COMMENTARY: The Medicare lien conundrum

By A. Vince Colella

Attend any plaintiff trial practice seminar and one thing is certain: the speaker who addresses the topic of Medicare liens is certain to be riddled with a disproportionate number of questions from the audience. Navigating Medicare liens is far and away the most frustrating aspect of the plaintiff's practice. Unfortunately, the Medicare Secondary Payer Act ("MSP") while designed to promote and assist the government in obtaining reimbursement of medical expenses from third party tortfeasors is - in reality - counter-productive to its objective. Unlike other statutory lien holders, i.e., Blue Cross Blue Shield, Medicare does not allow for pre-settlement negotiation of its lien, frequently resulting in many claims paid at a rate of reimbursement that is unreasonable in light of the facts, liability and damages of the underlying case. Consequently, Medicare liens can serve as a bar to a potential settlement and force plaintiff lawyers to try cases or face motions for summary disposition that ultimately compromise Medicare's recovery altogether. Despite this inherent conflict, the Center for Medicare and Medicaid Services ("CMS") have tacitly refused to make universal changes to its program, doing a disservice to the government and many victims of personal injury.

According to CMS, if a lawyer wishes to settle a liability case, they may be able to calculate the amount of money owed to the Medicare program, (i.e., demand amount) prior to settlement. The formula for estimating the reimbursement amount is based upon "procurement" costs. These costs include attorney fees, litigation expenses and other expenditures necessary to aid in the procurement of a settlement. The rate of reimbursement is calculated based upon two separate formulas dependent upon whether the gross settlement amount exceeds the Medicare lien or alternatively, is equal to or less than the settlement. In either scenario, the mathematical equation does not take into consideration factors inherent to settlement decisions, i.e., likelihood of success, damages, insurance coverage limits, etc. As a result, the net proceeds of a settlement are often depreciated to the extent that clients are disincentivized from providing consent to settle, thereby forcing plaintiff lawyers to forge ahead with cases that have a low probability for recovery.

While the MSP does provide for a "hardship" waiver of Medicare cost recovery, attempts to secure same are often futile. Moreover, plaintiffs who attempt to obtain a waiver are met with redundant procedures fraught with significant risk. When challenging Medicare conditional payment claims, parties must exhaust all administrative appeals before filing an action in federal court. Fortner v Price, 2017 U. S. Dist. LEXIS 47581 (E.D. MO March 30, 2017) However, once a final demand has been authorized by Medicare, the party must pay the lien amount within the time period specified in the demand letter. Regardless of whether a party applies for a waiver, interest is assessed for each 30-day period the debt remains unresolved. Moreover, interest rates run as high as 10% or more, creating substantial risk on any party choosing to withhold payment during the pendency of an appeal. Accordingly, lawyers should recommend payment of the demand during the pendency of the appeal and seek a refund if the waiver/appeal is granted.

If a party disagrees with a decision by the Medicare Appeals Council, they can seek judicial review by a federal district court. The only requirement to filing for judicial review is that the amount in controversy exceed $1,760.00. Generally, a hardship waiver may be granted by the court "where collection would defeat the purpose of the Medicare Act or would be against equity and good conscience." Walters v Leavitt, 376 F. Supp. 2d 746, 756 (E.D. Mich 2005). However, meeting this standard requires a showing of extraordinary circumstances, i.e., September 11, 2011, World Trade Center civil litigation.

In lieu of a complete waiver, a lien reduction may be sought based upon equitable and comparative fault. In Hadden v U.S., 661 F 3d 298 (6th Cir. 2011), a pedestrian struck by a utility vehicle sought a 90% reduction of the Medicare lien based upon an allocation of non-party fault assessed against an uninsured motorist who was the primary cause of the accident. The court held that while an allocation of non-party or comparative fault may reduce the lien reimbursement obligation, it must be based upon a court order or an adjudication of the merits of the case, not speculation of the parties - meaning a settlement and release agreement will not suffice.

Hence, the Medicare conundrum: The MSP recognizes the right to a waiver, yet waivers are nearly impossible to come by. Alternatively, a party may seek a Medicare lien reduction beyond the statutory "procurement" percentage; however, they face the uncertainty and substantial risk of trial to secure a finding of non-party or comparative fault. An unenviable choice between two spurious outcomes.
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A. Vince Colella is a co-founder of personal injury and civil rights law firm Moss & Colella.