“Demonstrated Responsibility” under the MSP in Liability Claims Does Not Occur until Settlement, Judgment, Award or Other Payment
Heather Sanderson
July 13, 2016

A recent opinion out of the Eastern District of New York, Sexton v. Medicare, 2016 U.S. Dist. LEXIS 89815 (July 11, 2016), found that a Plaintiff cannot refute or defeat Medicare’s ability to recover conditional payments until the primary payer has demonstrated responsibility through a settlement, judgment or award.

The brief facts involved Plaintiff Kevin Sexton (“Plaintiff”) being struck by a distracted driver. The driver of the other car was a licensed taxi insured by American Transit Insurance Company. He filed suit against American Transit alleging that he suffered injuries including fractures of his tibia and fibula as a result of the accident, and had a rod placed in his leg.

On February 3, 2015, the Plaintiff received a Conditional Payment Letter (CPL) notifying him that Medicare had paid $678.60 in conditional payments. The CPL was clear in stating: “THIS IS NOT A BILL. DO NOT SEND PAYMENT AT THIS TIME” and also that Plaintiff “may be required to reimburse Medicare for medical expenses.” On June 10, 2015, Plaintiff received a fundamentally identical letter to the February letter, except for this time CMS had identified additional conditional payments, which now brought the CPL amount to $25,262.15.

After receiving his February 3rd CPL, the Plaintiff filed this action seeking to compel Medicare “to recover the funds from American Transit Ins. Co. or from the providers that Medicare knowingly paid by mistake instead of from” Plaintiff. It is important to note that while the Plaintiff named “Medicare” as the sole defendant in this action, the real party in interest was the Secretary of Health and Human Services (HHS).

Medicare filed a Motion to Dismiss on two grounds: 1) Plaintiff’s claim is not ripe for judicial review because Plaintiff has not suffered an actual or imminent injury where defendant’s right to collect any purported Medicare overpayments from Plaintiff rests on contingent, future events that may not occur; 2) Plaintiff failed to avail himself of and exhaust administrative remedies and satisfy the prerequisites to defendant’s waiver of sovereign immunity.

As to Medicare’s first point, the court agreed with Medicare that the court lacked subject matter jurisdiction over the Plaintiff’s action because Plaintiff had not yet suffered an “actual or imminent” injury. The CPLs that were issued to the Plaintiff were not requests for reimbursement. Further, although CMS’s right of action to recover overpayments against primary insurers accrues as soon as it learns that payment has been made or could be made under workers’ compensation, any liability or no-fault insurance, or an employer group health plan, CMS’ right of action against beneficiaries only accrues after the beneficiary has received a primary payment. See 42 CFR § 411.24(b), see also 42 USC § 1395y(b)(2)(B)(iii).

Thus, Medicare may eventually seek recovery against the primary payer or the beneficiary/Plaintiff once a settlement, judgment, award or other payment occurs, but at this point in time, the Plaintiff’s alleged injury is purely conjectural. Because the court found that it lacked subject matter jurisdiction to hear Plaintiff’s claim, it did not address Medicare’s alternative arguments, and the Plaintiff’s complaint was dismissed with prejudice.

Commentary: Medicare’s second ground for dismissal, that the Plaintiff failed to exhaust administrative remedies, would have been a successful point if considered by the Court as well. The Plaintiff would have needed to have filed his dispute through Medicare’s appeals process prior to seeking judicial review. Either way, his claim was not ripe for determination as CMS had not yet issued a Demand for payment.

This case is a good reminder that Medicare may not recover in Liability settlements until responsibility is demonstrated through a settlement, judgment, award or other payment. Generally, CMS will not seek recovery in liability claims until a final settlement occurs and Total Payment Obligation to Claimant (TPOC) is reported.

However, in workers’ compensation and no-fault claims, CMS may recover before a final settlement occurs. Currently, CMS is engaging in this practice in recovering conditional payments where Ongoing Responsibility for Medical (ORM) is demonstrated through the issuance of Conditional Payment Notices (CPNs). The Commercial Repayment Center (CRC) has been leading this charge since October 1, 2015. Workers’ compensation and no-fault may see several Demands over the life of a claim. However, liability claims have not been affected, and are continuing to operate under usual and prior practices. The Benefits Coordination and Recovery Contractor (BCRC) will issue CPL’s (which are not a demand for payment) and once settlement occurs, will issue a Final Demand.

A critical point is that neither CPNs nor CPLs are demands for payment. However, the failure to react and/or ignore CPLs can still result in an adverse action against a primary payer, as occurred in the Hull v. Home Depot case (click here to see our prior blog). In Hull, the court found that demonstrated responsibility is not required where the Defendant is an insurer rather than a tortfeasor.

It is important to know and distinguish the difference in Medicare’s recovery rights and when that recovery right ripens, which varies upon whether the claim is liability, no-fault, or workers’ compensation.

Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP
Chief Legal Officer
Franco Signor LLC