In Smith v. Medicare Secondary Payer Recovery Contractor (MSPRC) et al., the personal representative of a deceased Medicare recipient, Nellie Smith, sued the MSPRC for bad faith, bad faith breach of contract, breach of contract, conversion, and violation of the Due Process Clause of the Fifth Amendment for its continued violation of an Order issued by an administrative law judge.  The Order, which was issued on August 26, 2008, directs Medicare and/or the MSPRC to repay plaintiff $30,000 unlawfully collected by Medicare and/or the MSPRC.  Additionally, the complaint alleges that Medicare and/or the MSPRC violated 31 U.S.C. § 3729 for submitting a false claim for the very same claim that Medicare had been instructed repay plaintiff.  Plaintiff seeks attorney’s fees, expenses, treble damages and/or punitive damages pursuant to 31 U.S.C. §§ 3729-3732.  

According to the facts alleged in the complaint, Smith was admitted to the hospital for aplastic anemia.  She was hospitalized from February 19, 1999 until March 2, 1999, when she died as a result of sepsis, leucopenia, and aplastic anemia.  During her hospitalization, Smith was transfused with several units of incorrect and unmatched blood.  Her estate settled its malpractice case with the hospital for $625,000, and Medicare asserted a $26,079.66 lien on the settlement.  On September 10, 2007, plaintiff paid Medicare $30,070.54.  Smith’s estate later challenged the Medicare lien through the Medicare Administrative process.  The administrative law judge found that Smith was being treated for her underlying illnesses/aplastic anemia between February 19, 1999 and March 2, 1999.  Therefore, the judge ordered Medicare and/or the MSPRC to repay Smith’s estate the money collected on the lien.  Additionally, plaintiff alleges that on October 2, 2009, Medicare fraudulently submitted another bill for the medical lien that had already been improperly collected.  To date, Medicare and/or the MSPRC have not repaid the money to Smith’s estate.  

Smith v. Medicare Secondary Payer Recovery Contractor (MSPRC) et al., U.S. District Court for the Northern District of Florida, Civil Action No. 3:10cv 349-LC-EMT (N.D. Fla. Sept. 10, 2010).

Compliance with the Medicare Secondary Payer (MSP) Act is proving to be a real problem for New York attorneys.  In New York, once a settlement is reached, payment of the settlement award must be made within 21 days. Meanwhile, the federal government can hold the insurance carriers and defense attorneys responsible for distributing funds prior to Medicare funds being set aside.

In a recent personal injury case in the Tompkins County Supreme Court, the defendants agreed to pay plaintiff, a Medicare beneficiary, $337,500.00 in connection with a construction accident. The defense requested relief from the 21-day payment requirement until Medicare determined whether any of the settlement should be set aside for the plaintiff’s care—a decision that could take up to 90 days. In opposition to the defense’s request for relief, the plaintiff’s attorney stated that his firm was willing to assume any responsibility or liability of the defense firm or insurance carrier and would put a portion of the settlement award in escrow until Medicare made a decision about a set aside. The plaintiff’s attorney also offered to execute a hold harmless agreement in case the amount set aside was inadequate. Judge Robert C. Mulvey ordered the settlement to be paid within 10 days of his order, provided that the plaintiff’s attorney executed a hold harmless agreement and put at least $5,000.00 in escrow until the Medicare issues were resolved.

Any hold harmless agreement between plaintiff and defense counsel and/or an insurance company must contain provisions to defend and indemnify them and pay any penalties associated with the failure to abide by Medicare’s regulations.