By: Bob Worden, Esq.
Lawrence Worden Rainis & Bard, P.C., Melville, New York
INTRODUCTION
As consultants to national liability insurers regarding Medicare liens, we have reviewed many of the legal decisions involving Medicare liens in State and Federal courts across the nation. We have noticed that there is an absence of specific discussion in many reported decisions, as well as in the media, concerning the limits of Medicare’s power to assert liens. As new Medicare Secondary Payer legislation is being explored, it is important to be aware of the limits of the Federal Government’s power to be reimbursed for medical expenses paid under the Medicare Program. To understand the problem, we need to look briefly at the history of the Government’s pursuit of reimbursement:
HISTORY OF MEDICARE LIENS
The intrusion of the Federal Government Medicare Program into liability insurance claims has been increasing since 1980. This intrusion initiated when the Medicare Secondary Payer Act of 1980 (MSP) made Medicare the “Secondary Payer” of medical bills after primary health and care insurance, Workers’ Compensation, automobile insurance coverage and other liability plans, pursuant to 42 U.S.C. Section 1395y(b)(2). Before that time, Medicare was the “Primary Payer” of medical bills for its beneficiaries, and could not seek reimbursement. As Secondary Payer, the Government could seek reimbursement from Primary Payers.
The enactment of the MSP law allowed Medicare to seek repayment out of personal injury settlements and awards. The idea was a noble one. Medicare was running huge deficits. Either taxes would have to be raised, or Medicare would have to be allowed to obtain monies from somewhere else. If a negligent driver or homeowner or corporation caused someone to be injured and Medicare paid the medical bills, wasn’t it fair for the wrongdoer to be required to pay back the Government for the cost of medical treatment? Otherwise, the taxpayers would have to foot the bill. This new reimbursement law shifted the burden of paying the medical bills to the wrongdoer, who actually caused the need for medical treatment in the first place
As happens with many good intentions, the way in which MSP was implemented by the Government resulted in unintended negative consequences and frustration for personal injury claimants, claimants’ attorneys, and the wrongdoers’ insurers. The Medicare reimbursement program was administered inflexibly. Medicare reimbursement was handled by a bureaucracy that didn’t understand how lawsuits and settlements worked. The Government wanted its money back, but wouldn’t get involved in the personal injury claims and lawsuits, other than to make everyone aware of the presence of a reimbursement claim. After a claim or lawsuit was settled, it took a long time for the Government to notify Claimants’ as to the exact amount of the claimed lien.
Worse, the Government often exaggerated what should be reimbursed, more from ignorance than any bad motive. If a medical expense was generated following the accident, it was often included in the claim, even if the same medical expense had been paid on a regular basis by Medicare before any accident happened. Even though the Government’s lien was only as strong as the causal connection of the specific medical expense to the liability of the wrongdoer, The Government did not worry about parsing out which medical expenses were in fact causally connected to the wrongdoer. The lien would be asserted, and the personal injury claimant and the claimant’s attorney would have to go through all the Medicare records and attempt to establish what was and wasn’t connected to the accident. Sometimes the Government agreed and sometimes it didn’t. Meanwhile, what happened to the settlement monies?
The process could take many months to resolve. The claimants wanted their lawsuit money, the Trial Attorneys wanted their contingent fees, and the Government wanted its reimbursement, except that the Government didn’t act as if it was in a hurry to be reimbursed. It was a cumbersome process, dreaded by the Trial Attorneys as a time and money waster.
The Government was also frustrated by not being aware as to when claims for personal injuries were made by Medicare beneficiaries. Questionnaires were required to be filled out by the Medicare beneficiaries asking if they filed lawsuits related to medical charges, but there was no way for the government to tell if a beneficiary failed to disclose a lawsuit of claim. Many Trial Attorneys ignored the Medicare liens for clients with smaller injury claims. Despite their clear legal obligation, they took chances and settled small claims without contacting Medicare, figuring that no one would ever know about it. Besides, it wasn’t worth it to take on a small claim if they had to undertake the extra work of dealing with the Government after the small claim settled. Dealing with the Medicare reimbursement made the older clients who were covered by Medicare less desirable clients. Ignoring the reimbursement obligation had severe consequences for the Trial Attorney if the Government found out, but the Government almost never found out. There was no mechanism in place to notify Medicare of lawsuits.
