The recently-released opinion in Wilson v. State Farm Mutual Automobile Insurance Company (U.S. Dist. Ct. W. Kentucky, 3:10-CV-256-H) suggests the courts are finally starting to appreciate the frustrations of the MSP recovery process and the additional risks IT imposes on settling insurers and self-insureds.  Wilson v. State Farm involved a bad faith claim filed by an insured who had grown frustrated while waiting to receive the recovery Demand Letter from the MSPRC, and wanted to force the insurer to pay the full amount of the uninsured motorist settlement into an escrow account immediately.   Interestingly, two months after the plaintiff filed his bad faith suit, the recovery Demand Letter arrived from the MSPRC and the very next day State Farm issued separate checks payable to Medicare, with the remainder to the plaintiff.  However, by that time both the plaintiff and State Farm had filed Motions for Summary Judgment in the bad faith action, each asking the Court to rule in their favor as a matter of law. 

The federal district court judge ruled that State Farm did not act in bad faith by delaying payment of the uninsured motorist policy proceeds until the amount of Medicare’s final recovery demand was clear.  In considering whether State Farm’s actions in delaying payment were reasonable, the Court looked to the MSP statutes and recognized that insurers have additional exposure to Medicare if full reimbursement is not made.  The Court stated:

It appears that Plaintiff has the primary responsibility to repay Medicare. 42 C.F.R. §411.24(h). However, State Farm is absolutely liable to Medicare should Plaintiff not satisfy the Medicare lien from his settlement funds.42 C.F.R. § 411.24(i)(1) (stating “If Medicare is not reimbursed ..., the primary payer must reimburse Medicare even though it has already reimbursed the beneficiary or other party.”).  Moreover, State Farm may have an obligation to protect Medicare’s lien under the Medicare Secondary Payer Act and its corresponding regulations. See 42 U.S.C. §1395y (b)(2) and 42 CFR § 411.24(i)(1). For State Farm to consider these obligations seems responsible. 

Wilson v. State Farm at p.3-4.  The Court concluded the insurer had “sound reasons” to wait for Medicare to determine the amount of its recovery demand, and was taking “reasonable precautions to protect itself from overpayment.”  Id.   The plaintiff in Wilson had argued the insurer acted “in pure self interest and that such overriding self interest coupled with the delayed settlement payment could constitute bad faith.”  The Court, however, rejected this argument finding as follows: 

The Court concludes that to comply with federal law and to protect its own legitimate interest against overpayment is reasonable and certainly is not in bad faith.   Defendant did not delay payment in order to pay less or harass Plaintiff.   [Nor was there any evidence the insurer was delaying] to “extort a more favorable settlement or to deceive the insured with respect to the applicable coverage.”  (citation omitted). While it may serve Defendant’s self interest to comply with federal law, such action was not bad faith, especially when Plaintiff apparently refused to cooperate with Defendant’s attempts to pay the claim more quickly. These undisputed facts cannot constitute bad faith on State Farm’s part.

Wilson v. State Farm  at p. 4-5.  Wilson v. State Farm makes clear that although Medicare’s current recovery process may be slow and frustrating, it is not bad faith for an insurer to comply with federal MSP law and protect itself against the risk of excess exposure by waiting for the MSPRC recovery Demand Letter to arrive so that the proper amount can be repaid promptly to Medicare, and the remainder can be paid promptly to the claimant.

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Many insurers and self-insureds are asking how to manage the repercussions of CMS’ decision to temporarily suspend issuing “Rights and Responsibilities” (RAR) letters and recovery Demand Letters.  Here are some suggestions while we all await further guidance from CMS and its contractors:
The suspension is temporary—presumably just long enough to allow CMS to re-write the standard letters to comply with the opinion released on May 5th in the Arizona case of Haro v. Sebelius (holding certain of CMS’ recovery practices exceed the authority granted by the MSP statutes, and enjoining CMS from: 1) demanding immediate payment from beneficiaries while the recovery amount is being challenged on appeal or a waiver request is pending; and 2) demanding that plaintiff attorneys withhold liability settlement proceeds from their clients pending payment of disputed MSP reimbursement claims).  Recall that even before the temporary suspension we didn’t really know when the MSPRC letters would arrive.  Delays have been the norm, and not knowing the length of the delay--while frustrating--is something we’ve all learned to manage in our claims handling.  We are aware, anecdotally, that some Demand Recovery Letters are being mailed out despite the suspension, so be watchful.  

The MSPRC is still working cases during the suspension, so although standard recovery letters will be delayed, concerns that the entire system will grind to a halt are exaggerated.

The requirement to protect Medicare’s interests, and the penalties for failing to do so, are in full force and effect despite delays in issuing demand letters, so standard MSP protocol should continue to be followed by claims staff. In other words, standard protocol for identifying Medicare beneficiaries should continue to be followed, as should standard protocol for:  

1. Notifying the COBC of new claims;
2. Obtaining Consent to Release forms (where possible);
3. Requesting (and updating) Conditional Payment Letters;
4. Settlements with Medicare beneficiaries should continue being negotiated, and the agreed-upon process for reimbursing Medicare and protecting Medicare’s interests should be memorialized in the written settlement agreement or release.  While we await further guidance on how the recovery process may be affected by the Haro v. Sebelius decision, consider negotiating a reimbursement procedure which gives the settling insurer/self-insured as much control as possible over payment of Medicare’s recovery demand;
5. When settlement is reached the MSPRC should be notified of the settlement and a Demand Letter should be requested (for separate discussion of §111 reporting under the MMSEA see comment below); and
6. Once the Demand Letter is received from the MSPRC, the insurer/self-insured should see to it the full amount identified is paid to Medicare within 60 days.    
Stay tuned, and watch for announcements on advising of any changes to the MSP recovery process, including revisions to the standard recovery letters.  Be aware that changes in the MSP recovery process are possible, and MSP best practices may need to adapt quickly once changes are announced.

Be aware that the temporary suspension of standard recovery letters has no effect whatsoever on §111 Reporting under the MMSEA. If your company has completed testing and has started live reporting (as most have), then quarterly reporting  of settlements, payments and judgments (ORMs and TPOCs) should continue. 


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On May 5, 2011, a federal judge in Arizona dealt a blow to the routine collection practices of CMS following liability settlements. The Haro v. Sebelius suit was filed by two Medicare beneficiaries (both of whom settled auto accident claims and pursued appeals of the MSPRC’s recovery amount), and by a lawyer who represented one of the two beneficiaries.  The Medicare beneficiaries challenged the right of CMS to demand reimbursement within 60 days of receiving settlement proceeds in those situations where an appeal or waiver request remains unresolved, and the lawyer challenged CMS’s ability to hold attorneys personally liable for their client’s reimbursement claim, contending such collection practices exceeded the Secretary’s authority under the Medicare statutes and violated due process.

After surviving a Motion to Dismiss for lack of standing and failure to exhaust administrative remedies, the plaintiffs filed an Amended Complaint seeking to represent a nationwide class of Medicare recipients. Competing Motions for Summary Judgment were filed and, in a 27-page opinion released May 5th, the district court walked through the MSP statute and supporting regulations, and resolved all issues in favor of the plaintiffs on statutory construction grounds.  The Court also granted the plaintiff’s Motion to Certify Class Action, and defined the class as: “persons who are or will be subject to MSP recovery, and from whom defendant has demanded or will demand payment of MSP claims before there have been determinations of the correct amounts through the waiver or appeal process.”  (Haro slip opinion at 25). 

Here are the holdings of significance which came from the Haro v. Sebelius opinion:

1. CMS may not demand immediate payment from Medicare beneficiaries while the reimbursement amount is pending on appeal or a waiver request.   
The District Court stepped through the Medicare reimbursement statutes and determined the “60-day reimbursement requirement to support immediate collection activities against beneficiaries when the reimbursement claim is in dispute is neither rational nor consistent with the statutory scheme providing for waiver and appeal rights . . . because it unnecessarily chills a beneficiary’s right to seek a waiver or to dispute the reimbursement claim and reaches beyond the fiscal objectives and policies behind the 60-day reimbursement provision.”  (Haro slip opinion at 16).   However, the Haro v. Sebelius opinion made clear that once the appeal or waiver is complete and the reimbursement amount finalized, a beneficiary who refuses to pay the claim will properly be subject to collection efforts and interest may be charged dating back to the original date of the notice.   (Haro slip opinion at 15-16).

