SCWCEA Chronicles 2016 Presents: Global Settlements and Medicare

Although  work related injuries are generally pursued under the exclusive remedy offered through   state  workers’ compensation laws, certain injuries may also give rise to a common law action against a third party.  These scenarios frequently involve injuries from motor vehicle accidents during work related travel or from defective machinery used in the workplace. In recognition of this, workers’ compensation laws provide certain offsets against an employee’s benefits in order to prevent a double recovery from the employer and the third party. Given the interplay between the workers’ compensation law offsets and the third party claim, parties will often find a global settlement of both claims to be an effective method of resolution. The global settlement will typically involve a full or partial release of the workers’ compensation lien on the third party settlement proceeds in exchange for a one dollar settlement of the workers’ compensation claim.

Global settlement negotiations should include discussion of Medicare Secondary Payer compliance issues. Since Medicare is a secondary payer when a primary payer is available, conditional payments made by Medicare, should be reimbursed to the Medicare Trust Fund. The reimbursement obligations should be clearly outlined and cross referenced in the settlement documents for both claims.

Similarly, discussions of the likelihood of future injury related Medicare covered treatment should focus on avoiding a cost shift of these expenses to Medicare. CMS’ April 22, 2003 Policy Memo explains that a Medicare Set Aside (MSA) is appropriate when the liability settlement relieves a workers’ compensation carrier from any future medical expenses. Since the injuries being settled stem from one specific accident, only one MSA is appropriate. Funding of the MSA generally comes from the liability settlement.

Parties desiring voluntary CMS review of the MSA, are able to submit it in connection with the workers’ compensation settlement provided that the CMS workload review thresholds are met in the claim. CMS has traditionally provided only sporadic review of liability MSAs or declined their review altogether.

Currently CMS’ workload review thresholds in workers’ compensation claims allow for review of a total settlement that exceeds $25,000.00 when the claimant is a Medicare beneficiary. When a claimant has a reasonable expectation of Medicare enrollment within 30 months of the settlement, CMS is willing to review a total settlement that exceeds $250,000.00. Reasonable expectation of Medicare enrollment within 30 months occurs when any of the following apply: the claimant has applied for or is in the process of applying for Social Security Disability Benefits (SSDB), the claimant anticipates appealing a denial of SSDB, the claimant is 62 years and 6 months old or has an End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based on this condition. In determining the “total settlement” amount, Medicare will factor in the following: the value of the MSA and non-Medicare covered future treatment included in the settlement, the indemnity, attorney fees, payout totals for all annuities rather than cost or present values, settlement advances, lien payments, amounts forgiven by the carrier, prior settlement of the same claim and liability settlement amounts on the same WC claim. (WCMSA Reference Guide, Version 2.5, April 2016)

CMS recently issued a notice of a proposed expansion of its voluntary MSA review to include the review of liability settlements and no fault insurance MSA amounts. Since liability settlements involve different types of disputes than workers’ compensation disputes, CMS’ voluntary review process would need to be modified to take these factors into consideration. Failure to do so, would remove any incentive for parties to partake of the voluntary liability MSA review process.

When CMS review of the MSA is requested, it is imperative that the parties discuss their options should CMS return an MSA determination that differs from that submitted. If a counter higher determination is issued by CMS, will the claimant agree to set the larger amount aside from the settlement proceeds? Similar discussions should occur in the context of the conditional payment reimbursement obligations.  Taking the time to discuss Medicare’s potential interests in the settlement during the settlement negotiation phase is time well spent and will minimize any unforeseen Medicare complications down the road.

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Settlement Language and Conditional Payment Obligations

Settlement negotiations oftentimes overlook the logistics of the parties’ Medicare conditional payment reimbursement agreement.  More often than not, the party drafting the contract, will use general boiler plate releases that pertain to all liens. It is only after the settlement documents have been executed and a demand for payment of the settlement funds made, that the manner of the reimbursement becomes an issue. Further complications may arise from confusion regarding the proper venue for the resolution of these disputes.  Two recent Medicare Secondary Payer compliance cases highlight these issues.

In Karpinski v. Smitty’s Bar, Inc., 2016 Cal. App. LEXIS 277 ( April 12, 2016),  the California Appellate Court considered Karpinski’s motion to enforce the parties’ settlement agreement pursuant to Section 664.6 of the California Code of Civil Procedure. Smitty’s objected to the motion arguing that Medicare and the State of California had liens on the settlement amount.  It also argued that satisfaction of the liens was a statutory and contractual condition precedent to payment of the settlement funds. In  reviewing the terms of the settlement agreement, the Court noted that nothing in the settlement terms made repayment of the liens,  a contractual condition precedent to Smitty’s obligation to pay the settlement funds.  The terms of the contract required Karpinski to honor his obligations pertaining to the liens and also provided a remedy should he fail to honor the obligations. The Court also rejected the statutory condition precedent arguments and  affirmed the trial court’s judgment.

