MSP Compliance Made Easy – Put Medicare on the Settlement Check – Not So Fast
Roy Franco
July 1, 2010

Got Medicare?  If your Company/Insurance Carrier is ready to settle a case with a Medicare beneficiary is there an easy way to avoid Medicare Secondary Payer Liability?  The short answer is yes, but you will need the Medicare beneficiary to agree, and chances are they will not.

The Trust Fund must be reimbursed after a settlement with a Medicare beneficiary. The trouble with this requirement is that it takes a long time – possibly months. An easy solution to this dilemma is to completely transfer this risk to the Medicare beneficiary by adding Medicare as a payee on the settlement draft.   The concept is discussed by Medicare during Town Hall Conference calls with regard to Section 111 Mandatory Insurance Reporting. However, Section 111 provides no legal authority for unilateral implementation of adding Medicare to a check by a carrier or self insured.  Bottom-line, the Medicare beneficiary or his counsel must agree to it.  If this is the corner-stone of a primary plan’s Medicare Secondary Payer Compliance (MSP) protocol then it is problematic.  There is no quick fix for MSP compliance.  The only proven method is for both sides to cooperate to repay Medicare.  This requires an agreement, usually spelled out in the terms of the Release, with regard to how prompt and accurate repayment is to be achieved.

Laying the burden at the Medicare beneficiary’s feet for MSP compliance will be short lived.  Articles by the plaintiff’s bar have already been published on the topic.  One article in particular, by Jason E. Matzus of Raizman, Frischman & Matzus, Lienholders on Settlement Checks: When Hell Freezes Over, appropriately points out the lack of legal authority and suggests bad faith implications for doing so.  More likely than not, others will follow that lead, and the primary plan will need to reshape its MSP compliance protocol to avoid MSP exposure.

The case of Tomlinson v. Landers 2009 U.S. Dist. LEXIS 38683 should end the debate on whether the primary plan can unilaterally add Medicare as a payee on any settlement draft.  The defendant brought a motion in U.S. District Court to enforce the terms of settlement with the plaintiff.  Florida has a rule that opens up the liability policy if a timely demand is made in a liability case that meets certain criteria.  Here, plaintiff made an appropriate time limit demand for the $100K policy which defendant paid within the prescribed time period, but when the draft was issued Medicare was added as a payee.  Plaintiff rejected the settlement and defendant brought the subject motion.  The court, after review of the submitted papers from each side agreed with the plaintiff, and found that there was no “meeting of the minds” concerning settlement and that adding Medicare as a payee on the settlement draft was a change in the terms and conditions of the settlement.

The Tomlinson Court took into consideration defendant’s position that because the Medicare Secondary Payer Act required reimbursement it could not violate federal law by not protecting Medicare’s lien and therefore adding Medicare as a payee to the settlement draft is the only way to achieve that protection.  The court disagreed noting:

Defendant references the Medicare Secondary Payer Act (“MSPA”), which provides that an insurer shall reimburse Medicare for any payments it has made to a beneficiary if the insurer had a responsibility for making such payments (Doc. # 24 at 3-7). Review of the MSPA and the relevant provisions of the Code of Federal Regulations reveals that an insurer may be obligated to reimburse Medicare in certain instances; however, insurers do not have an affirmative legal duty to make direct payment to Medicare  in all instances, as Defendant suggests. (Emphasis Original).

Because defendant’s requirement to repay does not mature unless the Medicare beneficiary fails to pay the final demand within 60 days, the defendant (primary plan) does not have the primary responsibility for the repayment and therefore the law does not provide it with a mandate to protect the Medicare reimbursement amount.   Primary responsibility lay with the plaintiff, Medicare beneficiary, who has certain appeal/waiver rights that must run first before the debt is final.

The Tomlinson Court was right.  However, where does that leave the primary plan?  It is obvious from a read of the statutes and regulations that the Medicare beneficiary has the lead with regard to reimbursement to the Medicare Trust Fund, but what happens when the Medicare beneficiary fails to follow-through on his or her obligation?  The primary plan is next in line and with Mandatory Section 111 reporting on the horizon (January 1, 2011) it will certainly be an easier target for the MSP Recovery Contractor to seek reimbursement from.

The fact that Medicare could file a legal action to seek double damages, or initiate a Treasury collection proceeding (tapping into tax refunds, payroll tax accounts, or even pending payments owed on federal contracts/grants) against the primary plan, it is inevitable the primary plan will want assurances from the Medicare beneficiary that repayment has occurred.  Consequently, if the primary plan cannot add Medicare as a payee on the settlement draft, it’s only other option (where legally permissible for it do so) is to not settle the case unless provisions are made by both sides to achieve those assurances.

Thus, when a settlement occurs with a Medicare beneficiary, the primary plan has a tremendous incentive to make certain the MSP obligation created by the settlement is resolved.  It is clear the primary plan has no legal tools at its disposal to complete the obligation, but can leverage the timing of settlement (where appropriate to do so) to encourage cooperation from the Medicare beneficiary and his/her counsel on how proceeds are to be distributed.  The negotiation of how to handle Medicare must take place before a case is settled.  That is why parties should work together as soon as practical on a plan to achieve the objective.

Incentives for both sides exist to encourage cooperation.  For the plaintiff, prompt and accurate payment of the settlement and what is owed Medicare makes sense.  For the defendant (primary plan) payment of the settlement with the right subject to clauses in the release provide better protection from MSP liability compared to taking unilateral action that will be overturned by a court.

If it is the agreement by the parties to place Medicare on the check, then the primary plan has not much to worry about, other than making certain the release covers that point and plaintiff has signed on to such an arrangement.  Otherwise, cooperation is key to successful MSP compliance and Franco Signor LLC has successfully brokered that process in hundreds of cases it has handled since it started this past April.

We offer a no nonsense approach to MSP compliance that cuts through the MSP technical jargon and provides the practitioner with what is needed for successful compliance.  Settlement funds need not be trapped in holding accounts as parties wrangle on what needs to be done.  We can provide a plan of action that will allow claims to close and plaintiffs to receive their proceeds promptly.  We look forward to serving you soon.