Medicare Flexes Its Muscles In United States v. Stricker (Jan-Mar Litigation Quarterly 2010)

January 14, 2010

For nearly two years, the Center for Medicare & Medicaid Services (“CMS”) have worked diligently to establish its Mandatory Insurer Reporting program, primarily focused on instructing primary payers or Responsible Reporting Entities to report large sets of data in a particular format via its website, www.https://www.section111.cms.hhs.gov.  Cole Scott & Kissane, P.A. has published a number of articles in past issues of the Litigation Quarterly concerning Medicare Secondary Payer Compliance.  Rather than discuss compliance, however, this article focuses on the consequences of noncompliance by highlighting the recent complaint filed by the United States in the Northern District of Alabama in the matter of United States v. Stricker, Case No. CV-09-PT-2423E, (N.D. Ala. 2009), and the 2009 opinion in a case styled United States v. Harris from the Northern District of West Virginia.

United States v. Stricker

On December 2, 2009, the United States filed a Complaint against eighteen Defendants, including beneficiaries, plaintiffs’ law firms,1 insurance companies, and self-insured entities.2  In this Complaint, the United States seeks to recover costs of medical care (i.e., conditional payments) provided or paid for by Medicare pursuant to 42 U.S.C. § 1395y(b)(2) and regulations promulgated thereunder at 42 C.F.R. § 411.20 et seq.  The United States alleged that upon information and belief, certain individuals received settlement payments in one or more of several cases filed against Defendants Monsanto Company (hereinafter “Monsanto”), Solutia, Inc. (hereinafter “Solutia”), and Pharmacia Corporation (hereinafter “Pharmacia”), as part of a $300 million settlement known as the Abernathy Settlement.  The United States alleged that approximately 907 recipients of settlement proceeds were Medicare beneficiaries.

While Monsanto and Pharmacia contributed directly to this settlement fund as self-insureds, Solutia was insured by Travelers Companies, Inc., d/b/a The Travelers Indemnity Company (hereinafter “Travelers”), and American International Group, Inc. (hereinafter “AIG”), both of whom also were named in the suit because they contributed to the settlement fund on behalf of their insured, Solutia.

In the Complaint, the United States highlights that under federal law, Medicare may not make payments with respect to any item or service for which payment has been made or can reasonably be expected to be made under a liability policy or plan.3  The United States also claimed an entitlement to notification any time a primary payer learns that Medicare paid for a medical expense that could have been covered by the primary payer.  Further, the United States explained that Medicare is entitled to reimbursement from a primary payer even if the primary payer has already paid the beneficiary or other party and can recover double damages.

Essentially, the United States alleges that all persons who received monies under the settlement violated the Medicare Secondary Payer Act and thus, are exposed to liability.  Of particular interest, the United States alleges that insurers Travelers and AIG settled this matter on behalf of its insured, Solutia, and thus made primary payments as that term is defined by federal law, but failed to ascertain whether any settlement fund recipients “were Medicare beneficiaries prior to making, or causing to be made, payment of those settlement amounts” and also “did not identify any amount(s) owed the United States as reimbursement for Medicare conditional payments made on behalf of Medicare beneficiaries prior to their payments to the Abernathy Settlement Fund.”4 The Complaint also contains similar allegations against the named corporate defendants, Monsanto, Pharmacia and Solutia.

The Complaint alleges six counts, alleging that all eighteen Defendants are primary payers and/or primary plans that are required to reimburse Medicare.  Moreover, the United States seeks double damages against the insurer Defendants, Travelers and AIG.  Furthermore, the United States is seeking declaratory relief asserting that Defendants have failed to reimburse Medicare, must do so in the future and must further ensure that any future settlements account for Medicare’s interests prior to distribution of funds.

United States v. Harris

Similarly, in United States v. Harris, the United States brought an action against Mr. Paul Harris, a plaintiff’s attorney, in the United States District Court for the Northern District of West Virginia, who had sued a ladder retailer for injuries that arose after Mr. Harris’s client fell off of the ladder.5

