Despite State Court Order, NJ Federal Court Finds Plaintiff Responsible for Conditional Payments

On June 12, 2013, the United States District Court for the District of New Jersey published its opinion in Taransky v. Sebelius, finding that the Court lacked subject matter jurisdiction over Ms. Taransky’s “due process” and “proportionality” claims, as Ms. Taransky failed to administratively exhaust these claims. Additionally, the Court concluded that despite state trial court’s order on a stipulation allocating settlement recovery to non-medical expenses, Ms. Taransky received payment from a “primary plan” responsible for payment of her medical expenses that had been covered by Medicare. As a result, Ms. Taransky is required to reimburse Medicare $10,121.15 pursuant to the MSP Act.

This case arose from a trip-and-fall accident that occurred on November 7, 2005 in Mount Laurel, New Jersey. Ms. Taransky was injured and, as a result, the federal Medicare program paid $18,401.41 in conditional payments.  Ms. Taransky sued the owners and operators of the shopping center on October 26, 2007, seeking damages for her personal injury losses. On October 26, 2009, Ms. Taransky settled the claims against these tort defendants in return for a lump-sum payment of $90,000.00.

Following the settlement, Ms. Taransky’s counsel filed a “Motion to Adjudicate Allocation of Settlement Proceeds” in the Superior Court of New Jersey, in Burlington County, that included a proposed order stating that “no portion of this recovery obtained by plaintiff in this matter is attributable to medical expenses or other benefits compensated by way of a collateral source.” In addition to the proposed order, Plaintiff’s counsel filed a “certification,” in which he stated that “New Jersey law does not permit a plaintiff’s tort recovery of losses (such as medical expenses) that have been compensated by way of collateral sources of benefits, such losses were not considered in settlement negotiations between the parties to this action and are not part of any recovery that may be obtained.” The state court entered the proposed order on November 20, 2009.

On December 8, 2009, the Medicare Secondary Payer Recovery Contractor, on behalf of the Centers for Medicare and Medicaid Services (“CMS”), sent Ms. Taransky a letter request that she reimburse Medicare $10,121.15. She disagreed and on January 4, 2010, Ms. Taransky sought redetermination from the Medicare Secondary Payer Recovery Contractor. The request was  denied by letter dated March 30, 2010. Ms. Taransky again sought redetermination of Medicare’s reimbursement decision, which a “Qualified Independent Contractor” affirmed via letter dated October 15, 2010. Ms. Taransky then proceeded before an Administrative Law Judge (“ALJ”) by way of telephonic hearing on March 9, 2011.

Ms. Taransky made the following arguments before the ALJ: (1) under the Medicare Secondary Payer Manual, Chapter 7, § 50.4.4, “the only situation in which Medicare recognizes allocations of liability payments to non-medical losses is when payment is based on a court order on the merits of the case” and that Medicare must defer to the state court’s allocation order because through its order, “the state court issued a decision on the merits of the case in which it allocated no part of the settlement to medical expenses or other benefits by way of a collateral source”; (2) the New Jersey Collateral Source Statute (“NJCSS”) “prohibits a plaintiff’s tort recovery from including any insured loss, apart from worker’s compensation and life insurance benefits” and as such, the Medicare payments were a collateral source and a New Jersey court would be legally prohibited from including them in any verdict; (3) Medicare is obligated to abide by the state court’s order; and (4) “reimbursement would be inequitable and that it would be unfair for Medicare to be ‘made whole’ for its expenditures from the already inadequate compensation received by the Beneficiary.”

The ALJ analyzed and rejected those arguments in its opinion issued April 15, 2011, finding that the state court’s order was not “on the merits” of the case, as it was issued pursuant to a stipulation of the parties and Medicare is therefore not required to defer to the state court’s order. Further, the ALJ determined that the NJCSS does not apply to conditional Medicare benefits. Therefore the Collateral Source Statute does not affect the Beneficiary’s legal obligation to reimburse Medicare. Thus, the ALJ rejected Ms. Taransky’s arguments and determined that she was liable for repayment of Medicare’s conditional payments.

Ms. Taransky appealed the ALJ’s determination to the Medicare Appeals Council (“MAC”), who rendered its decision on May 11, 2010, finding “no error in the ALJ’s decision.” Accordingly, the MAC adopted the ALJ’s decision “in its entirety” and added a discussion of a then-recently decided case, Mason v. Sebelius, No. 11-2370, 2012 U.S. Dist. LEXIS 40592, 2012 WL 1019131 (D.N.J. Mar. 23, 2012) (Simandle, J.) In addition, the MAC made a factual finding that “the $90,000 settlement in this case and the accompanying release of all claims against the defendants included compensation for medical expenses already paid for by Medicare with conditional payments.”

On July 16, 2012, Ms. Taransky filed the instant lawsuit, through which she asserted claims for “declaratory judgment and injunctive relief,” “violation of due process rights under the Fifth and Fourteenth Amendments to the Constitution,” and “for unjust enrichment.” Ms. Taransky also sought relief on behalf of a “class of all other persons similarly situated who had obtained tort recoveries subject to New Jersey law and were subjected to improper claims for reimbursement of Medicare out of their personal injury recoveries.”

On November 7, 2012, Defendants moved the Court to dismiss Ms. Taransky’s Complaint, or, in the alternative, enter an order of summary judgment in favor of Defendants. The Court heard oral argument in this matter on May 13, 2013. The Court’s findings are as follows:


1. Subject Matter Jurisdiction and Proportionality


In bringing their motion to dismiss under Federal Rule of Civil Procedure 12(b)(1), Defendants asserted a factual challenge to the Court’s subject matter jurisdiction over Ms. Taransky’s claim “for violation of due process rights under  the Fifth and Fourteenth Amendments to the Constitution.” Defendants contended that 28 U.S.C. § 1331 does not confer jurisdiction over these claims that arise under the Medicare Act, and because Ms. Taransky has failed to pursue these claims through the Medicare administrative process, the Court does not have subject matter jurisdiction.

Plaintiff argued that her due process claims are properly before the Court because the basis for her constitutional claims “is not the adverse CMS administrative decision nor even the availability of the CMS administrative process per se,” but that “CMS administrative procedures fail to address the issue of its systemic disregard for the limits of statutory authority” and renders “those administrative procedures fundamentally flawed.” In contrast, Defendants direct the Court to Mason v. Sebelius, No. 11-2370, 2012 U.S. Dist. LEXIS 40592, 2012 WL 1019131 (D.N.J. Mar. 23, 2012), where Judge Simandle concluded that the claim was “one ‘arising under’ the Medicare act and the third sentence of § 405(h) therefore deprives the Court of federal question jurisdiction.” The Court agreed with Judge Simandle’s reasoning that this “due process” claim arose under the Medicare Act. Further, Ms. Taransky had ample opportunity to channel her constitutional claim throughout the administrative process, and she had not shown otherwise. Accordingly, the Court granted Defendants’ motion to dismiss Ms. Taransky’s Due Process claim.

Ms. Taransky argued for the first time before the Court that, under Arkansas Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 126 S. Ct. 1752, 164 L. Ed. 2d 459 (2006), Defendants’ entitlement to reimbursement should be “limited to the amount actually recovered by a beneficiary in respect of medical expense, or, where no such allocation is made, a proportionate share of the recovery.” Defendants contended that this argument was not properly before the Court because Plaintiffs failed to administratively exhaust the claim. The Court agreed. Its review of the administrative record reveals that Plaintiff did not raise her Ahlborn / proportionality claim during the administrative process, yet, for the first time, asked the Court to limit Defendants’ entitlement to Medicare reimbursement. Because Plaintiff had not administratively exhausted the claim as required under Section 405(g), it was not properly before the Court and the Court therefore lacked jurisdiction to consider it.


2. Medicare Reimbursement Claims

Defendants next sought dismissal or an entry of summary judgment on Plaintiff’s fully-exhausted claims for  “Declaratory Judgment and Injunctive Relief” and “Unjust Enrichment,” through which Plaintiff challenged the Medicare Appeals Council’s decision to uphold Medicare’s reimbursement claim. Specifically, Ms. Taransky sought from the Court a “reversal of the MAC decision; a judgment relieving her of liability to reimburse the Medicare program to that portion of her tort recovery representing the primary plan’s demonstrated responsibility for medical expenses covered by the program; and a refund of all monies improperly paid to defendants in respect of the Medicare reimbursement claim.” Ms. Taransky also asked for relief on behalf of a “class of all other persons similarly situated who had obtained tort recoveries subject to New Jersey law and were subjected to improper claims for reimbursement of Medicare out of their personal injury recoveries.”

