Just Because Medicare Has not Made a Demand Doesn’t Mean it Won’t

CMS, Liability, Medicare Set-Aside Blog, MSP Litigation on January 24, 2014
Posted by Jennifer Jordan, JD, MSCC

Liability attorneys have a fascinating practice of notifying lien holders of impending settlements – “answer me by this date or forever hold your peace, even though I know that you made payments because I knew to contact you, but the burden is on you to ask for it before I give it away.” What is interesting is that this practice has also been applied when notifying Medicare. The problem with that practice is that the Medicare Secondary Payer Act does not actually attach to the payments in question until a settlement, judgment, award or other insurance payment occurs; therefore, when the request is received by CMS, Medicare does not actually have a recovery right yet . While the SMART Act has created a situation where the reimbursement amount can be determined up to three days prior to settlement, demand is still not made until after the parties notify CMS that the settlement is final, so nothing has changed with respect to the timing. If you don’t understand this, you may very well get caught in a bad deal.

Now I’m speculating this was the situation in a recent Oregon case as the opinion does not actually come out and say why the attorney agreed to the settlement amount in question, knowing there was such a large outstanding Medicare lien, unless he believed he would not actually have to pay it. The opinion states that plaintiff alleged in her complaint $45,517.69 in medical damages alone, however settled her entire claim for $15,000.00 plus any PIP reimbursement. Upon agreement to settle, the parties exchanged written letters confirming these terms so there really was no confusion. However shortly after the exchange, MSPRC sent notice that Medicare was owed $22,970.62. Plaintiff refused to sign the settlement agreement unless Medicare waived its lien and defense eventually returned to court to move to enforce the settlement agreement as it was not contingent upon any actions by Medicare. Plaintiff claimed there was no settlement as there was no meeting of the minds since the Medicare demand was not known at the time of settlement. Both the trial and appellate courts recognized the situation for what it was, stating “[w]e will not set aside a settlement in a personal injury case merely because, in hindsight, it was obtained too soon and for too little,” and ruled in favor of the defendants.

This touches upon another fundamental flaw plaintiff attorneys commonly fail to recognize when pleading their cause of action. You cannot claim damages then expect them to magically disappear when it is time to talk about money. The Hadden opinion was the first to touch upon it, but the concept is appearing in more and more MSP opinions. The 6th Circuit essentially said that you while you are free to compromise your claim and accept less than “full value,” that has no bearing on what Medicare can recover from you. If that was all you could get, Medicare will compromise its recovery and settle for whatever you received minus procurement costs. Isn’t that nice that the attorney still gets paid?

All sarcasm aside, it is important to understand what Medicare’s rights are when negotiating and settling claims because at the end of the day, MSP related settlement terms are nothing but contract provisions likely to be decided within the four corners of that agreement. MSP issues are given no special treatment so don’t expect to use Medicare as leverage to back out of a bad deal.


VERNILE RHOADES, aka Bud Rhoades, Plaintiff, v. LORRAINE M. BECK,
Defendant. Klamath County Circuit Court 0900859CV STELLA NOREEN
RHOADES, aka Noreen Rhoades, Plaintiff-Appellant, v. LORRAINE M. BECK,
2014 Ore. App. LEXIS 82
January 23, 2014, Filed