4. Medicare Right to Reimbursement

4(b) Who Must Reimburse

The MSP identifies two groups of entities which have a duty to reimburse the Medicare trust. The first group is Primary Payers. FN 1. The second is "an entity that receives payment from a primary plan". FN 2. By regulation, the meaning of this phrase is further illuminated by the addition of ". . . including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received. . ." FN 3. In this section we will discuss the scope of the second group.

Beneficiaries

The duty of a beneficiary to reimburse is not controversial, but is limited to situations where either the beneficiary received payment or payment was made on his behalf. FN 4. Usually this will involve a payment by a NGHP primary payer, although it is possible for a GHP to make a direct payment to a beneficiary that should have been paid either to the provider or the Medicare trust.

Providers

There are a wide range of entities that provide products and services in the healthcare context, and there is no apparent reason to limit the scope of the concept. CMS regulations describe the class as "provider, supplier, physician, ... State agency or private insurer. FN 5. But the statute only requires that the entity receive a payment from a primary plan. FN 6. It's safe to say that if CMS needs to it will exercise the full reach of the statute, regardless of the language in the regulations. So the potential list would include product suppliers, clinics and hospitals, medical supply companies, etc.

Attorneys

The Congress has clearly directed its attention at attorneys who receive payments from a primary plan, and while CMS has not targeted attorneys often, the examples found in reported decisions should be sufficient to focus the legal mind on compliance (although amazingly this does not always occur). Usually this will implicate attorneys who represent clients in personal injury actions, but could just as easily involve no-fault, first party and liability insurance proceeds. There are three reported instances to consider.

In United States v. Sosnowski, FN 7 the plaintiff's attorney tried a creative dodge. He named two Medicare contractors, both of which were served and failed to appear. The remaining tort case was then settled for policy limits of $25,000.00, and HCFA, not having been reimbursed, filed an action against the beneficiary, Sosnowski, and one of his attorneys, Weis. They then argued that the right to reimbursement was extinguished by the fact that agents of the government were parties and failed to assert their claim. The Court rejected the argument on eh ground that the government itself was not a party to the action. In United States v. Weinberg, FN 8 attorney Weinberg represented a Medicare beneficiary in an automobile liability case. While in hospital about a month and a half after the accident, the client suffered a stroke. Weinberg negotiated a settlement in the sum of $750,000.00. When HCFA asserted a claim to reimbursement of nearly $200,000.00, Weinberg responded that many of the expenses claimed were to treat the stroke, which Weinberg claimed was unrelated to the accident. FN 9 After a year of back and forth with no resolution, Weinberg sent a check for the amount he felt HCFA was owed, and placed on the back language that endorsement was a full release of all claims. The contractor negotiated the check without noticing the release language on the back. The attorney failed to account for the fact that by statute a governmental agency cannot compromise a claim in excess of $100,000.00 with the approval of the Attorney General. This leaves the question of whether this trick could work on a smaller claim. The same statute probably precludes any compromise by a contractor absent specific authority.

While those two attorneys learned the expensive way that when one fights Uncle Sam, Uncle Sam wins, it goes no better to just ignore Uncle Sam. Attorney Harris took the case of a Medicare beneficiary who had fallen off a ladder. Medicare had paid $22,549.67, and the case settled for $25,000.00. Harris reported the settlement, as well as information about his attorney fees. CMS responded with a demand of $10,253.59. Three years later, CMS filed suit to recovery from Harris. On a motion to dismiss, Harris argued that since he reported the settlement and the funds were distributed to the client with CMS' knowledge, reimbursement rights against him were waived. FN 10 This argument was rejected, and shortly thereafter summary judgment was entered against Harris. FN 11

These cases do not fully answer the question of what is meant by the phrase "attorney who receives". Presumably, in each of these cases the settlement was paid by a check made payable to the beneficiary and the attorney. The attorney then deposited the check and distributed the money in accordance with the representation contract but failing to pay CMS. Clearly, under these facts a plaintiff attorney has a duty to reimburse. But what if he attorney merely passes along the check, as a defense attorney often does? It would seem that such an attorney would be analogous to an intermediary like a bank or a third party administrator. If so, could a plaintiff attorney avoid this issue by requesting a separate check for his fee? CMS would probably argue that the fee itself is a payment from a primary payer and represents a percentage of the medical expenses at issue, but an attorney in that context could develop a pretty good argument. If merely receiving a fee from the settlement were to be sufficient, then this classification could be extended to experts, court reporters, etc. The best answer, however, is to just make sure CMS gets its money.

Third Party Administrators

In United States v. Baxter FN 12, the District Court noted that the same considerations which prevented an intermediary from being responsible for payment also precluded liability based on the received payment language. FN 13 While the Third Circuit reviewed the District Court opinion, and reversed portions of it, the Court of Appeals did not question this rationale and in fact applied it to what it called an escrow agent. FN 14

Other Possible Entities

There are a number of types of people who may handle money related to a NGHP settlement. An escrow agent is not a responsible party. FN 15. In Protocals, LLC v. Leavitt, FN 16 a structured settlement consulting company sought a declaration that the MSP did not apply to it, and the Tenth Circuit reversed the trial court dismissal on jurisdictional grounds. No record of an ultimate ruling could be found. Since the statute itself provides no definition, the regulation is the best beginning point. While it also uses the term "any entity", it also provides a listing of examples: ". . . including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received. . ." Each of these examples are a final destination for at least a portion of a primary payment, which reinforces the point that a mere intermediary who passes along the money or acts as a conduit is not within the meaning of the regulation.

FN 1. See 24 C.F.R. § 411.24(e). To view the discussion of primary payer in a separate window click here.

FN 2. 42 U.S.C. § 1395y(b)(2)(ii).

FN 3. 42 C.F.R. § 411.24(g).

FN 4.In the context of beneficiaries of GHPs, the duty to reimburse is contingent on payment to the individual. 42 U.S.C. § 1395y((b)(1)(F).

FN 5. 42 C.F.R. § 411.24(g).

FN 6. 42 U.S.C. § 1395y(b)(2)(ii).

FN 7. 822 F.Supp. 750 (W.D.Wis. 1993).

FN 8. 2002 WL 32356399 (E.D.Pa. 2002).

FN 9. This case also illustrates a dilemma the MSP creates for plaintiff counsel. Before taking a litigation position concerning medical expenses of dubious causality, counsel needs to remember that all he or she is doing is increasing the CMS recovery, even if that item of damage is not fully compensated.

FN 10. United States v. Harris, 2008 WL 4900569 (N.D. W.Va. 2008).

FN 11. United States v. Harris, 2009 WL 891931 (N.D. W.Va.).

FN 12.174 F.Supp.2d 1242 (N.D.Ala. 2001).

FN 13.Id. at 1261.

FN 14. U.S. v. Baxter Intern., Inc., 345 F.3d 866, 907, 2003 WL 22120071 (11th Cir. 2003). The Court did observe that Congress in the 1996 amendments provided for a limited cause of action against Third Party Administrators. Id. There is no reason to believe that this changed the basic analysis related to intermediaries such as Third Party Administrators.

FN 15. Id.

FN 16. 549 F.3d 1294 (10th Cir. 2008).