The MSP Act provides:

A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. . . .

42 U.S.C. § 1395y(b)(2)(B)(ii). According to the Hadden court, the use of the term “responsibility” clearly and unambiguously dictates that a Medicare beneficiary’s tort recovery from a tortfeasor/primary plan is subject to Medicare’s claim for reimbursement for the entire amount of Medicare’s conditional payments without regard to whether the tort recovery included full payment for the items and services paid for by Medicare. The court found that the amount the beneficiary is obligated to reimburse Medicare remains unchanged even if the claimant’s settlement reflects a reduced amount because of the alleged tortfeasor’s share of liability.

The practical import for those claims involving Medicare in the Sixth Circuit will be that CMS will be much less willing to negotiate its interest, taking the position that it is entitled to its full share regardless of equitable arguments. As a result, settlement will be less likely in cases involving a Medicare beneficiary. Beneficiaries will fear that Medicare will claim the entire settlement award.  Insurance carriers will be unwilling to pay any more than what they value the settlement regardless of Medicare’s present and future interest. As a result, the parties will be more likely to try those cases, which will adversely impact the court system.

The Hadden decision is at odds with the decision by the United States Court of Appeals for the Eleventh Circuit decision in Bradley v. Sebelius et al., No. 09-13765,  2010 U.S. App. LEXIS 20091 (11th Cir. Sept. 29, 2010), which held that Medicare was not entitled to a full recovery of the conditional payment amount in a wrongful death action.  Please click here for a discussion of the Bradley decision. As a result of the decisions in Hadden and Bradley, an obvious conflict exists among the United States Courts of Appeals with respect to whether Medicare must be willing to adjust the amount it seeks to recover in cases where the parties reach settlement, which may only be resolved by the Supreme Court of the United States. 

Date of Decision: November 21, 2011
Hadden v. U.S., No. 09-6072, 2011 U.S. App. LEXIS 23289 (6th Cir. Nov. 21, 2011).

Beneficiaries may not be willing to pay a quarter of a small settlement to Medicare, especially where the beneficiary is represented by an attorney and will have to pay attorney’s fees from those settlement proceeds.  It does not appear that this option provides a reduction for procurement costs.

Click here to see the MSPRC announcement.

The plaintiff was a current recipient of Social Security Disability benefits, and therefore, he was Medicare eligible.  To protect Medicare’s interest in the settlement, the parties agreed to establish an LMSA and retained the Garretson Resolution Group to determine an LMSA amount to cover the future cost of plaintiff’s accident-related medical treatment.  The proposed LMSA was submitted to CMS for approval, but CMS refused to review it due to “workload issues.”  Instead, the parties filed a motion with the court to review and approve the proposed LMSA.  The court approved the proposed LMSA finding that the parties had reasonably considered and protected Medicare’s interest in the settlement and that the LMSA amount fairly and reasonably took Medicare’s interest into account. 

It seems likely that CMS will refuse to review the majority of LMSA’s submitted for third-party liability settlements.  By having a court review and approve a proposed LMSA, parties can obtain some assurance that the amount set aside is sufficient and meet their good faith obligations.

Date of Decision: August 9, 2011
Smith v. Marine Terminals of Arkansas et al., No. 3:09-CV-00027 (E.D. Ark. Aug. 9, 2011).

While the scope of the memorandum is limited to cases where a treating physician is able to opine that no future injury-related care is needed, the memorandum serves as the first official notice regarding CMS’s position on the use of LMSAs.

Click here to view the memorandum.

For TPOCs over $100,000, where the TPOC date* remains on or after October 1, 2011, mandatory reporting begins the first quarter of 2012;

For TPOCs between $50,001 and $100,000, where the TPOC date is on or after April 1, 2012, mandatory reporting begins the third quarter of 2012;

For TPOCs between $25,001 and $50,000, where the TPOC date is on or after July 1, 2012, mandatory reporting begins the fourth quarter of 2012; and

For TPOCs between $5,000 and $25,000, where the TPOC date is on or after October 2012, mandatory reporting begins the first quarter of 2013.

Click here to view the alert.

*The TPOC Date is the date the payment obligation was established. This is the date the obligation is signed if there is a written agreement unless court approval is required.

Date of Decision: September 2, 2011
Bio-Medical Applications of Tennessee v. Central States, Nos. 09-6121/6169 (6th Cir. Sept. 2, 2011).

In its motion to reconsider, the Government argued that the court erred in granting the motions to dismiss without considering its theory of continuing accrual argument.  Based on the theory of continuing accrual, the Government argued that because the administration of the settlement fund required disbursements on an annual basis, a new Medicare recovery cause of action accrued every year when the annual payments were made.  The court rejected the theory, finding it “lacking in law and logic.”  The court explained that the Government could have filed suit before the expiration of the statute of limitations seeking a total reimbursement for everything that was to be paid pursuant to the settlement agreement, including the continuing payments.  The court also noted that the regulations implementing the MSP Act define the Government’s right to initiate recovery as beginning “as soon as it learns that payment has been made or could be made under workers’ compensation, any liability or no-fault insurance, or an employer group health plan.” 42 C.F.R. § 411.24(b) (emphasis added). 

