On March 15, 2018, the Supreme Court of the State of New York, in New York County, published its opinion on Daniel Mayo, as the Administrator of the Estate of Annette Mayo v. NYU Langone Medical Center, finding that the parties’ Settlement Agreement is not binding on the plaintiff since it was not executed by the defendant or the insurer, as required under the express terms of the Settlement Agreement. In addition, the court concludes that the Settlement Agreement was the product of a mutual mistake based on the parties’ incorrect belief that the Medicare lien was $2,824.50, when in fact it was $145,764.08. The court therefore rules there is no settlement and orders the action back to the trial calendar.
Since they are federal topics, we are used to federal court opinions defining and explaining Medicare and Medicaid issues. However, once in a while we see state court opinions with significant Medicare and/or Medicaid ramifications. This New York medical malpractice claim decision is one of those; it is a perfect example of how inappropriately handling conditional payment issues can and will cause huge problems, including blowing up your settlement. For those of us who have been practicing law for over 30 years, historically it has always been plaintiff counsel who assumed the responsibility for resolving Medicare liens. This case, without question, highlights the need for defendants, insurers, and their counsel to revisit that old theorem and instead develop a new process in which the payer takes on the responsibility for assuring appropriate handling and correct reimbursement of Medicare conditional payments.
Facts of the Case
Annette Mayo (Decedent) was treated at NYU Langone Medical Center (Defendant). She entered the hospital on November 9, 20I0, for a total hip replacement. On November 13, 2010, she fell out of her bed, and underwent right hip revision surgery. During her hospitalization, decedent contracted Clostridium Difficile (a gastrointenstinal bacterial infection), which extended her hospitalization and required various procedures. Decedent was discharged from the defendant hospital to a skilled nursing home facility in March 2011, and died on May 24, 2014. Daniel Mayo, as the administrator of decedent’s estate (Plaintiff) filed a claim alleging that defendant failed to timely diagnose decedent with Clostridium Difficile, and failed to appropriately secure and supervise her.
On January 15, 2015, the Center for Medicare and Medicaid Services (CMS) sent a conditional payment letter requesting $2,824.50 in overpayment, and attached a payment summary form listing the claims adding up to the total. The letter advised that “the conditional payment amount listed above is an interim amount. We are still reviewing medical claims related to your case.”
On July 21, 2015, CMS sent another conditional letter requesting $1,811.95 for overpayment, which letter contained the same language as to January 15, 2015 letter, advising that the amount listed was an interim amount and was still being reviewed.
By letter dated January 5, 2016, which was copied to defendant’s counsel, plaintiff notified the court that the action had been settled for $725,000 “inclusive of all liens, attorneys fees, without costs to either side.” By letter dated January 6, 2016, plaintiff counsel wrote defendant’s counsel that “the final Medicare lien amount is $1,811.95,” and requested that he forward releases. Also, on January 6, 2016, plaintiff counsel signed a stipulation of discontinuance, which was never filed with the court.
On January 6, 2016, counsel for defendant sent plaintiff counsel the Settlement Agreement, a 9-page document, indicating the insurer would pay $725,000. The breakdown was as follows: Medicare $2,824.50, the remaining $722,175.50 payable to Daniel Mayo as Executor of the Estate of Annette Mayo and Krentsel & Guzman, LLP, plaintiff’s attorneys.
On January 20, 2016, plaintiff and his counsel executed the Settlement Agreement, and on January 22, 2016, plaintiff counsel sent a letter with the executed Settlement Agreement enclosed and requested payment.
The Medicare Lien
On that same date, January 20, 2016, CMS sent a final lien letter to plaintiff and his counsel notifying them that Medicare was seeking repayment of $145,764.08 for the cost of the decedent’s medical care, and attached a list of its payments made on decedent’s behalf.
On February 2, 2016, plaintiff counsel challenged Medicare’s demand amount writing that “after the plaintiff accepted the settlement in reliance on the $1,811.95 amount stated in the July 15, 2015 letter, we informed Medicare of the settlement and awaited a demand letter fully expecting it to be lower than the conditional payment amount cited in accordance with our prior dealings with MSPRC (Medicare Secondary Payer Recovery Contractor). Instead, we were shocked to receive the January 22, 2016 letter with a demand amount of$145,764.08. It is unclear where this demand amount is coming from, however, this settlement offer was made only in contemplation of decedent’s pain and suffering and not for her medical bills which are not part of the settlement amount.”
