Maryland Bar Bulletin
Publications : Bar Bulletin : August 2011


In May, an Arizona federal court enjoined the Centers for Medicare & Medicaid Services (CMS) from certain onerous Medicare overpayment recovery activities and raised the hopes of practitioners nationwide that reform was here. Anyone who has represented a Medicare beneficiary in a personal injury or workers’ compensation settlement during the past decade, has probably experienced the federal bureaucracy involved in Medicare Secondary Payer (MSP) recoveries firsthand and can appreciate the need for change. For those who have managed to avoid it, here is the short story.

In general terms, Medicare is statutorily prohibited from making payment for medical treatment in situations where other insurance is available. The statute, however, provides an exception where Medicare may make a conditional payment to ensure that treatment is received, conditioned on reimbursement rights extensively outlined in the statute and code. If Medicare makes a demand for reimbursement, you have 60 days to make payment before interest starts to accrue at the statutory rate, which is currently around 11 percent.

If payment is not made, CMS will issue an “Intent to Refer” letter threatening to turn the claim over to Treasury or a collection agency. If the debt remains unpaid, the United States may bring suit in federal court for double damages. Reimbursement may be sought from the Medicare beneficiary, the primary payer or anyone in receipt of payment from the settlement, judgment or award, inclusive of attorneys and lien holders. With regard to a liability insurer, a special rule exists that permits Medicare to recover again even if Medicare reimbursement was provided to the beneficiary already. In addition to the priority recovery right, CMS can also subrogate, utilize the Federal Claims Collections Act or even the False Claims Act to recover overpayments. And the final insult: the statute provides no termination of the MSP obligations.  Medicare can technically continue to make conditional payments post-settlement even if the underlying state law obligation has been terminated and the primary payer released from responsibility.

Parties are generally accepting of the reimbursement obligations, but face extreme difficulties in determining the amount owed. The Medicare Secondary Payer Recovery Contractor (MSPRC) takes at least 90 days to issue a conditional payment letter, which is frequently inaccurate. Only after settlement is final will an official demand be made and appeal rights become available; however, the clock starts ticking for purposes of interest and collections if pre-payment is not received during the appeal. Additionally, CMS has routinely threatened collections actions during the appeal, a process that could take years. Demand letters have also threatened to hold attorneys financially responsible if they did not hold or immediately turn over settlement funds to Medicare. All in all, the MSP represents a terribly onerous process to endure after suffering a personal injury.

The aforementioned relief stems from Haro v. Sebelius, where CMS was enjoined from demanding payment of MSP reimbursement claims with threats of commencing collection actions before there is a resolution of an appeal, and from demanding that attorneys withhold liability proceeds from their clients pending payment of disputed MSP reimbursement claims. The court also certified the class, so basically the ruling applies to all Medicare beneficiaries ever injured in an insurable situation where Medicare paid for related treatment.

Immediately following the order, CMS halted its recovery program to make the necessary changes. The “Rights and Responsibilities” letter was revised, the generic demand letter template was converted into six separate templates tailored specifically to the appropriate audience and type of law, and the related sections of its manuals were revised. In the end, not much was changed. CMS has an unquestioned statutory right to interest dating back to the date of demand once 60 days has passed without payment. While collections actions may no longer commence during an appeal, beneficiaries must still decide whether to pay at the time of demand to avoid interest from attaching. If beneficiaries ride out the appeal and lose, they will not only owe the demanded amount, but also any interest accrued during appeal.

Even though the outcome of the case itself was not as significant as the legal community may have hoped, it represents an increasing intolerance of the courts to blindly accept CMS policy as the definitive interpretation of the MSP. Many MSP policies created by CMS overreach the authority granted by the statute and create an enormous burden on all parties involved; therefore, any progress in changing these policies for the better is welcome. Many of the needed changes lie with Congress, where there has been some progress in the form of proposed legislation, hearings and a General Accounting Office (GAO) study to quantify the financial impact of the MSP efforts.

While there is no hope of the MSP just going away, given it is the best chance of preserving the fiscal integrity of the Medicare trust funds, at least there is hope of making the obligations more manageable for all involved.

Jennifer C. Jordan is general counsel of Columbia-based MEDVAL, LLC and Editor-in-Chief of the Lexis/Nexis publication The Complete Guide to Medicare Secondary Payer Compliance.

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Publications : Bar Bulletin: August 2011

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