Medicare expands resolution options to include a new Medicare repayment program for small settlements or judgments. This program will be available starting in February 2012 and applies to cases settling for $25,000 or less.  Under this program, Medicare will provide final conditional payment amounts before settlement under certain circumstances.  This program has the potential to revolutionize the settlement process for many Medicare beneficiaries, their counsel, and settling parties.  The foundation of that process is to start the verification process early.  

Recently, the Centers for Medicare and Medicaid Services (“Medicare”) released guidance (the “Alert”) relevant to conditional payment reimbursement under the Medicare Secondary Payer (“MSP”) Act (42 U.S.C. §1395y(b)(2)).  This guidance permits certain Medicare beneficiaries to receive a final conditional payment amount from Medicare prior to date of settlement.  Historically, Medicare’s conditional payment reimbursement process has not allowed a Medicare beneficiary or settling parties from obtaining such information from Medicare or its recovery contractors.
 
Under this small settlement option, for a Medicare beneficiary to obtain a final conditional payment amount prior to settlement, the fact pattern must meet all of the following criteria:

1. The liability insurance (including self-insurance) settlement will be for a physical trauma based injury (the settlement does not relate to ingestion, exposure, or medical implant);
2. The total liability settlement, judgment, award, or other payment will be $25,000 or less;
3. The Date of Incident occurred at least six months before the beneficiary or representative submits the proposed conditional payment amount to Medicare; and
4. The beneficiary demonstrates that treatment has been completed and no further treatment is expected either through a written physician attestation or by certifying in writing that no medical treatment related to the case has occurred for at least 90 days prior to submitting the proposed conditional payment amount to Medicare.

If the case meets all of these qualifying criteria, then Medicare, through its recovery contractor, the Medicare Secondary Payer Recovery Contractor (“MSPRC”), will provide a final conditional payment amount prior to settlement.  This final conditional payment amount provided by the MSPRC will only be valid if the Medicare beneficiary settles a claim within sixty (60) days of the date of Medicare’s response.  According to MSPRC, this option will be available to Medicare beneficiaries starting in February 2012, and will effectively allow Medicare’s related claims to be identified pre-settlement.  While the process has not been fully defined, it is likely that once settlement is finalized, the process of requesting a final demand amount from Medicare (by providing gross settlement amount, fees, costs and expenses) will remain the same, regardless of whether this small settlement resolution program has been utilized.

Starting the Medicare repayment process early provides the best opportunity to comply with all Medicare Secondary Payer obligations while expediting the case.  Medicare’s 2012 small settlement resolution program reinforces the need to START EARLY!  To take advantage of this program in a $25,000 or less case means needing to know if an individual is Medicare enrolled, and if so, how much in medical expenses has Medicare paid conditionally.  Having a formalized settlement process that integrates these core concepts will achieve efficiencies and enhance the effectiveness in settlement proceedings.  Such a formalized settlement process should include an analysis of the applicability of this small settlement resolution program.  Thus, screening a case/claim up front to verify entitlement, establishing a tort recovery record with Medicare early in the process and obtaining the first conditional payment letter from Medicare (all as part of a formalized settlement process) and resolution path is the proper path to take advantage of this small settlement resolution program.  Although Medicare currently does not intend to include exposure, ingestion or implantation cases in this program, the Alert identifies that this will be a work in progress.  As a result, if this program creates the intended results that benefit the settling parties, taxpayers and the Medicare program, an extension of this program in 2013 may not be out of the question. 

Medicare intends to issue additional guidance on how to participate in this program in January 2012.  The DRI MSP Task Force will provide further program details once they have been released.  Until then, we continue to stress the importance of verifying Medicare enrollment as early in the settlement process as possible, as that information will better define the scope of the settlement continuum; from reimbursement to reporting to potential future cost of care issues.

