Management of All Medicare Reimbursement Amounts Must be a Condition of Settlement
Jesse Hamby
September 16, 2013

Doglos v. Liberty Mutual, 2013 U.S. Dist.

FactsIn this case the plaintiff brought a complaint for breach of contract for defendant’s failure to timely pay settlement funds.  Plaintiff alleged that the defendant stalled in paying the settlement funds by taking the position that they needed approval from Medicare before they could pay plaintiff. Plaintiff brought a direct suit against the insurer in this case.  On January 19, 2012, plaintiff and defendant settled the lawsuit for $20,000 and plaintiff was a Medicare beneficiary.  Approximately two months later, plaintiff filed suit for breach of contract of the Settlement Agreement.  In September defendant received a letter from the Medicare Secondary Payer Recovery Contractor (MSPRC) indicating no conditional payments were made related to the claim.  Finally, eleven months after settlement, plaintiff counsel received a check for $20,000.

IssueWhether the defendant insurer acted in bad faith when it withheld settlement monies until it received a Final Determination Letter from Medicare when no time for performance was specified in the Settlement Agreement.

Opinion:  The court denied the defendant insurer’s motion for summary judgment holding there was a question of fact as to whether the insurer acted in bad faith.   The court found that under Indiana law, settlement agreements are governed by the same principles of contract law as other agreements. See MH Equity Managing Member, LLC v Sands, 938 N.E.2d 750, 757 (Ind. Ct. App. 2010).  As with the Settlement Agreement in this case, when the time for performance is not specified, a reasonable time is usually read into the contract and “the question of what constitutes a reasonable time within which to perform an act is one for the trier of fact.” See Bond v. Peabody Coal Co., 450 N.E.2d 542, 549 (Ind. Ct. App. 1983).  However, the court’s denial of defendant’s motion left open the issue of whether plaintiff was entitled to interest on the settlement and attorney fees.

Franco Signor CommentaryThis case is another example of the necessity in ascertaining whether the plaintiff is a Medicare beneficiary and obtaining Medicare’s conditional payment amount before settlement.  As previously blogged about, all parties are responsible to repay Medicare (See blog: Haro Reversed, in Part, by the 9th Circuit) and if a settlement payment is made to the Medicare beneficiary and Medicare is not paid, the primary payer (the defendant) must reimburse Medicare even though it has already reimbursed the beneficiary or other party. See 42 C.F.R. § 411.24. In Haro, the court highlighted the fact that the same regulation also allows for Medicare to seek reimbursement from the plaintiff’s counsel.  These types of cases are by far the most heavily litigated matters across the county.  Such motions are the result of non-communication about the Medicare issues in a timely and effective manner.  Had the defense made it abundantly clear that payment of the entire settlement funds was conditioned upon receiving a final determination letter from Medicare then the issue would not be ripe for motion practice.

To avoid suits such as these, it is important to negotiate and clearly communicate that managing the Medicare aspect of the case is a firm condition of settlement.  It is especially important to include all terms for managing the Medicare aspect of the case in any Settlement Agreement and Release, specifically stating which party will obtain the Final Demand from the MSPRC and who will pay it.

It should also be noted that if the claimant is enrolled in a Medicare Part C or D plan, the obtainment and payment of these liens should also be clearly stated in any Release as these plans have gained traction in recovering under Federal MSP Law (See previous blog: ALERT- Medicare Advantage Appeals Update). If you need assistance in obtaining the Medicare information and ensuring your Release includes Medicare specific language for compliance, Franco Signor is here to assist you.