It is unknown how other courts will handle the theory of continuing accrual in the context of Medicare recovery actions.  However, there is currently no legislative, regulatory or case law to support it.

Date of Decision: August 12, 2011
United States v. Stricker, No. CV-09-2423 (N.D. Ala. Aug.12, 2011).

1. the settlement, judgment, award or other payment is for a Total Payment Obligation to Claimant (TPOC) of $300.00 or less;
2. the settlement releases a physical trauma-based injury (This does not include alleged ingestion, implantation or exposure-based injuries);
3. there are no additional settlements related to the same alleged incident; and
4. a demand issue has not been issued.

The threshold does not apply to no-fault insurance or workers’ compensation settlements.  This is the first time that Medicare has implemented a threshold related to its rights of reimbursement under the MSP Act.  The purpose behind the threshold is to relieve some of the administrative burden for CMS, the MSPRC, plaintiffs and insurers, which suggests that Medicare recognizes some of the concerns with the MSP Act and potential recovery actions.

Click here to see the MSPRC alert.

a settling defendant has no legal responsibility to protect the interests of the United States government in respect to the payment of Medicare liens, and [] a settling defendant [is] not permitted to unilaterally attach to the payment of settlement proceeds, any condition seeking to protect the interest of Medicare.

In this case, the defendants refused to disburse the settlement proceeds until the plaintiff either satisfied his Medicare lien or advised the defendants of the amount of the lien owed. The parties’ settlement agreement provided that plaintiff would be responsible for directly paying all liens, including any outstanding Medicare lien. Defendants argued that they were not required to pay plaintiff any portion of the settlement proceeds until plaintiff received a Final Demand Letter from Medicare; otherwise, they could be subjected to penalties, interests, and the risk of double paying the monies. Plaintiff filed an Affidavit of Non-Payment of Settlement Funds pursuant to Pa. R.C.P. 2291 and requested the court to impose sanctions against Defendants for their failure to deliver the settlement funds to Plaintiff. The court denied plaintiff’s request for sanctions.

On September 24, 2010, after Plaintiff received a Final Demand Letter from Medicare, Plaintiff filed a Motion for Reconsideration of the court’s order. On October 22, 2010, the court ordered the defendants to release one-half of the settlement proceeds with interest and required the plaintiff to verify Medicare’s position with regard to any future medical lien. The court mandated that the remaining settlement proceeds remain in an interest bearing escrow account until verification from Medicare was received.

After the Superior Court issued an opinion in Zaleppa on November 17, 2010, plaintiff filed a motion for reconsideration of the court’s order. The court granted plaintiff’s motion and ordered defendants to immediately release the remaining settlement proceeds with the interest accrued, but denied the plaintiff’s request for additional simple interest, attorneys’ fees and costs, and Petition for Contempt/Sanctions. Plaintiff subsequently appealed the court’s refusal to impose sanctions or find defendants in contempt due to defendants’ failure to release the settlement proceeds. The court found that sanctions were not appropriate against the defendants based on a material dispute of the terms of the settlement. The parties had disputed whether defendants would be protected from any responsibility for paying the outstanding Medicare lien. The court explained that because of the uncertainty of the law at the time, namely, whether tortfeasors were liable to Medicare in litigation cases where Medicare payments were involved, it was uncertain whether defendants could be responsible under the Medicare Secondary Payer Act for reimbursing Medicare unless plaintiff paid his Medicare liens. The court held that based upon the legal uncertainties that existed at the time, Defendants acted appropriately and delivered the settlement proceeds to Plaintiff shortly after the Zaleppa decision. The court further explained that defendants acted on “good faith beliefs and justified concerns related to the delivery of the settlement proceeds without assurances.”

After the Superior Court’s decision in Zaleppa, it appears that Pennsylvania courts will not find a defendant’s delay in paying settlement proceeds to be justified where the delay is due to the defendant’s potential risk of a future Medicare recovery action. The decision is contrary to decisions by district courts in other jurisdictions that have held that a defendant’s delay in paying settlement proceeds until it determined the conditional payment amount owed to Medicare due to the insurer’s potential liability for reimbursement of was reasonable. See Wilson v. State Farm Mutual Automobile Insurance Company, No. 3:10-CV-256-H, 2011 U.S. Dist. LEXIS 63430 (W.D. Ky. June 15, 2011). Click here for a discussion of the Wilson decision. In light of the Zaleppa decision, the defendant insurer should pay the plaintiff settlement proceeds less any amount asserted by Medicare. It would also be a good practice to insure that the undisputed portion, if any, of Medicare’s interest is paid. With regard to the disputed portion, the insurer should put those monies in escrow pending a final decision by Medicare. In cases involving a plaintiff who may require future medical services, additional analysis is required.

Date of Decision: June 20, 2011
Mirabal v. Bard Access Systems, Inc., No. 2525, 2011 Phila. Ct. Com. Pl. LEXIS 147 (C.C.P. Philadelphia June 10, 2011).