Hearn v. Dollar Rent A Car, Inc., 2012 Ga. App. LEXIS 338 – Public Policy does not require Medicare to be added as a co-payee to a settlement check without the prior approval of the plaintiff.
Roy Franco
June 11, 2012

Hearn v. Dollar Rent A Car, Inc., 2012 Ga. App. LEXIS 338 – Public Policy does not require Medicare to be added as a co-payee to a settlement check without the prior approval of the plaintiff.

Facts:  This matter was heard by an Appellate Court in Georgia.  It involves a claim for breach of a settlement agreement.  After execution of an agreement between plaintiff and defendant, the third party administrator for the defendant, (York), discovered Plaintiff was a Medicare beneficiary.  To protect York and the defendant, York unilaterally added Medicare as a co-payee on the settlement draft and submitted the check to Plaintiff. The draft was rejected, and this action was commenced.  The record reflects several key points which influenced the Court’s decision:  1) Plaintiff signed the release acknowledging her responsibility to pay any Medicare claim; 2) Plaintiff agreed to indemnify the released parties; and 3) The released parties had prior knowledge of Medicare status.

Issue:  Whether public policy requires Medicare to be added as a co-payee to a check without prior approval of the plaintiff.  .

Opinion: No.  In reaching its decision, the Court cites to the recent decision reached in Hackley v. Gafarano, 2010 Conn. Super. LEXIS 1669 (D. New Haven, Case No. CV0950319405), decided July 1, 2010, noting that “[T]his is hardly the first settlement to be derailed because of unresolved questions relating to Medicare liens.  Rarely, these have led to published decisions [Cit.] More frequently, they have simply led to frustration and misunderstanding.  Counsel would therefore be well advised to be aware of developments this area of law and take them into account in fashioning unambiguous settlement agreements.”  The Court also cites Tomlinson v. Landers, 2009 U.S. Dist. LEXIS 38683 (M.D. Fla. 2009) on the point  that “there is no authority for an insurer’s insistence that it protect a governmental agency’s lien by making that agency a co-payee on a check tendered in payment of a judgment or settlement.”  Absent such express authorization, private parties may not asset the interests of the government in a post trial motion or any phase of litigation.  See Zaleppa v. Seiwell, 2010 PA Super 208, 9 A.3d 632 (Pa Super. 2010).

Franco Signor LLC Commentary:  This decision, and others cited by the Court, occur because the defendant is not proactive with regard to Medicare before the settlement, judgment or award.  Once a settlement agreement is executed, its terms control what happens with the Medicare Secondary Payer Statute, its regulations, and  Medicare bulletins or alerts.  The defense should take heed from the Hackley Court’s statement that counsel should become familiar with this law and avoid drafting ambiguous agreements.  If not, the defense may be left exposed to Medicare if the plaintiff does not complete its obligation.

In Hackley, Plaintiff’s attorney made several representations that would expose the defendants to a conditional payment claim.  He advised that his client had no duty to notify Medicare, if Medicare did not present a claim.  He also intimated that the burden was on Medicare to present its claim and that “usually they don’t come back at all.”  Defendants hearing such inaccurate statements should be concerned because it will certainly expose their client.  To avoid this situation, the defense must be proactive with regard to Medicare before settlement.

42 C.F.R. Section 411.24(i) makes released parties in this case responsible to pay Medicare its conditional payments regardless of whether payment has already been made to the Plaintiff. Furthermore, 42 U.S.C. Section 1395y(b)(2)(B)(ii) requires repayment by released parties when the obligation to pay a Medicare beneficiary plaintiff has been demonstrated by a release agreement.  Whether or not liability in that release is admitted, the obligation to repay Medicare arises, without any notice whatsoever by Medicare.

Plaintiff’s attorney in this case probably reached this opinion based on experience as it was difficult for Medicare to become aware of settlements, judgments or awards involving Medicare beneficiaries.  However, amendment to the Medicare Secondary Payer Act (42 U.S.C. Section 1395y(b)(8)) requires electronic reporting of certain claims starting in 2012.  If a claim meets this threshold, Medicare will use the information from the 164 data fields it collects to recover any payments it conditionally made and suspend future treatment, if it was released as part of the claim.

42 C.F.R. Section 411.25(a) requires released parties to notify Medicare regardless of any threshold.  It is interesting plaintiff’s attorney sought to include defense attorney as a party to the lawsuit because he notified Medicare.  The theory relied up was that the defense attorney was “an active participant in the deeds of his clients.” The court never reached the merits of this allegation because Plaintiff’s attorney did not comply with procedure to properly amend his complaint.  However, if such allegation were to stand, the cited regulation would defeat any such claim.

The bottom line is the fact that defense counsel was aware of Medicare to the point that it made Medicare aware of the loss.  This was an important factor in the case.  If the defense wanted Medicare added as a co-payee to the settlement draft then this should have been discussed beforehand and been part of the agreement.  Adding Medicare as a cop-payee to a settlement draft, after the fact and without such agreement, is a waste of time, money and precious judicial resources.