Pennsylvania District Court Case Demonstrates the Importance of Addressing Medicare Secondary Payer Issues Early in Settlement Process


In an opinion out of the United States District Court for the Eastern District of Pennsylvania, Villare v. GEICO Casualty Company, 2015 U.S. Dist. LEXIS 36488, what would have been a finalized settlement came to a screeching halt due to disagreement over what, if any, Medicare Secondary Payer (MSP) obligations were required in settling a liability claim with a 64 year old Plaintiff. This case is a strong example of a settlement where, had the parties discussed any potential MSP obligations early on in the settlement process, their settlement would not have been disrupted.

The basic facts are as follows: Plaintiffs, James and Suzanne Villare (the Villares), sought to recover from their auto insurance company, Geico, after Mr. Villare was injured in an auto accident. Geico and the Villares agreed to settle for $100,000, and Geico's counsel sent a letter to the Plaintiff which memorialized the terms of the settlement, particularly that Plaintiffs would agree “to satisfy any and all liens being asserted in this matter with these settlement funds.”

When Mr. Villare received a copy of the Release and Trust Agreement provided by Geico, he struck a provision in the Agreement which would have him attest that he is not within 30 months of becoming eligible for Medicare. Due to the fact that he was currently 64 years old, he could not state that he was not within 30 months of Medicare eligibility since Medicare eligibility occurs at age 65. The parties then were in dispute as to whether the Villares had fully complied with the terms of the settlement agreement and entitled to disbursement of the settlement funds. The Villares contended that they had complied with all material terms of the settlement agreement, but Geico refused to tender the settlement check due to the fact that the Villares had not yet provided proof of satisfaction of any Medicare liens in the form of a letter from Medicare.

To satisfy Geico's concerns, a legal assistant for the Villares' counsel contacted Medicare to inquire about Mr. Villare's Medicare status and submitted an affidavit stating that Mr. Villare was not currently Medicare eligible, had no open Medicare claims, had no Medicare number, and that a Medicare representative stated that Medicare could not provide a letter about his claim status because he was not Medicare eligible and not registered with Medicare. Additionally, Mr. Villare provided an affidavit attesting that he did not currently meet any of the requirements to be eligible for Medicare and had not submitted any claims to Medicare.

Despite the affidavits submitted, Geico contended that the Villares had not yet provided proof of satisfaction of any Medicare liens in the form of a letter from Medicare. Geico further asserted that Medicare has a 30-month “look back period in which Medicare may review in determining the issuance of liens.” Furthermore, Geico argued that Mr. Villare represented during settlement negotiations that he would need future medical care totaling $91,375 to $199,950 over the rest of his life. To the extent that such costs are covered by Medicare, Geico asserted that Medicare could seek repayment from the Villares and/or Geico under 42 CFR § 411.24 (Geico also asserted that repayment could be asserted due to Medicare's 30 month “look back” policy, but Geico did not provide the source of the look back period in the MSP or corresponding regulations).

At this point, the parties agreed that a final and binding settlement was reached and that the material terms included the Plaintiffs' agreement “to satisfy any and all liens being asserted in this matter. . .” However, the only question/dispute that remained was whether Plaintiffs had complied with that requirement. The court concluded that the Plaintiffs had fulfilled their obligations under the settlement agreement and were entitled to disbursement of the settlement funds. The settlement agreement did not include any specific terms regarding Medicare liens and furthermore the Villares signed a release and indemnification agreement that explicitly covered Medicare liens. Additionally, the court noted, had Geico wished to make settlement contingent upon a letter from Medicare attesting that there are no current Medicare liens and/or that there will not be any future Medicare liens, it could have done so during the settlement negotiations.

My Commentary: There seemed to be some confusion as to any potential MSP exposure in this case where the Plaintiff would be Medicare entitled shortly after settlement due to his age and where it was undisputed that Plaintiff would require future medical care related to his claimed injuries that potentially would be covered by Medicare in the future.

In deciphering MSP exposure, the parties lacked a meeting of the minds on two separate issues: 1) whether Medicare would require reimbursement for past conditional payments made; and 2) whether consideration should be given to any future payments made by Medicare.

It was pretty clear to all the parties that Mr. Villare was not yet Medicare eligible and Mr. Villare provided adequate assurances by way of his and Medicare's affidavits attesting that he had never received any Medicare benefits; therefore, there were no past payments made by Medicare and conditional payments were not an issue. As soon as this became evident, they could have moved on from this issue. As to the 30 month look back period for conditional payments that Geico referenced, no such process exists within the MSP. The Plaintiff is either on Medicare at the time of settlement or not and if the Plaintiff is on Medicare, a letter can be issued regarding the final conditional payment obligation owed. If the Plaintiff is not on Medicare, a letter cannot be issued because the person is not within Medicare's system.

As to future payments made by Medicare, the court noted that Geico would likely never have certainty if Medicare could or would ever assert a lien with regard to unknown, hypothetical costs for future medical care that may or may not occur. Therefore, Geico could have been clearer with what assurances that it was seeking from the Plaintiffs with regard to any potential past or future Medicare conditional payments. Addressing these issues upfront in settlement negotiations likely would have prevented the settlement disruption.

In conclusion, the most important lesson to be learned here is that any MSP concerns should be addressed early on in the settlement process. In this case, Geico had access to Mr. Villare's medical records which specified his birth date and age, so Mr. Villare being 64 years old should not have been a surprise at the time of settlement.

Before looking to settle any workers' compensation, liability or no-fault claim, insurance payers should have a process in place where the Plaintiff's Medicare and Social Security status are analyzed prior to entering into any final settlement negotiations so that the parties are all fully aware of what, if any, MSP obligations are present prior to entering into a settlement. A strategy for fulfilling any MSP obligations that are borne as a result of the settlement should be discussed, planned for, and detailed within the release language so that finalized settlement agreements are not disrupted by MSP obligations.

The best arm of defense against MSP liabilities is being fully educated on what obligations are present at the time of settlement. Additionally, having MSP settlement best practices in place and making sure that your releases adequately protect Medicare's interests and consider all MSP obligations prior to entering into each settlement is the next best arm of defense.

About the Author

Heather Schwartz, Esq., MSCC, CHPE, CLMP, CMSP

Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP

Heather is Chief Legal Officer for Franco Signor LLC, the nation's compliance authority for Medicare Secondary Payer (MSP) matters. She has lectured on MSP compliance to the workers' compensation and liability insurance communities at conferences, associations, and individual offices nationwide. She is a regularly published author on court decisions and legislative reforms involving Medicare Set-Asides, conditional payments, and Mandatory Insurer Reporting issues. Understanding that compliance with the Medicare Secondary Payer Act can be at times complex and frustrating for those that handle claims with Medicare beneficiaries, Heather's goal is to speak and write with the primary goal being simple and understandable solutions to compliance. 

Heather can be reached at
Franco Signor's Blog can be found at:

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