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MSA Guidelines In Liability Cases

My client fell in December 2007 and had to undergo a total knee replacement in 2008.  All medical coverage provided through her employer's group plan; with a 3rd party lien of $55k.  My client retires in June 2009 at age of 72. The client's primary insurance is now Medicare.  Should we go through a CMS Review to determine whether or not a MSA will be required for questionable future follow-up care?

Hawaii Attorney

Medicare's Part with Social Security Claims

I represent a 55 year old woman who has been receiving Social Security total disability benefits for years.  Her medical problems are prolific.   She has never applied for nor received Medicare benefits.  In January 20008, she fell and broke her wrist and ankle.  This week, at mediation, the Defense offered $45k (a very good settlement under the circumstances) to settle all claims (including a substantial private subrogation claim) contingent upon receiving a release from Medicare.  Both her doctor and the insurance company doctor indicated that she will need no future care for these injuries, and, as indicated above, Medicare has not paid a dime, nor is she currently receiving Medicare benefits.  This is my "introduction" into the potential claims that Medicare may make.  Given the relatively small nature of the settlement, it is hard for me to believe that Medicare would be very interested in this; however, I am not certain as to how to proceed.  Can you provide some guidance and/or cite chapter and verse as to where I should begin looking?  Thank you in advance.

Minnesota Attorney

Medicare Compliance in Motor Vehicle Accidents

I am trying to settle a Motor Vehicle Accident case with a knee injury. My client was born 12/02/45 making him more than 62 1/2 years old and Medicare eligible in 30 months or less. Settlement will be less than 100,000. There is a 50% chance of having knee replacement surgery at some point in the future. Treating Ortho says total medical costs in today’s dollars approximately $20,000. The client is eligible for No-Fault medical. Approximately $14,000 left available. What needs to be done as far as Medicare is concerned? Thanks in advance.

Minnesota Attorney

Medicare Set Aside Arrangements Terms

My client is a Medicare beneficiary who suffered a neck injury in a Motor Vehicle Accident. Their auto insurance has paid for treatment to neck thus far. Adverse driver policy limits are $25,000 and case will probably settle for less than that. It is unknown if he or she will need any future neck treatment. How do you recommend we deal with MSA issues in such a small case? Also, can you direct me to a site which shows how to establish an MSA? Wyoming Attorney

Responsibilities Of Defense Counsel In Liability Settlement Involving Medicare

Thank you for contacting the Garretson Firm Resolution Group, Inc. ("GFRG") with your MMSEA question. Background: Misunderstanding related to the implementation of the MMSEA has made parties cautious about settling claims, even those which they want to settle. Section 111 reporting requirements have effectively bottlenecked the settlement community. As the standard bearer in the Medicare compliance community, parties on both sides of the negotiating table constantly ask us the following question: “How can we settle claims and still be Medicare compliant in light of the MMSEA?” The reporting delay, while providing the RRE more time to ready itself, does not provide comfort with regard to exposure to Medicare. The insurer/self-insured is still concerned about a few primary issues: 1) how do I ensure Medicare is paid back for conditional payments made from the date of injury to the date of settlement; 2) how do I ensure Medicare’s future interests are properly considered and protected; and 3) how can I avoid the $1,000 per day, per claimant penalty for non-compliance under MMSEA? Likewise, the claimant also has concerns due to MMSEA, such as: 1) what is the extent of my Medicare compliance obligations in the MMSEA world; and 2) how can I ensure that the defense will pay settlement proceeds in a timely manner once a claim is settled? Understanding that claims being settled today, for Medicare entitled injured parties, will have to eventually be reported, we offer the following advice. This settlement solution has dual intentions: 1) to provide the insurer with the knowledge that all Medicare compliance obligations are being handled in a compliant manner such that it will not be liable to Medicare post settlement; and 2) to allow the claimant’s attorney to receive settlement proceeds in a timely manner once the parties have agreed to the terms of the release. The settlement solution essentially creates a series of affirmative obligations on both sides as conditions precedent and conditions subsequent to settlement. Conditional Payments: Reimbursing Medicare for conditional payments (those that were made from date of injury to date of settlement) is a claimant obligation; however, CMS can come back to the payer for reimbursement of conditional payments if they are not satisfied by the injured party. Action steps include the following: •Claimant should open a tort recovery record with Medicare and request a conditional payment listing (“CPL”); and bring evidence of that to the settlement table •Indemnification language included in settlement agreement to protect the defense •Settlement occurs and then the claimant submits the settlement details to CMS along with its procurement costs (case costs and expenses) and requests a final demand. •Defense pays the settlement to the claimant’s attorney with the agreement from the attorney that the net funds will not be paid to the claimant until the reimbursement is completed. •Final demand is received from CMS. •Once reimbursed, CMS will provide the claimant with a copy of the final demand and proof that the reimbursement claim has been satisfied. Obviously, since reimbursing CMS is an affirmative obligation on the claimant, the claimant requires settlement proceeds to handle its obligation in a compliant manner. Defense may be hesitant about disbursing settlement proceeds to the claimant prior to knowing that CMS has been reimbursed for conditional payments made date of injury to date of settlement. The above steps allow CMS to be reimbursed promptly, but also afford the defense a high level of comfort knowing that Medicare compliance obligations linked to settling the claims are being handled in a compliant manner. Future Cost of Care Satisfaction of Medicare’s future interests is a topic of great discussion currently in the settlement community; however, that discussion is misguided. Insurers are being led astray by certain entities attempting to apply the current law and guidance regarding Medicare Set-aside Arrangements (“MSAs”) to the liability context. As it currently stands, the MSA is a tool used in workers’ compensation settlements to protect Medicare’s future interest. All currently enacted laws and guidance regarding the use of MSAs is specific to the workers’ compensation arena, and there is no currently enacted law which mandates the use of MSAs in a liability settlement. In fact, there is not even a statutory definition of the term ‘MSA’ or ‘Medicare Set-aside Arrangement’ at this point. In the absence of any currently enacted law or guidance specific to the use of MSAs in a liability settlement, MSAs are appropriate when the following fact pattern exists – that is, a definitive allocation to future medical expenses in the settlement release or a line item for future medical expenses in a jury verdict form, plus a permanent burden shift to Medicare. Even if MSAs were appropriate in liability settlements today, the insurer/defense do not need to play a role on setting up the MSA. Under currently enacted law, there is no legal liability on the defendant for failing to do so. The current law only provides double damages exposure to an insurer where conditional payment reimbursement obligations exist but were not satisfied. (See 42 U.S.C. §1395y(b)(2)(B)). That responsibility is, and always has been on the Medicare beneficiary’s shoulders (where applicable). I have included a link to our white paper for your reference. Please let me know if you have any questions or need anything further. My best, Marlene Wilson, ARM

Reimbursement Rights For ERISA

Question
A minor was injured, pays 100% of the Erisa lien. He or she will need future scar revenue 4-5 years later. How is the cost determined for the future part of Medicare lien?

Answer
Good morning and thank you for the question. Subrogation and reimbursement rights for ERISA plans are governed solely by the plan language itself. In this case I would look to the recovery elements that the Plan claims an interest. It appears that we are talking about whether or not a Plan is entitled to receive a credit against future benefits. Generally, a Plan will be entitled to reimbursement only for payments made prior to the time the Plan participant settles UNLESS there is specific language creating a right to this credit or the plan has some type of exclusionary language. Assuming that the original agreement between the ERISA plan and the client was a full and final settlement of the plan's claims which arose as a result of the third party injury, the plan would arguably not have a claim for these post settlement treatments.

- Shell v. Amalgamated Cotton Garment, 43 F.3d 364 (8th Cir. 1994)
o No future credit unless specific language (express clause required)
- Qualls v. BC of Cal., 22 F3d 839 (9th Cir. 1994)
o Exclusionary clause can achieve same result as credit
 Refusal to pay tortfeasor caused injuries unless payment considered advancement and granted lien.
 The language stated that benefits would be ADVANCED ONLY to the extent that the plan retained a lien upon a third party settlement. Because there had been a third party settlement and the lien was satisfied, the plan did not have to advance future benefits.

If a plan does not have crystal clear language it would seem there would not be a reimbursement right for future expenses from the settlement funds. Another thing to consider is the language of the settlement agreement. If the settlement funds were allocated for particular damages it could also affect right to future credit (ex. None of these funds are intended to cover future medical expenses/ claims for future medical are waived hence no reimbursement right). I hope you find this helpful and please let me know if you have any additional questions.

Michael Russell, Esq.

ERISA’s Preemption Clause

Question
I represent a man who sustained traumatic brain injuries that have rendered him wheelchair-bound and unable to feed himself. His wife's health insurance is an ERISA plan, self-funded to $150,000 per fiscal year, with stop-loss health insurance beyond that initial amount. The $150,000 deductible was paid twice before my client's wife left her job and the ERISA health insurance coverage ended. The insurer is claiming a lien for over $500,000 - despite paying $300,000 with stop-loss insurance paying the rest. The settlement was for the policy limit of just over $1 million. The IRS 5500 reflects that the funding is 'general assets of the sponsor'. The plan has learned from every case from FMC v. Halliday through Sereboff.

Is the plan subject to GOL 5-335 if, as case law suggests, its right is not statutory in itself but instead controlled by the scope of the plan which is a contractual document? Are my options more academic than practical -- leaving me only to negotiate the best resolution and hold my nose while I pay. The Medicaid lien was settled at about an 8% pro rata share, the ERISA provider is looking for more than 100% of what it paid.

Answer
Thank you for the question. If the plan is in fact self-funded (general assets) with strong language then you may be at the mercy of the plan. While I agree with you wholeheartedly regarding the statutory v. contractual right and the application of GOL 5-335, the real problem is ERISA’s preemption clause. ERISA expressly preempts state laws insofar as they relate to employee benefit plans (29 U.S.C. 1144(a)). HOWEVER, under ERISA this preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC 1144(b)(2)(A). This is known as the savings clause and if an ERISA plan is in fact insured you can use state law defenses. See FMC Corp. v. Holiday, 498 US 52 (1990). If the employer plan provides benefits through a contract with an insurance carrier then the plan can be categorized as insured. On the other hand, if benefits are provided by the assets of the employer (in part or in whole) or through a trust, then the plan will most likely be categorized as self-funded.

