicare."

Medicare Conditional Payments

When defense counsel had not heard back from plaintiff attorney by early January 2020, she again emailed: "Any luck getting a clearance letter from CMS? My client's insurance carrier completed the Medicare 'sweep' which showed your client is Medicare eligible. As such, the carrier will need a final lien letter from CMS before the settlement check can be issued."

About three weeks later, plaintiff attorney responded: "Medicare is now showing that there were conditional payments made on this injury. I certainly was not aware of that and they have not provided a letter at this point. I thought the Navy took care of his medicals. I will have to keep you posted."

Sure enough, correspondence from CMS showed the amount of conditional payments was $25,482. After finding that out, plaintiff attorney sent defense counsel an email indicating: "So the Navy was cheap but Medicare kicked in a bunch. I apologize for the surprise. I assume at this point you would want to litigate comparative fault and I will see what Medicare might settle for."

Disagreement as to Whether Settlement Reached

But the Agricultural Society did not want to litigate comparative fault. Rather, it moved to amend its answer to add the affirmative defense of compromise and settlement. The Agricultural Society also moved for summary judgment and asked the district court to enforce its settlement agreement with Forbes.

Forbes resisted. He argued the settlement agreement was void, or at least voidable, based on mutual mistake. Or, in the alternative, there was no "meeting of the minds" before Forbes obtained a clearance letter from CMS.

In response, the Agricultural Society contended any mistake was "unilateral." In other words, Forbes and his attorney could have found out about the Medicare payments "before presenting their settlement demand, but did not."

District Court Finds Meeting of the Minds, Enforceable Contract

The district court granted summary judgment for the Agricultural Society, holding: “contrary to Forbes' argument, the Court finds that there was a meeting of the minds in negotiating and acceptance of the settlement agreement. The Court also finds that, to the extent any mistake was made regarding a basic assumption on which the contract was based, the contract is not voidable because Forbes bore the risk of that mistake.”

In line with the summary-judgment ruling, the court found that the settlement agreement between Forbes and the Agricultural Society was binding and should be enforced. Forbes appeals those rulings here.

Court of Appeals Affirms District Court

On the issue of meeting of the minds, the court here finds “the obligation of an individual who benefited from conditional payments by Medicare to reimburse Medicare is federally mandated. 42 C.F.R. Section 411.24 requires the "beneficiary" to reimburse Medicare when he receives a "primary payment" from a "primary payer" such as a liability insurer. Forbes would have been obligated to reimburse Medicare out of the settlement proceeds regardless of any provision in the agreement with Agricultural Society to do so.” Therefore, like the district court, this court sees no material factual dispute to be litigated on the agreement.

On the issue of mutual mistake, the court here indicates that “even if Forbes did not agree to bear the risk of mistake, he was aware when he agreed to the settlement that he had limited knowledge about potential Medicare payments. And despite that uncertainty, he "undertook to perform" the bargain. In doing so, he assumed the risk of the mistake. Forbes had exclusive access to his medical records and the ability to investigate whether Medicare would seek a recovery claim. Forbes's fall occurred nearly two years before he sued. In that time, he had the opportunity and the burden to inquire thoroughly into the payment of his medical bills.”

Conclusion

The court therefore concludes the lower court was correct in finding a meeting of the minds and to allocate the risk of any mistake to Forbes. The court therefore finds the district court properly granted summary judgment to the Agricultural Society on its defense of compromise and settlement, ruling the $12,500 settlement agreement between Forbes and the Agricultural Society was binding and should be enforced, despite outstanding Medicare conditional payments of $25,482.

If you have been following me for some time, or have been reading my posts over the years, you know this is not the first case in which a court has upheld a settlement which is no where near enough to reimburse conditional payments owed to Medicare. Thinking that Tricare had paid all the bills, but despite knowing his client was a Medicare beneficiary, plaintiff counsel failed to look into Medicare conditional payments until after settlement was reached. As this case, and many others like it, makes it clear, not doing so is a unilateral mistake, making the settlement enforceable.

Don’t let this happen to you, to your client, or to your case. At Cattie & Gonzalez, secondary payer law and compliance is all we do. Whether traditional Medicare (Parts A and B), Medicare Advantage (Part C), Prescription (Part D), traditional Medicaid, Medicaid Managed Care, Veterans Administration, Tricare, ChampVA, Private/ERISA, or Indian Health Services, we can help with identification, verification, dispute, appeal, and resolution of any such lien in auto, med mal, products, nursing home, trucking, mass tort, liability, no-fault, and work comp claims.

By Rafael Gonzalez, Esq.

Rafael is a partner in Cattie & Gonzalez, PLLC, a national law firm focusing its practice on federal Medicare/Medicaid secondary payer compliance and legal issues. In addition to assisting clients with Medicare mandatory reporting, conditional payments, and set asides issues, he helps clients with Medicaid third party liability liens and Medicaid special needs trusts issues. He has over 35 years experience in the liability, no-fault, and work comp insurance industry. You can connect with him on LinkedIn, Twitter, Facebook, and YouTube, or reach him at rgonzalez@cattielaw.com, 844.546.3500, or www.cattielaw.com.

Share This Article: