Michigan State Court Rules Workers’ Compensation Employer Strictly Liable for Medicare Conditional Payments and Double Damages
Roy Franco
February 22, 2016

A recent Michigan state court ruling involving the Medicare Secondary Payer (MSP) Act has broad applications for the administration of worker’s compensation matters across the country.   If this decision stands, then liability for Medicare conditional payments is immediate once identified and it does not matter if the underlying filing is properly denied by the Employer. Typical reasons for denial by an Employer/WC carrier would be fraud, the injury not arising out of or in the course and scope of employment, the injury is not covered by the worker’s compensation law, or not covered under the terms of the insurance policy.

The critical components for immediate liability under the MSP would be the following:  1) Claimant is a Medicare beneficiary; 2) Medicare or private Medicare plans have paid benefits related to the claim; and 3) Employer is either actually or constructively aware of those payments.  If these conditions are met, these conditional payments must be instantaneously reimbursed to Medicare and/or the private Medicare plan or a claim for double damages under the MSP private cause of action (PCOA) is appropriate.  So long as a lawsuit is filed before reimbursement to Medicare or the private Medicare plan, a claim for double damages under the MSP PCOA would exist. The MSP PCOA is well intended to protect the Medicare Trust Fund, but as of recent, this cause of action finds itself penalizing unsuspecting worker’s compensation targets.

The Medicare Secondary Payer Act is simple in concept but stubborn in practice.  A primary plan in a liability claim shares an obligation with the claimant to reimburse Medicare for health care expenses that should have been paid by the primary plan. However, the obligation to reimburse Medicare or the private Medicare plan only rests with the primary plan for workers’ compensation and no-fault cases.  This nuance of sole responsibility for workers’ compensation and no fault plan is most likely responsible for the recent decision discussed below.  Nonetheless, a critical piece of the puzzle was missed in arriving at the decision that would have resulted in a different outcome.

It is true in either a liability claim or no-fault claim, the Medicare Secondary Payer law allows for reimbursement once responsibility is demonstrated.  It would appear for liability cases because they arise in tort, an adjudication (settlement, award or judgment) is necessary, but according to this decision for workers’ compensation claims, adjudication issues are irrelevant.  According to this decision, liability springs from the statutory right to provide for Medicare benefits, even though those rights can be controverted within the claim process.  If this holds, then we should expect a circus of uncertainty in which every workers’ compensation claim involving a Medicare beneficiary provides for strict liability and additionally the potential exposure for Medicare double damages.

Would it not be unacceptable if an injured worker, who happens to be a Medicare beneficiary, files a stress claim after he or she has acted violently in the workplace. If this decision holds, these facts would not matter and the Employer would be responsible for Medicare conditional payments related to the stress committed from her own crime!  If Medicare or a private Medicare plan has paid, then the employer better pay up immediately or is liable for double damages. Effectively, a workers’ compensation plan can be later held responsible for double damages under the MSP PCOA, even where a proper denial of the claim was made prior by the workers’ compensation plan.

The case at hand is Hull v. The Home Depot and is a written ruling on a motion for Summary Judgment on a MSP complaint for double damages.  The lawsuit was filed after a denied worker’s compensation claim was found compensable and on appeal. During the case, but before appeal, The Home Depot was made aware of two conditional payment claims: one owed to Medicare and other to a private Medicare plan.  Once the lawsuit was filed, the Home Depot dismissed its appeal and when the dismissal was finally paid, the conditional payments were reimbursed within 13 days.  Despite the Home Depot’s reimbursement to both Medicare and the private Medicare plan, it was too late and The Home Depot was found to be strictly liable for double damages under the MSP PCOA.   The court ordered The Home Depot to pay an additional $42,233.16, an amount it had already paid over to traditional Medicare ($6,813.83) and Medicare Advantage ($35,419.33).

Commentary: Why this happened is because of how the “demonstrated responsibility” portion of the MSP works. Once there is essentially a settlement, judgment or award responsibility to reimburse attaches.  Actually, the law goes further and states that if responsibility by “other means” were involved there is liability to pay.  This part of the law was included so that responsibility to pay could be triggered by a statute or by contract, which is perfect for no -fault or worker’s compensation claims that paid out medical benefits without any judicial determination.  However, is reimbursement required to be immediate?  The answer is not necessarily, reimbursement must occur in accordance with Medicare policies and procedures that not only apply to Medicare, but private Medicare plans as well.  This was something not even touched raised by the parties or discussed by the court.

In this case, we know about the conditional payment letters and the fact that they were not acted upon when received but simply filed away because of the pending dispute on compensability. The fact these letters exist is troubling because they are typically generated based on data sent by The Home Depot’s insurer to Medicare at the onset of the claim.  This is a requirement of the Medicare law since 2007.  If a claim is denied, as was here, the Section 111 data should reflect Ongoing Responsibility for Medicare (ORM) as “No” and no injuries identified because the claim was in dispute.  If that were the situation, then there is no primary plan responsibility and no conditional payment letters should have been issued. Further, this data would have been transmitted to the Medicare Advantage plan and a similar result would occur. Both the Medicare and private Medicare Plans would have been primary. Because these letters exist, the data submitted probably did not accurately reflect the denial of the claim and should have been dealt with immediately when the letters were received.

Because the letters were not promptly dealt with at the onset, the amounts remained owed to Medicare. If a claim is denied, these letters should have been disputed and administratively appealed. It was not.

Nonetheless, the conditional payments letters were there and the question arises as to its payment.  The plaintiff claims that payment was immediate, but the reality of the issue is that Medicare must make a determination before it can take money from a primary plan. That determination is made through issuance of a demand letter which is not and cannot be a Conditional Payment Letter. That’s why the Conditional Payment Letter say “DO NOT SEND PAYMENT…”  Because rules for Medicare apply equally to private Medicare, a determination letter is also needed from a Medicare Advantage Plan because of administrative appeal rights afforded to the primary plan.  No determinations was issued in this case, yet the liens were paid.  Voluntary payments does not create failure to reimburse Medicare before a determination.  A due process right is violated.

I suspect the argument here is The Home Depot did not trigger the determination letter and therefore cannot escape responsibility for its lack of performance. That would make sense if Medicare did issue determination letters in absence of a settlement, judgment or award, but only as of 10/5/2015 has Medicare implemented a policy to do so that start with a conditional payment notice  followed by a determination letter in 30 days.  This was simply not available for this case at that time.  Only voluntary payments could be accepted at that time, and even then most payments were returned unless you could show a judgment.  The voluntary payments accepted I this case was because of the judgment in place.

Bottom-line: the conditional payment letters should have been responded to.  Furthermore, liability was demonstrated, which may or may not have been the result of improper reporting of ORM.  What was missing here was a discussion of how payments are taken in by Medicare and the fact that anything taken in before a determination is voluntary.

For a copy of the opinion, please click here.

Roy A. Franco

Chief Client Officer

Franco Signor LLC