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Medicare Second Payer Act

The opportunity to resolve a lawsuit can present itself at almost any time during the course of personal injury litigation. A case may settle shortly after the first demand letter is written, moments before the jury returns from deliberations, or somewhere in between. Regardless of when the settlement negotiations move from a possibility to a reality, it is in the best interests of the attorneys — and their respective clients — to keep Medicare’s interests in mind due to the implications and issues presented by the Medicare Secondary Payer Act.

Failure to do so could not only derail a potential settlement, but could also result in monetary penalties for recovery of funds paid by Medicare (including double damages) assessed after settlement against numerous “entities,” including the parties, lawyers, and healthcare providers. In other words, a litigant tortfeasor could be subject to the damages trifecta by compensating a plaintiff for his medical damages as part of a settlement agreement, then later finding itself on the hook to Medicare for twice the amount of those damages because no one considered Medicare’s interests prior to settlement.

Consider a scenario where a plaintiff suffers severe injuries, incurs significant damages, and vigorously pursues (and obtains) a trial date. Although the company that the plaintiff has sued vehemently disputes its liability, a jury could possibly return a seven-figure judgment if the case proceeds to trial. In addition to the potential judgment, the company also will incur substantial attorneys’ fees and other costs associated with serious trial preparation. As such, settlement negotiations ensue, and the parties agree that the company will pay an amount sufficient to cover the plaintiff’s $750,000 medical lien, pay attorneys’ fees and costs, and leave the seriously-disabled plaintiff approximately $250,000. Literally on the courthouse steps, the parties learn that the plaintiff’s employer intends to terminate the plaintiff’s benefits in exchange for the employer waiving part of a claim for reimbursement — thus making the plaintiff eligible for Medicare coverage. It also comes to light that the plaintiff may have already filed under Medicare or Medicaid without the knowledge of counsel or any of the parties. With these developments, is it advisable to consummate the settlement? If so, how should the settlement proceed and who should be involved? Or is the deal dead in the water?

This article discusses the ramifications when Medicare’s interests come into play and certain steps that may be taken to avoid the above situation.

I. What Is The Medicare Secondary Payer Act?

In 1980, Congress initiated a series of amendments to the Medicare Act, 42 U.S.C. §§ 1395-1395hhh in an effort to “reduce Medicare costs by making the government a secondary provider of medical insurance coverage when a Medicare recipient has other sources of primary insurance coverage.”1 The amendments are commonly known as the Medicare Secondary Payer provisions (MSP).2 The MSP provides that Medicare is precluded from paying for any item or service of medical care, for which it otherwise would have been obligated to pay, when payment has been made or can reasonably be expected to be made under a workers’ compensation plan, an automobile or liability insurance policy, a self-insured policy, or under no-fault insurance.3

Medicare is authorized, however, to make conditional payments for medical care when a primary plan has not made or cannot reasonably be expected to make payment promptly.4 A primary plan (or any entity that receives payment from a primary plan) is required to reimburse Medicare for any conditional payment “if it is demonstrated that such primary plan has or had a responsibility to make [the] payment.”5 Further, “[a] primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.”6

If a settlement is involved, Medicare’s claims must be paid up front out of the settlement proceeds before any distribution occurs, as Medicare has a priority right of recovery for conditional payments. If reimbursement is not made before the expiration of the 60-day period that begins on the date notice of, or information related to, a primary plan’s responsibility for such payment or other information is received (i.e., the settlement date), Medicare may charge interest on the amount of the reimbursement until reimbursement is made.7

The terms of the MSP were more concisely described in Fanning v. U.S., et al., 346 F.3d 386 (3rd Cir. 2003):

“[T]he MSP bars Medicare payments where ‘payment has already been made or can reasonably be expected to be made promptly’ by a primary plan. […] The MSP defines a ‘primary plan’ as ‘a workmen’s compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no-fault insurance.’ This provision ‘is intended to keep the government from paying a medical bill where it is clear an insurance company will pay instead.’ Second, the MSP provides that when Medicare makes a payment that a primary plan was responsible for, the payment is merely conditional and Medicare is entitled to reimbursement for it.”8

II. Does It Apply In My Case?

The short answer: Medicare’s interests must be considered in all appropriate tort and workers’ compensation settlements if the settlement involved payment of past and future medical bills. Passage of time is not an issue as there is no statute of limitations that affects this program.9

A. Workers’ Compensation Cases

For purposes of the MSP, workers’ compensation programs are primary payers of medical expenses for persons receiving workers’ compensation benefits for healthcare.10 There are two circumstances that trigger the requirement for Medicare approval in workers’ compensation cases: 1) when the injured party has been both Medicare-eligible since the time of his or her injury and when the injured person is 65 years of age or older or has been on Social Security disability for 24 months or longer and 2) when the gross settlement exceeds $250,000 and the injured party has a reasonable expectation of being Medicare-eligible within 30 months.

