On March 23, 2017, the United States District Court for the Southern District of Florida published its opinion on Shapiro v. Secretary of Department of Health and Human Services, concluding that, even though Plaintiff and her attorney may have relied on Medicare’s verbal representation of $17,306.03 in conditional payments to settle the case, absent a waiver from CMS or its contractors in writing, the MSP Act requires Plaintiff to reimburse Medicare, and permits the Secretary of HHS to recover, the full $23,552.96 it paid in conditional payments from date of accident thru date of settlement. Since Plaintiff did not request a waiver for reimbursing all or part of the debt based on financial hardship, and failed to prove recovery is against equity and good conscience, court concludes plaintiff did not suffer a material detriment as she would still received 96% of settlement proceeds she agreed to.
Facts of the Case
In April 2011, Barbara Shapiro (Plaintiff), then seventy-nine years old, was seriously injured in an accident with a United Parcel Service (UPS) delivery truck. UPS denied liability for the accident, prompting Plaintiff to retain counsel and file a civil action in Florida state court. While the state-court action was pending, Medicare made conditional payments on Plaintiff’s behalf for medical expenses arising from her injuries. On May 15, 2012, Medicare issued Plaintiff a conditional payment letter stating that its accident-related payments to date were $16,940.51. The letter contained a notice cautioning that the amount was non-final and subject to change.
The state-court action proceeded through non-binding arbitration, which led to an offer by UPS to settle for $250,000. Later, about a month before the case was scheduled to go to trial, UPS upped its offer to $350,000. Plaintiff instructed her counsel to accept UPS’s offer only if she could receive a net recovery of $250,000.
To determine whether it was possible to net Plaintiff the sum she wanted, her counsel directed a member of his staff to contact the Medicare Secondary Payer Recovery Contractor (MSPRC) by telephone and verify the reimbursement amount for Medicare’s conditional payments. The MSPRC informed Plaintiff’s counsel’s staff member that the reimbursement amount had increased to $17,306.03 as of December 14, 2012.
Relying on the MSPRC’s representation of the conditional payments amount, Plaintiff settled her case with UPS. After the settlement was finalized, and details of the settlement were provided to Medicare, on or about December 31, 2012, the MSPRC issued a final demand notice seeking reimbursement from Plaintiff in the amount of $23,552.96 based on conditional payments totaling $40,118.83.
Plaintiff appealed that determination and, shortly thereafter, the MSPRC upheld its decision. Plaintiff then administratively appealed to Maximus Federal Services, a Medicare Qualified Independent Contractor, which ruled against Plaintiff, finding the amount MSPRC conveyed over the telephone was not final and was subject to change. Plaintiff then requested a hearing before an ALJ of the Office of Medicare Hearings and Appeals. The ALJ also ruled against Plaintiff, noting that “MSRP conditional letters include a disclaimer that they are not final and are subject to change, and therefore the Plaintiff was on notice of this fact,” and that “it cannot be said that recoupment of the MSP overpayment at issue would be against equity and good conscience.”
Plaintiff appealed the decision to the Medicare Appeals Council (MAC). On April, 2, 2015, the MAC ruled against Plaintiff, stating that “there can be no final reimbursement amount before a settlement is finalized.” Plaintiff then filed this action seeking review of the MAC’s determination in the United States District Court, Southern District of Florida.
The Medicare Secondary Payer Act
Congress enacted the Medicare Secondary Payer statute (MSP) to reduce escalating Medicare costs. In relevant part, the MSP provides: “A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this subchapter with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a 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.” 42 USC Section 1395y(b)(2)(B)(ii).
“The MSP makes Medicare a secondary source of payment for health care services. When a primary payer has not paid or cannot reasonably be expected to pay promptly for covered services, Medicare makes a conditional payment to ensure the beneficiary receives timely health care. Medicare’s conditional payments are conditioned on reimbursement to Medicare when notice or other information is received that payment for such item or service has been made.”
Under the MSP, if the beneficiary receives payment from a primary payer, the beneficiary must reimburse Medicare “for any payment with respect to an item or service if it is demonstrated that such primary plan has or had responsibility to make payment with respect to such item or service.” Responsibility “may be demonstrated by a judgment, a 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.” 42 USC Section 1395y(b)(2)(B)(ii).
