Case Alert: Failure to Notify Medicare of 3rd Party Payments Could Mean Double Payment Penalties

A recent lawsuit filed by the U.S. Department of Justice on behalf of the Secretary of Health and Human Services, United States v. James J Stricker, et.al in United States District Court for the Northern District of Alabama CV-09-PT-2423E, seeks to recover conditional payments under the Medicare Secondary Payer Act (42 USC Section 1395y (b) (2)) from a 2003 liability claims settlement, as well as double damages penalties for any conditional payments that are owed. This lawsuit appears to be the first one that includes the insurance carriers that contributed to the underlying settlement as defendants. 

The allegation of the U.S. is that the defendants were required under 42 CFR §411.25 to notify Medicare of any settlement, award, judgment or other payment that was made when the case was resolved, but did not. The U.S. seeks reimbursement against these defendants under the recovery action section of the Medicare Secondary Payer Act (42 USC Section 1395y (b) (2) (B) (iii)) as well as double damages. According to the complaint, it did not matter that these defendants paid out the settlement proceeds as 42 CFR Section 411.24 (i) allowing Medicare to seek payment from the liability insurance carrier. The U.S. Department of Justice also went after the more usual suspects in these cases, the plaintiff’s counsel who allegedly failed to notify, protect or reimburse Medicare’s liens. Finally, uninsured third party corporate defendants were also included and subject to claims under 42 U.S.C. section 1395y (b) (2) (b) and 42 C.F.R. section 411.24 (c) (2) for reimbursement even though they had already paid.

In light of this case, insurance carriers and self insureds need to be mindful in how they distribute funds. Prior to this lawsuit being filed, it was unclear whether Medicare would file such actions against defendants who paid. Now we know the answer. 

To avoid this exposure, the insurance carrier and self insured will have limited options. One option is to put Medicare on the settlement check, but there must be agreement of the parties ahead of time in order to enforce it. A second option is for the insurance carrier and self insured to know the conditional payment amount and pay it out of the settlement proceeds, with the balance going to the Medicare beneficiary. However, that process can only be effectuated if the settlement agreement is properly negotiated before arriving at the settlement amount.

This case serves as a reminder of why all parties involved in the resolution of third party claims need to work together to bring thoughtful change to the Medicare Secondary Payer Act. 

This document is intended to provide you with general information about a recent lawsuit. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact Bill Baumgaertner at 310-215-7100 or wbaumgaertner@hbblaw.com, Michael Long at 714-754-1100 or mlong@hbblaw.com or your regular Haight Brown & Bonesteel, LLP attorney. This communication may be considered advertising in some jurisdictions.