Thus, if the plan was insured rather than self-funded, there is strong argument to be made that 1) 5-335 is a law which regulates insurance 2) an ERISA plan’s right is based on contract/equity not statute and 3) an insured plan cannot seek reimbursement because of 5-335. Unfortunately here a self-funded plan enjoys preemption and is not subject to the savings clause. See FMC Corp.

The issue I would focus on here is the stop loss issue. While it is well settled that the existence of stop loss coverage does not change the plan’s designation as a self-funded ERISA plan, we believe that the stop loss coverage can change the scope of a plan’s reimbursement right. As a result I would suggest demanding proof that 1. Any funds claimed over the attachment point would be reimbursed to the stop loss carrier and 2. The stop loss carrier had a right to such reimbursement. A stop loss arrangement provides for payment to the plan over certain attachment points. Without such proof there is the threat of unjust enrichment as the plan may receive a windfall from payments previously received from the stop loss carrier and any reimbursement made from your client. So in your example…

- Plan pays 500k in two years
- Attachment point is 150k per year
- Plan pays 500k but is actually reimbursed by stop loss carrier for anything over 150k per year; in effect plan out only 300k
- Require proof that if your client paid more than 300k, the stop loss carrier would receive those
- Don’t want plan to receive windfall (payment from your client and stop loss carrier)

Having settled the third party claim and dealing with a strong self-funded ERISA plan puts you between a rock and hard place. However you have the stop loss issue in this case. As an industry standard, many recovery vendors will agree to a 1/3 split of the gross proceeds. It is certainly not ideal but under the circumstances it may provide some hope. I would also remember that you have a sympathetic client and recovery vendors and plans look at litigation as a last resort.

I hope you found this response helpful and please let me know if you have any additional questions.

Michael Russell, Esq.

ERISA Rights On Benefit Entitlements

Question
My client was injured in an automobile accident and medical expenses were paid by his employer under an ERISA plan. Subsequently, he died from an unrelated cause. I represent his wife as the personal representative of the estate for the injuries sustained in the accident. No claims have been made against his estate from the ERISA sponsored plan and pursuant to the state law all claims are barred based on the statute running. My question when and if there is a limitation for the presentment of an ERISA lien on a decedent's estate? What authority would speak to this limitation?

Answer
Thank you for the question. First let me say that I have seen attorneys successfully use the argument that an ERISA plan did not assert a claim against the estate in time and thus they have no right. Often times such an argument is used to greatly reduce the claim but not as a complete bar (leverage). As a general matter an ERISA plan’s statute of limitation is controlled by state contract law. This period begins when the plaintiff receives the third party recovery.

There is only one statute of limitations found in ERISA and it deals exclusively with a breach of fiduciary duty. ERISA Section 413. Generally under ERISA there are five causes of action (all found under Section 502). The fiduciary duty cause of action is under Section 502(a)(2) but under the facts of your case this cause of action is not applicable. The cause of action which is applicable is ERISA Section 502(a)(3) which provides appropriate equitable relief to enforce any terms of the plan. When an ERISA plan brings an action to enforce its right to reimbursement it does so under this section. Thus there is no specific statute of limitations in ERISA for these types of cases.

When there is a cause of action based on benefits entitlement or other ERISA rights (not fiduciary claim and thus no applicable SOL in ERISA), federal courts have looked to the most closely analogous state statute of limitations. (Miles v. New York State Teamsters Conference Pension & Ret. Fund Employee Pension Benefit Plan, 698 F.2d 593 (2nd Cir. 1983), Advisory Comm. For Stock Ownership $ Trust for Mont. Banc-system, Inc. v. Kuhns, 1996 US App LEXIS 2273, (9th Cir. 1996); Nikaido v. Centennial Life Ins., 42 F.3d 557 (9th Cir. 1994); Administrative Comm. of Wal-Mart Stores, Inc. v. Soles ex rel. estate of Hollander, 2003 WL 21688109 (8th Cir. 2003); Duchek v. BCBS of NE, 153 F.3d 648, 649 (8th Cir.1998).

Additionally, the Supreme Court has told us that when Congress does not provide a SOL for claims arising under federal statutes, a court should normally apply an appropriate state SOL. Reed v. United Transp. Union, 488 US 319 (1989). As mentioned ERISA plans are limited to seeking “appropriate equitable relief”. 29 U.S.C. § 1132(a)(3)(B) aka Section 502(a)(3). This relief must be sought through the enforcement of the terms of its plan. Because ERISA does not say anything more than appropriate equitable relief, the plan language alone controls the right to recovery. Because an ERISA Plan’s right to recovery is controlled exclusively by the terms of a written plan the most appropriate and analogous state statute certainly has to be the contract SOL. BCBS Alabama v. Sanders, 138 F.3d 1347 (11th Cir. 1998).

I hope you found the response helpful. Thanks.
Michael Russell, Esq.

New York Collateral Source and Anti-Subrogation Amendment Question

Question
Mr. Russell: I apologize for the question to the extent you have already addressed the issue. Here is my concern: MA Plans step into the shoes of Medicare with a statutory right of reimbursement. There is no real issue on this point. However, when the client chooses to participate in a replacement plan, presumably they do so in return for greater benefits than those provided under traditional Medicare. This leads me to believe that subrogation, in New York, is limited only to those benefits that would have been provided under traditional Medicare and not any of the "extras" which are provided by the private insurer as a result of participation in the replacement plan. Have there been any developments regarding this specific concern? As always, your time and expertise is greatly appreciated.

New York Attorney

Answer
Thank you for the question. I think it is a very valid concern and a great point to consider. I wish that I could tell you that there had been some developments regarding this issue. However to my knowledge there have not been any challenges directed at this issue. As you are probably aware there are a number of litigations deciding the issue of the scope of the reimbursement rights but this mainly revolves around whether or not state laws/restrictions can apply and how closely the right mirrors Medicare.

Despite the lack of clarity I would encourage you to focus on these extras. In dealing with such a gray area any leverage can help.

Let me know if you have any questions. Thanks.
Michael Russell, Esq.

The Shenk Circuit Decision

Question
Has Shenk been the subject of another circuit decision so that the Supreme Court can now look at the appropriate equitable relief argument rejected by the 8th circuit in Shenk?

Answer
The issue of appropriate equitable relief was presented and rejected by the 11th Circuit in Zurich American Ins. Co. v. O’Hara, 604 F.3d 1232 (11th Cir. 2010). The Court stated that the plan must be enforced as written to preserve integrity of written, bargained-for benefit plan. The made whole doctrine was rejected. So we have a case here which was not decided differently from Shank but the attorneys in O’Hara have petitioned the Supreme Court for cert (attached).

It also worth noting that Public Justice (formerly Trial Lawyers for Public Justice) has joined in the cause. They are also fighting this issue in the 9th (Western District of Washington; Case No.: CV10 298 RSM; CGI Technologies and Solutions v. Rose) and 3rd Circuits. So while the issue isn’t poised to be immediately before the Court a conflict among circuits may yet arise, which would increase the odds of cert being granted at some point.

I hope you found the response helpful and please let us know if you have any additional questions.

Michael Russel, Esq.

CMS Extends MMSEA Reporting Deadline

Question
I understand that the reporting period for liability insurance cases has been moved back to 10-1-11. However, I am not sure how this affects ORM cases where the client is receiving treatment. I presume this only applies when the client is eligible for Medicare in any event. How does this affect uninsured motorist cases?

California Attorney

Answer
The extension of the trigger date and reporting date for reporting liability cases has been extended to October 1, 2011 and the first quarter of 2012, respectively. This extension only applies to liability cases that do not have an ongoing reporting obligation.

Workers' Compensation, no-fault (motorist) cases, and liability cases with ORM must still be reported during the applicable submission window during the first quarter of 2011. You will report cases where the ORM was assumed on or after January 1, 2010. The reporting is only required when the injured party is a Medicare beneficiary as of the date of the settlement or when ORM is assumed, if earlier. Go to the news section on our website to view our client advisory related to the extension of time to report.

Please let us know if you have any further questions.

Our best,
Marlene Wilson

Medicare Advantage Plans

Question
Are all Medicare replacement plans such as Humana governed by the same Federal rules as Medicare? Humana is claiming to be governed by Medicare rights to subrogation.

Answer
Thank you for the question. My response pertains only to Medicare Advantage plans and not to supplemental plans. Supplemental plans are only intended to cover what Medicare does not, do not contract with Medicare, and should be treated no differently than any other insurance policy under the laws of a particular state.

Below is a quick synopsis on these MA plans.

Medicare Advantage (aka Medicare+ Choice, Medicare HMO, Medicare Part C)

- General Info

A MA plan is established under Part C of Title XVIII of the Social Security Act. The MA program allows eligible individuals to elect to receive Medicare benefits through enrollment in private insurance plans. For individuals enrolled in MA plans, the federal government pays for all or most of the premiums for the insurance in lieu of paying Medicare benefits directly to medical providers as under the ‘regular’ Medicare arrangement. Private insurance carriers, who participate in the MA program, contract with CMS to administer Medicare benefits. The Federal Government pays for MA coverage on a monthly basis (42 USC 1395w-23) and then annually determines the “per capita” rates for these payments (42 USC 1395mm). Here there is a direct affiliation with Medicare in the form of a contract.

- Reimbursement Rights

A MA plan may charge a MA member for services provided if the member has been paid for such services. 42 U.S.C. § 1395mm(e)(4). Furthermore, pursuant to federal regulations, a MA plan exercises the same rights to recover from a primary plan, entity, or individual that the Secretary exercises under the MSP regulations. 42 C.F.R. § 422.108(f). The regulations were amended in 2005 to remove any ambiguity which suggested that the States could exercise authority over MA plans in any area other State licensing laws and any laws relating to plan solvency. This position was reinforced in CMS’ Medicare Managed Care Manual, Chapter 4: Benefits and Beneficiary Protections. This chapter of the manual was rewritten and became effective on December 18, 2009, and states at 130.3 that a Medicare Advantage Organization (MAO) is the secondary payer when proceeds from a no-fault or liability settlement are available. At 130.7 the manual states the MAO may exercise the same rights to recover that the Secretary exercises and state law cannot take away this right. Because a MA plan steps into the shoes of Medicare it may have the same rights and limitations of Medicare in terms enforcing reimbursement rights. This includes procurement cost reductions and wrongful death prohibitions.