Defendants asserted that they were entitled to an entry of summary judgment upholding the MAC’s decision and they again point to Judge Simandle’s opinion in Mason v. Sebelius, No. 11-2370, 2012 U.S. Dist. LEXIS 40592, 2012 WL 1019131, (D.N.J. March 23, 2012), which, as previously discussed, confronted many of the issues raised in this case. In Mason, Judge Simandle engaged in a thorough review of the MSP, the NJCSS, and New Jersey case law and ultimately found that the New Jersey Supreme Court would likely conclude that conditional Medicare benefits subject to reimbursement are not a collateral source under the NJCSS and therefore does not apply to exclude conditional Medicare benefits from a tort settlement or judgment.

The Court found that the MAC and ALJ properly addressed the issue of the state allocation order. The MAC adopted the ALJ’s decision in its entirety, including the ALJ’s conclusions with regard to the state court’s allocation order. In rendering its decision, the ALJ addressed Ms. Taransky’s attempt to apply the Medicare Secondary Payer Manual, Chapter 7, § 50.4.4 to her case, as she did again in arguing the instant case before the Court. This section provides, in relevant part, that “[t]he only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court order on the merits of the case.” Ms. Taransky asserted, as she does here, that “through an Order to Adjudicate the Allocation of Settlement Proceeds, the state court issued a decision on the merits of the case in which it allocated no part of the settlement to medical expenses or other benefits compensated by the way of a collateral source” and Medicare must therefore recognize this allocation.

However, the ALJ properly rejected this argument, reasoning that, “on the merits’ means, a court order delivered after a court has heard and evaluated the evidence and the parties’ substantive arguments.” The ALJ determined that the state court’s order “was not made pursuant to a determination by a court of any substantive issue with respect to a primary negligence suit, including determinations regarding fault or damages” and “[i]nstead, the Order was issued pursuant to a stipulation of the parties” and “the Beneficiary cannot cancel out her legal duties through a stipulation with a third party.” Here, the Court found that the ALJ properly reached its conclusion that the state court’s order, entered upon a stipulation of the parties, did not constitute a “court order on the merits of the case” as contemplated under Chapter 7, § 50.4.4 of the Medicare Secondary Payer Manual. Accordingly, this conclusion, coupled with the MAC’s factual determination that the settlement included compensation for medical expenses already paid for by Medicare with conditional payments, which this Court must regard as “conclusive” under Section 405(g), lead the Court to affirm the MAC’s decision.

This case illustrates the fundamental principle that Medicare’s interests cannot be stipulated away by the parties to tort litigation. It reinforces Medicare’s rights as paramount despite judicial approval of settlement documentation. Additionally, it seemingly settles the issue regarding Medicare benefits as a collateral source in New Jersey, holding that conditional Medicare benefits subject to reimbursement are not a collateral source and therefore cannot apply to exclude conditional Medicare benefits from a tort settlement or judgment.

Medicare Conditional Payments Case Law

Despite Case Law, CMS Adamant Part C & D Private Carriers Have Same Right of Recovery on Conditional Payments as US and HHS

Resolution of Medicare Conditional Payments remains a concern for all involved. Whether plaintiff or plaintiff’s counsel, defendant, insurer, or defendant/insurer’s counsel, resolution of Medicare Conditional Payments continues to slow the settlement process, and sometimes spoils potential settlement. In addition to governmental entities such as the United States (US), the Department of Health and Human Services (HHS), and the Centers for Medicare and Medicaid Services (CMS), we can now add  Medicare Advantage Organizations (MAOs) and Prescription Drug Plans (PDPs),  Medicare Part C and Part D private carriers, as entities that parties will have to deal with regarding Medicare secondary payment subrogation rights as these private carriers begin seeking reimbursement for payments made for services in which Medicare is a secondary payer.

On December 5, 2011, Danielle R. Moon, J.D., M.P.A., Director, Medicare Drug & Health Plan Contract Administration Group, and Cynthia Tudor, Ph.D., Director, Medicare Drug Benefit and C&D Data Group, of the Centers for Medicare and Medicaid Services published a memorandum to all of the Medicare Advantage Organizations and Prescription Drug Plan Sponsors regarding Medicare Secondary Payment Subrogation Rights for Part C and Part D private carriers seeking reimbursement for payments made for services in which Medicare is a secondary payer.