CMS Announcements on Fixed Percentage Option for Settlements of $5,000 or less, $300 Threshold Limit for Reimbursement, and Identification of Contractor for Medicare Secondary Payer Recovery

Insurance fraud has been estimated to take between $80 billion and $300 billion a year from the insurance industry in the United States. Every state has a statute making insurance fraud a crime including the federal crimes of mail and wire fraud and the Racketeer Influenced and Corrupt Organization Act (RICO). RICO can also be a civil action which allows for treble damages or punitive damages.

Some insurer victims of insurance fraud have become proactive. In State Farm Mutual Automobile Insurance Company; State Farm Fire and v. Arnold Lincow, D.O.; Richard Mintz, D.O.; Steven Hirsh; 7622 Medical, No. 10-3087 (3d Cir. 09/16/2011) the Third Circuit dealt with an appeal from State Farm’s successful trial against some doctors and clinics who defrauded it and those it insured.

Facts

After a four-week jury trial plaintiff State Farm successfully convinced the jury that defendants, a number of health care providers (“Defendants”), engaged in various schemes to defraud State Farm by billing it for medical services that were either not provided or provided unnecessarily, and were illegal under RICO, fraud statutes, and common law fraud. Following trial, Defendants filed motions for judgment as a matter of law or, in the alternative, for a new trial or, in the alternative, to alter or amend the judgment. The District Court denied Defendants’ motions in their entirety.

Plaintiff alleged that Defendants were members of a conspiracy that sharply inflated the costs of medical care for car accident victims by prescribing tests and treatments, as well as prescriptions and medical equipment – whether medically necessary or not – and then routinely billed State Farm for additional treatments that were never provided. At trial, State Farm’s proof of Defendants’ fraud consisted of State Farm’s claim files and testimony of patients, physicians at Defendants’ medical facilities, Defendant physicians, and experts.
After a four-week trial, the jury awarded Plaintiff over $4 million against all Defendants jointly and severally, and individual Defendants were found liable for punitive damages totaling $11.4 million

Analysis

The Third Circuit’s reviews a district court’s order granting or denying a motion for a new trial for abuse of discretion unless the court’s denial of the motion is based on the application of a legal precept, in which case the review is plenary. A new trial may be granted on the basis that a verdict was against the weight of the evidence only if a miscarriage of justice would occur if the verdict were to stand.

State Farm noted that RICO is distinct because the members of the association-in-fact enterprise include all the defendants, there is a complete identity between the enterprise and the defendants and, therefore, no distinctiveness among the defendants.  As the District Court noted and State Farm urged, the intracorporate conspiracy doctrine is not universally accepted, and it is questionable whether the Defendant’s version is completely accurate.

The defendants argued that State Farm failed to prove: (1) the elements of an association-in-fact enterprise; (2) that defendant Mintz conspired with the other Defendants to defraud, as § 1962(d) requires; (3) that Mintz’s actions proximately caused State Farm’s injuries; (4) that Mintz’s conduct fulfilled the elements of common law fraud; and (5) that Mintz’s conduct fulfilled the elements of statutory fraud under Pennsylvania law. The Third Circuit rejected all of Mintz’s claims to the contrary and held that the weight of the evidence supports the jury’s finding against Mintz and the other defendants. Therefore, the Third Circuit concluded that to let the verdict stand would not result in a miscarriage of justice.

The Third Circuit agreed with State Farm’s assertion that a violation of the Insurance Fraud statute is a civil tort and that, as the jury found and the District Court upheld, the Defendants together contributed to State Farm’s injuries and are thus jointly and severally liable. Moreover, as the District Court correctly noted, there is no requirement for district courts to instruct juries to award damages against each defendant separately and individually. Because State Farm elected to receive treble damages the Third Circuit had no reason to address the contention that the punitive damages award should be reduced.

Lesson

Insurers who are the victims of fraud cannot rely on police agencies to investigate and prosecute perpetrators of insurance fraud. Prosecutions are few and far between. As readers of Zalma’s Insurance Fraud Letter, available FREE at http://www.zalma.com/ZIFL-CURRENT.htm, know prosecutions are increasing but are still anemic and those who are prosecuted and convicted usually receive minor punishments. By being proactive insurers can recover from the fraud perpetrators, like the doctors involved in this case, the insurer can recover what it lost, a bonus of three times the compensatory damages, and actually deter insurance fraud by hitting the perpetrators where it hurts them most, in their wallet.