On March 3, 2016, Medicare upheld its previous determination. Plaintiff requested reconsideration, and on September 8, 2016, the Qualified Independent Contractor (QIC) issued an unfavorable reconsideration decision upholding the prior determination.
Plaintiff next sought review before an Administrative Law Judge (ALJ) from the Office of Medicare Hearings and Appeals. On May 15, 2017, the ALJ found that plaintiff was responsible for the conditional payments, plus interest.
In the meantime, in the year and half that had since passed, neither defendant nor its insurer signed the Settlement Agreement, nor did the insurer proffer payment in accordance with the Settlement Agreement. In addition, judgment was never entered, and no stipulation of discontinuance was ever filed.
Plaintiff Argues Settlement Agreement is Null and Void Because of Medicare Lien Error
Plaintiff here moves to declare the Settlement Agreement null and void, arguing it was entered into under an erroneous assumption based on the conditional letters from Medicare that the maximum amount that Medicare would assert was $2,824.50. Plaintiff further argues that the Settlement Agreement is not binding as it was never filed with the county clerk, and is not signed by both parties.
Defendant opposes the motion, asserting that the Settlement Agreement is enforceable as it satisfies the statutory writing requirement, and was not entered into as the result of a “mutual mistake,” but, rather, plaintiff’s unilateral error in failing to ensure that the amount of the Medicare lien was correct. In this connection, defendant argues that investigating the extent of the Medicare liens was the sole responsibility of plaintiff, and that his failure to ascertain the correct amount of the liens is a “unilateral mistake,” and thus does not provide a basis for voiding the Settlement Agreement.
Defendant further argues that the Settlement Agreement is binding upon plaintiff since it was signed by plaintiff and his attorney, that the clear and unambiguous language of the agreement shows that it should be enforced according to its terms, and that although the agreement provides that it is not effective unless executed by the parties, the construction and drafting of the agreement demonstrates that no signature was required of defendant (or its representative) in order to make the agreement binding.
Did the Parties Intend to be Bound by the Terms of the settlement Agreement?
The threshold issue is whether the Stipulation of Settlement is enforceable. Assuming the Settlement Agreement satisfies the minimum requirement of a signed written instrument under CPLR 2104, to enforce the Settlement Agreement under the rules of contract law, it must be found that the parties intended to be bound by its terms in the absence of the signature of defendant or its representative.
“In determining whether a contract exists, the inquiry centers upon the parties’ intent to be bound, i.e., whether there was a ‘meeting of the minds’ regarding the material terms of the transaction.” In general, a written contract signed by the parties is not necessary to form a contract as long as the agreement contains its essential terms, and “there is objective evidence establishing that parties intended to be bound.” However, “it is well settled that, if the parties to an agreement do not intend it to be binding upon them until it is reduced to writing and signed by both of them, they are not bound and may not be held liable until it has been written out and signed.”
Here, the Settlement Agreement provides that “it shall become effective upon execution by the parties,” which provision is indicative of the parties’ intent that it would not be binding until executed by the parties. Accordingly, the court finds that the Settlement Agreement is not binding on the plaintiff since it was not executed by the defendant or the insurer, as required under the express terms of the Settlement Agreement.
The Settlement Agreement is Unenforceable Because of Mutual Mistake
Next, the court finds that even if the Settlement Agreement were enforceable in the absence of a signature from defendant or the insurer, it would be “subject to vacate on the grounds of mutual mistake.” In general, to vacate a stipulation of settlement, the moving party must show that a mutual mistake existed at the time the stipulation was entered that was so substantial that it prevented a meeting of the minds.
The court finds plaintiff has met this burden by demonstrating that the Settlement Agreement was the product of a mutual mistake based on the parties’ incorrect belief, as reflected in the record demonstrating that the parties’ negotiations were based on an assumption that the Medicare lien was $2,824.50, when it was actually $145,764.08.
