United States: Medicare Secondary Payer – A Lot Less Boring Now

Last Updated: January 16 2017
Article by James Beck

We've previously written several posts (not recently) on Medicare secondary payer ("MSP") issues – which we characterized as "boring." The recent MSP decision, Humana Insurance Co. v. Paris Blank LLP, 2016 WL 2745297, 187 F. Supp.3d 676 (E.D. Va. 2016), is a lot less boring. That's because of the defendant – a plaintiff-side law firm.

And the law firm lost.

What's going on? To start with, in addition to the government itself, certain private entities, "Medicare Advantage Organizations" ("MAO") (abbreviations are ubiquitous in this area) are allowed to bring suits to recover as MSPs (that was what one of our earlier posts was about). The MSP statute is quite broad as to who can be legally liable for not ensuring that Medicare is treated as a secondary payer:

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.

42 U.S.C. §1395y(b)(2)(A)(iii). Recovery in an amount double the actual Medicare outlay is available in litigated cases. Id.

In our neck of the woods (PA & NJ, anyway), a MAO's ability to sue as if it were the government is already established. In re Avandia Marketing, Sales Practices, & Products Liability Litigation, 685 F.3d 353 (3d Cir. 2012). (We note that our CA blogger would view this issue differently, see Parra v. PacifiCare of Arizona, Inc., 715 F.3d 1146, 1154 (9th Cir. 2013)). So the fact that Humana held that an MAO had standing to sue, 2016 WL 2745297, at *4, would not have resulted in this post.

What interests us is the holding that a lawyer and his law firm – thankfully, a plaintiff law firm − can be an "entity" "responsible (directly . . . or otherwise)" for making a MSP payment. The allegations in Humana were not kind to the defendants. They represented a plaintiff in an auto accident. Supposedly, they received a one settlement check made out jointly to it and the plaintiff MAO, but "ultimately deposited the check without [the MAO's] endorsement." Id. at *2. Allegedly, certain other settlement checks "from several insurance companies" were also received and deposited, without joint the joint payor issue. Id. All told, the settlements totaled $475,600. Id.

The MAO sued for unreimbursed medical costs (called "conditional payments") of almost $200,000. Id. The lawyer/law firm claimed that they were not proper defendants under the MSP statute. The court held that law firms may be defendants under the MSP statute:

Contrary to Defendants' position, the law does not carve out exceptions for attorneys and law firms. . . . Much like who may bring an action pursuant to the statute, the plain language fails to limit the parties against whom suit may be maintained.

Id., 2016 WL 2745297, at *5. Rather, under a regulation, the government (and any entity, like an MAO, allowed to stand in the government's shoes) can seek MSP recovery "from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment." 42 C.F.R. §411.24(g) (emphasis added). Because the defendant lawyer and law firm allegedly "received a primary payment" when they cashed those settlement checks from the insurance companies, the MAO "may maintain suit against Defendants for recovery of conditional payments." 2016 WL 2745297, at *5. Again, double damages are recoverable.

While Humana did not cite any authority for its holding, an identical result was reached in United States v. Harris, 2009 WL 891931 (N.D.W. Va. Mar. 26, 2009), aff'd, 334 F. Appx. 569 (4th Cir. 2009) (on basis of district court opinion). It is unclear in Harris why the plaintiff/claimant's attorney failed to discharge his client's MSP obligation in the course of a product liability settlement that was actually reported to the government, but in any event the government was never paid. Id. at *1. The government received summary judgment on its MSP claim against the attorney who "received" settlement funds:

This Court finds that the government is entitled to judgment as a matter of law. In this case, the [Medicare recipient] and the defendant [attorney] received a $25,000.00 settlement. . . . Furthermore, this Court holds that [the attorney] is individually liable for reimbursing Medicare in this case because the government can recover "from any entity that has received payment from a primary plan," including an attorney.

Id. at *3 (quoting § 411.24(g)) (emphasis original). Accord United States v. Harris, 2008 WL 4900569, at *3 (N.D.W. Va. Nov. 13, 2008) (denying motion to dismiss on same grounds in same litigation).

Analogously, in Haro v. Sebelius, 747 F.3d 1099 (9th Cir. 2014), a class action on behalf of both personal injury plaintiffs and their attorneys challenged the government's enforcement of §411.24(g) against them:

The [government] has interpreted "entity that receives payment from a primary plan" in accordance with the statute's enabling regulations. 42 C.F.R. § 411.24(g) provides that the Secretary "has a right of action to recover its payments from any entity, including a beneficiary ... [or] attorney ... that has received a primary payment." (emphasis added). And 42 C.F.R. §411.24(h) states that "[i]f the beneficiary or other party receives a primary payment, the beneficiary or other party must reimburse Medicare within 60 days."