As a practical matter the rights of MA plans are a hotly contested matter. There has been no definitive case law on the matter although there are several litigations currently underway regarding the reimbursement rights of MA plans, including Parra v. Pacificare of Arizona, No. 410CV00008 in US District Court. I can tell you that Humana is at the forefront of many of these litigations and they will not hesitate to file suit to enforce their rights. As a resolution group we take a conservative approach and based upon the federal regulations it would appear that MA plans have a legitimate argument.

If you have any follow up questions please do not hesitate to contact us. Thank you and I hope you found the response to be helpful.

Michael Russell, Esq.

"Stop-Loss" Scenarios in ERISA Plans

Question
Does the fact that a self-funded ERISA plan purchased stop loss insurance bring it back under NYs new anti-subrogation law? If so is it complete or does the plan still have a lien up to its deductible?

Answer
“Stop-Loss” Scenarios. If the Plan benefits provided were both partially funded and partially insured we are dealing with a “stop-loss” coverage situation. These situations arise when an employer or Plan purchases insurance coverage intended to reimburse it for higher or catastrophic losses. In the case of a higher loss, a self-funded Plan would pay the entire loss but would be reimbursed for any amount above where the insurance policy (between the plan and carrier) took effect (known as the “attachment point”). The use of “stop-loss” insurance does not change a self-funded plan into an insured plan. Bill Gray Enter., Inc. Emp. Health & Welfare Plan v. Gourley, 248 F.3d 206 (3rd Cir. 2001), American Medical Security, Inc. v. Bartlett, 111 F.3d 358 (4th Cir. 1997). Courts have reasoned that stop loss arrangements do not change the fact that the ultimate liability to plan participants remains with the Plan.

However, there is one potential exception. In some cases an attachment point could be set very low and the Plan is attempting to function as and enjoy the benefits of a self-funded plan under ERISA when in fact it is really an insured plan. Such examples would include a specific attachment point of $500 (individual claim) or $25,000 for an aggregate attachment point (total benefits paid for all participants). In such cases, courts could look to the substance of the Plan rather than its alleged form. See Brown v. Granatelli, 897 F.2d 1351, 1355 (5th Cir. 1990). In determining whether a stop-loss Plan is truly self-funded or merely illusory, a court will look to the loss experience and how often the stop-loss coverage has applied.

Thus if there is a low attachment point then it could be argued that the plan functions as insurance and NY anti-subro law should apply. Additionally the argument could be made that any payments made above the attachment point should be deemed an insurance arrangement and thus these amounts could be voided by the anti-subro law. A logical argument but there is no caselaw to substantiate and you would be hard pressed to find a plan which would agree to such an argument. However it never hurts to try. I would also note that sometimes stop loss carriers will actually assert a claim as well. These claims should not be honored as 1) there is no contractual privity between the stop loss carrier and the insured and 2) any claim would be barred by the anti-subro law.

I hope you found this helpful and please let me know if you have any additional questions.

My Best,
Michael D. Russell, Esq.

ERISA Plan Language

Question
A Malpractice case arose June 2006. The medical bills were paid by an insurance company. ACS Recoveries had submitted a subrogation claim. I received copy of the Employee Benefit Handbook in effect in 2006 with the following language: "Plan has the right to recover any benefits it has paid for these medical expenses from any settlement you may receive from the third party." Handbook goes on to talk about it being an ERISA plan. Does this language meet requirement of Sereboff?

I asked for additional info including plan description, reports filed with Sec. of Labor. ACS has not provided this info.

Will the above language & ACS not providing me with the plan description & reports give me traction to negotiate subro claim?

Answer
Thank you for the question. To have a valid and legitimate interest, the ERISA plan must have plan language which seeks an equitable right to reimbursement. ERISA plans are limited to seeking appropriate equitable relief and ERISA does not grant an express right to reimbursement. 29 U.S.C. § 1132(a)(3)(B). An ERISA plan has a right of reimbursement which sounds in equity if the plan language imposes a constructive trust or equitable lien upon a third party recovery. To qualify as equitable the plan language MUST 1) specify that recovery will be made from an identifiable fund and 2) specify that recovery must be limited to a specific portion of paid fund. If either of these requirements are not met in the plan language, the plan does not have an equitable right to recovery and thus they do not have a reimbursement interest under ERISA. See Sereboff, 126 S.Ct. 1869 (2006).

Based on the language presented in your question the plan arguably meets the requirements of Sereboff. First the language specifies the fund when it states "from any settlement you may receive from a third party". Second the language specifies a specific portion when it states “any benefits it has paid." While the plan may seek an equitable remedy it is important to identify other plan weaknesses including whether the made whole or common fund doctrine may apply.

With regard to the document request portion of your question, ERISA grants a plan participant the right to make a written request and receive certain specified documentation from the plan administrator. This right is stated at 29 U.S.C. § 1024(b)(4) which provides as follows:

The administrator shall, upon written request of any participant or beneficiary, furnish a copy of the latest updated summary, plan description, and the latest annual report, any terminal report, the bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.

The failure to provide this information within 30 days can result in the imposition of a penalty of up to $110 per day for each day of noncompliance. See 29 U.S.C. § 1132(c)(1)(B) and 29 C.F.R. § 2575.502c-1 (increased penalty from $100 to $110).

However it is important to note that 1) this penalty is purely discretionary and in cases where courts have enforced the actual figure is closer to $50 per day and 2) ACS is not an administrator, the actual employer is the administrator. Thus the teeth to this provision are not as big as they appear but it certainly is something that you can use for leverage. I would try to argue that they are an agent of the administrator and thus you could seek to impose such a penalty.

Also you may find this recent case of particular interest. In Thompson v. Transam Trucking, Case No. 2:08-cv-927, 10/26/10, the U.S. District Court of Ohio, Southern District, ruled against the plan participant on her claim for benefits for an out-of-network medical care, BUT the Court does rule in favor of the participant on her claim for statutory penalties against the plan administrator for failure to provide requested documents. The court assesses a penalty in the amount of $50 per day, PER DOCUMENT, for a total of $17,600.

I hope you found this response helpful.
Michael D. Russell, Esq.

What Is Medicare's Right To Recovery When Involving MICRA

Question
I understand that MICRA did away with the subrogation rights of private health insurers, but does Medicare maintain a right of recovery in the event of a settlement of a medical malpractice case for bills that it has paid.

California Attorney

Answer
Thank you for the question. The answer to your question is that yes Medicare maintains its right to recovery despite MICRA. First, MICRA is a state law. Second, arguably payments made by Medicare fall outside the scope of collateral payments described in MICRA.

I would also caution not to disregard all private health insurer claims in California. It is important to remember that a self-funded ERISA would contest such an argument based on the fact that a self-funded ERISA is deemed not to be insurance. See FMC Corp. v. Holiday, 498 US 52 (1990). Thus this state law would not be saved from preemption. However, I would completely agree that an individual insurance policy or an insured ERISA plan would be barred from seeking recovery under MICRA.

Michael D. Russell, Esq.

Self-Funded Insurance Form 550

Question
ABC Company Supermarkets furnished health coverage to my client, an ABC Company employee, was injured in a Motor Vehicle Accident. ABC Company is claiming to be self-funded and has asserted a lien against my client's settlement proceeds for 100%. Form 5500 line 9a (plan funding arrangement) is marked insurance and general assets of the sponsor. Schedule A line 7 is marked health, HMO and prescription drug, line 8 is marked nothing. Line 9 shows $1,396,016 for (a) Total Premiums or subscription charges paid to carrier and (b) is marked N/A. Does this indicate ABC Company is partially self funded, and if so will state law apply (Florida) to reduce the lien to less than 100%?

Answer
Thank you for the question. Before getting to the Form 5500 question I want to touch upon the plan language of the ABC Company Plan. All SPDs should contain basic information about the plan including funding status. While not always conclusive (or accurate) it is the best place to start. Assuming the SPD states the plan is self-funded the next place to go is the Form 5500 and the question you pose below.

As line 9a indicates both insurance and general assets we can conclude that welfare plan as a whole has some aspects which are self-funded and others which are insured. This may mean that some benefits such as dental, vision, and life insurance are provided through insurance agreements while the medical portion is provided through employer assets. It may also mean that some employees receive medical coverage through insurance while others receive self-funded medicals (largely due to geographical issues). The next step is to examine the Schedule A(s) which you have correctly done.

For each insurance arrangement under the Plan there will be a Schedule A. Under the circumstances of your question it would appear that some medical (health) benefits are provided through insurance. One scenario could be that a portion of employees receive insured health benefits. Compare the number of plan participants on the main form (line 6) with the number of people covered under the HMO on the Schedule A (line 1(e)). If a large number of participants are represented by the Schedule A(s) you may have a good argument that the plan is insured. Another scenario could be the use of a stop loss policy.

If the Plan benefits provided were both partially funded and partially insured we are dealing with a "stop-loss" coverage situation. These situations arise when an employer or Plan purchases insurance coverage intended to reimburse it for higher or catastrophic losses. In the case of a higher loss, a self-funded Plan would pay the entire loss but would be reimbursed for any amount above where the insurance policy (between the plan and carrier) took effect (known as the "attachment point"). The use of "stop-loss" insurance does not change a self-funded plan into an insured plan. Bill Gray Enter., Inc. Emp. Health & Welfare Plan v. Gourley, 248 F.3d 206 (3rd Cir. 2001), American Medical Security, Inc. v. Bartlett, 111 F.3d 358 (4th Cir. 1997). Courts have reasoned that stop loss arrangements do not change the fact that the ultimate liability to plan participants remains with the Plan.