It is time that insurers emulate the actions of State Farm and the few other insurers who are using civil suits to defeat insurance fraud by taking the profit out of the crime.

No, this does not a commentary on a lawsuit regarding a nutritional health claim against Red Bull.  Instead it is about a lawsuit filed by D.C. United striker Charlie Davies against a D.C. bar, the Shadow Room, and Red Bull alleging that the two are liable under D.C.'s dram shop law for over serving a patron who went on to severely injure Davies and kill a passenger in his vehicle.  The suit against Das Enterprises (which owns the bar) and Red Bull North America is pending in D.C. Superior Court.  The driver at issue in the case, Maria Espinoza, was convicted of involuntary manslaughter.  The suit alleges that Red Bull hosted an event at the D.C. bar at which the bar continued to serve Espinoza despite her visible intoxication.  Davies claims that in addition to his physical and medical damages, Red Bull and the bar should be liable for damages due to his loss of the opportunity to play in the 2010 World Cup games in South Africa.

Davies' suit against Red Bull faces some problems.  Proving social host liability, as opposed to holding a licensed establishment liable, can be tricky and varies by state.  D.C. explicitly does not recognize social host liability on its own, although the case law is murky.  In addition to the difficulty in tying the claims to Red Bull, Davies claimed damages related to his playing at the World Cup are speculative at best (my sixteen-year old son's opinion of his ability to score goals notwithstanding).  Finally, Davies faces some comparative fault himself given he was breaking team curfew at the time of the accident. 

This is a sad, high-profile incident and that alone may drive the outcome far more than the strength of the legal claims.  As is often true in the hospitality industry, the media exposure is sometimes a far bigger concern than the legal costs themselves.

The Centers for Medicare and Medicaid Services (“CMS”) posted an alert (the “Alert”) that confirms that there has been an extension, in certain cases, of the reporting trigger date for Mandatory Insurer Reporting (“MIR”) under Section 111 of the MMSEA.  The Alert provides the new trigger dates based on gross settlement/judgment/other payment (“TPOC”)  values for claims as follows:

Insurance coverage scholarship discussing cyber-liability and cyber-coverage has recently exploded, with authors catastrophizing the lawsuits arising out of social media and Web 2.0 (social networking sites and online platforms including Facebook, MySpace, and Twitter) and prophesying that insurers are somehow ill-equipped to respond to these claims.  Granted, we are seeing an increase in cybertort claims, likely due to the proliferation and tremendous growth of social networking sites and Web 2.0 media.  Cybertort claims may include a defamation claim based on insulting words posted on a Facebook page, a "bodily injury" claim against an online dating service, a disparagement claim based upon rumors and grievances aired by a consumer against a restaurant or automotive repair shop on Yelp.com, sexual harassment/hostile work environment claims arising out of inappropriate emails, products liability claims as a result of drug purchases over the Internet, and critical comments about one’s law firm on Abovethelaw.com. 

However, like "The Law of the Horse", cybertort claims are not all that different than those involving brick-and-mortar institutions and live persons that coverage practitioners have analyzed and evaluated for centuries.  While there are certain aspects of these cybertort claims that may lead to an uptick in number of suits filed, given how much easier it is to establish that the defendant published the words at issue, the coverage framework for addressing these suits remains the same-- and correctly so.  Based on well-established Coverage B jurisprudence, combined with a smattering of time-tested tort principles, insurers should know that they have all the needed tools at their disposal to determine coverage for these cybertort claims.

