United States Sues to Recoup Conditional Payments; Asserts that It Does Not Have to Reduce Its Lien for Attorneys’ Fees

A new decision by the U.S. District Court for the Middle District of Pennsylvania, entitled United States v. Angino, 2019 U.S. Dist. LEXIS 30499 (February 26, 2019), which involves the United States filing a lawsuit to recover conditional payments from the plaintiff attorney, Medicare beneficiary, and “primary plan” caught our attention.  The lawsuit reignites the debate on whether the parties may take advantage of reducing the conditional payment by attorneys’ fees, now that the U.S. had to file litigation to recover its conditional payments. The decision can be accessed here.

By way of background, David Trostle (“Trostle”) became ill after being dispensed an incorrect prescription which was called in by his medical center. The incorrect medicine caused Trostle to be hospitalized for sixty-six days, and Medicare paid $84,353.00 of these bills related to Trostle ingesting the incorrect medicine. Trostle filed a lawsuit against the pharmacy and medical care center, and he was represented by his attorney, Richard Angino, Angino Law Firm, P.C. (“Angino defendants”).

During settlement negotiations, the Angino defendants inquired regarding the conditional payment obligation owed from the CMS recovery contractors.  Initially, the response provided was $725.00, but was later increased to $1,212. Notwithstanding, the parties were aware Medicare paid over $80,000 in medical bills, but the conditional payment amount identified by the recovery contractors remained at $1,212.  The parties withheld funds after settlement for the potential full exposure, and after Medicare reviewed its records after settlement determined that $84,353.00 in medical charges were related, but demanded only $53, 295.00 after reducing that amount for attorney’s fees and procurement costs. 

The approximately $53,000 conditional payment amount was then administratively appealed by Tostle’s Estate and the representative law firm.  That appeal failed, and Medicare immediately filed this lawsuit to assert recovery for the entire amount (no deduction of attorney’s fees and procurement costs) pursuant to 42 C.F.R. § 411.37(e).  The parties attempted to tender payment of $53,295, but the payment was not accepted as the United States instead sought Summary Judgment to determine entitlement to the full amount.  The Court ruled against the United States as a question of fact existed as to whether a lawsuit was even required for Medicare to be repaid.  The case will now proceed to trial for a final decision unless the parties settle out of Court. 

Commentary: What will finalize this litigation and the key sticking point is whether CMS had to file suit to recover these expenses as 42 CFR 411.37 (e) does support CMS not having to reduce its liens for attorneys’ fees if it must file suit. What is interesting about this litigation is that the decedent’s estate, attorney, and medical provider defendants are all included in this lawsuit and it is unknown which party will be responsible to reimburse Medicare. We also know that in an underlying suit that the Third Circuit confirmed the approximately $53k conditional payment amount, so why had that amount not been paid over?

There are a few important take-aways from this decision, even though the litigation is not yet finalized:

• Take note that CMS’ initial conditional payment amounts were different than the final, post-settlement amount. Parties must prepare for the contingency of the final demand amount increasing from the Conditional Payment Letter amount when settling claims with Medicare beneficiaries.
• The estate and defendants upon settlement never clearly determined which party would reimburse Medicare for its conditional payments. An ambiguity has now arisen, causing unnecessary delay in the distribution of settlement proceeds and reimbursement to Medicare. Had the parties been clear about which party would be responsible to reimburse Medicare upfront in the settlement agreement, this would not be an issue. Clear specificity about how Medicare will be paid in the settlement agreement is highly recommended.
• Lastly, take note that CMS has filed suit here against the various defendants to recover unreimbursed conditional payments. In recent years, we have not seen traditional Medicare be very active regarding filing litigation to recover conditional payments; rather, we have seen much more litigation from Medicare Advantage Plans than traditional Medicare. Is this a sign of increased enforcement and recovery activity from CMS and Traditional Medicare? Stay tuned.  

About the Author

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 Heather.Sanderson@francosignor.com
Franco Signor's Blog can be found at: http://www.francosignor.com/msp-blog/

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