However, there is one potential exception. In some cases an attachment point could be set very low and the Plan is attempting to function as and enjoy the benefits of a self-funded plan under ERISA when in fact it is really an insured plan. Such examples would include a specific attachment point of $500 (individual claim) or $25,000 for an aggregate attachment point (total benefits paid for all participants). In such cases, courts could look to the substance of the Plan rather than its alleged form. See Brown v. Granatelli, 897 F.2d 1351, 1355 (5th Cir. 1990). In determining whether a stop-loss Plan is truly self-funded or merely illusory, a court will look to the loss experience and how often the stop-loss coverage has applied. Thus if there is a low attachment point then it could be argued that the plan functions as insurance.

As a last resort you could request that the plan sponsor produce an affidavit that states that the medical plan is self-funded and the benefits provided to your particular client came from the assets of the employer.

I hope you found this response helpful.
Michael Russell, Esq.

Medicare Advantage Plan Language

Question
This is a follow-up question seeking clarification of a response Michael D. Russell of your office was kind enough to provide on August 30, 2010: Client is enrolled in a Medicare Advantage / Medicare Replacement Plan. Subrogation / Reimbursement is sought for all claim payments made by the private insurer. Is it fair then to say that pursuant to, the private insurer only retains a statutory right to reimbursement of those claims actually paid by Medicare? If so, how is one able to distinguish between those claims actually paid by Medicare and those paid by the private insurer?

Notes:
My concern is that private insurers (and their subrogation contractors) are wrongfully relying on the federal statute as a basis for seeking reimbursement of claims that are not subject to subrogation / reimbursement in New York.

New York Attorney

Answer
Thank you for the question. If the plan is truly a Medicare Advantage Plan then the private carrier is responsible for making all payments. A Medicare entitled individual chooses to opt into a Medicare Advantage plan. Private insurance carriers, who participate in the MA program, contract with CMS to administer Medicare benefits. The Federal Government pays for MA coverage on a monthly basis (42 USC 1395w-23) and then annually determines the "per capita" rates for these payments (42 USC 1395mm). However Medicare does not directly make payment for a person's care. Thus a person on MA does not receive any payments from Medicare. NOTE THAT THIS IS NOT THE CASE WITH SUPPLEMENTAL POLICIES. SUPPLEMENTAL POLICIES ACT IN CONCERT WITH MEDICARE AND ARE NOTHING MORE THAN INSURANCE POLICIES WHOSE RIGHT TO REIMBURSEMENT WOULD BE BARRED BY STATE LAW.

The only exception where both the private carrier and Medicare would make payments is a situation where an individual was on Medicare for some period and then opted into a Medicare Advantage program. In such a case be sure that you compare the payments made by both entities as we have seen private carriers attempt to claim identical payments.

So can NY GOL Section 5-335 bar a MA plan's right to reimbursement? Well it depends on the authority cited to substantiate their right. If the MA plan merely points to contractual language then arguably their claim would be barred. However if the basis for their claim is 42 CFR 422.108(f) then arguably they are asserting a statutory right. The overall issue of MA plans and the applicability of state law is hotly contested and I would expect some case law on the matter in the near future.

Michael D. Russell, Esq.

MMSEA Reporting Regarding Spouses

Question
After your great presentation at the AAJ Nursing Home Seminar this weekend, I had an issue arise. A resident is deceased and suit was filed by both the estate and the wife. The case is settled. Medicare was involved via US attorney. Now, the defense is demanding that the wife's SSN to report to Medicare. The CMS memos I've found are silent on whether a spouse must give their SSN. This does not make sense to me that he/she would have to. Another dealt with this issue? I would prefer to protect my client's privacy. Thanks.

Wisconsin Attorney

Answer
You have asked a very good question and one that has not been asked very often; but yes, if the spouse is bringing a suit, then she will be required to provide her Social Security Number.

In the situation where the injured party is a Medicare beneficiary and is deceased; the reporting entity will need to report information under Section 111 about the injured party and also about the claimant. Page 169 of Version 3.1 of the User Guide provides the definition of a Claimant. "The claimant may be the beneficiary's estate, or other claimant in the case of wrongful death or survivor action." Claimant information will include who the claimant is, i.e. an estate or family member, the tax identification number of the claimant, the claimant's contact information and information about the claimant's representative, if applicable. If more than one claimant is bringing suit, then information will need to be provided for each claimant.

Fields 104-118 in Version 3.1 of the User Guide provide the instructions for reporting a suit brought by a claimant. Additionally, fields 119 -131 provide instructions for the information needed about the claimant's representative, i.e. representative's name or the firm name, tax identification number, and contact information.

Please let us know if you need any further information about this reporting requirement.

Our Best,
Matt Garretson, Esq.

Tri-Care's Recovery Rights

Question
Question:
Does an injured claimant have any made whole rights in relation to Tri Care's lien or subrogation rights? My client is a catastrophically injured young boy with BI limits of $100K, Medical payment coverage of $30K and UIM limits of $300K. His medical expenses are in excess of $100K and climbing. Is there some way to protect my client from Tri Care co-opting the benefits leaving him with little or nothing?

Answer
A few thoughts in regard to your question.

Tri-Care's Rights

Tri-Care derives the authority to assert a subrogation claim under the Federal Medical Care Recovery Act (FMCRA), 42 U.S.C. §§ 2651-2653, which authorizes recovery of the reasonable value of medical care furnished or paid for by the United States under circumstances creating tort liability for such medical care in a third party. 32 C.F.R. § 199.12(b).

Made Whole Considerations

Allen v U.S., 668 F.Supp. 1242, 1257-58 (W.D. Wis. 1987), concludes that 42 U.S.C. § 2652(c) gives priority to the injured person and that he or she must be "made whole" before the government can recover its medicals. However this case needs to be taken with a grain of salt. It is important to note this case was not decided solely on the made whole issue. The fact that the liable party was the husband of the injured party and it was the husband who qualified for government care is significant. Before addressing the made whole issue the court had already determined that FMCRA did not give the government the right to seek reimbursement. It is also worth noting that this is the only case, to my knowledge, which has interpreted 2652(c) as a made whole rule. Furthermore, the government has not accepted the made whole argument in dealing with other statutory rights of reimbursement (Medicare, Medicaid, etc.).

Commercial Union Ins. Co. v. US, 999 F.2d 581 (C.A.D.C). The Court here stated that FMCRA is silent as to priority of government's right to recover from tort-feasor medical expenses it incurred on behalf of injured employee over injured employee's right to recover nonmedical damages from tort-feasor. The Court also pointed out that 42 USC 2652(c) allows the injured party to recover damages for those damages not covered under FMCRA and giving the government priority would essentially render this section useless. Ultimately the Court held the interpleaded fund would be distributed on ratable basis, such that each claimant received share of fund proportionate to their share of total judgment figure, since FMCRA was silent on question of priority of claimants' rights and since "equity is equality." While the circumstances of this case may vary from your question, the case certainly provides some guidance.

Procurement Costs

It is also worth noting that in a case where the injured party pursued the tort claim and the government passively waited for reimbursement, courts have required an equitable reduction in the government's claim. Mosey v. U.S., D.Nev.1998, 3 F.Supp.2d 113. As a general matter, in our experience, the government is willing to take such matters into consideration and may adjust accordingly so the injured party receives some compensation.

First Party Coverage

It can be argued that the United States does NOT have a right to the proceeds of first party insurance proceeds under the Federal Medical Care Recovery Act [1(a)., 42 U.S.C.A. 2651(a)]. The Court in Government Employees Ins. Co. v. Andujar, 773 F.Supp. 282, held that the United States did not have a direct right to UM proceeds under FMCRA. The FMCRA only gives the government the right to recover from the tortfeasor. In this case neither the injured party nor their insurer, were considered tortfeasors and thus the government did not have a right to recover on any settlement from the Uninsured/Underinsured motorist portion of an auto policy.

While, there is no direct right under FMCRA there MAY be a right under the express terms of the insurance policy and applicable state law. This second prong of the analysis requires an evaluation of the policy itself. If the government can qualify as an "insured" or "third party beneficiary" under the terms of the policy then they will have a right to these proceeds. In the aforementioned Andujar case the Court looked at the specific provisions of the policy. Because it was determined that GEICO's automobile policy could not be interpreted to include the government as an "insured" (policy actually specifically excluded the government from this classification), the Court held that the government could not recover the proceeds under this alternative theory. Thus in your case I would recommend that you obtain the policy for further analysis.

Michael D. Russell, Esq.

Can An ERISA Lien Be Tax Deductable?

Question
Can a client claim ERISA lien payment (reimbursement for medical expenses) for medical deduction?

Answer
That is a great question, but the answer is likely "no". The answer can be found by looking at both the income taxation of settlement rules under IRC §104(a)(2), and the medical expense deduction rules under IRC §213. Typically, a medical expense when paid can be deducted if the taxpayer itemizes on Schedule A. Those expenses are still subject to a 7% cap against adjusted gross income. But, where funds are received for a settlement, those funds are excluded from taxation. However, where a taxpayer claims a deduction for medical expenses, and later settles, the amount of the medical expenses deducted becomes taxable in the year of settlement. For example, if a taxpayer settles a case in 2010 and receives a lump sum of $100,000 as part of a personal injury settlement, but paid out of pocket $3,000 in medical expenses, which were deducted in 2008, the taxpayer would recognize $3,000 in gross income from the settlement. This is to ensure that a medical expense deduction against income is not taken when funds are received as part of a settlement and the taxpayer did not have to pay for his/her medical expenses out-of-pocket, or the taxpayer was reimbursed (such as from settlement proceeds).

The technical question that remains is whether the adjustment under IRC §104(a)(2), referencing IRC §213(d) is intended to only work retrospectively. There may be an argument, for example, that funds set aside for a Medicare set aside are deductible, as they represent payments actually made for medicals post-settlement. But there are equal arguments against that treatment.