Mr. Harris and his client received payment from the ladder retailer as part of a $25,000 settlement.6 Medicare made approximately $22,500 in conditional payments for medical services rendered to Mr. Harris’ client.7 Medicare regulations permit Medicare to recover the full amount of any medical expenses paid, minus “procurement costs” which in this case, consisted of Plaintiff’s attorney’s fees and costs.8 Applying this formula, Medicare determined that it was owed $10,253.59 out of the settlement.9 Plaintiff did not repay this amount and did not appeal this determination.10 Later on, the United States commenced suit, sought to recover the unpaid $10,253.59, plus interest to be taken out of the attorney’s share of the settlement, i.e., Mr. Harris’ attorney’s fees.11 The United States prevailed as a matter of law because the Court determined that Mr. Harris’ failure to administratively appeal this decision within 120 days in accordance with Medicare regulations precluded Mr. Harris from challenging Medicare’s recovery determination.12

Note to the Industry – Medicare’s Bark has Bite

Both of these cases exemplify that Medicare’s interests must be safeguarded anytime a settlement, judgment, or arbitration award is finalized.  Most remarkable about these two cases is that while Medicare Secondary Payer compliance has become a frequently discussed topic since the announcement that mandatory insurer reporting obligations would be implemented back in December 2007, the applicable law utilized by the United States in Stricker and Harris is not at all new.  In fact, it been in effect since 1980.  The insurance industry in particular has benefitted from a three-decade-long policy of selective enforcement that targeted workers compensation.  From this point forward, it is clear Medicare will pursue its right to seek reimbursement from liability insurers, corporate, or business entities that opt to self-insure or pay for their litigation costs, and even attorneys who represent Medicare beneficiaries.

There is, however, some potential light at the end of the tunnel.  Notably, it appears that Medicare’s efforts, to date, have focused on scenarios where a party or primary payer has completely ignored Medicare’s interests.  This author is presently unaware of any cases where parties or primary payers who engaged in a good faith effort to protect Medicare’s interests resulted in a federal lawsuit.  However, it is imperative that primary payers remember that Medicare’s reach is extensive, and this trend may very well change in the future.  In any case, the lesson is clear.  Ignore Medicare at your own peril!

Going forward, insurance industry personnel, corporate personnel, and attorneys defending these entities, are encouraged to, at minimum, have detailed and complete answers to each of the following eight questions prior to concluding any matter, whether by settlement, arbitration award or a judgment:

Is your client a primary payer/responsible reporting entity?

Is the Plaintiff a current Medicare recipient?

Did the Plaintiff incur past medical expenses?

Were any of these past medical expenses (conditional payments) paid for by Medicare?

How much has Medicare paid in conditional payments?

If settling a case, does your settlement include language expressly stating that it has accounted for Medicare’s past liens?

Is it likely that Plaintiff will incur future medical expenses arising out of the claim that is at issue in your settlement, judgment or arbitration award?

Will these future medical expenses be covered by Medicare?

Cole, Scott & Kissane, P.A. can assist you in answering these questions, as well as any other questions you may have.  Please continue to read our Litigation Quarterly for more updates on Medicare Secondary Payer compliance.  In addition, you may contact the author, Alejandro Perez (alejandro.perez@csklegal.com) or Gene Kissane (gene.kissane@csklegal.com) if you have any questions.

1           The law firms that represented the plaintiffs in the $300 million dollar Abernathy Settlement received $129 million dollars in attorney’s fees with an additional million each year from 2004 through 2013.

2           The named Defendants are (1) James J. Stricker, (2) Daniel R. Benson, (3) Kasowitz, Benson, Torres & Friedman, LLP, (4) Donald W. Stewart d/b/a as Donald W. Stewart, PC, (5) Don Barrett, (6) The Barrett Law Firm, PA, (7) Charles E. Fell, Jr., (8) Charles L. Cunningham, Jr., (9) Cunningham & Fell, PLLC, (10) Johnston Druhan, LLP, (11) Greg Cusimano, (12) Cusimano, Keener, Roberts & Raley, PC, (13) The Cody Law Firm, PC; (14) Monsanto Company, (15) Solutia, Inc., (16) Pharmacia Corporation, (17) Travelers Companies, Inc., d/b/a The Travelers Indemnity Company, and (18) American International Group, Inc..

3           See 42 U.S.C. § 1395y(b)(2)(A)(ii); 42 C.F.R. § 411.20(a)(ii).

4           See page 16 of the Stricker Complaint, readily available online or upon email request to the author.

5           U.S. v. Harris, Case No. 5:08CV102, 2009 WL 891931 (N.D.W.Va. Mar. 26, 2009).

6           Id. at *1.

7           Id.

8           Id.

9 Id.

10         Id.

11         Id.

12         Id. at *4


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