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Follow the Medicare Rules: Pay “Up Front”, And Don’t Be Left Holding the Bag!

On September 4th 2013 the Ninth Circuit Court of Appeals lifted injunctions that had complicated some of the Center for Medicare and Medicaid Services’ (CMS) collections practices.  (Haro v. Sebelius, 2013 U.S. App. LEXIS 18353). The issues involved were ones that every plaintiff’s attorney finds loathsome. First is the requirement that the plaintiff pay “up front reimbursement” to Medicare before the appeal, waiver and compromise phases of conditional payment resolutions.  Second is that administrative remedies must be exhausted before the plaintiff can seek relief in court. The third and final is likely the most troubling of all Medicare Secondary Payer issues to the personal injury attorney as it holds them personally liable for the satisfaction of the Medicare Conditional Payment Final Demand. The opinion of the court was not one the plaintiff’s bar wanted to hear.

The issue of “up front reimbursement” was not addressed on the merits since the Court reasoned that the objection to the policy of “up front reimbursement” was not properly “channeled” through the agency and thus did not constitute proper “presentment” of the objection to CMS.  This failure to follow the administrative processes provided for in the Medicare Secondary Payer Act “did not afford the Secretary an ‘opportunity to apply, interpret, or revise’ the challenged policies or regulation.” (Shahala v. Illinois Council on Long Term Care, Inc.,529 U.S. 1, (2000)).

The purpose of the channeling requirement is to “assure[] the agency greater opportunity to apply, interpret, or revise policies, regulations, or statutes without possibly premature interference by different individual courts applying `ripeness’ and `exhaustion’ exceptions.” Illinois Council, 529 U.S. at 13. This purpose would not be fulfilled if the plaintiffs proceeding through the administrative channel were permitted to raise claims in federal court that were not raised before the agency. See Lifestar Ambulance Serv., Inc. v. United States, 365 F.3d 1293, 1298 (11th Cir. 2004) (describing administrative review as “the first step in a comprehensive statutory remedial scheme that fully empowers a reviewing court to consider and remedy any of the violations of law alleged by [a] plaintiff”).

Haro v. Sebelius, 2013 U.S. App. LEXIS 18353 (September 4, 2013).

This is just the latest example of a federal court reaffirming the well-known principle that administrative remedies must be exhausted before an issue is considered ripe for judicial review. The wise plaintiff’s lawyer needs to ensure that objections are raised during the administrative appeals, that those objections are not abandoned and that the procedural rules are followed.

The question of whether requirement of “up front reimbursement” constitutes a violation of the beneficiary’s right to “due process” was remanded to the district court for consideration.

On the issue of holding a plaintiff’s attorney liable for repayment to Medicare of conditional payments advanced by CMS, the court found a basis for direct liability.  The question for the court was whether or not it was reasonable to include the plaintiff’s attorney in the class of “entities” that received “payment from the primary plan.” (42 U.S.C. § 1395y(b)(2)(B)(ii)).  The court reasoned that the definition was broad, and that Congress intended this broad meaning.

“Before 2003, the cause of action provision stated that “the United States may bring an action against any entity which is required . . . to [make a primary payment] or against any other entity (including any physician or provider) that has received payment from that entity.”

“The amended statute now states that the United States may recover, without limitation, “from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.” 42 U.S.C. § 1395y(b)(2)(B)(iii). The amended cause of action provision indicates that Congress intended a more expansive construction of an “entity that has received payment from a primary plan”

Haro v. Sebelius, 2013 U.S. App. LEXIS 18353 (September 4, 2013) (emphasis added)

The objection raised by many plaintiff’s attorneys, and indeed by the district court in this case, was that an attorney is not the “end point” recipient of payments from a “primary plan.”  Rather, there is a distinction between fees earned by the attorney and settlement funds placed in the attorney trust account on behalf of the plaintiff.  The Ninth Circuit disagrees.

“An attorney who receives settlement proceeds, even as an intermediary, has ‘receive[d] payment from a primary plan’ in a literal sense; the Secretary’s interpretation of the statute is rational in this regard….[The Medicare Secondary Payer Act] does not distinguish between a recipient of payment from a primary plan and an “end-point recipient” of such payment. 42 U.S.C. § 1395y(b)(2)(B)(ii). We find nothing in the statutory language to persuade us that the obligation to reimburse Medicare is limited to “end-point” recipients.”

Haro v. Sebelius, 2013 U.S. App. LEXIS 18353 (September 4, 2013)

The Court reasoned that the purpose of the Medicare Secondary Payer act is:

“The transformation of Medicare from the primary payer to the secondary payer with a right of reimbursement reflects the overarching statutory purpose of reducing Medicare costs.” (Zinman v. Shalala, 67 F.3d 841, 843 (9th Cir. 1995)). The Secretary’s demand that attorneys who have received settlement proceeds reimburse Medicare before disbursing those proceeds to their clients certainly increases the likelihood that proceeds will be available for reimbursement. Therefore, the Secretary’s interpretation of the reimbursement provision is consistent with the general purpose of the secondary payer provisions”

Haro v. Sebelius, 2013 U.S. App. LEXIS 18353 (September 4, 2013)

In this case the relevant question was whether or not CMS could require the attorney to hold funds in trust until Medicare had been reimbursed.  The direct question of whether an attorney can be forced to repay Medicare if funds have already been disbursed to the plaintiff was not considered ripe for review.  However, it is clear from the reasoning of the court that had the issue been ripe, it would not have gone well for the plaintiff’s attorney.  If a plaintiff’s attorney is within the definition of “entity,” and the Ninth Circuit believes they are, then all recovery actions that would be available against the beneficiary would also be available against their attorney.

In the coming weeks and months plaintiff’s counsel should expect more aggressive collections activities by CMS.  Among these will likely be the return of CMS’s practice of involving collection agencies in the recovery of unpaid Medicare Conditional Payment Final Demand amounts. The plaintiff’s attorney has renewed reasons to be wary in dealing with Medicare lien resolution issues for something as simple as not following the administrative rules could leave both the attorney and the client exposed to liability for repayment under the Medicare Secondary Payer Act.

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