2. Medicare cannot hold plaintiff attorneys financially responsible for MSP reimbursement and cannot require them to either turn the settlement awards over to Medicare or hold the settlement sums in trust.
The Haro v. Sebelius court took issue with Medicare’s position that it could pursue MSP recovery directly from plaintiff’s counsel by characterizing the attorney as  “an entity that receives payment from a primary plan . . . .”  Id. at 17 (emphasis in original).   Although the federal regulations define an “entity” to include “a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment”  (see 42 C.F.R. §411.24(g) the Haro court noted Congress never expressly made attorneys responsible for reimbursement under 42 U.S.C. § 1395y(b)(2)(B)(ii), and the court found no statutory basis for such an expansive reading of the Medicare statute.   Id. at 18-19.  The Haro court reasoned that since attorneys did not have the right to appeal or apply for waiver of Medicare claims themselves, nor were attorneys included in the original scope of the statute, they could not be directly targeted for reimbursement simply because they received the settlement funds on behalf of their client.  The Haro court ultimately held there was:

no statutory support, either expressly or in the legislative history, to support the Secretary’s assertion that she has a direct cause of action, pursuant to 42 U.S.C. § 1395y(b)(2)(B)(ii), to recover a reimbursement claim from an attorney that has received payment from a primary plan and has passed it along to the beneficiary.

Id. at 23.   The Haro court emphasized that its analysis was limited to whether Medicare had a direct right of action to recover from plaintiff’s attorneys, and had no bearing on Medicare’s separate “rights of subrogation under section 1395y(b)(2)(B)(iv) and the common law.” Id.

The Haro v. Sebelius opinion is getting a lot of attention, particularly from the plaintiff’s bar, and many are pleased with the prospect that--if the opinion is affirmed on appeal or gains wider acceptance--Medicare may be forced to dial back its collection efforts against plaintiffs attorneys, and hold off on collecting against plaintiffs who are pursuing appeal or waiver of Medicare’s recovery demand. But the Haro v. Sebelius opinion carries a powerful message for settling insurers and defense counsel too.   While the Haro court was critical of CMS collection efforts focused on Medicare beneficiaries and their attorneys, the court emphasized that settling insurance companies and self-insureds are treated differently than Medicare beneficiaries under the MSP statute: 

The 60-day requirement for immediate payment makes sense in respect to a primary plan and self-insurer (tortfeasor) because the government’s claim against them is established upon “a judgment or payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.”  Once there is a judgment or settlement, the primary payer’s reimbursement payment is due and owing, and if not made within 60 days, the government may bring an action for double damages against it.  42. U.S.C. § 1395y(b)(2)(B)(iii), (3)(A).  Upon a judgment of settlement, a beneficiary is positioned differently.

Haro slip opinion at 13.   The Haro court also emphasized the MSP statutes provide a solution for recovering benefits when a beneficiary receives payment from a third party payment but does not reimburse Medicare—under those circumstances it is the third-party payer which must reimburse Medicare, even though it already has paid the beneficiary.  See 42 C.F.R. § 411.24(h) and (i)(2).  As the Haro court noted:  “Congress expressly allocated this burden to the third-party liability payer that makes its payment to a party other than Medicare when it is, or should be, aware that Medicare has made a conditional payment.”  Id. at 19 (quoting 42 C.F.R. § 411.24(i)(2)).

Defense practitioners should be aware that, in the wake of Haro, the deep-pocket of the primary payer is likely to become even more attractive to Medicare, and it is critically important that settling insurers and self-insureds take appropriate steps to ensure Medicare’s recovery is paid promptly and in full from the proceeds of any settlement or judgment.

Finally, defense practitioners are reminded that although the Haro v. Sebelius opinion is significant, the entire body of MSP case law is developing rapidly and still taking shape.  At this point it is unwise to rely exclusively on any single opinion, and instead practitioners are encouraged to stay current on the landscape of developing case law in the area of MSP, with the goal of effectively managing the various risks inherent in this area. 

