Is CMS’ Final Demand Really Final?

Medicare Set-Aside Blog on July 23, 2012 | Posted by


I am frequently faced with concern over the finality of the government’s demand for conditional payment reimbursement. Many times the CPL is wrong and all parties to the suit have agreed that the CPL is wrong, yet CMS insists that their demand is what is owed. So the question is, can we fight the system? And does satisfaction of the final demand really close the case?

A recent case out of the Eastern District of Pennsylvania demonstrates the problem. In Carty v. Clark, the parties agreed to hold a $90,000 settlement in escrow with defense counsel to be released upon receipt of a final demand letter from CMS. Plaintiff’s counsel delivered the CPL, but defense refused to release the funds because the CPL did not reference an outstanding bill to a particular hospital known to have provided care to plaintiff. Apparently, the hospital had submitted its bill to Medicare on four separate occasions and was rejected for payment each time; therefore, Medicare never made payment and thus it was not on the CPL. The clear and unambiguous terms of the settlement stated that funds would be released upon presentation of the final demand letter and the court ordered immediate release by defense counsel. The court, however, did not feel that this breach was in bad faith and denied the request for attorneys’ fees and sanctions.

The court cited Pennsylvania precedent stating that defendants cannot assert Medicare’s right to reimbursement as a preemptive means of guarding against their own risk of liability. Had defense wanted the option to question the CPL and delay release of funds, then that should have been a term of the settlement. As it stands, plaintiff had already agreed to hold harmless and indemnify defendants for any claims made by CMS for any recovery sought by Medicare for any lien. Compensation for all medical expenses was provided and now responsibility for reimbursement lies with plaintiff. Regardless of the indemnification agreement, if the hospital appeals the denial and eventually wins and Medicare makes payment, Medicare will be statutorily entitled to reimbursement. And according to 42 CFR 411.24(i)(2), it may collect from defendant even if defendant already provided for that payment at settlement. Can defendant’s concerns be summarily dismissed so easily by the court?

When all efforts have taken place to ensure that Medicare’s interests have been protected in a settlement and Medicare issues a “Final Demand Letter,” how can we not proceed to settlement with some degree of certainty that the matter is over? At this point we have relied upon CMS’ representations when entering into the settlement. Detrimental reliance is a term commonly used in reference to the reliance of parties representations when entering into obligations under a contract, using the theory of promissory estoppel. If CMS represents in the demand that this is the amount of money necessary to resolve its reimbursement from this settlement and the parties pay the demand with the understanding that the matter will be closed, then we should be able to take the government at its word.

Unfortunately, there is no clear answer to this dilemma. Neither the statute nor the regs say anything specifically to the termination of a primary payer’s responsibility for reimbursement of related medical expenses to Medicare. There is no case law on point that challenges CMS representations with principles of equitable estoppel. The demand letters mentions rights of recovery if there are other related insurance settlements, essentially alluding to its potential need for another bite at the apple. About the only thing definitive that we have to hang our hats on is the fact that CMS states that its case is closed in the letter confirming receipt of funds. Just as we are to believe that we can reasonably rely upon WCMSA approval letters, 99 times out of 100 we probably can. But that doesn’t stop me from sympathizing with defense counsel here…


SUSAN CARTY v. JAMES E. CLARK et al.
CIVIL ACTION NO. 11-6083
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
2012 U.S. Dist. LEXIS 98318
June 14, 2012