Conditional Payment Compliance Risks for Auto, Liability, No-Fault, and Work Comp Primary Payers

Posted by Rafael Gonzalez on Nov 27, 2017 9:00:00 AM

With Medicare still in financial short and long term trouble, the US Department of Health and Human Services (HHS), and its Center for Medicare and Medicaid Services (CMS), have become increasingly more aggressive about making sure Medicare is the secondary payer pre and post settlement in auto, liability, no-fault, and workers compensation claims. As a result, insurers, self insureds, and third party administrators responsible for payment of auto, liability, no-fault, and work comp claims must be aware of and understand their responsibilities under the Medicare Secondary Payer Act (MSP), and be prepared for the multiple risks associated with MSP compliance. What follows is part two of a four-part analysis of risks associated with each of the MSP compliance components: Mandatory Insurer Reporting (MIR), Conditional Payment Resolution (CPR), and Medicare Set Asides (MSA). This second part focuses on CPR compliance risks for auto, liability, no-fault, and work comp primary payers.

 

Conditional payment compliance risks for auto

 

US Seeking Reimbursement for Pre-settlement and Post-settlement Conditional Payments and Double Damages

On September 30, 2010, the United States District Court, Northern District of Alabama, published its opinion on US v. Stricker, finding that the longest applicable statute of limitations of six years had expired prior to December 1, 2009, when the US filed its law suit; therefore, the claims against the Defendants were barred by the statute of limitations. However, Stricker demonstrated one of the most serious risks for auto, liability, no-fault, and work comp primary payers, is that the United States may seek from defendant corporations, including defendant insurers, double damages based on unreimbursed Medicare benefits the government paid prior to or after settlement. Although the SMART Act amended the period within which the federal government could bring such cause of action to within 3 years of notification of settlement through the mandatory reporting process, the risk remains as real as ever for auto, liability, no-fault, and work comp primary payers.

Plaintiffs Alleging Bad Faith in Handling of Conditional Payment Resolution Process

On June 14, 2011, the United States District Court, Western District of Kentucky, published its decision in the case of  Wilson v. State Farm Mutual Automobile Insurance Company, finding that since State Farm paid the Plaintiff the agreed upon settlement the day after it received notice of the value of Medicare’s lien, State Farm acted well within the statutory guidelines. As a result, the Court found State Farm’s delay in payment did not constitute bad faith, and, in fact, its multiple attempts to speed settlement suggested just the opposite. Although the Court concluded that State Farm had a “reasonable foundation” to delay payment of the settlement by seeking assurances concerning the amount and payment of the Medicare lien, the case highlighted the potential risk that mishandling reimbursement of conditional payments, which may ultimately cause a delay in providing settlement funds on a timely basis, may open up auto, liability, no-fault, and work comp primary payers to bad faith.

Jurors Deciding Whether Insurers Acted Reasonably in Handling Conditional Payment Issues

Another risk associated with conditional payment resolution for auto, liability, no-fault, and work comp primary payers is the chance or likelihood that a state court or federal court may find inappropriate or unreasonable handling of the conditional payment resolution and post settlement process. On September 4, 2013, the United States District Court for the Northern District of Indiana published its opinion on Dolgos v. Liberty Mutual Insurance Company, dismissing Liberty Mutual’s motion for summary judgment by concluding that there were several questions as to the reasonableness of Liberty Mutual's handling of the Medicare conditional payment process and related post settlement actions. As a result, the court held that the determination as to whether Liberty acted timely and appropriately in resolving Medicare conditional payments and ultimately providing settlement funds on a timely basis must be made by the trier of fact.

Irrespective of Limited Recovery, US and Plaintiffs Seeking Full Reimbursement of Conditional Payments

On November 21, 2011, the US 6th Circuit Court of Appeals rendered its ruling on Hadden v. United States, finding that the Medicare statute required Hadden to reimburse Medicare to the full extent that the government had been advocating for and therefore affirmed the judgment of the District Court, which had previously ruled Hadden owed $62,338.07 in conditional payments out of the $125,000 settlement he had received from the tortfeasor. Hadden had paid the $62,338.07 (plus some interest) under protest, arguing that he should only be required to reimburse Medicare for only 10%—or about $8,000—of the more than $80,000 of expenses that Medicare paid on his behalf, since he had only received 10% of the damages he had sustained. The case follows a long line of prior cases that allow the US to seek full reimbursement of conditional payments irrespective of a limited recovery.