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Many defense attorneys have asked how their personal injury cases might be affected by last week's CMS announcement that Medicare is postponing some aspects of the Mandatory Insurer Reporting requirements under § 111 of the MMSEA.  The reporting extension announced by CMS is a big deal to settling insurance companies and self-insureds who have the burdensome reporting obligations under § 111 of the MMSEA.  Lawyers who defend personal injury claims are less affected by the § 111 implementation delay, because although they are called upon to help identify Medicare beneficiaries and gather some of the data which CMS requires insurers/self-insured to report, the defense lawyers themselves do not do the reporting under § 111 of the MMSEA.
That said there has been a good deal of misinformation and generalizing about the § 111 reporting extensions.  Here are a few of the most troublesome bits of misinformation we've heard recently:

1. Some have suggested (incorrectly) that the reporting extensions mean parties do not have to notify Medicare of settlements which occur, and we've heard some suggest that  Medicare will suspend its collection efforts until the § 111 reporting is in full swing.  The § 111 reporting deferral does not affect or change the need for all parties to ensure Medicare's interests are being protected and Medicare is reimbursed from the settlement proceeds in accordance with the MSP statutes and regulations.
2. Some believe (incorrectly) that the recent CMS announcement had the effect of postponing ALL of the mandatory insurer reporting required under § 111 of the MMSEA.   Not so.   The recent extensions apply to only one aspect of the § 111 reporting:  reporting of TPOC settlements.  TPOC is Medicare-speak for "Total Payment Obligation to Claimant" and most liability settlements are considered TPOCs.   Under the extended § 111 deadlines, TPOC settlements which occur on or after October 1, 2011 will be "reportable" and must be reported no later than the first quarter of 2012.  Before the recent extension all TPOCS after October 1, 2010 were reportable, and had to be reported no later than the first quarter of 2011.  But while the reporting timeline for TPOCS has been extended, the reporting timeline for ORMs HAS NOT BEEN EXTENDED.  ORM is Medicare-speak for "Ongoing Responsibility for Medicals" and most med pay, no-fault and PIP claims are ORMs.  As such, the recent reporting extension does NOT change existing § 111 reporting requirements for workers' compensation or liability cases that include ORM—all ORMs since January 1, 2010 have been "reportable" and STILL must be reported by insurers/self-insureds during the first quarter of 2011.
3. Many insurers have already completed the required testing period and have gone "live" with their § 111 reporting obligations.  As such, some insurers/self-insureds with which you work may continue to report all TPOCs and ORMs under the § 111 of the MMSEA even though the implementation deadline for TPOCs has been postponed.    The recent CMS Alert states that if the reporting entity wishes to report TPOC settlements prior to the first quarter of 2012 they are allowed to do so.
4. Extension of Current Dollar Thresholds: The CMS Alert also extended, by one year, the interim reporting thresholds set out in Section 11.4 of Version 3.1 of the User Guide.  These low-dollar § 111 reporting thresholds are designed to eliminate the burden of § 111 reporting for smaller settlements while everyone is learning the new system.  The thresholds are temporary and staged to expire altogether after 2014.  The new timeline on the temporary thresholds is:

• Settlements prior to January 1, 2013: those $5,000 or less need not be reported
• Settlements during 2013:  those $2,000 or less need not be reported
• Settlements during 2014: those $600 or less need not be reported

Remember that the duty to report under § 111 is separate and distinct from the duty to reimburse the MSPRC under the MSP statutes and regulations.  As such, even if a settlement is small enough that it need not be reported under § 111, the obligation STILL EXISTS to fully reimburse Medicare from the settlement proceeds.   While there is a low-dollar threshold for § 111 reporting, there is NO low-dollar threshold for reimbursing Medicare.

So, bottom line is the § 111 reporting delays provide an additional twelve months for CMS and the insures/self-insureds to gear up for the mandatory reporting of TPOC settlements.  This § 111 implementation delay does not, however, change the present need for all parties in personal injury cases involving Medicare beneficiaries to ensure that Medicare's interests are being protected (and Medicare's past conditional payments are being reimbursed from all settlements).  The penalties under the MSP statutes for failing to reimburse Medicare are steep for settling insurers, and this aspect of Medicare compliance is completely unaffected by the § 111 reporting postponement. 

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