B. Liability Cases (Other than Workers’ Compensation Cases)

Prior to the enactment of the Medicare Prescription Drug, Improvement and Modernization Act in 2003 (MMA), courts across the country were split on the question of whether the MSP applied to liability settlements. In U.S. v. Baxter Int’l, 345 F.3d 866 (11th Cir. 2003), the U.S. government claimed that it had a right to recover Medicare’s conditional payments from the class action settlement proceeds in the nationwide breast implant litigation. The parties had reached a settlement without considering or protecting Medicare’s right of recovery for payments it had made to treat the plaintiffs’ implant-related injuries.11 The Eleventh Circuit Court of Appeals held that Medicare did have a right to recover from the liability settlement proceeds.12

Other circuits disagreed. Courts in cases such as Thompson v. Goetzmann, 337 F.3d 489 (5th Cir. 2003) and In re Orthopedic Bone Screw Prod. Liab. Litig., 202 F.R.D. 154 (E.D. Pa. 2001) held that the MSP did not apply to third-party liability settlements because a litigant tortfeasor could not be expected to pay “promptly” as required by the MSP; therefore, the settlement fund could not be considered a “primary plan” and Medicare could not recover its payments from the liability settlement proceeds. Moreover, the Bone Screw Court held that an entity that funds its own liability insurance settlement is not a “self-insured” plan under the MSP.13

The enactment of the MMA and its amendments to the MSP, however, resolved these conflicting decisions. See Brown v. Thompson, 374 F.3d 253, 258 (4th Cir. 2004). In Brown, a Medicare beneficiary entered into a settlement agreement in a medical malpractice action and then sought to prevent Medicare from recovering its conditional payments by arguing that 1) a litigant tortfeasor could not be expected to pay “promptly” and 2) the defendant was not “self-insured” as defined by the MSP.14 The court held that the new language of the MMA “plainly entitles Medicare to reimbursement of any payment it makes for medical services if a primary plan later pays for those services as part of a settlement agreement — regardless of whether that primary plan could have been expected to pay promptly when medical services were provided.”15 The court further held that the MMA clarified the definition of “self-insured” to include “[a]n entity […that] carries its own risk […] in whole or part.”16 The court also pointed out that the very purpose of the new definition of “self-insured” in the MMA was “to remedy the effects of ‘recent court decisions’ that would allow ‘firms that self-insure for product liability’ to be ‘able to avoid paying Medicare for past medical payments related to the claim.’”17 The Brown case casts aside any doubt that the MSP is applicable to thirdparty liability settlements funded by a self-insured tortfeasor.

While the Center for Medicare and Medicaid Services (CMS) does not presently require review and approval of liability settlements, review of a settlement in such cases is the only way to avoid future problems and to ensure that Medicare deems its interests adequately protected. While CMS suggests this process takes between 45 and 60 days, the reality could be much longer.

III. What Duties Do I Have?

If you learn that Medicare has made a payment for one or more of the settling plaintiffs’ medical expenses, then you have an affirmative duty to notify Medicare of the mistaken Medicare payment and the liability settlement:

(a) If a third party payer learns that CMS has made a Medicare primary payment for services for which the primary payer has made or should have made primary payment, it must give notice to that effect to the Medicare intermediary or carrier that paid the claim […]

(c) If a plan is self-insured and self-administered, the employer must give notice to CMS. Otherwise, the insurer, underwriter, or third party administrator must give the notice.18

The reporting requirements of involved parties appear to have grown recently. On December 29, 2007, President Bush signed Senate Bill 2499 into law. Section 111 of the bill is of particular interest as it amended, among other things, submission requirements related to the Medicare Secondary Payer Act. Notably, the amendment states the following:

(A) Requirement – On and after the first day of the first calendar quarter beginning after the date that is 18 months after the date of the enactment of this paragraph, an applicable plan shall —

(i) determine whether a claimant (including an individual whose claim is unresolved) is entitled to benefits under the program under this title on any basis; and

(ii) if the claimant is determined to be so entitled, submit the information described in subparagraph (B) with respect to the claimant to the Secretary in a form and manner (including frequency) specified by the Secretary.