The Government’s efforts to collect reimbursement, from the personal injury claims it did know about, were often stymied in the Courts, due to lack of information about claimants causing a failure of proof. (See In Re Dow Corning, 250 BR 298 (Eastern Dist. of Mich., 2000), which has an excellent discussion of the burden of proof required of the Government in asserting Medicare reimbursement claims.)
The Government knew that products liability claims against drug companies were being settled, but didn’t have a mechanism to identify which claimants were Medicare beneficiaries, and therefore owed the Government money, presumably because settlements in the actions were reimbursing medical bills which had been previously paid under the Medicare Program. These problems were highlighted in class action lawsuits. As class actions had large numbers of claimants, the Government was certain that some members of the class must have been Medicare beneficiaries, and yet there was no definite way for Medicare to find this out before bringing suit to seek reimbursement. The Government’s attempts at collection were often rebuffed because the reimbursement claims were not specific enough and the Government did not have enough information to support making the claims.
Moreover, the Government did not seem to, or care to, understand how liability insurance worked. Instead of learning how liability claims processing was administered by insurance companies and modifying its reimbursement efforts to work with the insurance companies, the claimants and their lawyers, the Government made the reimbursement process difficult for everyone concerned. It was impossible to find out the amount of the Medicare Lien before settling.
Moreover, the Government also acted as if all settlement monies paid to claimants automatically included monies which should have gone to Medicare. The Government did not recognize that its rights depended on the facts and circumstances of each personal injury claim. See Waters v. Farmers Texas County Mutual Insurance Co., 9 F.3d 397 (5th Circuit, 1993), where the Government attempted to obtain priority to settlement funds for 5 different claimants, only one of whom had received Medicare benefits, and even those benefits were found to be unrelated to the automobile accident which was the subject of the lawsuit.
THE PROBLEM WITH MEDICARE’S RIGHTS
Medicare’s rights to recover from wrongdoer’s insurance policies under MSP are essentially rights of subrogation, even though the Medicare’s rights are called a “lien.” “Subrogation” in this context means that the Federal Government “stands in the shoes of” its beneficiary, who received medical treatment which was paid for by Medicare. If the beneficiary had a legal claim against the wrongdoer who caused the treatment to need to be rendered, Medicare, having paid the bill, had a right to reimbursement from the wrongdoer’s insurer. Subrogation is a well-known legal doctrine that comes into play whenever insurers pay out money to their own policyholders. If that policyholder had a legal right to make claim against someone to recover the monies paid by the insurer, the insurer usually acquired the right to be repaid from the wrongdoer as well.
It was logical for the Government to have these subrogation rights, when it became a payer of medical bills. But the Government should have known that its subrogation rights were only as good as the rights of its beneficiary against the wrongdoer. In other words, if the Medicare beneficiary has a weak lawsuit against the wrongdoer, Medicare has a weak claim itself, and should want to help negotiate a settlement where it accepts a small portion of the settlement funds, knowing that it is likely the claim against the wrongdoer will be lost, if the claim eventually goes to trial.
The Government did not consider that liability insurers often make payment to settle questionable claims for a variety of reasons. The mere fact that a payment was made to a claimant did not mean that the sum paid in settlement contains monies to reimburse that claimant for bills that Medicare has paid.
Consider the hypothetical example of a personal injury claimant who slips and falls on a broken sidewalk, fracturing his hip, resulting in an expensive total hip replacement. Assume the claimant was highly intoxicated when he arrived at the hospital immediately after the accident. When the claimant sues the landowner responsible for the broken sidewalk, the insurance company for the land owner wants to settle the case for $25,000 before a lawsuit is filed, knowing it is going to pay close $25,000 to lawyers, investigators and other defense costs, to defend the lawsuit through to trial in any event. This is an economic decision for the insurer, not an admission that the alleged wrongdoing of the liability policyholder caused or was responsible for the payment of medical bills. In this situation, the personal injury claimant wants to get whatever money can be had out of a quick settlement, and the claimant’s attorney is glad of the opportunity to receive an attorney’s fee without doing much work.
