In a recent decision, the United States District Court for the District of Arizona held that the Center for Medicare & Medicare Services (CMS) cannot require prepayment of an MSP recovery claim before the correct amount is determined where the beneficiary appeals or seeks a waiver of the MSP reimbursement claim.  The court found that CMS’ application of the 60-day requirement to collect reimbursement claims from beneficiaries that seek a wavier or an appeal is not authorized by the statutory structure created by Congress and is “neither rational nor consistent with the statutory scheme providing for waiver and appeal rights.”  The court explained that the MSP provision that interest will accrue from the notice of the settlement upon the final determination of a disputed claim is a strong incentive for beneficiaries to pay what they owe Medicare prior to the expiration of the 60-day time period, leaving only the disputed portion of the claim unpaid.  See 42 U.S.C. § 1395y(b)(2)(B)(ii). 

Additionally, the court held that plaintiffs’ attorneys could not be held financially responsible for disbursing settlement proceeds to their clients instead of holding the funds or immediately turning them over to CMS.  The court noted that Congress never expressly made attorneys responsible for reimbursement under section 1395y(b)(2)(B)(ii), but only “an entity that receives payment from a primary plan.”  42 U.S.C. § 1395y(b)(2)(B)(ii) (2002).  The court found that there is no statutory authority, express or implied, to support a direct cause of action to recover a reimbursement claim against an attorney that has received payment from a primary plan and passed it along to the beneficiary.  The court notes that CMS may have a direct action against attorneys to the extent they are end-point recipients of settlement proceeds.  Therefore, it appears that CMS could still file a recovery action for double damages against a plaintiff’s attorney for up to the amount of the settlement proceeds the attorney received as a contingency fee.   

The court also certified the case as a class action, broadly defining the class as: “persons who are or will be subject to MSP recovery, and from whom defendant has demanded or will demand payment of MSP claims before there have been determinations of the correct amounts through the waiver or appeal process.”

This decision provides some much needed guidance on CMS’ recovery practices.  While the decision provides authority to allow plaintiffs’ attorneys to disburse settlement proceeds to Medicare beneficiaries, attorneys should retain and pay CMS any undisputed reimbursement claim to avoid accruing interest.  As a result of this decision, insurance carriers may be even more reluctant to disburse settlement proceeds until a final demand is received from CMS because they are responsible for reimbursing Medicare for conditional payments and risk being sued in a recovery action for double damages if the plaintiff does not reimburse Medicare with the settlement proceeds.  See United States Files Suit Against Parties Involved in $300 Million Settlement to Recover Conditional Medicare Payments.

Haro et al. v. Sebelius, U.S. District Court for the District of Arizona, No. CV 09-134 TUC DCB (D. Az. May 9, 2011).