Tuesday, August 31, 2010

Timing of Reimbursement to Medicare

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?

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.