Medicare Claims, Medicaid Liens and Medicare Set-Aside Trusts

GOVERNMENT CLAIMS AND LIENS IN LIABILITY AND WORKERS’ COMPENSATION SETTLEMENTS

By, John J. Campbell, CELA, MSCC

Government Claims and Liens

In any settlement involving a plaintiff who was eligible for Medicare, Medicaid or VA benefits at any time following his or her injury, there may be a Medicare Secondary Payer (MSP) claim, a Medicaid lien or a VA claim that must be satisfied before any other payments may be made from settlement proceeds. Therefore, it is essential in such cases to give notice of the plaintiff’s claim and any potential settlement to the Medicare Coordination of Benefits Contractor, the VA and the Medicaid agencies in any states where the plaintiff may have received those benefits.

Notice of the plaintiff’s workers’ compensation (WC) or third party liability (TPL) claim should be given as soon as the plaintiff knows of its existence. Early notification can help to prevent or minimize overpayments where a third party, such as a WC or no-fault carrier, has the responsibility to provide for the plaintiff’s medical care on an ongoing basis. Further, the sooner Medicare and Medicaid are on notice of the existence of a claim, the more quickly they can determine the total amounts of any payments they may have made for injury related medical care.

The plaintiff should also notify both Medicare and Medicaid of a potential settlement as soon as the real possibility of settlement arises. This will increase the likelihood that at an accurate estimate of any potential MSP claim, Medicaid lien or VA claim amounts can be known before the parties negotiate the final settlement terms.

This is important because satisfaction of the MSP claim, the Medicaid lien and the VA claim is required before any distributions from settlement can be made to the plaintiff or to fund a Medicaid or SSI exempt trust under OBRA ‘93. If the plaintiff agrees to a settlement amount without knowing what the MSP claim, Medicaid lien or VA claim amounts are, he or she takes the risk that those government claims and liens could exhaust the settlement proceeds and leave little or nothing for the plaintiff’s needs.

Medicare Secondary Payer Claims

The Medicare Secondary Payer statute was originally enacted in 1980 and is codified under federal law at 42 U.S.C. §1395y(b). The statute was amended by the Omnibus Budget Reconciliation Act of 1989 (OBRA ‘89); and again by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).

The OBRA ‘89 provisions became the subject of significant controversy for several years recently, due to conflicting federal court decisions regarding the interpretation of the amended statutory language. The language at issue, contained in 42 U.S.C. §1395y(b)(2)(A) & (B), stated:

(2) Medicare secondary payer

(A) In general

Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that . . .

(ii) payment has been made or can reasonably be expected to be made promptly (as determined in accordance with regulations) under a workmen's compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insurance plan) or under no fault insurance.

In this subsection, the term "primary plan" means . . . a workman's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance, to the extent that clause (ii) applies.

42 U.S.C. §1395y(b)(2)(A); and

(i) Primary Plans

Any payment under this subchapter ... shall be conditioned on reimbursement to the appropriate Trust Fund established by this subchapter when notice or other information is received that payment for such item or service has been or could be made under such subparagraph. ...

(ii) Action by United States

42 U.S.C. §1395y(b)(2)(A).

In 2002, the U.S. Court of Appeals for the 5th Circuit decided the case of Thompson v. Goetzman, 315 F.3d 457 (5th Cir. 2002), aff'd en banc, 337 F.3d 489 (5th Cir. 2003). In that case the 5th Circuit held that a payment by the defendant directly to the plaintiff did not constitute a "self-insurance plan" under the federal MSP statute, since the defendant did not have formal claims procedures in place similar to those used by an insurance company. The Goetzman Court also found that the existing language of the MSP statute limited the government’s right to recover its MSP claim to those situations in which a third party payer was expected to pay promptly (within 120 days according to the MSP regulations) for the plaintiff’s medical claims. Thus, the defendant in Goetzman was held not to be a "third party payer" under the MSP statute and was permitted to completely avoid repayment of Medicare's considerable MSP claim in that case.

The following year, the U.S. Court of Appeals for the 11th Circuit arrived at the opposite conclusion regarding the meaning of the language in 42 U.S.C. §1395y(b)(2)(A) & (B). United States v. Baxter Int'l, Inc., 345 F.3d 866 (11th Cir. 2003). The 11th Circuit concluded that it was the clear intent of the statute that Medicare always be secondary, regardless of whether prompt payment could be expected from a third party payer. The Baxter Court also rejected Goetzman’s holding that a setting aside of funds and the existence of formal claims procedures are necessary to the existence of a “self-insurance plan.”

The MMA, which was enacted by Congress in 2003, contained significant revisions to the MSP statute which were clearly directed at setting this controversy aside. Specifically, the MMA made the following changes to the MSP statute (new language is underlined and language that was removed is stricken through):

(2) Medicare secondary payer

(A) In general

Payment under this subchapter may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that . . .