The  Mikiewicz v Hamorski and Erie Insurance Exchange (2016 U.S. Dist. LEXIS 58859 (May 3, 2016) case   similarly involved a motion to enforce a settlement agreement between the parties. The agreement however was contingent upon the satisfaction of certain conditions precedent in order to receive the settlement funds. One of the conditions pertained to the reimbursement of Medicare’s conditional payments. A dispute arose as to the proper venue for the hearing on the motion to enforce the settlement agreement. Mikiewicz filed a motion to enforce the agreement in the Lackawanna Court due to Erie Insurance’s failure to pay the settlement funds. Erie Insurance moved to remove the case to the United States District Court for the Middle District of Pennsylvania arguing that federal jurisdiction was appropriate since the claim involved the Medicare Secondary Payer Act (MSPA). Mikiewicz moved to remand the action back to the Lackawanna County Court.

In remanding the action back to the Lackawanna County Court, Judge Mariano found Erie’s actions “objectively unreasonable”. According to Judge Marian, there was nothing in the MSPA or the Medicare statute that demonstrated that the MSPA completely pre-empts state law.

The Karpinski and Mikiewicz cases both illustrate the types of conditional payment issues that may arise after a settlement agreement has been reached. Rather than relying on boilerplate releases, each party to the settlement should have a clear understanding of their respective obligations when it comes to negotiating and satisfying the liens in the case. Conditional payment reimbursement as a condition precedent to the payment of the settlement may be negotiated as a term of the agreement. Alternatives may also include the parties’ agreement to hold a portion of the settlement funds in escrow while the conditional payment issues are being resolved. The additional attention to the conditional payment details during settlement negotiations is well worth the effort.

For a more complete analysis of the cases, please click the attached link.

New Mental Health and Substance Use Disorder Parity Rule for Medicaid announced by CMS

According to the National Survey on Drug Use and Health (NSDUH), there were approximately 43.6 million adults in the United States with mental Illness (18.2% percent of all U. S. adults) in 2014. 3.3 percent of all adults surveyed in 2014 had both a mental illness and a substance use disorder (SUD). “Illicit drug use” for purposes of defining an SUD, included the nonmedical use of prescription drugs without a valid prescription or use “simply for the experience or feeling the drugs caused.” (Center for Behavioral Health Statistics and Quality (2015). Behavioral health trends in the United States: Results from the 2014 National Survey on Drug Use and Health (HHS Publication No. SMA 15-4927 NSDUH Series H-50)).

In connection with the government’s push to halt the opioid epidemic, CMS issued a press release on March 29, 2016 that discussed the finalization of a rule that requires Medicaid and the Children’s Health Insurance Programs (CHIP) to provide greater coverage for mental health and substance use services. Prior to the October 3, 2009 implementation of the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), private health insurance plans generally provided less coverage for mental health conditions than for medical or surgical conditions. The MHPAEA changed that by mandating that group health plans and health insurance issuers treat mental health or substance use disorder benefits in the same manner as other medical/surgical benefits. CMS’ final rule that requires Medicaid and CHIP coverage for mental health and substance use services to be similar to coverage for medical and surgical benefits is long overdue. HHS Secretary Burwell stated: “Today’s rule eliminates a barrier to coverage for the millions of Americans who for too long faced a system that treated behavioral health as an unequal priority.” She further noted that “This rule will also increase access to evidence-based treatment to help more people get the help they need for their recovery and is critical in our comprehensive approach to addressing the serious opioid epidemic facing our nation.” (CMS News for Immediate Release, March 29, 2016)

CMS’ final rule provides states with flexibility in their delivery of services while ensuring that Medicaid enrollees requiring these services have access to them. CMS’ current opioid utilization initiatives signal a strong commitment to halting the opioid abuse epidemic facing our nation. We will continue to keep you advised of further developments.

Michigan Circuit Court Private Cause of Action Opinion

The recent Michigan Circuit Court opinion in the John F. Hull v Home Depot USA, Inc. case (CN. 15-148344-CZ (2/17/2016) has raised several issues in the area of MSP compliance. The Court was asked to rule on motions for summary disposition of Hull’s Private Cause of Action (PCA) case. Hull filed the action on August 3, 2015, seeking to recover double damages for Home Depot’s failure to promptly reimburse Medicare and a Medicare Advantage Plan the sum of $42,233.16.

