Release Language Is Important
Roy Franco
July 18, 2012

The Pennsylvania Federal Courts have been active with regard to Medicare Secondary Payer issues.  A recent District Court decision highlights the importance Release language plays to mitigate a party’s potential exposure to the Medicare Secondary Payer Act.  The main takeaway: When going to Court to enforce a settlement, do not expect extrinsic or parole evidence to be admissible on the issue of why payment should not be made to the plaintiff.   The plain language will control, so long as it is unambiguous.

In Carty v. Clark, 2012 U.S. DIST LEXIS 98318, the District Court for the Easter District of Pennsylvania was presented with a Motion to Enforce Settlement by Plaintiff.  According to the terms of the Release agreement negotiated between the parties, defendant was to pay over the sum of $90,000, once it was presented with the Demand Letter from Medicare.  The money was held in the defense attorney’s Client Trust Account, and plaintiff’s attorney presented the Demand Letter from Medicare requesting payment.  Defense counsel refused to pay the money based upon the fact that a potential hospital bill still needed to be processed with Medicare.

The Carty Court was not impressed with defendant’s position, and refused to look at any extrinsic or parole evidence.  It then went into a discussion of the well established law that a settlement agreement is a contract that must be interpreted according to principles of contract law.   The Federal Court went further, citing to a recent state case (Zaleppa v. Seiwell, 9 A.3d 632 (Pa. Super. Ct. 2010)) “that defendants cannot assert “Medicare’s rights to reimbursement as a preemptive means of guarding against [their] own risk of liability.” Id at 638.

We have always advised to be careful with Release language.  As each case is different, “cookie cutter releases” are not advisable.  Nuances, such as were presented in this case (the outstanding hospital bill to be processed by Medicare), need to be appropriately managed.  There are many ways to do this, whether it is by indemnity owed by the claimant, or by simply negotiating with the hospital to resolve at the time of settlement.  Not every bill has to be paid for by Medicare.  By the way, we would discourage defense counsel from taking claimant funds and depositing it into their client trust account.  If they do so, they possibly become “an entity that has received payment from a primary plan,” and therefore, subject to claims by Medicare.

At Franco Signor LLC we offer strategic action plans to assist parties when navigating issues like those presented in Carty.  We stand ready to work with you or answer your questions.