Part C Medicare Advantage Plans and Part D Prescription Drug Plans Having Same Rights as CMS When Seeking Recovery, including Double Damages

On June 28, 2012, the United States Court of Appeals for the Third Circuit published its decision on Humana Medical Plan and Humana Insurance Company v. GlaxoSmithKline, LLC, concluding that any private party may bring an action under §1395y(b)(3)(A), as it establishes a private cause of action for damages. As a result, the court finds that private parties like Humana can bring suit for double damages when a primary plan fails to appropriately reimburse any secondary payer. In addition, since 42 C.F.R. §422.108 states that a Medicare Advantage Organization (MAO) will exercise the same rights to recover from a primary plan, entity, or individual that the Secretary of HHS exercises under the MSP regulations, the court finds that the Medicare Act treats MAOs the same way it treats the Medicare Trust Fund for purposes of recovery from any primary payer.

Despite State Court Rulings to the Contrary, Federal Courts Allowing MAPs and PDPs to Sue Primary Payers Under MSP for Double Damages

On August 8, 2016, the United States Court of Appeals for the Eleventh Circuit published its opinion on Humana Medical Plan Inc. v. Western Heritage Insurance Company, concluding that despite state court rulings and decisions to the contrary, Medicare Advantage Plans (MAP) may sue primary payers under the Medicare Secondary Payer Act private cause of action, and thereby seek double damages when such primary payers have failed to reimburse MAPs for payments made related to the claimed accident and injuries. With 33% of current Medicare beneficiaries receiving coverage through a MAP, predicted to continue to grow to 50% over the next 15 years, the risk for auto, liability, no-fault, and work comp primary payers has grown significantly and will continue to grow exponentially as 40 to 50 million Americans ultimately receive their Medicare coverage through MAPs.

MAP Assignees Filing MSP Private Cause of Action for Double Damages, Proving Responsibility Through Contractual Obligation

On August 30, 2016, the United States Court of Appeals for the 11th Circuit published its opinion in MSP Recovery, LLC v. Allstate Insurance Company, concluding that a contractual obligation, without a judgment, settlement, award, or other payment, can satisfy the “demonstrated responsibility” requirement of the private cause of action provided for by the Medicare Secondary Payer Act (MSP Act) at 42 U.S.C. §§ 1395y(b)(2)(B)(ii), (b)(3)(A). The court therefore allowed assignee entities to seek double damages against no-fault, med-pay, PIP primary payers because of their refusal to reimburse Medicare advantage plan payments made related to the underlying covered claim.

Medical Providers Suing Under MSP Private Cause of Action if Claim Denied and Medicare Made Conditional Payments

On July 16, 2014, the United States Court of Appeals for the Sixth Circuit published its opinion on Michigan Spine and Brain Surgeons, LLC v. State farm Mutual Automobile Insurance Company, finding that although the text of the Medicare Secondary Payer Act is unclear as to whether a private cause of action may proceed against a non-group health plan that denies coverage on a basis other than Medicare eligibility, the regulations as well as congressional intent indicate that this requirement applies only to group health plans and not to non-group health plans. Therefore, the court concludes Michigan Spine may pursue its claim under the Medicare Secondary Payer Act against State Farm, allowing physicians, hospitals, clinics, and other medical care providers to seek reimbursement of Medicare conditional payments from auto, liability, no-fault, and work comp primary payers.

Plaintiffs or Estate Filing Private Cause of Action Seeking Double Damages

On September 2, 2014, the United States District Court for the Western District of Kentucky published its opinion on Estate of Clinton McDonald v. Indemnity Insurance Company of North America, concluding that based on USCA 6th Circuit decision on Michigan Spine Clinic v. State Farm, as the Estate’s filing of the law suit here prompted payment in the amount of $184,514. 24, the Estate is entitled to double damages per the MSP Private Cause of Action provision in that amount to reward the Estate for its efforts. As a result, this case further expands potential MSP compliance risks for auto, liability, no-fault, and work comp primary payers.