These MSP provisions “prevent responsible tortfeasors or recovering tort plaintiff/beneficiaries from retaining the medical expenses paid by Medicare.” A tortfeasor, for example, can be a “primary plan” – i.e., a primary payer – under the statute. “If a Medicare beneficiary seeks medical expenses as damages in a lawsuit, and the parties settle the claim, the settlement demonstrates the tortfeasor’s responsibility for those medical expenses, regardless of whether the tortfeasor admits liability. The tortfeasor then becomes obligated to reimburse Medicare for the medical expenses. If, however, the tortfeasor directly pays the settlement proceeds to the Medicare beneficiary, Medicare may seek reimbursement from the beneficiary.”
Absent Waiver from CMS, Plaintiff Owes $23,552.96
In this case, Medicare paid $40,118.83 in conditional payments for medical care related to the accident from which Plaintiff’s settlement arose. As the MSP and federal regulations require, the Centers for Medicare and Medicaid Services (CMS) reduced the principal amount it seeks to recover from Plaintiff from $40,118.83 to $23,552.96 to account for attorneys fees and costs incurred associated with prosecution of the claim that gave rise to the settlement. Plaintiff does not dispute that Medicare made payments on her behalf for medical care related to the injuries she sustained in the accident. Moreover, Plaintiff received a settlement for those injuries. Accordingly, the court finds that the MSP Act requires Plaintiff to reimburse Medicare, and permits the Secretary to recover the full principal amount of the payments owed ($23,552.96), absent a basis for waiver.
Plaintiff Did Not Request Waiver Based on Financial Hardship
Although the Act mandates reimbursement of conditional payments to Medicare, it also provides that the Secretary of HHS may waive recovery, or a portion thereof, if certain conditions are met. Under section 1870(c) of the Act, “the Secretary may waive all or part of the recovery if the beneficiary is without fault and (1) when recovery would either defeat the purpose of Title II or Title XVIII of the Act; or (2) be against equity and good conscience.” 42 U.S.C. Section 1395gg(c); 42 C.F.R. Section 358. The burden is on the beneficiary to show that “recovery would defeat the purpose of the Act or be against equity and good conscience.”
Recovery of conditional payments defeats the purpose of the Social Security Act when “it would cause financial hardship by depriving a beneficiary of income required for ordinary and necessary living expenses.” See 20 C.F.R. Section 404.; see also Medicare Secondary Payer Manual (MSPM), ECF No. 41-1, Ch. 7, § 50.6.5. Here, Plaintiff does not rely on this ground for waiver.
Waiver Contending Recovery is Against Equity and Good Conscience
Instead, Plaintiff contends that recovery is against equity and good conscience. Whether recovery is against equity and good conscience depends on the totality of the circumstances in a particular case, which a tribunal evaluates using a non-exhaustive list of factors: “(1) the degree to which the beneficiary contributed to causing the overpayment; (2) the degree to which Medicare and/or its contractors contributed to causing the overpayment; (3) the degree to which recovery or adjustment would cause undue hardship for the beneficiary; (4) whether the beneficiary would be unjustly enriched by a waiver or adjustment of recovery; and (5) whether the beneficiary changed their position to their material detriment as a result of receiving overpayment or as a result of relying on erroneous information supplied to the beneficiary by Medicare.” See MSPM, Ch. 7, § 126.96.36.199. Here, Plaintiff principally relies on the fifth factor.
Plaintiff alleges that “she reasonably relied on the MSPRC’s representation during the December 14, 2012 telephone call as the final reimbursement amount,” and that her counsel “relied on the statement of reimbursement amount to calculate Plaintiff’s required net for settlement of her action against UPS.” As the MAC noted, however, the amount of conditional payments that the Secretary may recover is not final until after a settlement is reached because “Medicare’s claim comes into existence by operation of law when payment for medical expenses that Medicare conditionally paid for has been made by the third party payer.” Indeed, the May 15, 2012 conditional payment letter clearly stated that the list of conditional payments enclosed therein would not be updated until CMS received “final settlement information” from Plaintiff. Further, as the MAC found, Plaintiff “had notice of the payments Medicare made for her accident-related injuries by virtue of having received medical care for those injuries, and, subsequently bills and remittance advices related to that care.”
The court therefore concludes that “substantial evidence supports the MAC’s conclusion that it was not reasonable for Plaintiff to rely on the amount conveyed during the telephone call as the final amount.”
Plaintiff Did Not Suffer a Material Detriment
Moreover, substantial evidence supports the MAC’s conclusion that even if Plaintiff reasonably relied on the contractor’s representation, she did not suffer a material detriment. As the MAC explained, “the appellant asserts that the figure furnished by Medicare prior to settlement would have been reduced to a demand of approximately $10,000 and, compared to the $23,552.96 Medicare ultimately sought to recover, the approximate $13,500 difference is material.” The MAC however indicated that “a $13,500 additional demand is still a relatively small fraction (5.4%) of the total net settlement ($250,000 after expenses) the appellant received, particularly considering that there is no evidence of financial hardship to the beneficiary.”