(B) Required Information – The information described in this subparagraph is —

(i) the identity of the claimant for which the determination under subparagraph (A) was made; and

(ii) such other information as the Secretary shall specify in order to enable the Secretary to make an appropriate determination concerning coordination of benefits, including any applicable recovery claim.19

Although not yet tested, the above language has been interpreted to mean that parties must determine whether a plaintiff is entitled to Medicare benefits and, if so, advise the government when a liability dispute involving said claimant(s) is resolved through a settlement, judgment, or otherwise, regardless of whether or not there is a determination of liability. Failure to timely report could involve severe penalties.

The duty to ascertain the existence of a Medicare claim cannot be placed on someone else. If the primary payer fails to reimburse Medicare for such claim, “the third party payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.”20

IV. But Does It Have Teeth?

Again, the short answer is the best answer: Yes, it does have teeth and cannot be ignored. The MSP authorizes the U.S. government to recover Medicare conditional payments as followed:

(iii) Action by United States. In order to recover payment made under this title for an item or service, the United States may bring an action against any or all entities that are or were required or responsible (directly, as an insurer or self-insurer, as a third-party administrator, as an employer that sponsors or contributes to a group health plan, or large group health plan, or otherwise) to make payment with respect to the same item or service (or any portion thereof) under a primary plan. The United States may, in accordance with paragraph (3)(A), collect double damages against any such entity. In addition, the United States may recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity […].21

Indeed, “CMS has a direct right of action to recover” from any primary payer.22 Moreover, pursuant to the recent amendment regarding reporting requirements, individuals who fail to follow said requirements “shall be subject to a civil money penalty of $1,000 for each day of noncompliance with respect to each claimant.”23 To put it bluntly, ignoring Medicare’s statutory right to recovery could result in monetary penalties to plaintiffs, lawyers, and healthcare providers.

V. What Steps Can I Take?

One should err on the side of caution and consider all scenarios to determine if Medicare has provided or will provide the claimant with any coverage for injuries or medical expenses which may be related to the litigation. At the outset, with each individual case, one should always refer to the statutes and regulations to determine the law and guidelines applicable to a particular situation, as the steps necessary to protect the company’s interests and Medicare’s interests will ultimately depend on the facts of each case. Some suggestions and starting points follow:

1. Early on in the discovery process, you should include specific interrogatories and requests for admissions directed to the plaintiff on this matter. Inquire whether the plaintiff currently is a Medicare beneficiary, whether the plaintiff ever has been a Medicare beneficiary, whether the plaintiff reasonably expects to become a Medicare beneficiary, whether the plaintiff ever has sought such benefits/filed a claim/etc., and whether Medicare has any kind of lien. You may find it advisable to include a note reminding the respondents of their continuing obligation to advise you if the plaintiff’s circumstances change or if the plaintiff becomes aware of additional material information relative to the discovery requests.

2. If the settling plaintiff is not on Medicare, has never been on Medicare, and has no reasonable expectation of being on Medicare, then the MSP provisions do not come into play and Medicare consideration is not necessary.

3. If the settling plaintiff is on Medicare at the time of the settlement and the possibility exists that Medicare paid some of the plaintiff’s medical treatment, then the safest alternative is to notify Medicare of the settlement. Note that if a party learns that CMS made a Medicare payment that the primary payer has made or should have made, then the decision to notify Medicare is no longer optional and timely notice must be given to the Medicare intermediary or carrier that paid the claim; if the plan is self-insured and self-administered, notice must be given to CMS prior to the distribution of any settlement proceeds.

4. If a medical set-aside is necessary due the possibility of payment of future medical expenses, then Medicare should be notified of the settlement so that an agreeable set-aside amount can be determined.

What about settlement situations that arise when it is unknown whether Medicare has made a payment that another payer should have made — despite your excellent discovery requests? One alternative would be to draft the release in a manner that places the liability of paying any conditional payments on one or more parties and/or their attorney(s). Of course, this approach — agreements notwithstanding — does not totally insulate the parties because the United States still could initiate an action against the entities that are or were required or responsible to make payment under a primary plan — and seek double damages.

Parties also may be faced with the possibility of Medicare determining that a large amount of money be set aside to cover future expenses — so large in some cases that the amount may kill the settlement deal, as referenced in the scenario cited at the beginning of this article. In that case, again, the parties may include language in the release that allows either party to withdraw from the settlement if they disagree with the set-aside amount. Of course, this approach recognizes that some time will pass before determination of a set-aside is made; nevertheless, it moves resolution of the case forward and provides a viable means to, at a minimum, stay the prospect of additional, and quite possibly unnecessary, discovery and trial expenses while a set-aside determination is made.