"The Law of the Horse" is a helpful analogy to understand why insurers should not be overly concerned about cybertort claims.  In the mid-1990s, as the Internet started gaining mainstream prominence, academics opined whether "cyberspace" would radically transform the legal landscape, e.g., employment contracting, antitrust and trade regulation, privacy law, international trade, consumer protection, healthcare, taxation, securities regulations, etc., and thereby require a legal framework with new and different rules and norms to account for its unique aspects.  Some academics even pushed for courses, textbook, treatises, and scholarship devoted entirely to "cyberlaw".  

Judge Frank Easterbrook of the Seventh Circuit vociferously disagreed with the notion of a unique legal framework for "cyberlaw" and compared it to "The Law of the Horse".  Judge Easterbrook analogized that centuries ago, when the problems du jour were disputes involving horses, legal scholarship devoted to horse law, i.e., disputes regarding the sale of horses, the care given by veterinarians to horses, and injuries suffered by individuals kicked by horses, would have been intellectually irresponsible.  Rather, an academic discipline of property law, tort law, and commercial transaction law would have provided the necessary knowledge to understand horse disputes as well as transactions and torts involving other common goods and services.  Likewise, Judge Easterbrook explained that cyberspace disputes are best understood through the prism of property, torts, and contracts, rather than a new and distinct legal framework.  Fifteen years later, these suggestions provide much needed guidance as coverage practitioners grapple with the disputes arising from social media and Web 2.0.

Although the new developments in connection with the Internet are exciting and may seem to be groundbreaking, given the idiosyncrasies of Web 2.0, the coverage questions are highly similar to those pre-Facebook.  For instance, whether someone slandered or libeled another; disparaged a business' goods, products, or services; or violated a person’s right of privacy (i.e., definitions d. and e. of the ISO definition of "personal and advertising injury") is not all that different now with sending Tweets than it was a century earlier with signs posted in the town square (obviously, the speed and distance this material travels is exponentially greater now).  E.g., Hoffman, LLC v. Community Living Solutions, LLC, 795 N.W.2d 62 (Wis. App. 2010) (where website did not mention or reference the plaintiff, there can be no libel or disparagement).  Further, the decision calculus for whether an act was an "accident" or whether a publication was made with knowledge of its falsity is no different for cybertorts and brick-and-mortar torts.  E.g., Four Corners Comms., Inc. v. Graphic Arts Mut. Ins. Co., 25 Misc. 3d 1236A, 906 N.Y.S.2d 772 (2009) (use of a website to compare a competitor to a douche product was an opinion and did not implicate the knowledge of falsity exclusion); Baxter v. Doe, 868 So. 2d 958 (La. App. 2d Cir. 2004) (publication of knowingly false and defamatory statements on an Internet website was uncovered intentional conduct).  The medium in which these claims arise may change, but the governing principles remain the same.

Web 2.0 should nonetheless have a pronounced impact on "advertising injury" coverage.  At a minimum, the Internet should make satisfying the ISO definition of "advertisement" much easier because these sites substantially lower the barriers to disseminating material to a large, geographically diverse swath of people.  Virtually every comment, posting, or submission on these sites is capable of being viewed by a large audience, even though the material may be intended for one person.  

One thing is certain: Web 2.0-based claims will continue to present challenges for insurers.  Still, insurers should feel confident that standard policy language and the existing legal framework applicable to brick-and-mortar institutions provide an adequate framework for addressing coverage for these emerging claims.

California Insurance Commissioner Dave Jones announced August 19, 2011 that Susana Ragos Chung, 60, a Los Angeles area based attorney has been sentenced in Alameda Superior Court for Insurance Fraud. Chung entered pleas of no contest on two felony counts for violations of Section 549 of the Penal Code, recklessly submitting fraudulent insurance claims. She was sentenced to five years formal probation and to also pay $117,561 in restitution to insurance companies for 15 separate fraudulent claims. In addition, she was ordered to pay $235,123 to the state restitution fund. Chung agreed to place herself on inactive status with the California State Bar pending its mandatory investigation into her criminal conduct, which may result in her disbarment.

