The reimbursement of the conditional payment upon the negotiated resolution of a tort claim involving a Medicare beneficiary is neither an act of altruism nor an event capable of resolution on the eve of trial. The reimbursement of the conditional payment is the law, the continued violation of which must be addressed through federal litigation for double damages against the beneficiary, plaintiff's counsel and/or the liability insurer.

The act of reimbursing the conditional payment as required by law requires an acknowledgment by the practitioner that Medicare is a bureaucracy and, as such, time - and plenty of it - is required to successfully coordinate with this bureaucracy. The Department of Housing and Urban Development, the Internal Revenue Service, Social Security, the Veterans Administration, Centers for Medicare & Medicaid Services (CMS) and other federal agencies require time to process information and coordinate action. The practitioner seeking to resolve Medicare secondary-payer liability must coordinate with CMS upon the commencement, not conclusion, of the tort negotiation.

Medicare claim basics

The Medicare program is administered by CMS, a component of the U.S. Department of Health and Human Services. Medicare claims on behalf of beneficiaries who have received medical items or services are reviewed and paid by CMS contractors, traditionally known as Part A "fiscal intermediaries" and Part B "carriers" (see 42 Code of Federal Regulations [CFR], Part 421).

Medicare secondary-payer (MSP) claims for reimbursement of conditional payments by Medicare are handled by a single national contractor known as the Medicare Secondary Payer Recovery Contractor (MSPRC). The MSPRC is generally responsible for all new MSP recovery claims.

The MSP statute, Section 1862(b) of the Social Security Act, 42 United States Code (USC) § 1395y(b), requires that certain "primary plans," specifically liability insurance - including self-insurance - and no-fault insurance plans, be the primary payer for items and services furnished to Medicare beneficiaries. This provision allows Medicare to provide benefits only as a "secondary" payer.

This provision prohibits Medicare from making payments if payment has already been made or can reasonably be expected to be made by a primary payer (see 42 USC § 1395y[b][2][A][ii]; 42 CFR § 411.20[a][2]). Moreover, although Medicare makes payments when a primary plan cannot reasonably make its payments promptly, any such payments are conditioned upon reimbursement; see 42 USC § 1395y(b)(2)(B)(I); Baxter 345 F.3d, at 892).

Recovery options, penalties

If reimbursement is not forthcoming, there are several possible methods of recovery.

First, Medicare may recover its conditional payments "by direct collection or by offset against any monies (it) owes the entity responsible" (42 CFR § 411.24[d]). Second, the United States may bring an action for double damages against any responsible entity for repayment (42 USC § 1395y(b)(2)(B)(iii); 42 CFR§ 411.24(c)(2)). Third, the United States has a separate subrogation right to recovery (42 USC § 1395y[b][2][B][iv]; see also 42 CFR§ 411.26[a]).

The Medicare regulations also empower Medicare to "join or intervene in any action related to the events that gave rise to the need for services for which Medicare is paid" (42 CFR § 411.26[b]). Given that most of the underlying tort litigation takes place in state courts and that those courts lack jurisdiction over the Medicare program, CMS does not normally intervene in such actions. (See Hoste v. Shanty Creek Management Inc., 246 F. Supp.2d 784, 788-789, W.D. Mich., 2002; Mitchell v. Health Care Service Corp. et al., 633 F. Supp. 948, 949, N.D. Ill., 1986).

The absence of state-court jurisdiction to adjudicate MSP claims due to the bar of sovereign immunity and the distinctly federal nature of the MSP adjudication process in federal court renders invalid any state court action directed at CMS and including any attempt to void the conditional payment obligation of the beneficiary.

Finally, the "double payment" provisions of 42 CFR § 411.24(I) state that if a primary payer does not pay or reimburse Medicare, the primary payer remains responsible for reimbursing Medicare. The act of a plaintiff indemnifying the primary-payer liability insurer upon the resolution of a tort matter that incompletely resolves MSP liability fails to end the litigation for the liability insurer. The United States, as discussed above, possesses the statutory ability to sue the liability insurer for double damages rather than for only the amount of the conditional payment. Indemnification, if applicable in the event that it is not contrary to public policy, concerns only the single-damages amount and leaves the liability insurer exposed for the remaining amount.

