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.