The memorandum summarizes CMS’ regulations giving MAOs and PDPs the right, under existing Federal law, to collect for services for which Medicare is not the primary payer. The memorandum mentions recent decisions where several courts have challenged Federal regulations governing these collections. Specifically, the memo mentions that several MAOs have not been able to take private action to collect for Medicare Secondary Payer (MSP) services under Federal law because they have been limited to seeking remedy in State court.

Although not specifically mentioned, the memo may have been speaking about cases such as Humana Medical Plan v. Reale, decided on January 31, 2011, by the Federal Southern District Court in Florida, in which the Court concluded it lacked subject matter jurisdiction over Humana’s complaint requesting reimbursement of conditional payments it made. The Court concluded that under 42 U.S.C. 1395y(b)(2)(B)(i), the United States is the only entity vested with full authority to bring an action for reimbursement, not the Secretary. Therefore, the court concluded that because the Secretary does not have the authority to bring such action, Humana did not have the authority either.

In the case, Plaintiffs Humana Medical Plan, Inc. (Humana), was the Medicare Advantage organization that administered Medicare benefits to Medicare beneficiaries who are enrolled in the Medicare Advantage program. In April 2009, Humana paid Defendant Mary Reale (Reale), a Medicare Advantage program participant, certain Medicare benefits in the amount of $19,155.41 to cover Reale’s medical expenses incurred as a result of a slip and fall. Shortly after her fall, Reale filed suit against the Hamptons West Condominium Association and/or its insurer (the “Association”) to recover for her injuries.  The action between Reale and the Association eventually settled for an amount greater than $19,155.41. On May 17, 2010, Humana filed an Amended Complaint against Reale and her attorney, Donna B. Michelson, P.A., alleging that the Medicare Secondary Payer Act, 42 U.S.C. §1395y(b)(2), (MSP), entitled it to receive reimbursement of the $19,155.41 paid to Reale. Defendants argued that the case should be dismissed because 42 U.S.C. §1395y(b)(2) does not grant Humana a private cause of action and, as a result, the Court lacked subject matter jurisdiction.

Humana contended that the Court had subject matter jurisdiction because Humana’s alleged right to reimbursement under 42 U.S.C. § 1395y(b)(2) “present[s] an important and ‘substantial’ issue of federal law.” Section 1395y(b)(2) requires reimbursement to the “appropriate Trust Fund for any payment made by the Secretary . . . with respect to an item or service if it is demonstrated that such primary plan . . . had a responsibility to make payment with respect to such item or service.” 42 U.S.C. § 1395y(b)(2). Humana argued that 42 U.S.C. § 1395y(b)(2), coupled with 42 C.F.R. § 422.108(f), entitled it to reimbursement.

The court disagreed, indicating that a close reading of the federal regulation suggests otherwise. A Medicare Advantage organization, such as Humana, “will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations …” However, under 42 U.S.C. 1395y(b)(2)(B)(i), the Secretary’s authority is limited to making payments “conditioned on reimbursement to the appropriate Trust Fund.” Id. The United States is vested with full authority to bring an action for reimbursement, not the Secretary. 42 U.S.C. § 1395y(b)(2)(B)(iii).  Therefore, the Secretary does not have the authority to bring such action.

In order to recover payment made under the subchapter 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 authority to bring an action for reimbursement. Humana cannot claim such a right under 42 C.F.R. §422.108(f). Accordingly, the Court concluded Humana failed to bring a claim arising under federal law.

The memorandum however makes it clear that CMS’ regulations at 42 CFR § 422.108 describe MSP procedures for MAOs to follow when billing for covered Medicare services for which Medicare is not the primary payer. According to the memo, these regulations also assign the right (and responsibility) to collect for these services to MAOs. Specifically, §422.108(f) indicates that MAOs will exercise the same rights of recovery that the Secretary of  Health and Human Services (HHS) exercises under the original Medicare MSP regulations in subparts B through D of part 411 of 42 CFR.

The memorandum also indicates that these same regulations established in 42 CFR Section 411 supersede any State laws. Additionally, the MSP regulations at 42 CFR §422.108 are extended to Prescription Drug Plan (PDP) sponsors at 42 CFR §423.462. Accordingly, PDP sponsors have the same MSP rights and responsibilities as MAOs.