So if an ERISA plan pays for medical expenses that would not be deductible in the first place, because the taxpayer did not make those payments. When a taxpayer reimburses the plan with dollars from a settlement, those dollars would remain tax-exempt through operation of the Tax Code. But I do not believe the reimbursement of those expenses would permit the taxpayer to take an income tax deduction (as an itemized deduction) because the source of funds is from a third party (and not the taxpayer).

Sylvius von Saucken, Esq.

Does IHS Have A Lien Against Settlement Proceeds?

Question
I represent an Indian person in a personal injury claim. The Indian Health Service paid the medical expenses. The amount paid by IHS is 88% of the auto insurance policy limits, which the insurance carrier is paying to my client and my firm. Is IHS entitled to 100% of what it paid for its subrogation claim?

Answer
Indian Health Services can recover the reasonable value of care provided from a liable third party tortfeasor. Thus if an injury is related to the tortious conduct of a third party, IHS will assert its rights under the Federal Medical Care Recovery Act (FMCRA), to assert reimbursement rights for injury-related medical care. Under the FMCRA, IHS has three years from the date that the action accrues to file a cause of action. However, it should be noted that under the FMCRA the statute of limitations is effectively tolled under 28 U.S.C. § 2416(c) until IHS knows or reasonably could have known that the injury was caused by a tortious third party as determined under state law. Thus the key is when the United States had knowledge of a potential claim which could then extend the statute of limitations period.

Presuming that the statute of limitations is still open, the next question becomes what recovery tools does IHS have to implement. IHS possesses both a subrogee/intervention right and an independent right of recovery to payments when a third party is responsible for payment for all or part of the same medical treatment for which IHS made payment. Any amount paid by IHS for medical care and services shall constitute a claim in favor of the U.S. against any third party for medical care or services provided to a veteran. Both HIS' independent right and its separate right in subrogation (as well the corresponding statute of limitations) are governed by Federal law, but the determination of the underlying tort liability will still be governed by the applicable state law, which creates the property rights (liability) in the first place.

Does IHS have a lien against settlement proceeds? While there is no specific statutory authority providing for such a lien, there is no denying that IHS has an interest in third party scenarios through its right to intervene or to seek individual action against a third party. In situations where the IHS' interest is not protected, the government may intervene in the third party action resulting in the settling parties, especially plaintiff's counsel, losing control over the proceeding. This is especially so if the case is removed to Federal court. Even more threatening is the scenario where the government brings an independent cause of action against the third party (post-settlement) and the releasing parties, including their counsel, are pulled back into the fray as a result of the original release and applicable indemnification provisions. The releasing parties may not release a claim of the United States. By affirmatively notifying IHS and resolving any asserted interest, an attorney is assuring him/herself of a controlled outcome while at the same time avoiding any potential future issues for both themselves and their clients.

Michael D. Russell, Esq.

McKinney v. PHA - The Federal Court's "Sweet Spot" For Identifying Medicaid Lien Recovery Rights

Question
Abstract: There has been a considerable amount of commentary among personal injury practitioners on listservs regarding the McKinney v. PHA decision and what it means for attorneys in Pennsylvania as well as for practitioners throughout the country. The objective of this Practice Tip is to use McKinney to reference two familiar methods for determining allocation for past medical expenses, and illustrate how courts may not adhere to either due to a move toward a more equitable determination based on the thought that a settlement is a compromise for all.

A Memorandum and Order issued last week, on August 24th by Judge Schiller of the U.S. District Court, E. D. Pa. answered the question of how much the Department of Public Welfare (DPW) is to be reimbursed from personal injury settlements.

Answer
Some of the main points and key facts McKinney v. PHA are:

- A family filed suit against the Philadelphia Housing Authority claiming that the agency ignored complaints about mold in their housing unit that ultimately resulted in injury.
- A settlement was reached in June for just more than $11.9 million.
- DPW expended over $1.2 million to provide healthcare/ Medicaid benefits for the parties alleging injuries.
- The approved settlement only allocated for attorney fees, costs and amounts for those parties; there was no allocation for past medical expenses.

The Medicaid beneficiary argued for an employment of the 'ratio theory,' as derived from Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268 (2006), to determine allocation for past medical expenses by multiplying a ratio (the agreed settlement amount divided by case's true value) to the whole DPW lien.

DPW argued that state statute established a means to determination allocation, 62 Pa. C.S. §1409(b)(11) presumption of one-half of net or the actual Medicaid lien amount, whichever is less.

The Federal Court:

o Reasoned that the Ahlborn 'ratio theory' argued for by the Medicaid beneficiaries is not required to be used by courts in all cases;
o Bypassed the application and constitutionality of 62 Pa. C.S. §1409(b)(11) by his issuance of a court order to allocate the settlement proceeds;
o Found that 62 Pa. C.S. §1409(b)(11) ignores the reality of settlement, which by nature is a compromise for all parties, including DPW; and
o Based on the record, identified the factors and uncertainties leading the parties to settle, along with the reasonable portion of the settlement allocable to past medical expenses; attributing two-thirds of the total Medicaid lien as the portion of the settlement for past medical expenses.

Practice Tips: What does McKinney mean in light of Ahlborn and Tristani?

1. A new means of finding the sweet spot for Medicaid recovery?

The Court in McKinney found that Ahlborn did not require the 'ratio theory' be used in all events to determine allocation for past medical expenses. If the parties are moving toward settlement, we recommend the parties take into account the court's power to determine the parties' (including DPW's) equitable rights. Following McKinney, in Pennsylvania, should the matter of the Medicaid lien be litigated, the courts of competent jurisdiction are more likely to consider the equities of settlement along with the statutory recovery construct. If the record is sufficient, the court will also have the power to weight and consider factors. For settling parties, when working with DPW to identify its recovery rights, it will be even more important to properly document the file, including the bases for settlement, along with the pros and cons of litigation. Consistent with traditional recovery methodologies, information supportive of damages will still be highly relevant to determine, based on a good faith analysis, the reasonable portion of a settlement allocable for past medicals.

The Court in McKinney also confirms that which we already knew “ that Ahlborn was not intended to be a panacea for the Medicaid lien resolution process. Rather than seeking an Ahlborn-allocation hearing, which can cost time and resources, the parties may be well-served in working to identify settlement factors, duly recognizing that the 'black boarded' damage model (of recovery based on a pro rata share of settlement dollars when compared to total stipulated damages) may create one recovery pole star. But, state statutes, such as the 50% net presumption under 62 Pa. C.S. §1409(b)(11) creates another one. Using settlement factors (such as risks of litigation, reasons for settlement, etc.) may help the parties find an answer that recognizes the inherent benefits of settlement for all the parties, including the DPW. Failing to settle among the parties, a properly documented lien resolution process would provide a court of competent jurisdiction with the tools necessary to get the parties the rest of way, if needed, based on McKinney's "compromise" standard.

2. The Influence on Tristani

Settling parties and their counsel, by now well aware, especially in Pennsylvania, of the Tristani v. Richman, 609 F.Supp.2d 423 (2009) interlocutory opinion (since its release last year), have been eagerly awaiting its ultimate fate to be determined by the Court of Appeals for the Third Circuit. DPW third party recovery has created a flexible approach to cases in which a Tristani-type argument, essentially asking DPW to take a more proactive role in its own recovery based on an interpretation of the interplay of the federal Medicaid laws and those of Pennsylvania. When considering the impact of Tristani (noting that story has not yet been completely told), a portion of that opinion found that the 'one-half of net rule' for recovery in §1409(b)(11) is consistent with Ahlborn's holding. Now reading McKinney with Tristani, we can see a further refinement of a lien resolution methodology for Pennsylvania. Clearly, the 'one-half of net rule' no longer guarantees DPW full reimbursement in a case that settles. But that is still not the end of the lien story.

If it appears that the parties are going to settle, a court, if asked, may take the McKinney court up on its offer to use this new settlement tool - taking the nature of settlements and compromise factors into account to determine what portion of the settlement is attributable to past medical expenses. As a result, the settling parties, when dealing with the DPW (Medicaid) lien may be able to reduce that lien beyond a one-half of net standard. If the case proceeds to trial and results in a jury verdict, 62 Pa. C.S. §1409(b)(11) will still serve to identify the lien amount. The parties would presume that where a total Medicaid lien remains less than one-half of the jury award, DPW is likely to be fully reimbursed. However, where the lien exceeds the one-half amount, DPW's reimbursement is likely to be capped at one-half of net.

3. A national shift towards an Equitable Model

It appears that McKinney, when read with Tristani, and taking into account the United States' Supreme Court's 9-0 ruling in Ahlborn, is signaling a potential shift towards the equitable model that is inherent in all compromises.

Attorneys in North Carolina, Ohio and Florida will know that these states also have a statute for determining right to reimbursement based on gross settlement value. These statutes operate on the presumption, much like that in Pennsylvania, that the portion of a settlement allocated to past medical expenses equals the one-half of net proceeds or the actual Medicaid expenditures, whichever is less. When working with these statutes, however, equity also has to come into play, based on a reasonable allocation for past medical expenses.

The Garretson Firm Resolution Group will continue to closely monitor how McKinney may affect the resolution of Medicaid liens in Pennsylvania, and also, any decisions that result in similar developments among other jurisdictions.

TRICAREs' Recovery Policy (Continued)

Question
I am concerned that signing the agreement to represent the government's interest may create a conflict of interest if there is a dispute as to the portion of a settlement that represents the government's recovery. There may be issues as to whether some bills are causally related to the claim or whether the settlement was reduced because of the plaintiff's comparative negligence, etc. I would prefer to keep the government from intervening and would be willing to sign some acknowledgement of the government's interest but I am not comfortable signing their agreement to represent.

Florida Attorney

Answer
Signing the agreement means that the govt's claims will be addressed as part of the process. For example, if an attorney files suit, and then contacts TRICARE representatives, signing the agreement means the attorney would need to amend the complaint to include the govt's claim under 42 USC Sections 2651-53.

Further, depending on which version your state adopted, you are likely held to the same standards under ABA Model Rule 1.15(d), in which if you receive settlement proceeds and are aware of a just and valid third party claim (in this case, Tricare), then you have a fiduciary duty to notify and pay that third party.