Medicare's right to reimbursement

Medicare's interest is not a "lien." Rather, "Medicare's right is superior to a lien" (Zinman v. Shalala, 835 F. Supp. 1163, 1170-1171, N.D. Calif., 1993; affirmed, 67 F.3d 841, 9th Cir., 1995). The MSP statute does not give the government a claim against property, and "Medicare does not have a lien interest in the settlement awards" (Zinman v. Shalala).

The courts have recognized that Medicare's right to reimbursement is paramount to any other claim. (See, for example, United States v. Geier, 816 F. Supp. 1332, 1337, W.D. Wisc., 1993).

Statute of limitations, payment reductions

The statute of limitations for primary plans is six years (see Manning v. Utilities Mutual Insurance Co., Inc., 254 F.3d 387, 397-398, 2nd Cir. 2001). Under 28 USC § 2415(a), this six-year period for MSP claims begins from the later of either the date of payment or the date that Medicare learns of the payment.

Medicare reduces its recovery by the cost, if any, of procuring the judgment or settlement, because the claim is disputed and those costs are borne by the party against which CMS seeks to recover (see 42 CFR § 411.37; In re Zyprexa Products Liability Litigation, 451 F.Supp.2d 458, 466, E.D.N.Y., 2006). When CMS recovers directly from an insurer, there is no such pro rata reduction. CMS generally engages the practitioner in a dialogue compromising the MSP value only after the parties reach a settlement agreement. The act of reaching a tort agreement notwithstanding the existence of an outstanding cost - the MSP claim - seems inimical or counterintuitive to the settlement process. A more complete understanding, however, of the federal settlement process, as distinct from the manner in which private litigants resolve liability, demonstrates the unremarkable nature of the CMS settlement protocol.

For example, in the related area of civilly resolving Medicare health-care-fraud claims, there exist two independent areas of liability: monetary exposure occasioned through the False Claims Act (FCA), 31 USC §§ 3729 et seq.; and administrative liability occasioned through the exclusionary authority of Health and Human Services Office of Inspector General (OCIG). OCIG will not discuss compromising its exclusionary authority with defense counsel for the physician or hospital until after resolution of the FCA liability. The cost of compromising the exclusionary authority through the imposition of remedial obligations may increase the settlement cost by hundreds of thousands of dollars. The bifurcated nature of the health-care-fraud settlement process is akin to the CMS process compromising MSP liability in that such processes constitute an alternating, by turns, format rather than a global, contemporaneous negotiation.

CMS also has publicly disclosed its settlement calculus to permit the tort parties to quantify and assess the costs and benefits of a proposed tort resolution notwithstanding the outstanding MSP liability. Consider the following example: For a case resolved with a $10,000 settlement, attorneys' fees are one-third, and there are $150 in costs, for $3,483.33 in cost of procurement. That amount divided by the $10,000 settlement equals .348333, which, after multiplied by the Medicare lien of $2,700, leaves $940.50. The difference between $2,700 and $940.50 equals $1,759.50, or the total amount due CMS to satisfy MSP liability.

Stated otherwise, a $10,000 settlement minus $3,333.33 in attorneys' fees minus $150 costs and the MSP value of $1,759.50 leaves $4,757.17 for the client.

Reimbursement of conditional payments

The will of Congress is not so easily defeated as through artful pleading that purports to recover for only pain and suffering. Tort releases issued in personal-injury settlements generally release potential liability for all possible causes of actions. Medicare reasonably reads such releases as including damages for medical expenses. The breadth of the tort release belies the fictional claim regarding the limited payer and is irrelevant in any event: Medicare requires reimbursement based on the settlement payment without regard to the content of any pleading. If not reimbursed for its conditional payments, Medicare will seek double damages from the liability insurer, plaintiff's counsel and/or the plaintiff for repayment (see 42 USC §1395y[b][2][B][iii]; 42 CFR § 411.24[c][2]; 42 CFR § 411.24[g]).

In settling a personal-injury claim, a primary payer would assume the risk that it was not settling any claim for medical damages. The risk incurred by the liability is twofold, as there are two separate lawsuits arising from an injury caused by its insured - one by the injured Medicare beneficiary and a subsequent one by the United States on behalf of Medicare. Alternatively, a primary payer could resolve all of its liability in one action while also supporting the public policy of judicial economy.

A personal-injury attorney representing a Medicare beneficiary does not automatically enter into a fiduciary relationship with the Medicare program. Rather, the attorney is representing a client who has a legal obligation to ensure that Medicare is reimbursed for Medicare's conditional payments to the tortfeasor (see 42 CFR §§ 411.22[a] and 411.24[g]).