. . . An entity that engages in a business, trade, or profession shall be deemed to have a self-insured plan if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part.

(B) Repayment required

(i) AUTHORITY TO MAKE CONDITIONAL PAYMENT- The Secretary may make payment under this title with respect to an item or service if a primary plan described in subparagraph (A)(ii) has not made or cannot reasonably be expected to make payment with respect to such item or service promptly (as determined in accordance with regulations). Any such payment by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund in accordance with the succeeding provisions of this subsection.

(ii) Primary plans

Any payment under this subchapter with respect to any item or service to which subparagraph (A) applies shall be conditioned on reimbursement to the appropriate Trust Fund established by this subchapter when notice or other information is received that payment for such item or service has been or could be made under such subparagraph. A primary plan, and an entity that receives payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary under this title 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. A primary plan's responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient's compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan's insured, or by other means. If reimbursement is not made to the appropriate Trust Fund before the expiration of the 60-day period that begins on the date such notice or other information is receivedon the date notice of, or information related to, a primary plan's responsibility for such payment or other information is received the Secretary may charge interest (beginning with the date on which the notice or other information is received) on the amount of the reimbursement until reimbursement is made (at a rate determined by the Secretary in accordance with regulations of the Secretary of the Treasury applicable to charges for late payments).

(iii) Action by United States

In order to recover payment under this subchapter for such an item or service, the United States may bring an action against any entity which is required or responsible (directly, as a third-party administrator, or otherwise) to make payment with respect to such item or service (or any portion thereof) under a primary plan (and may, in accordance with paragraph (3)(A) collect double damages against that entity), or against any other entity (including any physician or provider) that has received payment from that entity with respect to the item or service, and may join or intervene in any action related to the events that gave rise to the need for the item or service. In order to recover payment made under this title for an item or service, the United States may bring an action against any or all entities that are or were required or responsible (directly, as an insurer or self-insurer, as a third-party administrator, as an employer that sponsors or contributes to a group health plan, or large group health plan, or otherwise) to make payment with respect to the same item or service (or any portion thereof) under a primary plan.. . .

42 U.S.C. §1395y(b)(2)(A) & (B) (2004).

Thus, Congress essentially legislated Goetzman out of existence in passing the MMA's amendments to the MSP statute. Brown v. Thompson, 374 F.3d 253 (4th Cir. 2004). Medicare’s status as secondary payer and its rights to recover any overpayments or conditional payments are now clear. Any third party who is liable for payment of Medicare covered services is considered primary to Medicare. By agreeing to settlement of a WC or TPL claim, the WC or liability insurance carrier (or self-insured defendant) establishes its liability under the MSP statute.

Any payments Medicare may have made for the plaintiff’s injury related medical expenses prior to settlement, even if payments were made by mistake, will result in an MSP claim which must be satisfied as part of the settlement. If not, the Centers for Medicare and Medicaid Services (CMS) can bring suit for repayment of Medicare’s claim against the WC or liability insurance carrier, a self-insured defendant or employer, or any entity which receives proceeds from the settlement, including the plaintiff and his or her attorney.

In a suit against an insurance carrier to recover its MSP claim, CMS can seek double damages. A similar private right to sue the carrier for double damages is also granted under

federal law to the WC claimant who is eligible for Medicare benefits.

Medicare’s claim is always first in line for repayment from settlement proceeds, even before any state Medicaid liens that may exist.

Medicare will reduce its claim to take into account the plaintiff’s costs and attorney’s fees in procuring the settlement. In addition, there are essentially three methods that can be employed to seek full or partial waivers of Medicare’s claim. The MSP claim can be either compromised or waived, pursuant to 31 U.S.C. §3711 (the Federal Claims Collection Act), under the MSP statute (42 U.S.C. §1395y(b)(2)(B)(iv), or under 42 U.S.C. §1395gg(c).

The bases for a compromise under 31 U.S.C. §3711 are: 1) the claimant does not have the money to repay the claim within a reasonable period of time; 2) CMS would find it difficult to prevail on the claim in a court of law; or 3) the costs to CMS of collecting the claim exceeds the value of the claim. Under 42 U.S.C. §1395gg, claims can be compromised for economic hardship, for equity and good conscience, and for reasons beyond the fault of the claimant.

Under the MSP statute, claims can be waived, in whole or in part, if waiver is determined to be in the best interests of the MSP program. A denial of a waiver request under this provision is not appealable.

Medicaid Liens

The ability of the states to recover liens from WC and TPL settlements for Medicaid benefits provided to the plaintiff has its origins in two federal statutory provisions. Those

provisions state:

(a) A State plan for medical assistance must – . . .