A review of the timeline of the events in the underlying claim is important in understanding the case. Hull submitted a worker’s compensation claim in September of 2011 for an alleged knee injury at work in April of 2010. The claim was denied by Home Depot. It went to trial several years later in March of 2015. On May 5, 2015, the Workers’ Compensation Magistrate Castora signed an Opinion and Order finding that Home Depot was responsible for paying medical expenses. The Order was mailed to the parties on June 1, 2015. Home Depot filed a Claim for Review of the Order on June 26, 2015. Subsequently on August 3, 2015, Hull filed a PCA suit seeking double damages for Home Depot’s failure to reimburse the Medicare Trust Fund. Home Depot sent a letter withdrawing its Claim for Review on August 13, 2015. The Michigan Compensation Appellate Commission issued an order granting the withdrawal on August 28, 2015. Home Depot paid Medicare $6,813.83 and Blue Cross Blue Shield $35,419.33 on September 10, 2015.

Home Depot raised several arguments in support of its motion to dismiss Hull’s PCA suit. The first argument focused on Home Depot’s payment of the amounts owed to Medicare and Blue Shield. In rejecting this argument, the Court noted that the Plaintiff, Hull had not been paid.

Home Depot’s second argument focused on the lack of “demonstrated” responsibility prior to Hull’s filing of the PCA suit citing the Glover v Ligget Group case (459 F3d 1304 (CA 11, 2006). In Glover, the Eleventh Circuit , held that “ an alleged tortfeasor’s responsibility for payment of a Medicare beneficiary’s medical costs must be demonstrated before an MSP private cause of action for failure to reimburse Medicare can correctly be brought under section 1395y(b)(3)(A).” 459 F3d at 1309. Home Depot claimed that the filing of the PCA, while its appeal of the underlying workers’ compensation award was pending, was premature.

The Michigan Court was not persuaded by this argument noting that the Glover holding was limited to claims against tortfeasors. It also noted that this interpretation was supported by the Michigan Court of Appeals in the unpublished opinion in the Holmes v Farm Bureau Gen Ins Co case( May 19, 2015, Docket No. 320723). In Holmes, the Court of Appeals found that contract-based actions involving health plans did not require the “demonstrated responsibility” discussed in the Glover case involving a tortfeasor. Home Depot’s argument that it was a “tortfeasor” was deemed “wholly without merit” since the claim was a workers’ compensation claim and not a tort action. The Court also pointed out in a footnote, that there had been a determination by the initial Magistrate that Home Depot was liable for the bills in the workers’ compensation claim. Since Home Depot did not cite any support for the argument that a determination is only effective after all appeals are exhausted, this position was not addressed by the Court.

Home Depot’s last argument that its payment of Medicare after receipt of the dismissal of the Claim for Review order supports the dismissal of the PCA, was similarly rejected. The Michigan Court, in citing the Estate of McDonald v Indemnity Ins Co of North America, 46 F Supp 3d 712 (WD KY, 2014), noted that “Once a private cause of action claim has been lodged against a defendant, a defendant cannot escape the double damages provided for in that provision by paying single damages to Medicare.”

In denying Home Depot’s motion to dismiss the PCA, the Court specifically noted that Home Depot’s denial of the Plaintiff’s medical expenses for nearly five years forced Medicare to pay them. It was only after the PCA was filed, that payment was finally made. Judge McMillen granted Hull’s counter motion for summary disposition and awarded him the sum of $42,233.16 as a reward for his efforts in prompting Home Depot’s reimbursement of conditional payments to the Medicare Trust Fund.

The Hull Court’s decision raises several issues. Its comparison of a workers’ compensation policy to a no-fault insurance policy fails to consider that some workers’ compensation claims are not compensable. If the claim is not compensable, the employer is not liable for the medical bills paid by Medicare. This distinction removes it from a “contract-based action involving a health plan”. In addition, the Court’s dismissal of Home Depot’s argument that the Magistrate’s decision was not final since an appeal had been filed flies in the face of general appellate theory. We will continue to monitor the PCA case law and keep you advised of further developments.

Medicare Secondary Payer Issues and the False Claims Act

Medicare Secondary Payer (MSP) compliance is a specialized area that may be filled with traps for unwary attorneys, claimants and insurers. The traps may include a possible $1,000.00 a day penalty for failure to report a claim under Section 111 of the Medicare and Medicaid SCHIP Extension Act of 2007 (MMSEA), the threat of a double damages action by the U.S. Attorney’s Office for failure to reimburse Medicare’s conditional payments in a settlement as well as the threat of a private cause of action by a provider, Medicare Advantage Plan or a non-group health plan. Last, but not least, is the potential exposure for failure to reimburse Medicare’s conditional payments under the False Claims Act. This blog will examine MSP recovery in the context of the False Claims Act.