In August 2003, the California Department of Insurance (CDI), Benicia Regional Office, Fraud Division, Urban Auto Fraud Task Force initiated an investigation known as "Phantom Menace" into organized automobile insurance fraud in the Bay Area. The Task Force included Investigators from the California Highway Patrol, and Alameda and San Francisco County District Attorney's Offices. As a result of the information and evidence gathered by the Task Force CDI began an undercover investigation in July 2004, which included contacting numerous auto body shops, medical offices and law offices.

Task force members were able to infiltrate a sophisticated auto fraud organized crime ring operating in the Bay Area. This ring was working with law offices in the Los Angeles area. One of these law offices was owned and operated by Chung. In November 2004, task force members acting in undercover capacities were solicited to participate in staged collisions. Numerous collisions were staged and undercover officers were referred to auto body repair shops, medical offices and law offices in an effort to file false automobile insurance claims and secure substantial bodily injury claim settlements.

Between 2003 and 2007, Chung participated in this fraud ring by submitting insurance claims for suspects who staged these collisions for profit. Chung represented the claimants who were allegedly "injured" in these fake collisions. The majority of the people she represented never met her, and many did not even know they had an attorney. Nearly 100 people have been convicted in Alameda County over the last several years as part of this conspiracy, including more than 90 staged collision participants, and three chiropractors. The majority of the participants in these staged collisions readily admitted to law enforcement that no accident had ever occurred.

I understand that California jails are crowded and criminals are being let loose to ease the crowding but running a major fraud ring, in the opinion of ZIFL, requires some real jail time and seizure of the guilty lawyer’s assets. Mr. Jones should not be bragging about this result he should be complaining that the court is being too kind.

From Zalma's Insurance Fraud Letter, September 1, 2011 available free at – http://www.zalma.com/ZIFL-CURRENT.htm.

On September 6, 2011, the Medicare Secondary Payer Recovery Contractor (MSPRC) announced through its website that Medicare has implemented a $300 threshold for certain liability insurance cases.  This announcement (“Alert”) represents the first time that Medicare has imposed a threshold related to its rights of reimbursement under the Medicare Secondary Payer (MSP) Act (42 U.S.C. §1395y(b)(2)).  

Assuming certain criteria are met when a liability insurance claim is resolved, Medicare will not recover from the recovery proceeds.  Those criteria are as follows: 

1) the settlement (generally defined by Medicare as including settlement, judgment, award or other payment) is related to an alleged physical trauma-based incident (as opposed to an alleged exposure, ingestion or implantation); 

2) the claimant does not have any additional settlements related to the same alleged incident; and

3) Medicare has not already issued a final demand.

The qualifying criteria specifically exclude alleged exposure, ingestion and implantation incidents from benefitting from this Alert.  Thus, it remains business as usual for parties to asbestos claims and other similar incidents (pharmaceutical, environmental, etc.) when working with Medicare to assess, satisfy and resolve Medicare’s rights of recovery.

The practical impact of this announcement is twofold.  First, by implementing this recovery threshold in certain liability settlements, the MSPRC will be able to process conditional payment requests and final demand requests with greater efficiency.  Second, this recovery threshold demonstrates that Medicare is working to find a solution to concerns expressed by the defense community.

The DRI Medicare Secondary Payer Task Force continues to monitor developments at the MSPRC, and will report any future developments to the DRI community.  For more information about this announcement and other MSP compliance issues, including conditional payment reimbursement, Medicare Set-Asides and MMSEA Section 111 reporting, please see http://www.dri.org/open/mstf.aspx. 

To view the Alert as posted by the MSPRC on its website, please follow this link: http://www.msprc.info/.  

The Eighth Circuit in AMCO Insurance Co. v. Inspired Technologies, Inc. (2011 U.S. App. LEXIS 16409, Aug. 10, 2011) held that the district court erred in finding that the policy’s knowledge of falsity exclusion precluded a duty to defend the insured for allegations of false advertising.

