In over 5 years working exclusively within the complex Medicare compliance industry, we’ve heard a number of alarming stories from clients who decided to work with us after running into costly and frustrating issues that could have been avoided.
One of the common threads between many of these stories is the tendency P&C insurance companies have to entrust the handling of Medicare compliance to their claimant’s attorney, while their team focuses on processing a settlement. In some cases, the issues were caused by dishonest or unethical lawyers, but more often, it comes down to an inherent conflict of interest under this specific circumstance:
The claimant’s lawyer is working for their client. They will always have their client’s best interests at heart, whether or not those interests align with those of the insurance carrier. However, from Medicare’s perspective, everyone involved in the claim is responsible for fulfilling any related lien, and they’re sure to go after the insurance company, since they have the deepest pockets.
Here are two examples of issues that can arise when an insurance company allows the claimant’s attorney to handle their Medicare compliance responsibility for them:
(Please note that details have been adjusted to maintain appropriate confidentiality, but these real life examples serve illustrative purposes.)
In one case, the claimant’s attorney offered to handle any Medicare lien activity and the claims adjuster agreed, relieved, as it was one less thing to worry about. Their seemingly reasonable requirement was that the attorney let them know the amount of the lien and then supply a copy of the Case Closure letter upon receipt. The attorney agreed.
When the attorney later received a demand letter from Medicare regarding a lien, he dutifully contacted the claims adjuster and let them know, “the lien is for $10,000 so we need to factor that into settlement.” The claims adjuster did so, turning what was an already planned $25,000 settlement into $35,000 to cover Medicare’s lien.
Unbeknownst to the claims adjuster, however, following the disbursement of the full $35,000 settlement, the claimant’s lawyer took a closer look at Medicare’s demand letter and disputed charges as not being related to the claim. Medicare conceded that the charges were not related and issued a Case Closure letter to the attorney, which he then copied and forwarded to the claims adjuster, as they agreed.
The only problem was, the insurance company paid out $10,000 more than they needed to because they never had the opportunity to review the initial demand letter for accuracy and legitimacy of the charges listed. The claimant (and their lawyer) got more money than they rightfully should have received simply because the claims adjuster passed the responsibility for Medicare compliance onto the attorney.
Worthless “hold harmless” language
In another case, the insurance company included standard indemnification language in their settlement agreement. So, when they agreed to pay the full settlement to the attorney, they assumed he would live up to the agreement language and pay any Medicare liens.
By way of explanation, most settlement agreements will include several examples of “hold harmless” or indemnification language that essentially states that the claimant and any other involved parties agree that when they accept the settlement, they will release one or both parties from a legal claim and not pursue additional monies from the insurance company for anything related to the claim in question.
This is well and good as a legal agreement between the insurance company and the claimant. However, Medicare has no obligation to abide by that agreement, and frankly, they aren’t interested in your “hold harmless” language at all. Medicare’s right to recover funds paid out conditionally supersedes any subsequent agreement between two responsible parties as they have the right to go after anyone and everyone involved in the claim for reimbursement.
And, as noted above, the RRE - the P&C insurance company - is always the biggest target on their radar.
Several months after a $40,000 settlement was disbursed (to the attorney) the claimant received a Final Demand letter from Medicare requiring payment on $25,000 in charges they conditionally paid in relation to the claim. The claimant contacted the insurance company looking for direction and, understandably, was told to pay the lien out of the settlement funds he received.
At that point, however, the claimant revealed that he’d never received the $40,000. At some point soon after the settlement funds were sent, the attorney had left his practice and essentially disappeared. No one at the attorney’s office knew where he or the $40,000 was.
In the end, since the claimant had no means of doing so, the insurance company ended up having to pay Medicare $25,000 on top of the original $40,000 they lost to the dishonest lawyer. We never learned if they were eventually able to recover the stolen money or if they paid out any additional funds to the claimant, but in the short term, their settlement amount rose over 60%.
Don’t do it
This kind of situation may not hurt an insurance company too dramatically on one isolated claim. But when it keeps happening over and over again, it can add up quickly, affecting paid costs and reserves in the long term.
It’s important to realize that this isn’t a problem because all claimant lawyers are unethical thieves. In fact, the overwhelming majority are professionals who are honestly trying to do the right thing. However, they’re not generally knowledgeable or experienced in handling Medicare compliance because they don’t tend to deal with it very often.
At the end of the day, the RRE is responsible for maintaining 100% compliance to Medicare. The best practice is to take that responsibility on and handle it effectively to mitigate risk and make sure Medicare receives everything it’s owed, but not a penny more.
At Flagship, this is what we do all day every day. It’s our specialty. If you have any questions about handling your company’s compliance responsibility, download our Medicare Compliance Manual or contact us to discuss. We’d be delighted to help you.