Under the False Claims Act (FCA), 31 U.S. Code Sections 3729, it is unlawful for any person to “knowingly make, use or cause to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government or knowingly conceal, or knowingly and improperly avoid or decrease an obligation to pay or transmit money or property to the Government.” The civil penalty associated with this is “not less than $5,000 and not more than $10,000 ….plus 3 times the amount of damages which the Government sustains because of the act of that person.” The FCA is intended to prevent fraud against the government. Since private individuals are often in the best position to detect this fraud, the FCA allows private individuals to bring the civil action for the person and for the US Government. These actions are known as qui tam lawsuits. If the Government proceeds with the action brought by the private individual, the “whistleblower” shall receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement, depending upon the extent to which the person substantially contributed to the prosecution of the action. (31 U.S. Code Section 3730(b) (d)). Although this financial incentive is necessary to help offset the hardship associated with such an action, it may also result in the pursuit of frivolous claims.

The case of United States of America, ex rel J. Michael Hayes, v. Allstate Insurance Company, et al 1:12-cv-01015 S, USDC WD NY (2014) provides one such example of a frivolous claim. In Hayes, the Relator, a plaintiff’s attorney, claimed that various insurance companies were shifting their obligations to reimburse the Medicare Trust Fund for conditional payments by using general boilerplate release language in settlement documents. This alleged shifting of the obligation was an action designed to “improperly avoid or decrease an obligation” under the FCA. Although an interesting theory, the merits of the argument were not addressed since the amended complaint was dismissed by the U. S. District Court with prejudice on February 8, 2016. Hayes’ failure to provide support for his “disproven allegations that he had personal knowledge that all defendants were engaged in a nationwide scheme to defraud the United States by failing to reimburse Medicare whenever they settled liability claims with a Medicare beneficiary” despite numerous “safe-harbor opportunities” showed a violation of Rule 11 of the Federal Rules of Civil Procedure. Rule 11 requires that the pleadings presented to the court contain factual contentions with evidentiary support. In the Hayes claim, it was clear to the court that Hayes lacked any such personal knowledge.

A similar abuse of the FCA is seen in the case of United States of America, ex rel Kent Takemoto vs The Hartford Financial Group, et al 11-CV-613S, USDC WD NY . In this claim, the Relator, Dr. Kent Takemoto, an MSP vendor executive, claimed that various liability insurance carriers and other companies, refused to meet their MSP obligations since they declined his company’s MSP compliance services. The services included Medicare Set Asides as well as conditional payment searches and negotiations. This case was dismissed with prejudice on January 20, 2016 finding that Takemoto’s amended complaint failed to allege plausible causes of action.

On the other hand, the case of United States of America ex rel. Saint Joseph’s Hospital Inc, and ex rel Candler Hospital, Inc v United Distributors, Inc et al, CV410-096, USDC, S.D Georgia, Savannah Division, survived a defense motion for summary judgment on December 7, 2015. This case involved a qui tam action brought under the FCA by two hospitals for Medicare fraud due to an alleged false COBRA election for the Defendant United Distributor’s employee, W.A. The Government intervened in this action and subsequently filed its own complaint.

By way of background, W.A. claimed a work injury on March 12, 2008 when he lost consciousness, fell and hit his head. After the accident, W.A was taken to the emergency room at Candler Hospital and then transferred to St. Joseph’s Hospital where he eventually had brain surgery. After the surgery, W.A developed an unrelated colon rupture which was surgically repaired. W.A. died from post-operative complications on May 27, 2008.

Upon receipt of notice of the workers’ compensation claim, W.A.’s employer, Defendant United submitted claims for his medical care through its workman’s compensation program. The workman’s compensation program however denied the claim. Subsequent discussions with W.A.’s wife allegedly centered on various medical bill payment options given the denial of the workman’s compensation claim. W.A.’s wife’s election for COBRA continuation coverage is the subject of this dispute with St. Joseph’s and Candler Hospitals and the Government claiming that the alleged COBRA election was falsified by the Defendants in order to avoid covering W.A.’s medical bills as the primary payer.

In refusing to grant the Defendants’ motion for summary judgment, the Court noted that there was sufficient evidence for a reasonable jury to find that a claim had been established under the FCA. The case was referred to be set for trial. It also serves as an example of an appropriate use of the FCA in the area of MSP recovery.

Attorneys, claimants and insurers may protect themselves from claims under the FCA by performing a comprehensive MSP compliance analysis of each claim. Key factors to consider include a review of the future injury related Medicare covered treatment needs in a claim that will close out medical as a term of the settlement as well as the obligation to reimburse the Medicare Trust Fund for any conditional payments made in the claim. Certain settlements should contain a future medical allocation in order to prevent a cost shift of future injury related care to Medicare. We also recommend specific provisions that detail the manner in which conditional payments will be reimbursed to the Medicare Trust Fund. Settlement discussions should also include the parties’ obligations in regards to reimbursement/ negotiation of injury related payments made by a Medicare Advantage Plan. Section 111 reporting under the MMSEA should be accurate and complete, without the omission of any disputed ICD9 or 10 codes. Although navigating the area of MSP compliance may at times seem daunting, it is an area that should be addressed in connection with your workers’ compensation and liability claims. We will keep you advised of further developments.