NYC Ethics Opinion Foreshadows MSP Conditional Payment Liability Claims Conflict

The New York City Bar issued an ethics opinion on November 8, 2010 advising that it may be unethical for a plaintiff attorney to agree, in addition to plaintiff, to indemnify and hold harmless an insurance carrier for third-party claims against the proceeds of a settlement. Third party claims would include Medicare and Medicaid liens. Third party claims would include Medicaid and Medicare Secondary Payer (MSP) liens.

The opinion interpreted, Rule 1.8(e)(1) of the New York Rules of Professional Conduct (the “Rules”) as bearing directly on the question of whether, and to what extent, an attorney may provide financial assistance to a client in connection with pending or contemplated litigation. The rule provides that “While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to the client, except that . . . a lawyer may advance court costs and expenses of litigation, the repayment of which may be contingent on the outcome of the matter….”

An ethics opinion is not entitled to the force of law but can be used to regulate attorney behavior, even in New York City. As it constitutes an “ethics opinion” plaintiff’s attorneys could receive sanctions and/or be disciplined by the New York Bar Association for engaging in prohibited conduct, but a court of law could not, in its own right, enforce an ethics opinion. Despite the threat of sanctions, the opinion itself shows little familiarity with the realities of the Medicare Secondary Payer Act.

Plaintiff’s Attorneys Can Be Held Liable for MSP Conditional Payments

The MSP Act is unequivocal in its plain terms: plaintiff’s attorneys can and will be held personally liable for any conditional payments not resolved at the time of settlement, judgment or award. We have seen this play out in U.S. v. Harris wherein the plaintiff attorney was held personally liable for MSP conditional payments that had not been repaid to Medicare.

The question, based upon the MSP Act and the reported conditional payment litigation then becomes: Is an agreement to indemnify the carrier for any conditional payments “financial assistance” to the plaintiff when the plaintiff attorney is held equally liable for repayment of conditional payments to Medicare as is his or her client?

It seems fairly clear that the NY City Bar did not fully understand that a plaintiff attorney is equally liable for MSP conditional payments under the MSP in any case. Additionally, the New York City Bar Association did not seemingly consider the realities of the MSP conditional payment process and fact that the parties are rarely informed of conditional payment exposure before negotiation begins.

CMS delays in processing and communicating MSP conditional payment lien amounts have routinely taken up to 120 days across the industry. Because of the overwhelming need to finalize settlements and as time is often of the essence, settlements are negotiated before the conditional payment amount is known. This results in plaintiff’s attorneys and plaintiffs themselves agreeing to indemnify and hold harmless the carrier for any Medicare conditional payments that may arise as there is clearly liability for all parties that participate in a settlement.

Ethics Opinion Ignores the Realities of Medicare Secondary Payer Tort Litigation

Clearly, the above cited ethics opinion seems to conflict with the MSP Act and ignores the reality of tort litigation. Gould and Lamb recommends attorney and plaintiff indemnification in regards to MSP conditional payments, as it obligates parties that are more likely to be financially viable against whom a carrier or self-insured entity may recover should obligations under the MSP Act be ignored.

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