So your concerns about conflict are addressed in the Code of Professional Responsibility if you are holding settlement proceeds in your IOLTA account (or once you do). If you are not yet there in your negotiations because the settlement funds have not been delivered, then your concerns can be addressed by adding language in the agreement to represent that all you are doing is protecting the govt's interests, but not at the expense of your client.

The problem: the govt cannot hire counsel to protect its reimbursement rights. It has the right to intervene. So if you do not sign, JAG will likely take the necessary steps to intervene. And once that happens, there will be no offset to TRICARE's reimbursement claim for attorney fees or expenses. It will be every party for itself. For that reason, we have recommended attorneys add the language they feel comfortable adding, send it back as a modified agreement, and then work out the details. To date, we have not had a denial of modified agreements, but that is also because we helped prep the Tricare representatives so they knew about the changes and were comfortable with them from a recovery standpoint.

Hope this helps.

My best,
Matt Garretson

TRICAREs' Recovery Policy

Question
I have a client who had her bills paid by TRICARE. Is this treated the same as Medicare in that we have an obligation to notify TRICARE about the case and obtain a lien amount?

Thanks.
Maryland Attorney

Answer
The U.S. military's rights arise under the Medical Care Recovery Act (42 U.S.C. Sections 2651-53). The MCRA states that when the Federal Government provides treatment or pays for treatment of an individual who is injured or suffers a disease, the Government is authorized to recover the reasonable value of that treatment from any third party legally liable for the injury or disease. The statute provides an independent right of recovery, but only for those payments actually made. The statute does not contemplate any recovery for future payments to be made. (32 C.F.R. Section 757.14(a) and (d)).

Each service branch has a slightly different model agreement, but the basics are all here, namely, that:

1.the federal government has a right to assert a separate cause of action to recover for injury-related care paid by TRICARE/CHAMPUS on a conditional basis;
2.federal law precludes the service branch from being able to hire civilian counsel so they ask for counsel to sign an agreement, protecting the military's interests;
3.the primary benefit to the agreement is the access to medical records to help prove the case, provided there is reasonable advance notice (two weeks);
4.the primary drawback is the regular status reports (which is not a large time commitment, but is an added step to settling a Tricare case);
5.absent this agreement, the govt. can intervene in your action, causing more grief than it is worth (in not signing the agreement); and
6.there is nothing unusual about the language of the agreement. We can send relevant statutes for your review, noting the agreement is consistent with federal law.

Hope this helps.

My best,
Matt Garretson, Esq.

Timing of Reimbursement to Medicare

Question
Pa. R.C.P. 229.1 requires disbursement of settlement proceeds within 20 days of receipt of the signed release; if no Medicare waiver of no lien [is achieved] by that date does an insurer/defense lawyer have a right to retain settlement proceeds in violation of Pa. R.C.P. 229.1?

Answer
Despite the fact that federal law provides a reimbursement right for Medicare (42 U.S.C. §1395y), the timing of such reimbursement would not, in our opinion, lead to federal preemption such that state laws governing distribution of net settlement proceeds can be ignored. The question presupposes that plaintiff's counsel did not open a tort recovery record with the Medicare Secondary Payer Recovery Contractor (MSPRC) such that at least a list of conditional payments was not provided prior to the 20 day period provided under PA law. Presuming that were the case, the insurer would deliver the settlement proceeds to plaintiff's counsel for holding in its IOLTA or trust account pending resolution of the Medicare reimbursement claim. Plaintiff's counsel would, having been placed on notice of a just, third party claim (Medicare) have an ethical responsibility under Pa Rul Prof. Conduct 1.15(b) to notify the third party and to deliver those funds. Comment 6 of those rules specifies that lawyers may have a duty under applicable law (in this case, federal law), to protect third party funds against wrongful interference by their own clients. (See excerpts below).

Rule 1.15 Safekeeping Property
(a) A lawyer shall hold property of clients or third persons that is in a lawyer's possession in connection with a client-lawyer relationship separate from the lawyer's own property. Such property shall be identified and appropriately safeguarded. Complete records of the receipt, maintenance and disposition of such property shall be preserved for a period of five years after termination of the client-lawyer relationship or after distribution or disposition of the property, whichever is later.

(b) Upon receiving property of a client or third person in connection with a client-lawyer relationship, a lawyer shall promptly notify the client or third person. Except as stated in this Rule or otherwise permitted by law or by agreement with the client or third person, a lawyer shall promptly deliver to the client or third person any property that the client or third person is entitled to receive and, upon request by the client or third person, shall promptly render a full accounting regarding such property.

[6] Paragraph (c) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer's custody such as a client's creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client unless the claims are resolved. A lawyer should not unilaterally assume to arbitrate a dispute between the client and the third party. When there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.

Given the duties imposed on an attorney with respect to delivering funds to Medicare, the parties can address the timing issue of Pa. R.C.P. 229.1 as follows: (1) add in the release recital language describing the Medicare reimbursement issues; (2) use condition precedent language to trigger payment under the settlement agreement such that the insurer pays the attorney upon proof a tort recovery record has been established, noting that 42 C.F.R. §411.24(g) creates transferee liability where the insurer pays the attorney, who then has a duty under the Medicare regulations to reimburse Medicare; and (3) use as a condition subsequent, proof of satisfaction of the Medicare reimbursement obligation. By following the formalized process to verify, resolve and satisfy, and by starting early, counsel can avoid the catch-22 suggested by the questioner.

Please let me know if you have any follow up questions.

Our best,
Sylvius von Saucken, Esq.

Supplemental Medicare Plans

Question
I understand Medicare supplements may bolster their ability to obtain reimbursement by including certain language in their plan. Since the NY GOL 5-335 prevents settling insured parties from derogating any of their contractual obligations, does this new law prevent private Medicare Supplemental programs from recovering?

Answer
If the plan is a Medicare supplement (picks up where Medicare falls short), then it is nothing more than an insurance policy that has no direct affiliation with Medicare and none of the rights of Medicare. A supplemental plan is resolved just like any private health insurance plan- it's all based on the plan language and state law. Thus a state anti-subrogation law like NY's 5-335 which prevents subrogation/reimbursement unless the provider has a statutory right, would be applied a Medicare supplemental plan. Such providers may argue that they have the same rights as Medicare but if your client is receiving traditional Medicare (parts A & B) and this supplemental policy is filling the gaps then there is no basis to such an argument.

Please note that there supplemental plans need to differentiated from Medicare Advantage Plans (MA Plans). A MA plan is established under Part C of Title XVIII of the Social Security Act.[1] The MA program allows eligible individuals to elect to receive Medicare benefits through enrollment in private insurance plans. For individuals enrolled in MA plans, the federal government pays for all or most of the premiums for the insurance in lieu of paying Medicare benefits directly to medical providers as under the 'regular' Medicare arrangement. Private insurance carriers, who participate in the MA program, contract with CMS to administer Medicare benefits. Whereas supplemental plans do not have the same rights of recovery as Medicare, MA plans may have the same rights to recover as Medicare and thus would not be subject to state law.

To differentiate between the two types of plans it is necessary to examine the policy or EOB language of a plan and to look at what Medicare has actually paid. I hope you found this response helpful and please let us know if you have any additional questions.

Michael D. Russell, Esq.

MSAs In Liability Settlements

Question
Has your thinking with respect to liability settlement MSAs changed at all since your 2/16/09 paper on misinformation on MSAs in Liability Settlements?

Answer
In short, our thinking remains the same because there has been no change in the law since that paper dated 2/16/09. Furthermore, there has been no new guidance published by Medicare with regards to the use of MSAs in liability settlements. The obligation remains the same as it always has been under the Medicare Secondary Payer Act: to consider and protect Medicare's interests, understanding that obligation is two-fold (past and future). While settling parties must consider and protect Medicare's future interest at the time of settlement, that does not automatically mean you pay Medicare money in the form of setting up a MSA. What it does mean is that the settling parties should review the currently enacted law and guidance regarding MSAs in light of their case specific facts and then determine if a MSA is appropriate. No matter how that question is answered (MSA is appropriate or MSA is not appropriate), the settling parties should document their files and memorialize the fact that Medicare's future interest has been considered and protected at the time of settlement. A fully documented file may be your best defense against any future concerns.

For a deeper discussion about the use and propriety of MSAs in liability settlements, please click here to view the MSA White Paper dated August 19, 2009. The guidance provided therein is as good now as it was then. I am also happy to help you find the appropriate ways to document your files so that you can ensure you have met your statutory obligation to consider and protect Medicare's future interest.

My best,
John Cattie, Esq.

Responsibilities Of Defense Counsel In Liability Settlement Involving Medicare

Question
Thank you for contacting the Garretson Firm Resolution Group, Inc. ("GFRG") with your MMSEA question.

Background:
Misunderstanding related to the implementation of the MMSEA has made parties cautious about settling claims, even those which they want to settle. Section 111 reporting requirements have effectively bottlenecked the settlement community. As the standard bearer in the Medicare compliance community, parties on both sides of the negotiating table constantly ask us the following question: "How can we settle claims and still be Medicare compliant in light of the MMSEA?"

The reporting delay, while providing the RRE more time to ready itself, does not provide comfort with regard to exposure to Medicare. The insurer/self-insured is still concerned about a few primary issues: 1) how do I ensure Medicare is paid back for conditional payments made from the date of injury to the date of settlement; 2) how do I ensure Medicare's future interests are properly considered and protected; and 3) how can I avoid the $1,000 per day, per claimant penalty for non-compliance under MMSEA? Likewise, the claimant also has concerns due to MMSEA, such as: 1) what is the extent of my Medicare compliance obligations in the MMSEA world; and 2) how can I ensure that the defense will pay settlement proceeds in a timely manner once a claim is settled?

Understanding that claims being settled today, for Medicare entitled injured parties, will have to eventually be reported, we offer the following advice. This settlement solution has dual intentions: 1) to provide the insurer with the knowledge that all Medicare compliance obligations are being handled in a compliant manner such that it will not be liable to Medicare post settlement; and 2) to allow the claimant's attorney to receive settlement proceeds in a timely manner once the parties have agreed to the terms of the release. The settlement solution essentially creates a series of affirmative obligations on both sides as conditions precedent and conditions subsequent to settlement.