Here, Plaintiff contends that the MAC’s conclusion that the 5.4% figure is not material was “arbitrary and capricious.” The court however disagrees. If Plaintiff pays the full amount of principal conditional payments owed, she will retain $226,447.04 of her settlement – in other words, more than 94% of what she would have received if the amount MSPRC quoted over the telephone had been the “final amount.” Such evidence is sufficient to support the MAC’s finding that Plaintiff did not suffer a material detriment.
Plaintiff argues that $13,500 “is a very significant sum to Plaintiff,” and that “it is the absolute dollar figure, and the effect of its loss to Plaintiff, that are the operative facts as to whether a difference is material.” But the subjective importance to the beneficiary of a reimbursement amount is not one of the factors listed in the Medicare Secondary Payer Manual as relevant to whether recovery is against equity and good conscience. The factor that comes the closest is whether recovery or adjustment would cause undue hardship for the beneficiary. Plaintiff has not alleged that is the case here.
This is yet another case providing an example of the lack of awareness and understanding by the plaintiff bar of Medicare Secondary Payer rules and regulations affecting resolution of Medicare conditional payments. As the court correctly points out, a tortfeasor and its insurer are considered primary payers under the MSP statute if a Medicare beneficiary seeks medical expenses as damages in a lawsuit, and the parties settle the claim, as the settlement demonstrates the tortfeasor’s responsibility for those medical expenses, regardless of whether the tortfeasor admits liability. As a result, the tortfeasor and its insurer here were as equally obligated to reimburse Medicare for the medical expenses it paid related to the claim once they agreed to settle claim. Because the tortfeasor paid the settlement proceeds to the Medicare beneficiary, in addition to the tortfeasor and its insurer as responsible primary payers, Medicare was also allowed to seek reimbursement from the beneficiary. Luckily for the tortfeasor and its insurer, Medicare chose to go after the Medicare beneficiary for reimbursement of the $23,552.96. It could have just as easily gone after the tortfeasor and its insurer, the original primary payers. And even luckier for the tortfeasor and its insurer, the plaintiff and her counsel here have taken the responsibility of reimbursing Medicare for such conditional payments.
What if the Medicare beneficiary decided not to reimburse Medicare for such conditional payments? Could Medicare seek reimbursement from UPS and/or its insurer? You know the answer. A resounding yes! Therefore, whether an auto, liability, no-fault, or work comp self insured or insurer, there is only one way to make sure these types of cases and situations do not re-appear, or show up on your desk several years after the case settled and Medicare was not reimbursed by the Medicare beneficiary. The only way to make sure this does not happen to your auto, liability, no-fault, or work comp entity is to take ownership of the Medicare conditional payment reimbursement process. You report the file; you obtain the conditional payment letter; you dispute each payment that is not related to your claim; you communicate with Medicare details of the settlement; you seek the final demand; you reimburse the amount owed directly to Medicare; you obtain closure documentation showing payment received, no further payments due, and case is closed. It is the only way to make certain your obligation to reimburse conditional payments to Medicare are in fact appropriately and satisfactorily taken care of.
About Flagship Services Group
Flagship Services Group is the premier Medicare compliance services provider to the property & casualty insurance industry. Our focus and expertise has been the Medicare compliance needs of P&C self-insureds, insurance companies, and third party administrators. We specialize in P&C mandatory reporting, conditional payment resolution, and set aside allocations. Whether auto, liability, no-fault, or work comp claims, we have assembled the expertise, experience and resources to deliver unparalleled MSP compliance and cost savings results to the P&C industry. To find out more about Flagship, our folks, and our customized solutions, please visit us at www.flagshipservicesgroup.com. To speak with us about any of our P&C MSP compliance products and services, you may also contact us at 888.444.4125 or email@example.com.
About Rafael Gonzalez
Rafael Gonzalez, Esq. is President of Flagship Services Group, the only national Medicare Secondary Payer services provider focusing on and offering comprehensive mandatory reporting, conditional payments, and set aside allocation compliance services to the property and casualty insurance industry. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, CMS approval, and MSA and SNT professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at www.flagshipservicesgroup.com/blog. He is very active on LinkedIn, Twitter, Instagram, and Facebook. He can be reached at firstname.lastname@example.org or 813.967.7598.