3M Company had sued Inspired Technologies (“ITI”) for alleged unfair and false advertising in violation of the Lanham Act, the Minnesota Uniform Deceptive Trade Practices Act, and a host of other Minnesota statutes.  ITI marketed a painter’s masking tape and allegedly inaccurately depicted 3M tape and incorrectly claimed that certain tests and product demonstrations proved that 3M tape performed poorly in specific respects.  In certain discovery responses, 3M stated that ITI’s photos in its marketing materials were manipulated with the intent to deceive.  ITI tendered the defense of the lawsuit to AMCO.  AMCO filed the instant action seeking a declaration that it did not owe ITI defense or indemnity, based mainly on the knowledge of falsity exclusion.  The district court granted summary judgment in favor of AMCO.

The Eighth Circuit reversed, finding that the discovery responses did not apply to all of 3M’s allegations regarding false advertising.  In particular, the complaint alleged that ITI failed to ensure the accuracy of its marketing data by following certain methods and practices.  The court believed that this allegation could be construed as a negligent act.  Further, because an unfair competition claim under the Lanham Act does not require that a plaintiff prove that a defendant knew that its advertisements were false, i.e., intent or willfulness is not required to establish a violation of the Lanham Act, AMCO breached its duty to defend ITI.  The Eighth Circuit remanded the case to the district court for further proceedings.  

Notably, this case is in accord with the Eleventh Circuit’s ruling in Vector Products, Inc. v. Hartford Fire Insurance Co., 397 F.3d 1316, 1319 (11th Cir. 2005).  As such, it appears that the knowledge of falsity exclusion has limited effect on the duty to defend.  Since the instant discovery responses regarding manipulation of images were found to insufficiently establish that the complaint was focused on intentional acts by the insured, what types of proof would you expect to find in order to rely on the knowledge of falsity exclusion as a basis for a denial of coverage?

On August 18, the California Supreme Court ruled in the case of Howell v. Hamilton Meats that personal injury plaintiffs were only entitled to recover the amount of medical expenses actually paid for treatment allegedly incurred as a result of a defendant's actions.  Plaintiffs may not recover for medical expenses billed by the medical provider, but never paid, even if the write-off is part of a discount program negotiated by their insurance company.

Plaintiff Howell contended that she was entitled to recover the full amounts billed by her medical providers, arguing that such was the "reasonable value" of her medical expenses, as reflected in the "usual and customary" rates for those services.  Plaintiff further claimed that the defendant would receive a "windfall" if permitted to benefit from a discount Plaintiff's insurer had negotiated with the medical providers.  Plaintiff also argued that the collateral source rule barred any reference to the amount of money actually paid for her medical services.

The California Supreme Court rejected these arguments.  It first noted that the concept of "reasonable value" as related to recovery for medical expenses was traditionally understood to be a term of limitation, not enhancement, of those expenses.  The Court also rejected Plaintiff's "windfall" argument, holding that fortuity is an element of both life and litigation, and that the extent of a particular plaintiff's medical expense or lost wages, whether large or small, is not a reason to inflate damages for all plaintiffs.  Given the complexities of modern medical billing and pricing, the Court further concluded that there is was little risk of under deterrence or an unfair windfall, and recognized that insurers tend to negotiate discounts for their own reasons.  

The Court also concluded that the collateral source rule simply did not apply, because Plaintiff never incurred any "loss" for an amount that was never truly paid or intended to be paid.  As such, the negotiated discount between insurer and medical provider simply was irrelevant and would not be introduced into evidence at all.  The Court therefore concluded that evidence of the full billed amounts was irrelevant for the purposes of proving past medical expenses, but reserved judgment on whether such evidence would be nonetheless be relevant for demonstrating noneconomic damages or future medical expenses.

This issue has been of significant interest to DRI and DRI members.  DRI was involved in the amicus briefing for the Howell decision, and plans to publish later this year the Collateral Source Compendium, a compilation of the laws of all 50 States on this issue.  The Compendium will arm DRI members nationwide with the tools they need to bring a just and fair rule for recovery of past medical expenses to jurisdictions across the country."