Conditional Payments:
Reimbursing Medicare for conditional payments (those that were made from date of injury to date of settlement) is a claimant obligation; however, CMS can come back to the payer for reimbursement of conditional payments if they are not satisfied by the injured party. Action steps include the following:
- Claimant should open a tort recovery record with Medicare and request a conditional payment listing ("CPL"); and bring evidence of that to the settlement table
-Indemnification language included in settlement agreement to protect the defense
-Settlement occurs and then the claimant submits the settlement details to CMS along with its procurement costs (case costs and expenses) and requests a final demand.
-Defense pays the settlement to the claimant's attorney with the agreement from the attorney that the net funds will not be paid to the claimant until the reimbursement is completed.
-Final demand is received from CMS.
-Once reimbursed, CMS will provide the claimant with a copy of the final demand and proof that the reimbursement claim has been satisfied.

Obviously, since reimbursing CMS is an affirmative obligation on the claimant, the claimant requires settlement proceeds to handle its obligation in a compliant manner. Defense may be hesitant about disbursing settlement proceeds to the claimant prior to knowing that CMS has been reimbursed for conditional payments made date of injury to date of settlement. The above steps allow CMS to be reimbursed promptly, but also afford the defense a high level of comfort knowing that Medicare compliance obligations linked to settling the claims are being handled in a compliant manner.

Future Cost of Care
Satisfaction of Medicare's future interests is a topic of great discussion currently in the settlement community; however, that discussion is misguided. Insurers are being led astray by certain entities attempting to apply the current law and guidance regarding Medicare Set-aside Arrangements ("MSAs") to the liability context. As it currently stands, the MSA is a tool used in workers' compensation settlements to protect Medicare's future interest. All currently enacted laws and guidance regarding the use of MSAs is specific to the workers' compensation arena, and there is no currently enacted law which mandates the use of MSAs in a liability settlement. In fact, there is not even a statutory definition of the term 'MSA' or 'Medicare Set-aside Arrangement' at this point. In the absence of any currently enacted law or guidance specific to the use of MSAs in a liability settlement, MSAs are appropriate when the following fact pattern exists - that is, a definitive allocation to future medical expenses in the settlement release or a line item for future medical expenses in a jury verdict form, plus a permanent burden shift to Medicare.

Even if MSAs were appropriate in liability settlements today, the insurer/defense do not need to play a role on setting up the MSA. Under currently enacted law, there is no legal liability on the defendant for failing to do so. The current law only provides double damages exposure to an insurer where conditional payment reimbursement obligations exist but were not satisfied. (See 42 U.S.C. 1395y(b)(2)(B)). That responsibility is, and always has been on the Medicare beneficiary's shoulders (where applicable).

I have included a link (click here) to our white paper for your reference. Please let me know if you have any questions or need anything further.

My best,
Marlene Wilson, ARM

Answer
What are the specific responsibilities of defense counsel in a liability settlement involving Medicare. I represent a hospital and would like to make sure I am covering all the bases when settling a plaintiff's medical malpractice claim. I don't want to rely on the plaintiff's attorney to make sure everything is done correctly. I realize we have to report once the settlement is finalized. I would like to know if you have suggestions for a step by step process to ensure my client does not run afoul of Medicare.

Tennessee Attorney

Attorneys fees for a WCMSA

Question
Can you take an attorney fee off of a Workers' Compensation Medicare Set-Aside? The injured worker settled his Workers' Compensation case in 2005 with open medical benefits. There is a WCMSA for $35,000 that Medicare has approved. Can we take 20% of that as a fee?

Tennessee Attorney

Answer
Great question and one that is commonly asked by those of us that would like to be paid for the work we do. Before addressing your specific question, let me note that the MSA figure is a subset of the gross settlement amount, and attorneys are entitled to take their fee based on the gross settlement amount (depending on the terms of their retainer agreement, of course).

Now, specifically addressing whether you are entitled to take a fee from the MSA approved amount itself, we can look to the CMS Policy Memoranda for guidance. In the CMS Policy Memorandum dated May 7, 2004, sent to all Associate Regional Administrators, CMS addresses the question of administrative fees and attorney costs specifically associated with establishing Medicare set-aside arrangements. This memo included CMS' new (and presently enacted) policy:

"Administrative fees/expenses for administration of the Medicare set-aside arrangement and/or attorney costs specifically associated with establishing the Medicare set-aside arrangement cannot be charged to the set-aside arrangement... For example, if the settling parties submit a MSA proposal to CMS that claims that the injured individual will need $50,000 worth of work-related medical expenses that would otherwise be reimbursable under Medicare and the settling parties claim that it will cost $10,000 in administrative and attorney fees in order to both administer and establish the MSA, then CMS will only evaluate/judge the reasonableness of the $50,000 figure.

CMS will not evaluate whether or not the $10,000 in administrative and attorney fees are reasonable nor will CMS permit the settling parties to add that $10,000 amount to the $50,000 MSA amount. Therefore, if CMS approves that proposal for a $50,000 MSA, the settling parties' $10,000 in administrative and attorney fees cannot be charged to or against the MSA of $50,000 because CMS considers those costs to be a separate issue for the settling parties to negotiate."

So, in summary, any money used to establish a MSA cannot be used to pay for the administrative costs nor the attorney fees required to establish or administer the MSA. Since the MSA is a subset of the gross recovery amount, the attorney is entitled to take a fee. However, those proceeds must come from another part of the recovery other than the MSA as the only appropriate use of MSA proceeds is to pay for future injury-related care that would otherwise be covered by Medicare.

Hope this helps,
John V. Cattie, Jr., Esq.

Liability Payments in Medicare Cases

Question
A driver in NY was involved in an accident. His hospital bill was mistakenly paid by Medicare (instead of No-fault). The driver eventually settled his bodily injury liability claim against a third party. Does Medicare have any reimbursement claim against the settlement for the money it paid out since in NY the third party in a car accident pays only for pain and suffering and not for medical bills?

New York Attorney

Answer
Yes. Medicare has a right to recover for pain and suffering and other nonmedical services. The only situation in which Medicare recognizes liability payments to nonmedical losses is when payment is based on a court order on the merits of the case. Since liability payments are considered to have been made "with respect to" medical services related to the injury event when the settlement does not expressly include an amount for medical expenses and non-medical expenses.

Federal law takes precedence over State law and private contracts. Medicare is the secondary payer regardless of state law or plan provisions. These Federal requirements are found in Section 1862(b) of the Social Security Act {42 USC Section 1395y(b)(5).

Section 42 CFR 411.23 states that a beneficiary must cooperate in any action taken by the Centers for Medicare and Medicaid Services in recovering conditional payments. Failure to do so or not protecting the Medicare program during and after settlement negotiations may result in CMS taking action against the beneficiary to collect the mistaken payment.

CMS has a direct right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency, or a private insurer that has received a third party payment, 42 CFR 411.24. Medicare is a claimant against the no-fault insurer to the extent that Medicare has made payments to or on behalf of the beneficiary for services related to claims against the no-fault insurer.

Mary Skinner

Reimbursements Made To Medicare

Question
Although we have notified/submitted forms to Medicare of a 3rd party claim, we have not received a response yet. Do we need to repay Medicare?

A Note: What is my obligation as an attorney and what are risks to client of not getting lien/subrogation claim opened and paid?

Pennsylvania Attorney

Answer
Yes. Reimbursement must be made to Medicare for any conditional payments they have made that are related to your client's injuries. Federal law allows CMS to make claim or institute suit for recovery against all individuals and entities involved. Although the beneficiary remains primarily responsible, claim may be made against others, including an attorney for the beneficiary, third party insurers that funded the settlement and/or the tort feasor.

A release in favor of an insurer or its insured, or an agreement obtained by the attorney stating the debt is the responsibility of the beneficiary, does not preclude enforcement. There is also a procedure by which Medicare has the authority to refer non-collectible debts over to the United States Department of Treasury for possible offset of a beneficiary's monthly Social Security or Railroad Retirement benefits.

Section 42 CFR 411.23 states that a beneficiary must cooperate in any action taken by the Centers for Medicare and Medicaid Services in recovering conditional payments. Failure to do so or not protecting the Medicare program during and after settlement negotiations may result in CMS taking action against the beneficiary to collect the mistaken payment.

In the event that reimbursement is not made to Medicare as required by 42 USC 1395y(b)(2)(B)(I), action may be brought against any entity responsible for payment (and may collect double damages from insurance companies), or any entity that has received a third-party settlement. Under 42 CFR 411.24(g), this includes attorneys whose fees are paid from settlement proceeds. Please refer to US v. Sosnowski, et. al. where judgment was entered against a beneficiary and his attorney for failing to reimburse Medicare after receiving settlement proceeds on a personal injury case.

CMS has a direct right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency, or a private insurer that has received a third party payment, 42 CFR 411.24.

I hope this helps,
Mary Skinner

Bankruptcy & Medicare Liens

Question
I have a case where the plaintiffs were involved in a wreck, lost their jobs, and declared bankruptcy (chapter 7) as a result. Medicare paid for all of the injuries resulting from the wreck. We would like to settle, but I am not sure what kind of priority Medicare would take in the bankruptcy court. Please let me know your thoughts. Thanks.

Tennessee Attorney

Answer
Thanks for your question. The entire settlement amount may be considered an asset of the Chapter 7 bankruptcy estate, depending on timing and disclosure issues. Timing issues refer to when the signature injuries occurred when compared to the time the debtor-client filed the bankruptcy petition. And disclosure issues refer to whether the settlement was listed as a contingent asset (even if not reduced to a judgment or payment) on the bankruptcy schedules. If it was not listed on the Schedules, the bankruptcy would need to be reopened so that the asset could be properly distributed among all creditors who filed a claim. (Medicare may not be the only issue to consider.)