(25) provide – . . .

(H) that to the extent that payment has been made under the State plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, the State has in effect laws under which, to the extent that payment has been made under the State plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services.

42 U.S.C. §1396a(a)(25)(H); and

(a) For the purpose of assisting in the collection of medical support payments . . . a State plan for medical assistance shall –

(1) provide that, as a condition of eligibility for medical assistance . . . to an individual . . . the individual is required –

(A) to assign the State any rights . . . to payment for medical care from any third party; . . .

(C) to cooperate with the State in identifying, and providing information to assist the State in pursuing, any third party who may be liable to pay for care and services available under the plan. . .

42 U.S.C. §1396k(a)(1).

At the same time, federal law contains a seemingly conflicting provision, often referred to as the “anti-lien statute.” That statute provides:

(a) . . .

(1) No lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan, except

(A) pursuant to the judgment of a court on account of benefits incorrectly paid on behalf of such individual, or

(B) in the case of the real property of an individual - (i) who is an inpatient in a nursing facility, intermediate care facility for the mentally retarded, or other medical institution, if such individual is required, as a condition of receiving services in such institution under the State plan, to spend for costs of medical care all but a minimal amount of his income required for personal needs, and (ii) with respect to whom the State determines, after notice and opportunity for a hearing (in accordance with procedures established by the State), that he cannot reasonably be expected to be discharged from the medical institution and to return home . . .

42 U.S.C. §1396p(a)(1).

A controversy arose almost immediately over whether the anti-lien statute prohibited states from executing Medicaid liens against the proceeds of WC and TPL settlements. The U.S. Department of Health and Human Services, Departmental Appeals Board issued two decisions in the mid-1990's addressing this issue. Those decisions each stated the position of the U.S. Department of Health and Human Services (HHS) that federal law permits states to seek recovery from all settlement proceeds; and that these proceeds are not considered “property of the individual” because the state’s Medicaid lien attaches while the settlement proceeds are still property of the defendant (or the defendant’s insurance carrier). Calif. Dep’t. of Health Servs., D.A.B. No. 1504. 1995 WL 66334 (HHS Jan. 5, 1995); and Wash.State Dep’t of Soc. and Health Servs., D.A.B. No. 1561, 1996 WL 157123 (HHS Feb. 7, 1996).

The courts in several states were quick to adopt HHS’s position. A line of cases ensued in which it was held that the effect of 42 U.S.C. §1396a(a)(25)(H), 42 U.S.C. §1396k(a)(1) and HHS’s construction of 42 U.S.C. §1396P(a)(1) was to render the Medicaid lien statute inapplicable to TPL settlements altogether. Thus, these cases held that the states were empowered to recover their liens from all settlement proceeds under statutorily mandated assignments by Medicaid beneficiaries of all of their rights to recovery against third parties. Cricchio v. Pennisi, 683 N.E.2d 301 (N.Y. 1997); Calvanese v. Calvanese, 710 N.E.2d 1079 (N.Y. 1999);Waldman v. Candia, 722 A.2d 581 (N.J.Super.App.Div. 1999); Wilson v. State, 10 P.3d 1061 (Wash. 2000); and Houghton v. Department of Health, 57 P.3d 1067 (Utah 2002).

In 2002, the Minnesota Supreme Court rejected the position of HHS and the courts in New York, New Jersey, Washington and Utah in an unusually meticulous and thorough opinion. Martin v. City of Rochester, 642 N.W.2d 1 (Minn. 2002). In the Martin case, the Court undertook a detailed analysis of all three federal statutory provisions under criteria requiring that, wherever possible, statutes should be construed to give them their plain meaning and to resolve any apparent conflicts.

The Martin Court first declined to follow HHS’ position that settlement proceeds are not considered “property of the individual” because the state’s Medicaid lien attaches while the settlement proceeds are still property of the defendant. The Court found that the plaintiff’s right to pursue a claim against a liable third party is property of the individual; and that the federal anti-lien statute forbids the placing of a Medicaid lien against such property, except to the extent the plaintiff may have assigned his or her claims to the state under 42 U.S.C. §1396a(a)(25)(H) and 42 U.S.C. §1396k(a)(1).

The Court then reasoned that the clear meaning of the language in 42 U.S.C. §1396a(a)(25)(H) and 42 U.S.C. §1396k(a)(1) was that the states were only permitted to recover liens for Medicaid benefits provided to the extent that the plaintiff may have held a claim against a third party for medical expenses that were paid by Medicaid. Therefore, the state statute that required Medicaid beneficiaries to assign all claims against third parties to the estate was in excess of what was allowed under federal law. The Court held that, to the extent the state’s assignment statute required assignment of claims other than claims for past medical expenses that were paid by Medicaid, the state statute was preempted by federal law.