Notwithstanding recent court decisions like Humana Medical Plan v. Reale, in which the Court concluded it lacked subject matter jurisdiction over Humana’s complaint requesting reimbursement of conditional payments it made, and therefore finding the United States is the only entity vested with full authority to bring an action for reimbursement, CMS maintains that the existing MSP regulations are legally valid and an integral part of the Medicare Part C and D programs’ ability to recoup payments made for covered Medicare services for which Medicare is not the primary payer. As a result, plaintiff, plaintiff’s counsel, defendant, insurer, and defendant/insurer’s counsel will have to be prepared to deal with Medicare Advantage Organizations and Prescription Drug Plans,  Medicare Part C and Part D private carriers, regarding Medicare secondary payment subrogation rights as these private carriers begin seeking reimbursement for payments made for services in which Medicare is a secondary payer.


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About the Author: Rafael Gonzalez is Director of Medicare Compliance & Post-Settlement Administration. He brings over 20 years of experience in the Workers’ Compensation and Liability insurance industries with a specific focus on Medicare Compliance. Rafael has been responsible for all areas of Medicare Set Aside Allocations (MSAs) including the preparation of MSAs and their approval by the Center for Medicare & Medicaid Services.  At Gould & Lamb, Rafael’s duties include assisting clients with Medicare Compliance issues, specifically on Post-Settlement Administration and client education.

Gould & Lamb is a global leader of MSA/MSP Compliance Services in the country, serving domestic and international insurance companies, third-party administrators and self-insured entities.

Medicare Bill: H. R. 1063

Medicare H.R. 1063: The Strengthening Medicare and Repaying Taxpayers Act

Russell S whittle, Esq VP MSP ComplianceThe Medicare Advocacy Recovery Coalition MARC has drafted The Strengthening Medicare and Repaying Taxpayers (SMART) Act which was introduced to Congress on March 14, 2011. H.R. 1063 is a streamlined and, we hope, more palatable version of last year’s H.R. 4796, The Medicare Secondary Payer Enhancement Act of 2010. I was  honored to be present in Washington, D.C. on March 16, 2011 for a membership meeting and to discuss the SMART ACT with the offices of Representative Kathy Castor (D-FL) and Representative Michael H. Michaud (D-ME-2).

MARC has drafted and backed the legislation that proposes significant changes to the Medicare Secondary Payer Act, 42 USC 1395(y) et seq. Specifically, H.R. 1063, sponsored by Congressman Tim Murphy (R-PA), supports Medicare’s need to be reimbursed for conditional payments while simplifying the payment process and providing all parties to a claim much needed certainty and finality.

The Strengthening Medicare and Repaying Taxpayers Act - SMARTKey provisions of H.R. 1063 include a revision of the information flow so that a conditional payment demand occurs before settlement, a requirement that Medicare  provide the conditional payment amount to the requesting party within sixty five (65) days of a request, and a mechanism to establish a threshold below which Medicare recovery efforts would not ensue. Additionally, the bill provides that the current Medicare and Medicaid SCHIP Extension Act Section 111 Mandatory Insurer Reporting penalties of $1000.00 per claim per day be discretionary and based upon the Responsible Reporting Entity’s – RRE’s willful failure to report pursuant to that section. It further protects against beneficiaries’ having to disclose their Social Security Numbers – SSN or Health Insurance Claim Number – HICN. Like H.R. 4796, an internal appellate process is available to contest the amount sought to be recovered.

H.R. 1063 brings certainty to the conditional payment process by imposing rigid time  constraints on Medicare to act within a fixed time frame which provides settling parties needed information required to resolve their claims. As with H.R. 4796, the certainty imposed by the bill does not come without cost, however. In seeking to bring concrete time frames to Medicare subrogation interests, the bill adds a layer of litigation. In order to successfully appeal Medicare’s reimbursement amount, a beneficiary must resort to the legal process, ending in district court. Despite the statutory certainty of the demand process, litigants would be forced to decide whether the amounts requested by Medicare are sufficiently large and unsupported enough to consider litigating the conditional payment amounts themselves. This extends the time for receipt of settlement dollars, the underlying litigation and prolongs the claim itself.

Gould and Lamb believes that H.R. 1063 deserves the support of the Medicare compliance industry. Any measure designed to ensure timely responses by the MSPRC (Medicare Secondary Payer Recovery Contractor) is welcome and long overdue. The MARC Coalition has created a bill which will help litigants and the Medicare compliance  industry timely receive the critical information required for resolution of the claim. This will result in reducing the time a claim remains open, the benefits paid during the pendency of the claim and will return much need funds to a federal system in serious financial distress. Please visit the MARC website for more information.

