Lawsuit Highlights Need to Consider Prior Medicare Payments in Settlements

January 8, 2010
Client Alert Newsletter Forecast 2010

In United States v. James J. Stricker et al., the federal government is seeking to recover certain medical costs paid to several Medicare beneficiaries who were parties to a class action lawsuit alleging injuries from exposure to PCBs. The underlying lawsuit was settled in 2003 for approximately $300 million - $129 million of which was paid to plaintiffs' counsel. The government now alleges that 907 of the underlying settling plaintiffs are Medicare beneficiaries, and therefore, Medicare is entitled to reimbursement for conditional payments made to those beneficiaries for injuries released in the 2003 settlement. Because the parties to the settlement failed to notify or reimburse the Medicare program in connection with the underlying class action settlement, the government seeks to recover double the amount of the Medicare payments made plus interest and declaratory relief from several law firms representing the Medicare beneficiaries in the underlying lawsuit, as well as the settling corporate defendants and their insurers.

As way of background, federal law requires available private insurance plans, including self-insurers, to make primary payment for medical services provided, leaving Medicare to pay only secondary "conditional" benefits where primary payment does not transpire "promptly." In cases where Medicare has made these conditional payments, the "Medicare Secondary Payer" provision of the federal Medicare statute generally authorizes the Medicare program to seek reimbursement of its costs once a private parties’ responsibility for the payment of the medical care at issue is established. Judgments and settlement agreements addressing beneficiaries' claims can establish a private parties' payment responsibility regardless of whether there is a determination of liability, and can accordingly act as a trigger for Medicare reimbursement actions.

To provide the Medicare program with notice of potentially relevant settlements and facilitate the government's recoupment of funds, the Medicare statute requires that parties providing funds through settlement: (1) determine whether any recipients of settlement funds are Medicare beneficiaries; (2) notify Medicare of payments being made to any Medicare beneficiary through settlement; and (3) reimburse the government for Medicare payments previously made on behalf of the Medicare beneficiaries where the beneficiaries themselves fail to provide the reimbursement. Violations of these requirements may subject parties to enforcement actions seeking potential penalties of $1,000 per day, plus interest and double damages.

The scope of the settlement reporting obligations under Medicare was recently expanded through the Medicare, Medicaid and SCHIP Extension Act of 2007 ("MMSEA"). The MMSEA imposes onerous reporting requirements on parties to a payment of a settlement or judgment with a Medicare beneficiary. These requirements apply where (1) the settling party assumes some ongoing responsibility for medicals of the beneficiary as of January 1, 2010, or (2) settlements include payments to beneficiaries after October 1, 2010 intended to resolve/partially resolve their claims. Under the new requirements, the reporting parties are required to submit detailed information to Medicare about the settlement including: the total settlement amount; the name, date of birth, gender, social security number and Medicare Health Insurance Claim Number for any Medicare beneficiary involved in the settlement; and information regarding the incident that led to the claim. Reporting parties must begin electronic submission of the required information by January 1, 2011.

Hence, while the Stricker litigation may have significant implications on how courts address violations of the Medicare statute, regardless of the outcome, the new MMSEA reporting obligations will present new obligations that must be addressed in future settlements.