Ahlborn doesn't apply in MSP matters

The Supreme Court decision in Arkansas Department of Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752, 2006 - which held that the federal Medicaid statute permitted a state to recover only its payments for medical assistance from the portion of a liability settlement attributable to medical items and services and if the state attempted to recover from more than the portion of a settlement that the parties allocated to medical items and services, then it would be in violation of the federal Medicaid anti-lien statute - does not apply to the MSP matters, because Ahlborn concerned the federal Medicaid statute third-party liability provisions rather than the Medicare Secondary Payer statutory provisions (Ahlborn, 547 U.S. at 283, 126 S.Ct. at 1760-64, 1767).

The Ahlborn decision was based on the specific statutory language found in the Medicaid statute, and applying it to the Medicare secondary payer provision is comparing apples and oranges. The Medicare statute, unlike the Medicaid statute considered in Ahlborn, does not contain an anti-lien provision; therefore, Congress did not intend to shield beneficiaries from their obligation to refund certain Medicare conditional payments.

Recent changes increase transparency

Section 111 of the Medicare Secondary Payer Statute provides that claims be reported to the secretary for the purpose of increasing transparency and reviewing significant amounts of previously difficult-to-collect primary-payer data on liability, self-insured, no-fault, and Workers' Compensation settlements, judgments, awards or other payments to determine if Medicare's interests were adequately protected in a settlement.

The United States will be able to assess upon the conclusion of a tort matter through Section 111 the existence of a previously undisclosed fact: MSP compliance. (See CMS' dedicated Web page at www.cms.hhs.gov/mandatoryinsrep for information and instructions regarding Section 111 reporting and compliance. All official implementation instructions will be available on or through a download from this site. Note that the Section 111 mandatory MSP reporting provisions are new, additional MSP requirements; they do not eliminate or replace any existing MSP provisions or obligations. The Web page also provides information concerning Medicare set-asides.)

How to proceed

At the outset of a personal-injury/malpractice action involving a Medicare beneficiary, the attorney should immediately contact CMS's Coordination of Benefits Contractor (COBC) to initiate the opening of an MSP potential recovery case. The Office of the U.S. Attorney is neither the initial contact point nor the eve-of-trial contact point to resolve MSP liability. The COBC can be reached by phone at: 1-800-999-1118 or by mail at: MEDICARE-COB, MSP Claims Investigation Project, P.O. Box 33847, Detroit, Michigan 48232.

The COBC will need the Medicare beneficiary's full name, sex, date of birth, Social Security Number or Medicare health insurance claim number, the date of the incident, and a description of the incident. The COBC then transmits the information to CMS's MSPRC. The MSPRC sends interim conditional payment amount information to www.mymedicare.gov, where the beneficiary may access the information. Once there is a settlement, judgment or award, the MSPRC must be notified in writing of the details of the agreement. The MSPRC then calculates the recovery claim amount and issues a recovery demand letter. No legal action to contest Medicare's reimbursement of conditional payments can be filed until all administrative remedies have been exhausted. (See 42 USC § 1395ii; Cochran v. U.S. Health Care Financing Admin., 291 F.3d 775, 778-779, 11th Cir., 2002; Penoyer v. U.S., 2004 WL 437461, N.D.N.Y., 2004).

Tips for attorneys

If the attorney believes that the client's case warrants a compromise under 42 CFR § 405.376, he or she can request that the appropriate CMS Regional Office compromise Medicare's recovery claim. Compromise requests do not toll the time limit to file an appeal or toll the assessment of interest. Compromise decisions are also discretionary and not subject to appeal.

In conclusion, a cooperative approach involving the Medicare beneficiary, the beneficiary's attorney and the primary plan/payer minimizes litigation, limits the primary payer's risk of paying double damages and preserves judicial resources. This cooperative approach constitutes good public policy by effectuating Congress' intent to keep Medicare financially viable for present and future beneficiaries who depend upon this vital program.

Robert Trusiak is chief of the Affirmative Enforcement Unit and an assistant U.S. attorney in the Office of the U.S. Attorney, Western District of New York. He can be reached at robert.g.trusiak@usdoj.gov. John Fenski and Lisa Chan, law clerks in the U.S. Attorney's Office, assisted in the preparation of this column.