Defendant Cannot Include Medicare on Check to Satisfy Judgment According to New Pennsylvania State Appellate Court Decision.
Roy Franco
November 27, 2010

By Jeff Signor & Roy Franco

Surprised? We are not. To alleviate the contingent liabilities created by the Medicare Secondary Payer Act (MSPA) parties must cooperate. Without cooperation on the Medicare topic, there will be more decisions like Zaleppa v. Seiwell, 2010 PA Super 208 (11/17/2010). The MSPA is designed to protect the Medicare beneficiary. Therefore, primary plans cannot deprive Medicare beneficiaries of their rights to due process.

If primary plans and beneficiaries want to avoid the contingent liabilities then they need to work cooperatively on this topic. The MSPA creates contingent liabilities for primary plans and it is also designed to protect the Medicare beneficiary. A beneficiary’s due process rights, set forth at 42 U.S.C. § 1395y(b)(2)(B)(ii), provides the beneficiary 60 days from the date of the Final Demand to pay or otherwise object by filing for a waiver or appeal. After the 60-day period, the primary plan, or any entity that receives payment from the primary plan, is obligated to re-pay Medicare. The contingent liability does not create an immediate right to add Medicare to a settlement check or satisfaction of judgment because Medicare loses control over those funds which may be disputed by the beneficiary. See our blog analysis of due process and how it is being questioned in the case of Haro v. Sebelius:

In Zaleppa, the parties did not determine whether Medicare was owed anything. Either party could have placed Medicare on notice of the loss. All that is needed is a Social Security Number and Date of Birth. This type of information was found to be discoverable in a federal distrcit court out of Nebraska. See Gary E. Seger et. al. vs. Tank Collection, LLC et. al and our analysis of it here. If notice was provided to Medicare then at least the plaintiff in Zaleppa would have known where things stood with Medicare. How could the Superior court rule any differently on the issue when the parties had not begun the process of obtaining the Medicare information?

In Zaleppa the court concludes: “…there is no legal basis under either federal or Pennsylvania law to assert the interests of the United States government as to the reimbursement of Medicare liens”. There are two significant takeaways from this decision. First, and as discussed above, the Medicare component of the claim must be handled well before a trial or settlement conference. Second, the private cause of action analysis undertaken by the court is worthy of deeper analysis.

In Zaleppa, defendant lost at trial and plaintiff was awarded $15,000. Defendant moved, post-trial, for an order directing defendant to pay the verdict:

1. By naming Medicare on the check, or, alternatively,
2. By paying the judgment into the court pending notification from Medicare to the court that the Medicare lien was satisfied.

The Luzerne County Court of Common Pleas denied defendant’s motion, and the Superior Court affirmed. The Superior Court analyzes Pennsylvania law and rules on behalf of the plaintiff, finding: “Under Pennsylvania law, to satisfy the judgment entered against her, Seiwell must pay the full award to Zaleppa.” The court got this right because Medicare is not part of the state court process. In fact, the MSPA does not create any right, on the part of the primary plan, at the time of settlement, judgment or award that would even remotely make Medicare part of the process.

One reason for ruling on behalf of plaintiff concerns the court’s analysis of federal law as it pertains to the private cause of action. The court seems to struggle with this analysis because it references “a consensus among the Federal Circuit Courts across the country holding that MSPA does not allow a private party to commence suit on behalf of the US Government.” All such cases the court references concerning this consensus involve “professional” plaintiffs who are attempting to sue companies and insurers (“plans”) for alleged non-compliance with Medicare compliance, pursuant to the private cause of action contained at 42 U.S.C.A. § 1395y(b)(3)(A). By last count, Erin Brockovich and Douglas Stalley have commenced suit at least 13 times on this issue. The federal court in the most recent case called Stalley a “self appointed bounty hunter” and sanctioned Stalley and his attorneys for continuing with such litigation. See Stalley v. Methodist Health Insurance, 517 F.3d 911, 919 (6th Circuit 2008).

The issue for determination in each “consensus” private cause of action case cited by the Zaleppa court was whether a plaintiff who alleges no injury to himself has standing to bring a qui tam action for damages. The federal courts have answered, unequivocally “no” on this issue. However, the plaintiff in the Zaleppa matter would have standing to commence a private cause of action against the defendant and/or its insurer pursuant to 42 U.S.C.A. § 1395y(b)(3)(A) because this section of the act explicitly empowers such plaintiffs to commence suit against a “plan”. We believe this is an important point to emphasize because the private cause of action is alive and well in the MSPA. The plaintiff in Zaleppa would have standing whereas such professional plaintiffs do not.

Litigants from across the country, defendants and plaintiffs alike, are learning that the Medicare component of a given claim must be dealt with early in the case handling process. In point of fact, in the Zaleppa matter, the record before the court had no indication whether Medicare made any payments. This information should have been obtained from Medicare well before the trial of the case. Most Medicare beneficiaries are 65 or older. If a given claim involves a plaintiff who is 65 or older then a process must be in place to handle this issue. If a plaintiff has been disabled for 24 consecutive months, and a recipient of Social Security Disability monies, and has elected to receive Medicare then the personal injury claim involving that plaintiff must also go through the earlier process of obtaining information from Medicare.

We predict that the other 49 states will handle the Medicare issues like Pennsylvania handled them in this case. Thus, the best advice is to learn about what Medicare conditionally paid well before the trial or settlement of the claim. The problems articulated in Zaleppa, and contributing to a level of paralysis in litigation across the country in cases involving a Medicare beneficiary, require a simple solution: Plaintiffs need to cooperate with defendants, earlier in the claim handling process, in order to understand and appreciate the Medicare component of a given claim. This cooperation generally involves a signed Consent to Release running to the defendant, and is very similar to the HIPPA compliant authorizations that are routinely provided to defendants in order to obtain medical records in a given case. If the case involves a Medicare beneficiary then plaintiffs’ law firms must appreciate the paralysis that will hold up a case if cooperation is not extended.

Franco Signor LLC specializes in consulting on the issue of the administrative framework and issues surrounding Medicare and its contractors. While our reach and scope is national, we do not always have specific knowledge of a state law or court system at issue. The Superior Court of Pennsylvania decided Zaleppa on appeal from the Court of Common Pleas of Luzerne County Civil Division. Perhaps the case will be appealed again, to the state’s Supreme Court, but the outcome should not change. Click here for a review of Pennsylvania’s state court structure.

Franco Signor LLC regularly handles cases well before trial or settlement in order to obtain from Medicare information about conditional payments made in a given case. This information provides the litigants with more certainty and clarity that the Medicare component of the claim has reached a level of finality. Feel free to call on us to assist you in your personal injury case involving a Medicare beneficiary.