Plaintiffs Filing in State Court Seeking MSP Private Cause of Action Double Damages

On February 17, 2016, the State of Michigan Circuit Court for the County of Oakland published its opinion on Hull v. Home Depot, finding that although Home Depot had already paid $42,233.16 to Medicare and Blue Cross Blue Shield Medicare Advantage Plan, because Mr. Hull’s filing of the MSP private cause of action in state court prompted Home Depot's payment of same, Mr. Hull is entitled to double damages and therefore awards another $42,233.60 to reward him for his efforts. This case further expands potential MSP compliance risks for auto, liability, no-fault, and work comp primary payers by allowing such actions to be filed not only in federal courts, but in state courts as well.

US and Private Parties Using False Claims Act to Recoup Conditional Payments and Triple Damages

On November 14, 2012, the United States District Court for the Southern District of Georgia published its opinion on US, St. Joseph’s Hospital, and Candler Hospital v. United Distributors. Although the opinion was brought about as a result of a motion to quash a subpoena for documents and production of a person to testify, the case highlights the fact that the United States (US) brought an action on behalf of Saint Joseph's and Candler Hospitals under the False Claims Act (FCA), 31 U.S.C. §§ 3729, et seq. contending that the employer and its benefit plan engineered a sham insurance claim to fraudulently induce $341,802.09 of Medicare payments. This case highlights the extended risks auto, liability, no-fault, and work comp primary payers may face as Medicare wants its money back and in seeking same, it is not only looking to the Medicare Secondary Payer Act, but also using the False Claims Act to make certain the appropriate parties are held responsible for medical care related to the claim.

Plaintiffs Using False Claims Action Based on Medicare Secondary Payer Violation

On March 1, 2016, the United States District Court for the District of New Jersey published its opinion on Negron v. Progressive Casualty Insurance Company, finding that based on the claim filed pursuant to the Medicare Secondary Payer Act and False Claims Act, Negron has sufficiently plead that Progressive presented or caused to be presented to an agent of the United States a claim for payment; that the claim was false or fraudulent; and that Progressive knew the claim was false or fraudulent. By remaining ignorant of the fact that Negron did not have health insurance, other than Medicare/Medicaid, Progressive caused Negron's health providers to treat Medicare as the primary payer of her auto-related medical costs. Because, Medicare never was, nor by law could it ever be, a primary payer given the existence of her no-fault policy, Progressive caused Negron's health providers to submit bills to Medicare. This resulted in economic loss to the United States government, even if Progressive eventually reimbursed Medicare, since allowing Medicare to pay for Negron’s auto-related medical costs would essentially permit Progressive to receive an interest free loan from the government on claims they are obligated to pay and were always obligated to pay.

Conclusion

These are by no means the only MSP compliance risks auto, liability, no-fault, and work comp primary payers face every day on every file. They are however the most common seen throughout the country. In my next blog, I will discuss set aside allocation compliance risks for auto, liability, no-fault, and work comp primary payers.

About Flagship Services Group

Flagship Services Group is the premier Medicare compliance services provider to the property & casualty insurance industry. Our focus and expertise has been the Medicare and Medicaid compliance needs of P&C self-insureds, insurance companies, and third party administrators. We specialize in P&C mandatory reporting, conditional payment resolution, and set aside allocations. Whether auto, liability, no-fault, or work comp claims, we have assembled the expertise, experience and resources to deliver unparalleled MSP compliance and cost savings results to the P&C industry. To find out more about Flagship, our folks, and our customized solutions, please visit us at www.flagshipservicesgroup.com. To speak with us about any of our P&C MSP compliance products and services, you may also contact us at 888.444.4125 or info@flagshipsgi.com.

About Rafael Gonzalez

Rafael Gonzalez, Esq. is President of Flagship Services Group. He speaks and writes on mandatory insurer reporting, conditional payment resolution, set aside allocations, CMS approval, and MSA and SNT professional administration, as well as the interplay and effect of these processes and systems and the Affordable Care Act throughout the country. Rafael blogs on these topics at Medicare Compliance for P&C Insurers at www.flagshipservicesgroup.com/blog. He is very active on LinkedIn, Twitter, Instagram, and Facebook. He can be reached at rgonzalez@flagshipsgi.com or 813.967.7598.

Topics: Compliance, Liability, Conditional Payments