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.

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