Medicare Set Aside Appropriate in Liability Case

Louisiana District Court Agrees that a Medicare Set Aside is Appropriate in a Liability Case

Louisiana State SealUnited States Magistrate Judge Patrick J. Hanna, and members of the United States District Court for the Western District of Louisiana recently interpreted the requirements of the Medicare Secondary Payer Act as it relates to the Medicare’s future interests in  Big R Towing, Inc. v. Benoit, et al., No. 10-538, 2011 U.S. Dist. LEXIS 1392 (W.D. La. Jan. 5, 2011).

The Medicare Compliance industry has been eagerly awaiting any ruling interpreting the Mandatory Secondary Payer (MSP) Act as it relates to Medicare’s interest in settlements or awards that address the future medical component of a Beneficiary’s care.  Much debate has centered on the lack of concrete statutory language obligating the parties to a liability settlement to consider Medicare’s interests by allocating or setting aside a portion of the plaintiff’s settlement funds to address Medicare’s interests or to avoid responsibility for ongoing care where a primary insurance source exists.  The Louisiana court made some clearly erroneous findings in Benoit but, more importantly, laid the groundwork for the liability insurance industry to take notice that the federal courts are beginning to look closely at the MSP Act as it relates to liability settlements and has, in at least in one district, determined that the Act requires Medicare’s interests be protected in the future medical component of a case.

In Benoit, the plaintiff was, at the time of a settlement conference, a Social Security Disability recipient. Correctly, the parties realized that due to SSDI eligibility, the plaintiff would soon be entitled to Medicare benefits. In what should be a more regular occurrence across the insurance industry, the parties agreed that Benoit would be responsible for protecting Medicare’s future interests under the Medicare Secondary Payer Act. The parties then made an oral motion for the court to determine Benoit’s future medical expenses in order to set aside funds to protect Medicare’s interests.

The court considered testimony from the medical providers in determining that $52,500.00 was to be “set aside” by Benoit to fund his future care (back surgery and a hip replacement) and before Medicare would be responsible for payment. Additionally, the court ruled that Benoit was also responsible to reimburse Medicare for any payments made on a conditional basis for medical expenses previously incurred.

Court Findings Have Potentially Far-Reaching Effects in Future Liability Settlements

The court made several findings of fact that, while ill informed regarding Medicare procedure, still have potentially far reaching effects. First, the court found that Medicare does not have a policy or procedure in effect for reviewing or providing an opinion on the adequacy of the future medical aspect of a liability settlement. Clearly, the evidence received by the court omitted the fact that seven of ten Medicare Regional Offices review liability Medicare set aside arrangements in liability cases. The Regional Office responsible for Louisiana cases is located in Dallas. Dallas has advised that they will review “large settlements” which may have applied to Mr. Benoit’s $150,000.00 aggregate settlement. Second, the court determined the adequacy of the set aside amount based upon what appears to be a rough estimation of the future care pursuant to the testimony of the medical providers as to the hospital and surgical fees only. Even a cursory investigation of the elements of a proper Medicare set aside arrangement would have established that future medical needs related to an injury may include durable medical equipment, post surgical follow up, physical therapy and, most importantly, medication. Those costs alone could conceivably double the amount testified to by the providers. While the court considered Medicare’s interests, it appears to have been done in a most superficial manner thus setting the stage for Medicare to closely examine any future expenditures requested on behalf of Mr. Benoit, should they be presented.

Court Rulings Concur That Medicare’s Future Interests Are To Be Protected

In its findings of law, the court again acknowledged the agreement, based on the MSP statute, that Medicare’s future interests were to be protected and that funds were to be set aside to protect those interests.