Usually, under circumstances like these, any private health insurer with a valid subrogation claim would accept a small amount of money, usually a few thousand dollars, out of the settlement, and be glad to have received any reimbursement from a weak claim that was ultimately, a losing proposition before a jury. The claimant and the claimant’s attorney hope get their share of the proceeds, and they move on with their lives.
In contrast, when the Government is pursuing a Medicare lien, it will not tell the beneficiary or the insurer the amount of the claimed lien before settlement, which discourages settlement, because nobody want to settle a lawsuit without knowing what is going to end up in their pocket.
In fact, the Government many times won’t disclose its full claim until several months after settlement. The beneficiary, the beneficiary’s attorney and the insurer for the wrongdoer are all in the dark as to whether the settlement will be a good deal for everybody. This uncertainty is a problem. Instead of agreeing to a reasonable reimbursement prior to settlement, and moving on to the next claim, the Government drags the proceeding out, delays payments to everyone, and often ends up with an unfair result for its own Medicare beneficiary, who may be bitter at having undertaken the claim in the first place, if the Government claims a large portion of the settlement proceeds. The beneficiary’s attorney may be embarrassed to have been paid an attorney’s fee, where most or all of the proceeds of the claim went to the Government, and his client received little or nothing out of the settlement. He is worried that his client will bad-mouth him in the community, and he will lose future business. Yet, the Government does have the power to compromise claims, if it chooses to do so. (See Fanning v. US, 346 F.3d (3rd Cir. 2003) which discusses the legal authority allowing compromise of Medicare claims.)
If the attorneys for the beneficiary and the wrongdoer are wise enough to request a hearing before the Court on the merits of the Government’s lien, the Government will honor the Court’s apportionment of settlement monies. This isn’t practical, or at least is very expensive, especially where the settlement amount is small and a lawsuit hasn’t be filed yet. A lot of extra time and effort has to be spent filing the lawsuit, having a Judge assigned to hold the apportionment hearing, and having the attorneys prepare and hold the hearing. But the failure to have the Court apportion the Medicare lien can often result in the Government claiming the entire proceeds of settlement, minus attorney’s fees and expenses. See Hadden v. U.S., 2009 U.S. Dist Lexis 69383.
If the attorneys for the beneficiary seek to contest the amount of the lien claimed by the Government, the correct administrative process must be followed, and there is no guarantee of success. See U.S. v. Harris, 2009 WL 891931 (N.D. W. Va.) To do this properly is an expensive proposition, requiring the filing of papers, expert reports and other evidence. The claimant not represented by an attorney, and often inexperienced with such proceedings, is at a great disadvantage attempting to contest the Government’s claim. Many times the beneficiaries and their attorneys are barred from contesting the Government claim due to failure to follow proper administrative procedures to appeal Medicare’s determination of the amount of its lien on the personal injury settlement proceeds. See Ullman v. U.S., 214 Ct. Cl. 308, 558 F.2d 1, 7-8 (1977).
IN 2007, MMSEA PRESSURES LIABILITY INSURERS AND LARGE CORPORATIONS
The difficulty in dealing with Medicare issues was a comparatively minor issue for liability insurers until December 2007, when Medicare became a major concern, with the passage of the Medicare, Medicaid and SCHIP Extension Act of 2007( MMSEA). This law amended Section 1862(b) of the Social Security Act (42 U.S.C. Section 1395y(b)). This law, still in effect, forces liability insurance carriers, self-insured corporations and health insurance carriers to report particulars of claims of which they are aware, if there is potential for reimbursement of Medicare beneficiaries.
The time for this MMSEA claim reporting has been moved back several times, most recently to January of 2012, because of the many difficulties and uncertainties in developing reporting processes. These problems have been revealed as the Government, while holding meetings with representatives of insurers and corporations, became more educated about the complexities of the liability insurance business.
