Haro Injunction Lifted – CMS May Resume Referring MSP Debt to Collections During Appeals

CMS, Medicare Set-Aside Blog, MSP Litigation on September 5, 2013
Posted by Jennifer Jordan, JD, MSCC

On September 4, 2013, the Ninth Circuit Court of Appeals issued an opinion overturning the 2009 injunction imposed by the Arizona District Court in Haro et al. v. Sebelius prohibiting CMS from placing MSP reimbursement efforts into collections while appeal and waiver requests were pending. The case, filed on behalf of three named Medicare beneficiaries, was certified as a class and the injunction imposed on behalf of all Medicare beneficiaries nationwide. At the time CMS ceased collection efforts temporarily while it reviewed its policies, determined that the injunction did not affect statutory interest assessments and resumed its reimbursement process with the exception of the threats of collections. Additionally the original suit also included a claim by Haro’s attorney over a letter prohibiting him from disbursing settlement funds prior to Medicare reimbursement under threat of personal liability. The injunction prohibiting that act was also lifted in the new order.

The Secretary’s appeal consisted of three arguments: Article III standing, the case being moot and lack of subject matter jurisdiction. Because Haro had been deprived of $103.87 for approximately a month, it was determined that she had suffered a modest but concrete fiscal injury that was directly traceable to the challenged action of the Secretary sufficient to achieve standing. As to her attorney, the Court found that the Secretary’s interpretation of his personal responsibility for reimbursement was sufficient demonstration of his personal liability to achieve Article III standing as well. As to mootness, the Secretary alleged that because none of the plaintiffs disputed Medicare’s final reimbursement calculation, paid the adjusted demands and was not owed any additional refund, there was nothing to be gained through this suit. The Court ruled in favor of the plaintiffs on this count, relying upon the Supreme Court opinions in Sosna v. Iowa, holding that the mootness of a named plaintiff’s claim after class certification does not moot the action, and City of Riverside v. McLaughlin, holding that where a claim is so transitory that the trial court will not have enough time to rule on a motion for class certification before the individual interest expires that the relation back doctrine would apply to preserve the merits of the case for judicial resolution.

Unfortunately subject matter jurisdiction is where all good MSP cases fall apart. While 42 USC § 405(g) establishes federal jurisdiction to review final decisions of the Commission of Social Security, § 405(h) provides:

(h) Finality of Commissioner’s decision
The findings and decision of the Commissioner of Social Security after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Commissioner of Social Security shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Commissioner of Social Security, or any officer or employee thereof shall be brought under section 1331 or 1346 of title 28 to recover on any claim arising under this subchapter.


Because there is a series of cases that supports the plain language interpretation as well as overcomes arguments for distinction of procedural verses substantive claims, the real problem came when the court arrived at the Supreme Court’s explanation of the broad purpose of § 405(h). In Shahala v. Illinois Council on Long Term Care, the Court held essentially that the reason behind § 405(h) is to channel virtually all legal attacks through the agency to ensure it an opportunity to “apply, interpret, or revise policies, regulations, or statutes without possibly premature interferences by different individual courts….” Unfortunately what that does is permit CMS to address claims on a case by case basis and essentially avoid any one case outcome from challenging policies on a global basis. So long as the agency disposes of cases within the first four stages of the Medicare appeal process, the claims never make it to court for judicial interpretation. And if practitioners are unaware that constitutional claims must be raised at the ALJ or MAC level, those claims aren’t even ripe for adjudication because they can’t be heard by the district courts if not previously raised. So CMS maintains the sole option to walk away from cases with better legal defenses rather than run the risk of a judicial interpretation not in the agency’s favor.

Because none of the named plaintiffs appealed their Medicare demands beyond requesting reconsideration then paying in full, they did not exhaust the entire Medicare appeal process and therefore administrative remedies remain and subject matter jurisdiction requirements not met. However the same could not be said about the attorney’s claims as there is no similar means to present his challenges to the agency. Unfortunately, this is where the opinion should get scary.

In the Secretary’s pleadings, her interpretation of the MSP’s enabling regulation 42 CFR § 411.24(g) provides that she may recover from any entity that has received a primary payment, meaning becomes in possession of and not necessarily due to a personal financial interest. The insistence in the old demand letters that attorneys were not permitted to distribute funds until Medicare was repaid was predicated upon this concept and not the idea that attorneys could be personally liable for reimbursement from their fees. The Court applied a Chevron analysis and found that there was no statutory basis to distinguish between entities that receive payment from a primary plan and an end-point recipient and that the MMA of 2003 amendments indicated that Congress intended a broad construction of “entity that receives payment from a primary plan” in order to overcome previous references to providers and physicians, particularly in the wake of cases such as Baxter that ruled against government reimbursement due to technicalities in the poorly worded law. Because the Secretary’s interpretation is consistent with the purpose of the secondary payer provisions, the Court found it did not have subject matter jurisdiction over the attorney’s claim either.

Fortunately this does not definitely determine whether an attorney can be held personally liable to the full extent of settlement funds that passed through his hands. The attorney here only challenged the Secretary exceeding her authority under the MSP by demanding that attorneys withhold funds from their clients. Had she actually issued a demand upon him for reimbursement from funds no longer in his possession, that would have made for a much more interesting constitutional debate. But the concept remains frightening as this could apply to a number unintentional sources of recovery. Any entity that may touch settlement proceeds provided by a primary payer prior to reaching its intended recipient, such as defense counsel, third party administrators, life insurance companies involved in structured settlement annuities, court escrow, 468B trusts, etc., should be weary of such a broad interpretation of that amendment.

From a practical standpoint, this opinion changes very little. Because statutory interest attaching after 60 days was unaffected, practitioners have during the injunction continued to face the same decisions about whether to pay upon demand and then appeal, or run the risk of losing and owing interest and/or ending up in collections prior to the outcome. Whether CMS resumes making collections threats to the nation’s elderly and disabled, most of whom find that letter very upsetting as they truly do not understand the process, remains to be seen.


Haro et al. v. Sebelius
No. 11-16606
United States Court of Appeals for the Ninth Circuit
2013 U.S. App. LEXIS 18353
December 5, 2012, Argued, February 14, 2013, Submitted, San Francisco, California
September 4, 2013, Filed