July 08, 2015 Top Story

Court Enforces Limits on Duty to Preserve Evidence

No sanctions for a nonparty that did not retain nine-year-old documents

Angela Foster

Lawyers are now potentially liable for unpaid Medicare liens on a client's legal award or settlement following two federal court rulings. In cases of first impression, the U.S. District Court for the Eastern District of Virginia and the U.S. Court of Appeals for the Eleventh Circuit held the Medicare Secondary Payer Act permits Medicare Advantage Organizations to prosecute private causes of actions against attorneys, and no exemption exists for attorneys who receive payments from a primary plan.

Medicare Sues Law Firm for Reimbursement of Conditional Payments

In Humana Insurance Company v. Paris Blank LLP, et al., Humana made conditional payments totaling $191,612.09 to cover the medical expenses of its insured, a Medicare beneficiary, following a motor vehicle accident. The beneficiary retained the defendant law firm to prosecute her claims, which settled for $475,000. Several insurance companies issued settlement checks, which were made payable to the defendant firm or to the firm and Humana jointly. The firm deposited the settlement checks without Humana's endorsement and disbursed a portion to the Medicare beneficiary.

Humana sought reimbursement of the conditional payments it made on behalf of its beneficiary. The defendant firm, on behalf of the beneficiary, requested a waiver, contending the beneficiary had no obligation to reimburse under Medicare parts A and B, but did not address reimbursement under part C. Parts A and B are the "original Medicare fee-for-service program" providing certain hospital and medical benefits. Part C, or "Medicare Advantage," permits eligible persons to obtain medical benefits from private companies, or "Medicare Advantage Organizations" (MAO).

Humana denied the request for waiver, and filed suit against the beneficiary's attorneys for reimbursement under the Medicare Secondary Payer laws (MSP). The MSP coordinates between primary payers, such as workers' compensation and liability insurance plans, and secondary payers, i.e. Medicare. When a primary payer is responsible for payment of medical services, the MSP permits Medicare to make a conditional payment on behalf of the beneficiary and seek reimbursement from the primary payer.

The defendant firm moved to dismiss, contending the MSP does not provide a private right of action to MAO for recovery of conditional payments. The defendant firm also argued it was not a primary payer subject to the MSP.

The district court denied the firm's motion, finding the MSP's provision providing "the Secretary" a private right of action for recovery of conditional payments extends to MAOs. In so holding, the district court relied upon the U.S. Court of Appeals for the Third Circuit's opinion in In re Avandia. There, the Third Circuit ruled Section 1395y(b)(3)(A) of the MSP to be "broad and unambiguous, placing no limitations upon which private (i.e. non-governmental) actors can bring suit for double damages when a primary plan fails to appropriately reimburse any secondary payer."

The district court further found that even if the statute was ambiguous, Chevron deference would require ruling in favor of Humana because CMS regulations clarified MAOs had the same right of recovery as the government. The district court also concluded attorneys are not exempt from the MSP, again citing CMS regulations including attorneys amongst those from whom the Secretary can seek reimbursement.

Following the district court's ruling, the Eleventh Circuit joined the Third Circuit in affirming MAOs may pursue a private action against primary payers for reimbursement of conditional payments in Humana Medical Plan Inc. v Western Heritage Insurance Company. In reaching this conclusion, the appellate court relied heavily on the Third Circuit's reasoning in In re Avandia. The court found given the broadly worded provisions allowing a secondary payer to pursue recovery from a primary payer, no reason existed to exclude MAOs from those provisions.

Emerging Trend Toward Private Suits by MAOs

These cases seem to demonstrate a growing trend by MAOs to pursue recovery from primary payers. The trend is seen as "other U.S. District Courts outside of the Third Circuit have been persuaded by the Third Circuit decision in In re Avandia and allowed MAOS to pursue a private right of action," observes Scott A. Brooksby, Portland, OR, cochair of the ABA's Section of Litigation's Aviation Subcommittee of the Mass Torts Litigation Committee.

One driving factor behind the increase in suits by MAOs under the MSP is "in 2007, Congress changed the rules and required primary payers to report settlements," suggests Aaron Krauss, Philadelphia, PA, cochair of Section of Litigation's Health Law Litigation Committee. "Given these reporting requirements, Medicare payers who should, under the law, be secondary payers know if there is a primary payment, where they may not have before," Krauss explains.

Advice to Attorneys

When personal injury cases are close to settlement, "attorneys must look to how big the lien is before determining whether it is worth it to your client to settle the case," advises Krauss. Further, "the inclusion of Medicare as a payee on the settlement check can delay, or even derail, the entire settlement, especially when the inclusion of Medicare on the settlement check was not a negotiated part of the settlement," adds Brooksby.

Attorneys would be well advised to "not ignore the Secondary Payer Act, either as a plaintiff's lawyer or as in-house counsel for an insurance company," says Krauss, as now both entities could be held liable under the Act.

Caitlin Haney is an associate editor for Litigation News.

Keywords: Medicare, Medicare advantage organizations, Secondary Payer Act

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