VI. Conclusion

Prior to the inevitable time when the issue of settlement is broached, you already should have considered — and conducted discovery concerning — any potential Medicare implications. Clients should be well-briefed on the issues so as to fully understand the obligations, time restrictions, and potential penalties. Likewise, candor at the outset with opposing counsel may assist in both parties’ understanding the many facets of the statute and will likely assist in resolution of the case to the satisfaction of all parties. Because the United States could proceed against any entity — including the plaintiff’s attorney — this may be the one issue on which both sides may agree.


[i] Thompson v. Goetzmann, 337 F.3d 489, 495 (5th Cir. 2003).

[ii] Brown v. Thompson, 374 F.3d 253, 257 (4th Cir. 2004).

[iii] 42 U.S.C. § 1395y(b)(2)(A); 42 C.F.R. §411.50.

[iv] 42 U.S.C § 1395y(b)(2)(B)(i).

[v] 42 U.S.C. § 1395y(b)(2)(B)(ii).

[vi] Id.; see also 42 C.F.R. § 411.22(b)(3): “A primary payer’s responsibility for payment may be demonstrated by […] a settlement […].”

[vii] Id.; see also 42 C.F.R. § 411.24.

[viii] Citations omitted.

[ix] 42 C.F.R. § 411.24(f) (2006).

[x] 42 U.S.C. § 1395y(b)(2)(A); 42 C.F.R. § 411.40-45.

[xi] U.S. v. Baxter Int’l, 345 F.3d 866 (11th Cir. 2003).

[xii] Id.

[xiii] Bone Screw, 202 F.R.D. at 165-66.

[xiv] Brown v. Thompson, 374 F.3d 253, 258 (4th Cir. 2004).

[xv] Id. at 258.

[xvi] Id. at 261-62.

[xvii] Id. at 262 (citing H.R. Rep. No. 108-178(II), at 189-90.).

[xviii] 42 C.F.R. § 411.25.

[xix] 42 U.S.C. § 1395y(b)(8)(A-B).

[xx] 42 C.F.R. § 411.24(i)(1).

[xxi] 42 U.S.C. § 1395y (emphasis added).

[xxii] 42 C.F.R. § 411.24(e).

[xxiii] 42 U.S.C. § 1395y(b)(8)(E)(i).

Finis

Citations

  1. Thompson v. Goetzmann, 337 F.3d 489, 495 (5th Cir. 2003). Jump back to footnote 1 in the text
  2. Brown v. Thompson, 374 F.3d 253, 257 (4th Cir. 2004). Jump back to footnote 2 in the text
  3. 42 U.S.C. § 1395y(b)(2)(A); 42 C.F.R. §411.50. Jump back to footnote 3 in the text
  4. 42 U.S.C § 1395y(b)(2)(B)(i). Jump back to footnote 4 in the text
  5. 42 U.S.C. § 1395y(b)(2)(B)(ii). Jump back to footnote 5 in the text
  6. Id.; see also 42 C.F.R. § 411.22(b)(3): “A primary payer’s responsibility for payment may be demonstrated by […] a settlement […].” Jump back to footnote 6 in the text
  7. Id.; see also 42 C.F.R. § 411.24. Jump back to footnote 7 in the text
  8. Citations omitted. Jump back to footnote 8 in the text
  9. 42 C.F.R. § 411.24(f) (2006). Jump back to footnote 9 in the text
  10. 42 U.S.C. § 1395y(b)(2)(A); 42 C.F.R. § 411.40-45. Jump back to footnote 10 in the text
  11. U.S. v. Baxter Int’l, 345 F.3d 866 (11th Cir. 2003). Jump back to footnote 11 in the text
  12. Id. Jump back to footnote 12 in the text
  13. Bone Screw,202 F.R.D. at 165-66. Jump back to footnote 13 in the text
  14. Brown v. Thompson, 374 F.3d 253, 258 (4th Cir. 2004). Jump back to footnote 14 in the text
  15. Id. at 258. Jump back to footnote 15 in the text
  16. Id. at 261-62. Jump back to footnote 16 in the text
  17. Id. at 262 (citing H.R. Rep. No. 108-178(II), at 189-90.). Jump back to footnote 17 in the text
  18. 42 C.F.R. § 411.25. Jump back to footnote 18 in the text
  19. 42 U.S.C. § 1395y(b)(8)(A-B). Jump back to footnote 19 in the text
  20. 42 C.F.R. § 411.24(i)(1). Jump back to footnote 20 in the text
  21. 42 U.S.C. § 1395y (emphasis added). Jump back to footnote 21 in the text
  22. 42 C.F.R. § 411.24(e). Jump back to footnote 22 in the text
  23. 42 U.S.C. § 1395y(b)(8)(E)(i). Jump back to footnote 23 in the text