The Benoit case presents several significant issues in Medicare compliance as it relates to liability cases. Significantly, there was little to no debate among the parties to the litigation or from the court, that the Medicare Secondary Payer Act obligates the parties to protect Medicare’s future interests in a settlement. This type of agreement represents the exception rather than the rule in the liability context. While most of those familiar with the Act and the Medicare interpretation of it believe that the statute is so broad as to encompass Medicare’s future interests, there are many who would suggest that the opposite is true. Additionally, the parties also agreed that the proper vehicle by which to protect Medicare’s interests is a set-aside account. While experts will take issue with the manner by which the set aside amount was determined and the potential impermissible shifting of the conditional payment burden away from the primary payer, the case itself represents the beginning of what may become a paradigm shift in the way liability cases are handled. The courts, at least in Louisiana and aided by the intent of the parties, are beginning to acknowledge the long reach of the MSP statute and their obligations in protecting Medicare’s future interests in liability cases.

Medicare Secondary Payer Act PA Superior Court Ruling

Medicare Secondary Payer Act Sways  PA Superior Court Ruling

Pennsylvania State Seal www.statesymbolusa.orgThe Superior Court of Pennsylvania recently upheld a ruling in the Court of Common Pleas which has created somewhat of a stir in the Medicare Compliance industry in recent days. Those familiar with the Medicare Secondary Payer (MSP) Act, however, are not surprised by what the court made plain: MSP Compliance must not be merely an afterthought in tort litigation. MSP issues must be dealt with before the case goes to trial and, indeed, before settlement negotiations begin. The mere suggestion of a potential conditional payment lien is not enough, the court concluded, to hold off enforcement of a verdict. Further, the court found that a defendant cannot pursue lien rights that belong to the United States alone.

In Zaleppa v. Seiwell, defendant Seiwell backed her automobile into a vehicle occupied by plaintiff Zaleppa, causing personal injury. At the time of the accident, Zaleppa was sixty nine years of age and a Medicare beneficiary. A jury awarded Zaleppa $15,000.00, $10,000.00 of which was compensation for physical pain and suffering, mental anguish, etc.

After the verdict, Seiwell argued that the Medicare Secondary Payer Act required Medicare’s interests to be taken into account where conditional payments may have been made. On that basis, Seiwell requested that the court allow her (and her liability carrier) to include the plaintiff, her attorney and Medicare as a payee on the draft in satisfaction of the verdict or to pay the verdict into the court until Medicare notified the court that any lien was satisfied.

The trial court denied the motion, essentially finding that the defendant’s inaction regarding Medicare’s interests did not operate to stave off the enforcement of the verdict. On appeal, the Superior court nicely analyzed the MSP Act in addressing the core question: Can a private entity (Seiwell) assert the rights of the United States government regarding potential Medicare reimbursement?

Court Rules that Obligation to Reimburse was Triggered Before Tort Litigation Established

Seiwell, quite correctly, argued that as the “primary plan” she and her liability carrier were responsible for conditional payments made to Zapella, if any. What Seiwell failed to establish, however, was the existence of a Medicare lien. The court specifically recognized that if a lien existed, MSP required the primary plan to reimburse Medicare. Significantly, the court found that a recovery demand letter, issued by Medicare, triggers the primary plan’s duty to reimburse Medicare yet also acknowledged that payment to the plaintiff triggers reimbursement rights. Despite the fact that liability is established upon payment of a judgment, the mere fact of liability for MSP does not entitle a party to post trial relief until the obligation to reimburse has been triggered.

In its analysis of the MSP, the court found that there is a fundamental difference between Medicare’s right of reimbursement and the obligation of a primary plan. Nothing in the MSP, they reasoned, authorizes a primary plan to assert Medicare’s rights as a method to guard against their own liability. Only the U.S. government is authorized to pursue its own right of reimbursement.

The Pennsylvania court also added its “two cents” to the body of case law on conditional payments. Where Medicare’s interests are raised, the primary plan must show both the existence of a lien by affirmative evidence (a Medicare lien letter) but are not empowered to pursue Medicare’s interests under the private cause of action until they are actually damaged.

PA Court’s Decision Illustrates That Ignorance or Neglect of Medicare’s Interests Carries Consequences

The Pennsylvania decision again illustrates the fact that ignorance or neglect of Medicare’s interests has dire consequences. In the Seiwell case, had the primary plan taken the simple step of requesting and receiving a lien amount from Medicare, the interests of the U.S. government would have been placed at issue and addressed in the verdict phase. Instead of seeking to limit liability by raising Medicare’s interests until after a verdict is entered, parties must be aware that Medicare reimbursement must be addressed in every case. The Seiwell case is yet another example of what is becoming an increasingly clear message: Medicare’s interests must be identified and dealt with as early as possible and to ensure compliance and avoid penalties.