Medicare Liens and Settlements Following United States v. Stricker

By Brandon E. Berg and | January 9, 2012

Reaching a settlement amount between the carrier and a plaintiff over a personal injury claim is sometimes the easiest part of a settlement where Medicare liens are involved. Medicare is a payer of last resort, which simply means everyone with a duty to pay, such as an insurance company, must pay before it does.

A payment may not be made by Medicare if it has been, or could be, made by another responsible party. If Medicare has already made a payment, it has a statutory right, either by subrogation or private cause of action, to recover those payments.

That’s simple, right?

A Little Background

In 2007, Congress addressed growing financial problems with Medicare by passing several statutory reforms that restated Medicare’s status as a payer of last resort. However, these statutes, Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA), unleashed arguably the largest and most intensive reporting requirements in Medicare history.

MMSEA requires that all entities that pay settlements or judgments to any personal injury plaintiff report that information to the Centers for Medicare and Medicaid Services (CMS). This reporting requirement places anyone who touches the proceeds of a settlement at risk for civil penalties and damages. Pay the wrong person and problems arise. Thus, parties to a settlement are not protected by indemnity and hold harmless clauses in the release because Medicare’s right to recovery trumps any other interests.

United States v. Stricker

In December 2009, the United States Government filed suit against two insurance companies and several other defendants for violations of the Medicare Secondary Payment Statute (MSP).

The MSP statute is a section of the Social Security Act that is used by Medicare to assert its payer of last resort status.

These defendants were party to a settlement agreement resolving a result of a large toxic tort suit and had allegedly failed to reimburse Medicare for conditional payments made for injuries to Medicare beneficiaries.

Arguably, the government could have brought suit against the individual Medicare beneficiaries, but chose not to do so, instead going after the corporate and insurance company payors. Although the case was dismissed because the government brought the case outside of the statute of limitations period, the case is still important because it provides valuable insight into how the government will proceed against entities accused of violating the MSP statute.

The basis of the government’s claim was that the settlement included 907 Medicare beneficiaries and that the various defendants failed to reimburse Medicare for conditional payments made by the Medicare program for medical treatment related to the claimed injuries as required under the MSP statute.

The total “global settlement” amount was $300 million. The government alleged that the defendants “knew or should have known that one or more of the claimants were Medicare-eligible individuals on whose behalf Medicare was entitled to recover any conditional payments.” And, as the amended complaint alleged further, the defendants failed to reimburse Medicare for conditional payments made under the MSP statute.

For these alleged violations, the government sought:

  1. Reimbursement of the alleged Medicare conditional payments, plus interest;
  2. Double damages against the defendants; and
  3. Declaratory relief against the defendants requiring them to give notice to CMS of all future payments to Medicare beneficiaries, and to ensure that they make appropriate payments to Medicare before any future settlement payments.

The Court’s Ruling

Karon Bowdre of the United States District Court for the Northern District of Alabama Eastern Division entered the opinion in U.S. v. Stricker (CV-09-2423) on Sept. 30, 2010.

In reaching its final ruling, the court assumed that the defendants were “primary payers” under the MSP statute. The court, however, acknowledged the statute of limitation defenses raised by the defendant. The defendants were deemed to have been subject to the three-year statute of limitations because they had no contractual relationship with the government, thus only the statutory obligation was triggered by the underlying tort claim.

The court rejected the government’s argument that the statute of limitations could not begin to run until the claimants returned sufficient releases to satisfy a participation threshold, instead focusing on the plain language of the MSP statute to time bar the claim.

A Guide and Warning

The decision in Stricker, which is unpublished, was based on the government’s ill timing in bringing the suit. While this defense protected the defendants here, if there was no limitations defense the result would likely have been very different. Thus, insurers and attorneys must use great caution when settling claims where there is the potential that Medicare beneficiaries may be included.

Although the defendants prevailed this time, the next defendants may not be so lucky. Therefore, Stricker should be considered as a guide and a warning.

Parties attempting to settle their claims, whether a mass tort, or a single case, should actively seek to determine whether the settlement involves any Medicare beneficiaries. This can be accomplished through adopting a formalized process to verify, resolve and satisfy conditional payment reimbursements, whether through use of a lien resolution administrator in mass torts, or through integrating a Medicare claims reimbursement process into individual settlements.

Stricker leaves much undetermined regarding the CMS’ policy and procedures in pursuing these claims. Will the CMS pursue reimbursement on a $10,000 settlement or judgment? Why did it decide not to sue the Medicare beneficiaries also? These are among the issues that will be answered by cases following Stricker.

In light of its new enforcement rules, if Medicare has paid any portion of the plaintiff’s medical expenses, you must take steps to protect yourself against the statutory Medicare lien:

  1. Determine through discovery whether or not the plaintiff’s medical expenses have been paid by Medicare.
  2. Do not agree to settlement language that purports to establish that the settlement is made for pain and suffering only. Plaintiff’s counsel may be trying to circumvent the Medicare lien, and doing so places the defendant at risk for the reimbursement or double the settlement. There may also be tax reasons behind plaintiff’s counsel’s request for such language, but agreeing to such a provision is ill-advised.
  3. Include language in the settlement agreement and release that plaintiff is solely responsible for payment of all outstanding medical liens.
  4. Specify at the outset of negotiations that Medicare has to be named as a co-payee due to its statutory lien. Accordingly, plaintiff’s counsel will be in a position to consider the appropriate Medicare reimbursement into his settlement evaluation.
  5. Insert indemnification language in the settlement agreement so that the defendant is protected from unreimbursed payment of the Medicare lien.

While these guidelines may not prevent all problems, if you follow these rules you will greatly increase your chances of avoiding most of these potential Medicare nightmares.

Martin is a partner and in the Insurance Litigation and Coverage Practice and Berg is an associate in the Casualty Section of the law firm of Thompson Coe Cousins & Irons LLP.

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