State News : North Carolina

We all know that before finalizing a settlement in a workers’ compensation claim, the parties need to determine whether Medicare has already made any payments and, if so, whether there is a conditional payment lien.  The obvious risk in not addressing conditional payments before resolving a case is that Medicare may come back after the settlement seeking reimbursement for conditional payments that it made while the claim was open.  If Medicare does have to seek repayment after the settlement, it can seek more than just the amount of the conditional payments.  Medicare can seek twice that amount, or double damages.[1]

Medicare is not the only entity that can come after a party to obtain reimbursement for conditional payments.  The Medicare Secondary Payer Act also includes a private cause of action which means that the injured employee can sue the carrier for failure to reimburse Medicare for conditional payments.

The private cause of action in the context of a workers’ compensation award was recently addressed in Estate of McDonald v. Indenmity Insurance Company of North America, 2014 U.S. Dist. LEXIS 121902.  In this case, the Western District of Kentucky awarded the employee’s estate the full amount of Medicare conditional payments, plus double damages, despite the carrier having already reimbursed Medicare.

By way of background, the employee was involved in a motor vehicle accident, which he alleged was work related.  The resulting workers’ compensation claim was denied.  Between the accident on May 10, 2007, and his ultimate death on November 5, 2007, Medicare paid $180,185.75 in medical bills.  On December 28, 2009, the Kentucky Workers’ Compensation Board found the accident and resulting death were work related and ordered the employer/carrier to pay medical expenses.  The final order was issued on March 9, 2010.

On September 13, 2012, the estate of the injured employee filed a lawsuit under the Medicare Secondary Payer private cause of action.  After the lawsuit was filed, the carrier received a Medicare conditional payment letter dated September 18, 2012, which was followed by the Final Demand Letter on October 25, 2012.  The carrier paid the full conditional payment amount to Medicare on December 11, 2012, and received a letter from Medicare dated January 11, 2013, acknowledging payment in full and closure of the file.  The carrier moved to dismiss the lawsuit, in part, because the conditional payment had been reimbursed per Medicare’s demand.  The court did not agree, instead relying upon the same reasoning as the 8^th Circuit as follows:

The thinking behind the statute is apparently that (1) the beneficiary can be expected to be more aware than the government of whether other entities may be responsible to pay his expenses; (2) without double damages, the beneficiary might not be motivated to take arms against a recalcitrant insurer because Medicare may have already paid the expenses and the beneficiary would have nothing to gain by pursuing the primary payer; and (3) with the private right of action and the double damages, the beneficiary can pay back the government for its outlay and still have money left over to reward him for his efforts.

Estate of McDonald, 2014 U.S. Dist. LEXIS 121902, *5.  The court held that the carrier’s argument—that it had already reimbursed Medicare, so there was “no harm, no foul”— disregarded the two years between the order for payment made by the Workers’ Compensation Board and the filing of the lawsuit, during which the carrier did nothing to either notify or reimburse Medicare.  The court awarded the employee’s estate the full amount of the $184,514.24 in Medicare conditional payments, plus double damages in that amount, as a reward for the estate’s efforts.

This private cause of action is also being exercised by Medicare Advantage Plans.  Although the circuits are somewhat split, the majority are allowing such plans to initiate lawsuits seeking reimbursement for expenses paid under Medicare Part C.

Risk Handling Hints:

It is important to include language in your settlement agreement to address how conditional payments are being addressed.  But what happens if your case goes to a hearing and responsibility for payment of medical care is retroactively established?  We recommend contacting the Benefits Coordination & Recovery Center (BCRC) once a final award establishes responsibility for payment of medicals to obtain any conditional payment amount that must be reimbursed.

We also recommend beginning the process to verify any conditional payments beforereaching a final settlement or taking a case to hearing.  Although Medicare is reluctant to provide a final conditional payment amount prior to settlement, we recommend reporting the claim to Medicare, which is done through the BCRC, to establish a case identification number, which will begin the conditional payment investigation process.  At any point after the claim has been established, a party may then report the settlement, which will generate a final conditional payment letter.  We are looking forward to Medicare’s full implementation of Section 205 of the SMART Act which will allow the parties to obtain a final conditional payment amount prior to settlement.

The law is not yet settled on how much time must pass before an employee is able to file the private cause of action (although the SMART Act established a three-year statute of limitations for pursuing a claim for conditional payment reimbursement, which begins to run from the date notification of settlement or award is provided to Medicare), the amount of damages that can be recovered, and the standard for demonstrating entitlement to double damages, but it is clear that carriers and defense counsel can take steps to mitigate any potential damages.  In addition to the list above, some best practices we recommend include the following:

• Do not rely upon any mandatory reporting under Section 111 to “trigger” a conditional payment letter. Be prepared to investigate potential conditional payments independently of Section 111 mandatory reporting requirements.
• Do not rely upon the employee to share conditional payment information with the carrier. When in doubt, notify BCRC of your claim to begin the conditional payment investigation.
• Specify in the settlement agreement exactly how conditional payments have been addressed, including how they will be reimbursed.
• Verify whether a Medicare Advantage Plan has made any payments related to your claim. Negotiate resolution of any Medicare Part C lien directly with the insurance plan.
• Upon receipt of any final award establishing responsibility for medical payments, notify BCRC of the claim and request a conditional payment letter.

[1] 42 U.S.C. § 1395y(b)(2)(B)(2).