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.

Leave a Reply