The new MMSEA law not only dramatically increased the paperwork required, and the legal responsibility of the insurance carriers and self-insured entities which were affected, but it instituted harsh penalties for failure to report the existence of each claim, in addition to the already stiff penalties for not reimbursing Medicare, which could potentially include damages for double the amount of the claimed Medicare lien.
Prior to MMSEA, the liability insurance business had been primarily regulated by the 50 states. Not only did the Government need to quickly become educated as to how the business of liability insurance worked, but the interplay of the federal laws with the laws of the 50 states had to be understood in order to try to resolve claims appropriately. Because the Government was making claims in all 50 states, it needed to understand the differences in the laws affecting subrogation claims.
There is considerable variation in the laws of liability and causation, depending on the State law that is applicable. Insurers working in those States have to know the “ins and outs” of each State to be successful. Even though Federal laws typically pre-empt State laws, the MSP law only gave the Government rights which depend on the wrongdoer responsibility under State laws. See In RE Dow Corning, supra. The liability insurer is legally obligated to pay for the wrongdoer only if required to by the laws of the particular State involved. The Government is only entitled to recovery out of the insurer payment proceeds if payment is being made to reimburse medical bills previously paid by Medicare. See Haro v. Sebelius, 2009 WL 4497456 (Dist. Ct. Arizona, 2009).
The MSP law had always been of great concern to plaintiff’s attorneys, defendant’s attorneys and insurance carriers, as well as the claimants themselves, simply because the Federal Government had the power to sue anyone of those responsible parties who failed to make sure that the Federal Government was reimbursed whenever there was a settlement involving compensation for medical bills related to Medicare recipients. The enactment of MMSEA, with its potential fines of $1,000.00 per claim for non-reporting, only added extreme concern on top of what was already a significant worry for liability insurers.
It must be remembered that liability insurance carriers pay all sorts of claims, not just settlements from lawsuits, but also No-Fault payments, Workers’ Compensation payments and so forth. Would a $1,000.00 fine be levied for each one that was not reported? The potential liability for the insurance carriers was huge.
In response to the new burden of the 2007 MMSEA which had been imposed on them, many liability insurers and large self-insured corporations joined the newly formed Medicare Advocacy Recovery Coalition (MARC), which has since become the strongest voice for reform of the MMSEA law. Since 2008, MARC has successfully lobbied for change and can be credited with being the primary force driving current attempts at passing new legislation to reform the existing laws, and make the system more workable and effective. As the MMSEA reporting deadlines have been extended until January 1, 2012, this is the time to have open discussion about these issues and to design the best changes to make the system more practical and efficient.
CONCLUSION
It is our hope that the explanation of the limitations of the Government’s rights to reimbursement for Medicare payments gives the reader a better understanding of the need for the Government to act with care and caution in the exercise of its reimbursement efforts. We believe that the Government will, in fact, receive greater reimbursement if it manages its recovery efforts more like insurers manage their subrogation rights. The Government should recognize that its rights are only as strong as the facts of the particular claim upon which it is based. Like any insurer, it should be willing to come to the settlement table with firm demands to settle prior to resolution of the personal injury claim. Government representatives should have the power and discretion to adjust Government demands for reimbursement if the personal injury claim of the Medicare beneficiary is a weak one. The more the Government streamlines the reimbursement process and accommodates the needs of the others involved in the process, particularly the liability insurers and self- insured corporations, the faster the reimbursement monies will return to the Government coffers. It is in the Government’s interest to interfere as little as possible with insurers, claimants and the attorneys who handle these claims, to obtain appropriate reimbursement, and to obtain it fairly, quickly and inexpensively.
Dated: Melville, New York
December 5, 2010
Bob Worden, Esq. is a member of the firm Lawrence Worden Rainis & Bard, P.C., located in Melville, New York. He has been a frequent lecturer and consultant for national property and casualty insurers regarding Medicare, Medicaid and Private Health Insurance claims and other issues regarding defense of high exposure claims.
Lawrence, Worden, Rainis & Bard, P.C. is AV Preeminent Rated* and is currently listed in Best’s Directory of Recommended Insurance Attorneys and Adjusters. The firm serves the New York Metro Area, defending high exposure claims. A list of representative clients is available upon request.