Furthermore, given the more than $140,000 difference between the two lien amounts, plaintiff has demonstrated that the error was sufficiently substantial so as to prevent a meeting of the minds as to the $750,000 settlement. In addition, because the Settlement Agreement was drafted by defendant, the error cannot be attributed to a unilateral mistake by the plaintiff, but was in fact a mutual mistake.
In view the above, the court concludes that the Settlement Agreement is not binding on the plaintiff and is therefore vacated. As requested by plaintiff, the action was restored to the trial calendar and were ordered to appear for a pre-trial conference on April 19, 2018, at 2:30 pm in New York, NY.
It is hard to imagine that experienced and capable plaintiff and defense counsel would have relied upon what was clearly identified as a non-final, but interim conditional payment report from Medicare to settle the file. As the parties found out here the hard way, Medicare will only provide a final demand for reimbursement of conditional payments related to the claim upon learning of settlement of the claim.
Resolution of Medicare payments is no longer a matter of concern only to the plaintiff and his/her counsel. It is, as this case clearly shows, of great significance and importance to corporate entities, insurers, and their attorneys. As I have been recommending for a number of years, it is time that defendants, insurers, and their defense counsel create an internal process or hire a vendor to handle resolution of conditional payments. Doing so in a case like this one would have allowed them to learn early on of the correct amount due. This would have better prepared them to settle the file earlier, accurately, and without any complications. It is time.
About Rafael Gonzalez
Rafael Gonzalez, Esq. is President of Flagship Services Group. He has over 30 years of experience in the auto, liability, no-fault, and work comp industries. He is one of the country’s top experts on Medicare and Medicaid compliance, serving insurers, self-insureds, and third party administrators. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, and 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.
About Medicare Conditional Payments
42 CFR Section 411.21 indicates that Medicare conditional payments are payments made by Medicare for medical treatment where a primary payer (insurer or self-insurer) has or may have an obligation to make such payment. Primary payers must reimburse Medicare for conditional payments it has made. 42 USC Section 1395y indicates that primary payers include group health providers, workers’ compensation, liability and no-fault insurers and self-insured entities, as well as physicians, attorneys, hospitals, or clinics that receive payment from a primary payer must make reimbursement.
42 USC Section 1395y also indicates responsibility as a primary payer arises even if liability for the medical expense is contested. Such a responsibility can be demonstrated by entry of a judgment or by payment conditioned on a release or waiver of payment, even if liability is denied. 42 CFR Section 411.24 indicates Medicare has a direct right of action against all primary payers responsible for making payment. And, Medicare has a direct right of action against any person or entity that received a primary payment, including the Medicare beneficiary, medical provider, physician, attorney, state agency or private insurer.
About Medicare Advantage and Prescription Drug Plans Reimbursement
42 CFR Section 422.108(f) provides MAPs with the same rights of recovery that the Secretary of HHS has under the MSP regulations in subparts B through D of part 411 of 42 CFR. Additionally, the same MSP regulations at 42 CFR Section 422.108 are extended to PDPs at 42 CFR Section 423.462. Therefore, PDPs have the same MSP recovery rights as MAPs, which have the same recovery rights as HHS. This includes, as recent federal appellate and district court decisions have indicated, the ability to pursue double damages through MSP private cause of action pursuant to 42 USC Section 1395y(b)(3) should the primary payer deny the MAP or PDP reimbursement of any due conditional payments.
About Medicaid Third Party Liability Liens
42 USC Section 1396a mandates that all reasonable measures to ascertain legal liability for Medicaid payments and reimbursement of same be taken. The state or agency administering a Medicaid plan must take all reasonable measures to ascertain the legal liability of third parties to pay for care and services paid by Medicaid. Federal law also provides that in any case where such a legal liability is found to exist after medical assistance has been made available on behalf of the individual, the state or local agency must seek reimbursement for such assistance to the extent of such legal liability. 42 U.S.C. Section 1396a(a)(25).
About Flagship Services Group
Flagship Services Group is the premier Medicare and Medicaid compliance services provider to the property & casualty insurance industry. Our focus and expertise has been the Medicare and Medicaid 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.