U.S. California District Court Rules Medicare Reimbursement is Limited to Related Injuries Identified by Diagnosis Codes
Heather Sanderson
January 11, 2017

Franco Signor always take the position on behalf of our Clients to aggressively dispute unrelated charges related to Medicare’s claim for conditional payment reimbursement.  Our efforts have resulted in well over 90% reductions in charges because of it.  This case, brought by the California Insurance Guarantee Association (CIGA) explains why it is important to remain proactive in managing your conditional payment management liability.  The litigation here continues, after a set-back for Non Group Health Plans, as set forth in our prior blog and history on this case from March of last year, click here.   The Court found against Medicare and ruled that it can only seek reimbursement for medical items and services related to the workers’ compensation claim in question.

The Opinion can be located at 2017 U.S. Dist. LEXIS 1681 (January 5, 2017).  CIGA faced Medicare Conditional Payment Demands for three separate workers’ compensation claims that had settled.  Included in those Demands were treatment (diagnosis codes) clearly unrelated to the accident, and CIGA disputed Medicare’s right to claim the entirety of such treatment.  CIGA won and by January 19,2017 judgment will be entered forcing Medicare to remove unrelated and uncovered charges, unless the matter is appealed.

Medicare made several arguments as to why their cross Motion for Summary Judgment and Dismissal should be granted.  It failed on each of the arguments for the reasons set forth herein.

Medicare presented several arguments as to why its interpretation of the Medicare Secondary Payer Act should be given deference.  However, the Court did not find any of it persuasive.  The overriding rationale for the Court’s decision appears to be Medicare’s overreaching beyond any clear Congressional intent.  The discovery secured by CIGA clearly demonstrated that the practice of including unrelated codes was not because it was what the Medicare Secondary Payer Act required, but rather because it was too complicated or impossible to separate the unrelated charges out.

CIGA noted to the court that it is not uncommon in conditional payment letters from CMS for multiple diagnosis codes to appear under a single charge–some of which relate to a medical condition covered by the primary plan, and some of which do not. In those instances, CMS determines if any one code relates to a covered condition. If so, CMS seeks reimbursement for the full amount of the charge, even if some unsegregated portion of the charge is for medical services not covered by the plan.

For example, CIGA was paying for medical costs incurred by a worker after he stepped into a hole and injured his left knee, left hip, and spine; yet CMS sought full reimbursement for charges that also contained codes relating to high blood pressure, bronchitis, tobacco use, and eczema. This is the practice that CIGA looked to challenge. Although CIGA had challenged these charges on the basis that the codes were not covered under its policies, CMS issued a formal demand letter for the full amount of each charge.

CMS defended its position, further arguing that under the MSP, “a primary plan . . . shall reimburse [Medicare] for any payment made . . . with respect to an item or service if it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service.” 42 U.S.C. § 1395y(b)(2)(B)(ii). The critical phrase–”item or service”–is defined by regulation, which reads in relevant part: “Any item, device, medical supply or service provided to a patient (i) which is listed in an itemized claim for program payment or a request for payment . . ..” 42 C.F.R. § 1003.101.

CMS therefore argued that the term “an item or service” refers to whatever (and however many) medical treatment(s) a provider lumps into a single charge, and that CIGA has a “responsibility to make payment with respect to such item or service” if the provider lists one or more diagnosis code(s) that are covered by the CIGA-administered policy.

The Court found that CMS was wrong on this. The statutory phrase “an item or service” clearly does not refer to multiple medical treatments just because they appear under one charge. The singular form of the words “item” and “service” itself suggests that those words are not referring to multiple medical treatments. Moreover, the use of the phrase “item or service” elsewhere in the MSP does not support CMS’ interpretation.

CMS then tried to argue that CIGA’s action was moot, since CMS had recently withdrawn the demands back in June 2016, after “discussions with CIGA.” CIGA counter argued that it was not “absolutely clear” that CMS will never again reopen these claims or reapply this offending practice, which means that the issue was not moot. The Court further noted “that a defendant cannot automatically moot a case simply by ending its unlawful conduct once sued. Otherwise, a defendant could engage in unlawful conduct, stop when sued to have the case declared moot, then pick up where he left off, repeating this cycle until he achieves all his unlawful ends.”

Franco Signor Commentary: This a helpful decision that will assist primary plans to defend against unrelated claims for items and services.  We have always held firm in our long standing disputes with CMS contractors that Medicare is only entitled to recoveries that are related to the claim.  So long as we can demonstrate appropriate evidence that the diagnosis code was not related the primary payer will prevail.  This case helps to establish the importance of State law and its interplay with the Medicare Secondary Payer Act.  The bottom-line is that state law is not preempted by the Medicare Secondary Payer Act, but is a necessary underlying factor that establishes Medicare’s right of recovery.

How this case plays out in the long-term depends on whether it is appealed.  As of this moment it is a District Court decision, and would be persuasive authority for the Ninth Circuit and to a lesser extent the other Circuits.  Further complicating the issue is that Medicare has established administrative appeal rights for primary plans.  As such, under procedural rules, primary plans will have exhaust administrative rights (a timely and costly process) before going to Court.  This case, is an exception to that rule, because it occurred prior to such appeal rules being established.

Notwithstanding, CMS’ long-standing practices of demanding reimbursement for conditional payments that are unrelated or uncovered under a policy, should be questioned if lumped into one charge. The Medicare Secondary Payer Act (MSP) was designed so that primary payers would not shift costs to the Medicare Trust Fund that would otherwise be the responsibility of the primary payer, but it was not designed to shift uncovered and unrelated costs back to the primary plan. This was a correct decision by the Court and it ultimately enforces the plain meaning of the MSP.


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