Finally, the Chapter 7 trustee, if in possession of settlement funds will have a duty to reimburse Medicare should conditional payment reimbursement be involved within the meaning of the MSP statutes. Medicare also takes the position that timing is a critical factor in determining whether Medicare has a reimbursement right. In fact, any Medicare claims matters involving bankruptcy are automatically escalated to policy analysts for CMS (at the regional offices). So these cases get flagged by the MSPRC (lead contractor) for further review by Medicare policy specialists to identify (1) whether Medicare's right occurred before or after the petition is filed; and (2) what position, if any, Medicare will take.

From the trustee's perspective, because Medicare is not a general, unsecured creditor, and has priority claims status, in some cases, the Medicare reimbursement portion is not even sent to the bankruptcy estate.

Our team has a classification protocol to identify and address these issues, following a bankruptcy coordination methodology that has worked in both mass tort and single event cases. We would be happy to assist as you deem proper, and upon request by your client.

Best,
Kati Payne

Should Lawyers Sign Indemnification Agreements?

Question
Should a lawyer sign an indemnification agreement with respect to Medicare reimbursement claims?

Answer
There are 8 states that will not permit attorneys to sign indemnification agreements.

Following these eight state ethics rules, attorneys in those states cannot agree to indemnify. The best attorneys can do is have their clients indemnify. The states are North Carolina, New York, Illinois, Indiana, Kansas, Missouri, Arizona and Florida, all of whose ethics bar committees have opined that attorneys signing hold harmless agreements along with their clients is a violation of Model Rules 1.8(e), creating an impermissible conflict of interest, in violation of Model Rule 1.7(a). The ethics opinions are building up. While we cannot opine on such matters, knowing there are 8 hot button states will help us to avoid unpleasant circumstances.

- Illinois State Bar Assn Op. No. 06-01, July 2006 WL 4584284
- Indiana State Bar Assn Op. No. 1 of 2005
- Kansas State Bar Assn Legal Ethics Op. KBA 01-05 (May 23, 2002)
- North Carolina State Bar Ethics Op. RPC 228 (July 26, 1996)
- Advisory Committee of the Sup. Ct. Missouri, formal Op. No. 03-05, 2003
- Florida Bar Ethics Op. No. 70-8, Revised (April 23, 1993)
- New York City Bar Inquiry Reference No. 10-12 (June 1, 2010)
- North Carolina RPC 228 (prohibiting lawyers from agreeing to personally indemnify the insurance company for unpaid liens.)
o RPC 228 quotes Rule 5.1(b). That rule is now 1.7(a), which provides that a lawyer whose personal interest is adverse to the client has a conflict of interest.

If an attorney agrees to be personally liable and later Medicaid sues the attorney based on the indemnification, you may have a legal claim against your client.

Sylvius von Saucken, Esq.

Asbestos Exposure Claims (Cont. from 6/11/10)

Question
If the last know exposure is prior to December 5, 1980, is the plaintiff required to notify CMS?

Answer
See answer below. If the plaintiff or plaintiff's attorney can show, by uncontroverted evidence that the last date of exposure occurred on or before the effective date of the MSP statute (Dec. 5, 1980), Medicare does not have a right of reimbursement, and the RRE does not have a duty to report. However, we have advised both parties to settlement that "wordsmithing" will not remove a duty where one exists, so plaintiffs have to be ready to stand by their screening process, and defendants must be able to reasonably rely on that process if they are to take the position no reporting need occur.

Answer: Provided you have a formalized screening process designed to prove the last date of exposure occurred on or before December 4, 1980, a Responsible Reporting Entity will not have a reporting obligation under the MMSEA. Medicare may have a recovery claim only where there was asbestos exposure on or after the effective date of the MSP statute, December 5, 1980. Medicare's claim would be for all Medicare reimbursed services on or after December 5, 1980, which are related to the liability settlement, judgment, or payment. Medicare's recovery claim is based upon specific Medicare reimbursed services rather than some percentage of the liability settlement, judgment, or payment. Further, Medicare has stated in liability recoveries, (but not Workers Compensation), that "If the asbestos exposure ended before December 5, 1980, Medicare will not pursue recoveries from asbestos liability settlements, since the MSP liability provisions were not effective until that date." However, please note that once a post-1980 exposure date is determined, Medicare requires that exposure claims are submitted based on the "date of first exposure."

Sylvius von Saucken, Esq.

How Do You Analyze ERISA Plans To Determine A "Lien"?

Question
I was perusing your blog and noticed a comment on Missouri being an anti-subrogation state but that such is preempted by ERISA. While I agree with that general statement, I have a puzzling question. As an attorney for an insurance company, I consistently see lawyers asking me to ignore the ERISA "lien" (which I call a subrogation interest rather than a lien). If I tell them I must honor ERISA's "lien", they tell me the deal is off. I'd like to be assured that the plan cannot sue the insurance company if I refuse the honor the "lien," but no attorney has been able to convince me.

My position has always been that Knudson prohibits the plan from suing the insurer for not including the plan on the settlement check as they have no remedy at law. However, some plan will provide me with a signed "lien" which appears to voluntarily executed. If a plan asserts that the anti-subrogation status of Missouri is preempted by ERISA, is the Plan held to the sole remedy of equitable relief in that they cannot assert an action at law against the insurer for not honoring the purported lien? Or, can the plan assert that they have a voluntary lien agreement (which Missouri recognizes under Ford v Allstate, 2 SW3d 810) with the beneficiary for which the tortfeasor's insurance company must honor or face an action at law for not honoring it? In other words, can they choose not to opt for preemption where it benefits them even though we would have to analyze the ERISA qualified plan to determine whether they have legitimately obtained a non-voidable lien?

Missouri Attorney

Answer
Thank you for the question. I will admit that the situation presented can be difficult to wrap one's head around and I can certainly understand the confusion. That said, I think we can break things down to gain a clearer perspective. Simply put, I believe there are two approaches that a health plan could utilize to seek recovery; one under ERISA and another under state law contract/lien principles. From your inquiry it is apparent that you are well versed in this subject matter and it is hoped that some of the more basic material below does not bore you as elementary knowledge. Because of the complex nature of these issues I find it is always better to be as complete and thorough as possible.

Before diving into the analysis I also want to point out that I am in complete agreement with your approach of referring to ERISA interests as an interest rather than a "lien". When GFRG refers to an "ERISA lien" it is more a term of convenience than an accurate legal statement. We both know the term "lien" has a significant legal meaning and using the phrases subrogation or reimbursement interest is more appropriate.

First Approach: ERISA (a plan may seek "appropriate equitable relief")

ERISA defines an employee welfare benefit plan as a plan, fund, or program; established or maintained; by an employer, an employee organization, or both through the purchase of insurance or otherwise, for the purpose of providing medical, surgical, or hospital care or benefits or benefits in the event of sickness, accident or disability, for its participants or their beneficiaries. The ONLY exceptions are individual plans, government plans, and religious group plans. ERISA expressly preempts state laws insofar as they relate to employee benefit plans (29 U.S.C. 1144(a)). HOWEVER, under ERISA this preemption does not apply to those laws which regulate insurance, banking, or securities (29 USC 1144(b)(2)(A). This is known as the savings clause and if an ERISA plan is in fact insured you can use state law defenses such as the anti-subrogation approach of Missouri. (Missouri "" Travelers Indem. Co. v. Chumbley, 394 SW 2d 418"¦ health plans are barred from seeking recovery through subrogation or reimbursement because under MO law a claim for personal injuries is not assignable).

To avoid the state prohibition through preemption, an ERISA plan would need to prove that it is self-funded. This can be done through various documentation including the summary plan description, the annual Form 5500, and if need be an affidavit from the plan administrator.

Assuming that an ERISA plan has validated its self-funded status and its corresponding right of preemption, the plan is entitled to appropriate equitable relief as provided under ERISA and Sereboff, 126 S.Ct. 1869 (2006). As you correctly state in your inquiry, the sole remedy is equitable relief and they cannot assert an action at law under ERISA. Thus a plan may seek its right of subrogation or reimbursement as provided in its plan language so long as that language seeks recovery from a specific fund (third party proceeds) and a specific portion of said fund (amount of benefits paid under plan). The plan could not seek an action at law against a third party insurer under ERISA.

Second Approach: State Law ("lien on proceeds")

This approach would be applicable in a case where a plan has obtained a voluntary lien agreement. Please note that this response is dealing directly with a health plan rather than a provider who has a voluntary lien. I believe that a lien granted to a provider for services should be evaluated in a different manner.

There are two important considerations when looking at an ERISA plan's right when a voluntary lien agreement is involved. First and foremost, the lien agreement is almost certainly a direct product of the plan's summary plan description language dealing with subrogation/reimbursement. For a valid reimbursement agreement to be utilized a plan arguably must have some reference or requirement in its plan language to such an agreement. Why? If there was no reference such a reimbursement agreement would be void for lack of consideration since the plan is already obligated to pay for the benefits. If on the other hand there was a reference then the agreement was just another specific term in the plan language regarding subrogation/reimbursement. I truly believe that an ERISA plan would have a very difficult time differentiating this separate agreement from its subrogation/reimbursement rights under the plan language.

The second consideration is the Ford v. Allstate case, 2 SW 3d 810. The Court here allowed a lien on a claim (rather than an assignment of the claim) for personal injury. What is important to note is that this case dealt with a lender who was granted a lien for adequate consideration. It is also important to note that in fn. 3 the Court specifically mentions that had this case dealt with subrogation the analysis and results may have been different. Furthermore the Schweiss v. Sisters of Mercy case, 950 SW 2d 537, addresses reimbursement provisions and the fact that such agreements imposed by health plans would be invalid as against public policy under MO state law.

While a health plan could assert a right under MO law and the theory of a voluntary lien, it appears that such an approach would be difficult to differentiate from its rights under ERISA. It has been our experience that the ERISA right of recovery is always preferred and plans will take this over state created remedies. The reason is that state law will have greater protections for the plan participant and the right of action under state law can be harder to prove/proceed under.

I hope you found this analysis helpful and please let me know if you have any additional questions or comments. Thanks for the inquiry.

My Best,
Michael D. Russell, Esq.