Wednesday, September 29, 2010

MMSEA Reporting Regarding Spouses

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

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.

Friday, September 24, 2010

Tri-Care's Recovery Rights

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?

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.

Tuesday, September 21, 2010

Can An ERISA Lien Be Tax Deductable?

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

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.

Wednesday, September 8, 2010

Does IHS Have A Lien Against Settlement Proceeds?

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?

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.

Friday, September 3, 2010

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

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.

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)

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

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

Thursday, September 2, 2010

TRICAREs' Recovery Policy

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?

Maryland Attorney

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.