Avoiding Medicare Liens by Allocating Damages in Personal Injury Settlements

With increasing enforcement of Medicare's right to reimbursements of payments made to treat injuries which are the subject of personal injury claims and frequent difficulties dealing with Medicare and its contractors in claiming to resolve those reimbursements rights, litigants, attorneys and state courts are struggling to find ways to ease and speed up the process of determining what amount Medicare is entitled to in reimbursement.

Efforts to resolve reimbursements issues without dealing directly with Medicare and its contractors have included entering into settlement agreements in which the parties to the injury claim provide specific allocations of damages as between economic and noneconomic losses in an attempt to limit Medicare reimbursements to the amount allocated for medical expenses. In some cases the parties have bought and obtained state court orders and sentences confirming those allocations of damages, and even court orders specifically condemning or limiting Medicare's reimbursements rights.

Those settlement agreements and court orders, however, are ineffective in limiting or denying Medicare's reimbursements rights and the parties and attorneys who enter into those agreements or seek those court orders face severe penalties for failing to comply with the Medicare Secondary Payer statute.

This topic was recently the subject of much discussion among personal injury attorneys in New York and in March 2010 New York Assistant US Attorney Robert Trusiak published an excellent article describing the legal issues and legal authority. The following discussion borrows heavily from Mr. Trusiak's article, which can be found at the website for the Buffalo Law Journal, March 25, 2010 issue.

The MSP statute (section 1862b of the Social Security Act) and regulations promulgated under that statute provide that workers' compensation, liability and no fault insurers and self-insurances made primary to Medicare for payment of medical expenses related to an offense if they make payment to a Medicare beneficiary as a result of that injury. Even if the payment is a settlement of a disputed and denied claim, the payment of the settlement makes the insurer or self-insurer primary to Medicare for treatment of that injury. Among other things, that means that the insurer or self-insurer must reimbursement Medicare for any past payments it made to treat the injury. The insurer and self-insurer must also protect Medicare's interests in any future payments to treat that injury.

The MSP statute and regulations also require the Medicare beneficiary and any attorney for the beneficiary to arrange for reimbursements of Medicare payments if there is a settlement of a personal injury for which Medicare payments were made.

The personal injury claim parties and attorneys have an existing obligation to notify Medicare of the claim and of the settlement and to arrange of reimbursements.

Failure to make reimbursements to Medicare can lead to a number of enforcement actions including denial of future benefits to the Medicare beneficiary, collection through other federal programs (tax refunds, other federal government benefits), direct action against a beneficiary, insurer, self-insurer or attorney and the Federal False Claims Act (FCA) enforcement actions discussed below. Penalties include double damage recoveries and interest as well as FCA penalies.

Medicare is entitled to reimbursements of its payments out of the entitlement settlement proceeds. Attempts to limit Medicare's recovery by designating only a portion of the settlement to reimbursement of medical expenses are ineffective as the allocation is not binding on Medicare. Medicare will only recognize and agree to limit its reimbursements based on damages allocations that are based on a court decision on the merits after a contested hearing. That agency position is entitled to "Chevron deference" by the courts under Chevron USA v. Natural Resources Defense Council Inc., 467 US 837 (1984). See Bradley v. Leavitt, 2009 WL 2216580 (MD Fla 2009).

MSP issues are exclusively within the province of the federal courts. There is no state court subject matter jurisdiction for a state court to adjudicate an MSP interest. There is no personal jurisdiction of a state court over the United States due to sovereign immunity. Warren v. Secretary of HHS, 868 F2d 1444 (5th Cir, 1989).

The False Claims Act (31 USC 3729) provides for treble damages and a mandatory penalty of $ 5,000 to $ 10,000 per false claim. Failure to meet an obligation owed to the federal government is a violation of the FCA. Failure to return Medicare is an obligation owed to the federal government. Qui tam actions under the FCA against parties to personal injury settlements who fail to reimburse Medicare are increasing and will increase exponentially after full implementation of the mandatory insurer reporting law currently in implementation. Each Medicare payment not reimbursed can be claimed as a separate false claim. It is not unusual for a single Medicare beneficiary to have had hundreds of Medicare payments made to cover treatment for a single injury. FCA penalties in a single "failure to return" case in which the total Medicare payments were less than $ 10,000 could add up to hundreds of thousands (if not millions) of dollars.

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Source by Christopher Gullen


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