Id. at 1115 (emphasis original). The court upheld the government's actions. It was "rational" and "consistent with the purpose" of the MSP statute for the government to seek recovery from attorneys who "received" settlement funds.

The [government's] demand that attorneys who have received settlement proceeds reimburse Medicare before disbursing those proceeds to their clients certainly increases the likelihood that proceeds will be available for reimbursement. Therefore, the [government's] interpretation of the reimbursement provision is consistent with the general purpose of the secondary payer provisions.

* * * *

We conclude the [government's] interpretation of the reimbursement provision is rational and consistent with the statute's text, history, and purpose, therefore it is reasonable.

Id. at 1117. Haro, however, did not address the issue decided in Humana – whether the government could sue "an attorney who has disbursed the proceeds" for MSP recovery. Id.

In United States v. Stricker, 524 F. Appx. 500 (11th Cir. 2013), the court affirmed a judgment dismissing a MSP recovery action against the proceeds of a mass tort settlement as barred by the statute of limitations. The decision described the regulatory scope of the government's enforcement powers:

In relevant part, 42 C.F.R. §411.24(e) gives the government "a direct right of action to recover from any primary payer," defined for our purposes as "any entity that is or was required or responsible to make payment with respect to an item or service (or any portion thereof) under a primary plan." 42 C.F.R. §411.21. The government also has a "right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment." 42 C.F.R. §411.24(g).

Id. at 507. Recoverability of such payments from attorneys who "received" portions of the settlement sum was not at issue in Strickler.

In another MSP recovery case, even more recent than Humana, the government came after the executor of an estate to collect Medicare payments from the settlement of a lawsuit against a pharmacy for incorrectly filling a prescription. The estate lost, as the court held:

Medicare is authorized to seek reimbursement from a person who received payment from a primary payer, such as a beneficiary or attorney who received settlement funds from a tortfeasor or a tortfeasor's insurer.

Trostle v. Centers for Medicare & Medicaid Services, 2016 WL 6082131, at *5 (M.D. Pa. Oct. 17, 2016) (citing the same regulation).

A number of other courts that have cited to the regulation's language about recoveries from "attorney[s]" that "ha[ve] received a primary payment" – in cases where MSP recovery from attorneys was not actually sought. Section 411.24(g) "allows the United States government to pursue the personal assets of the recipient as well as the personal assets of the recipient's attorney." Zaleppa v. Seiwell, 9 A.3d 632, 638 (Pa. Super. 2010) (personal injury litigation). See Joerg v. State Farm Mutual Automobile Insurance Co., 176 So.3d 1247, 1254 (Fla. 2015) (Medicare benefits as collateral source payments); Karpinski v. Smitty's Bar, Inc., 201 Cal. Rptr.3d 148, 153 (Cal. App. 2016) (settlement enforcement litigation); McKim v. Southern Illinois Hospital Services, 2016 WL 915533, at *3 (Ill. App. March 9, 2016) (lien litigation); Ethridge v. Recovery Management Systems, Inc., 326 P.3d 297, 300 n.9 (Ariz. App. 2014) (Medicare preemption); Hearn v. Dollar Rent A Car, Inc., 726 S.E.2d 661, 667 (Ga. App. 2012) (settlement enforcement litigation); Sexton v. Medicare, ___ F. Supp.3d ___, 2016 WL 3821547, at *4 (E.D.N.Y. July 11, 2016) (MSP recovery sought from litigation plaintiff); Mackrides v. Marshalls, 2013 WL 1755216, at *4 (E.D. Pa. April 24, 2013) (settlement enforcement litigation); Porter v. Farmers Insurance Co., 2012 WL 256014, at *19 (N.D. Okla. Jan. 27, 2012) (insurance bad faith litigation), aff'd, 505 F. Appx. 787 (10th Cir. 2012); Frazer v. CNA Insurance Co., 374 F. Supp.2d 1067, 1073 (N.D. Ala. 2005) (litigation brought by Medicare claimant).

After this review, it is pretty clear to us that any plaintiff-side lawyer who cashes a settlement check from which s/he deducts a contingent (or other) fee has "received" a payment within the meaning if the MSP statute and accompanying regulations. If the government's Medicare expenses are not satisfied from the settlement proceeds, the government has the power to seek double damages from the attorney via litigation. As for defense counsel – this potential liability is yet another good reason not to become an intermediary in the disbursement of settlement funds.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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James Beck
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