Medicare rules on settlements unite litigators in frustration 

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BOSTON, MA — A looming deadline that will require reporting of personal injury settlements to Medicare has united trial lawyers who are normally adversaries in personal injury cases.

Under rules designed to protect Medicare’s lien on medical bills recovered by a personal injury plaintiff, liability insurers must begin collecting data on cases that settle on or after Oct. 1 for reporting to the Centers for Medicare and Medicaid Services that is starting Jan. 1, 2012.

The deadline has been moved several times in the past three years, purportedly to give CMS more time to create guidelines and to help personal injury cases settle faster.

Neither has happened.

Plaintiffs, defendants and insurers all describe the current system in the run up to the deadline in the same manner.

“It’s an absolute nightmare,” said Jacqueline Thomas, a plaintiffs’ attorney at Lacy Katzen in Rochester, N.Y.

Defense attorneys complain about having to gather myriad pieces of information from reluctant trial opponents. Insurers, skittish about mandatory penalties of $1,000 a day, have refused to negotiate until they have a firm number from CMS as to what the agency is owed or, when they do settle, have taken to adding CMS’s name to settlement checks. And plaintiffs’ lawyers tell horror stories of being unable to settle cases or to cash checks while waiting to get an answer from a bureaucratic labyrinth about the possible existence of a lien on the settlement.

“It’s a lose, lose, lose situation,” said David Farber, an attorney at Patton Boggs in Washington, D.C. who heads the Medicare Advocacy Recovery Coalition, a group that advocates reform of the Medicare Secondary Payer rules.

Even if the parties do reach settlement amidst the red tape, the gridlock has put settlement money on hold.

“We’re literally talking about hundreds of millions of dollars sitting in accounts waiting to go back to the government,” said Gary M. Paul, a partner at Waters, Kraus & Paul in El Segundo, Calif. and president of the plaintiffs’ trial lawyers’ group the American Association for Justice.

If you include the money owed to plaintiffs, the number is in the billions, said Farber.

A federal bill that will make the system more efficient has been introduced in the House. The bill has support from such unlikely allies as the AAJ, the Chamber of Commerce and insurance groups.

‘A nightmare’

Lawyers describe a nightmare scenario where they wait hours on hold and still get nowhere with CMS.

After he was approached by a fellow church member about an auto accident, Paul took the 92-year-old’s case pro bono and negotiated a settlement with the defendant’s insurance company rather quickly.

Dealing with CMS was another story.

“It took eight months for CMS to say they weren’t owed anything. Every day I was worried about my client dying,” said Paul.

In another case, a client did die while waiting for an answer from CMS.

Thomas represented a plaintiff hit by a car with clear liability and small damages.

CMS issued a conditional letter saying it was owed $500. After settling the case for $50,000, Thomas said she withheld $10,000 for Medicare reimbursement just in case the conditional amount went up.

Meanwhile, Thomas’ client died for reasons unrelated to the accident.

CMS subsequently came back with a letter stating the final amount it was owed was $20,000.

It took Thomas nearly a year post-settlement to get back to the original numbers in the conditional letter.

“The time spent with Medicare was easily triple the time I spent on the case. … If they had not backed down from the $20,000 they could have taken it out of my hide personally,” Thomas said.

Under Medicare Secondary Payer rules, Medicare can go after anyone in the food chain who has touched the money, including the plaintiff, the plaintiff’s attorney, the insurer, the defense attorney or medical providers.

On the other side of the bar, defense attorneys have their own gripes.

Farber notes that in order for insurers to report a settlement, they must collect 180 of pieces of data, much of it personal, from a litigation opponent.

“In an adversarial situation such as litigation, it’s difficult enough to reach settlement, then you have to ask your adversary for their Social Security number before you can give them settlement proceeds. Oftentimes that implodes settlements right there and then,” said Farber.

If they are settling cases, defendants are holding money until they get a firm number from CMS.

“The bottom line is a lot of defendant insurers are paranoid – and they should be,” said John A. Montevideo, a plaintiffs’ attorney in Santa Ana, Calif. and president of the Consumer Attorneys of California.

Last year, he represented a man injured on a construction site. Although the case settled, it took one year for CMS to determine that he had not received benefits.

“The money was held by the defendants until they could get some kind of concrete demand letter from CMS saying, ‘We didn’t pay anything,’” said Montevideo.

The system is putting the screws on minor injury cases involving seniors on Medicare.

“Attorneys won’t say this out loud, but they’ll say it over drinks: ‘If you see an elderly client come in the door with a small case, you will spend so much time with Medicare and open yourself up to liability if there’s a problem. Do you really want that small case? Is it worth it?’” said Thomas.

She added that because there is no negotiating with Medicare, she tells clients up front that they may recover nothing after Medicare gives its final demand.

“I’m very up front about it. Not every attorney is. Some just want to get their fee,” she said.

SMART Act

Unless there is another delay to the reporting rules, lawyers are pinning their hopes on regulatory or legislative solutions.

A federal bill called the SMART (Strengthening Medicare and Repaying Taxpayers) Act has been introduced in the House and a Senate version is expected in the coming weeks.

H.R. 1063 would speed up the system by imposing deadlines on CMS for coming up with a final number, so the parties will know how much Medicare must be reimbursed before entering into settlements.

Another provision could ease the penalty structure for insurance companies that fail to report settlements. The bill would change the penalties from a mandatory $1,000 per day to “up to $1,000 per day” and give the agency discretion based on whether the failure to report was willful, said Sara Rooney, regulatory counsel for AAJ in Washington, D.C., who is in negotiations with CMS.

The bill also prohibits CMS from requiring insurers to collect Social Security numbers or health insurance ID numbers from plaintiffs, said Farber.

If making life better for trial lawyers and insurance companies isn’t a popular theme this political season, some are hoping that repaying a cash-strapped government is.

“When you talk to Congress and senators about reforming the Medicare Secondary Payer rules, you see their eyes start to glaze over. Then when you say, ‘We want to give you money,’ they start to pay attention,” said Paul.