ENFORCEMENT OF THE MEDICARE SECONDARY PAYER ACT ON THE RISE

The Obama administration has signaled its intention to vigorously enforce the Medicare Secondary Payer Act (“MSP”). The MSP, passed into law in 1980, prohibits the Medicare program from making payments in situations where another entity possesses a legal or contractual obligation to provide for the medical treatment of a Medicare beneficiary. Although the MSP penalizes parties who fail to report liability settlements involving Medicare beneficiaries (including double damages if the government is compelled to file suit to recover payment), it was not until the MSP was amended in 2007 with heightened reporting requirements that the federal government intensified its efforts to recover Medicare payments that should have been made by a private entity. This almost certainly will alter the manner in which the parties to a liability settlement: (1) report certain Medicare beneficiary information to the Centers for Medicare and Medicaid Services (“CMS”); and (2) provide for future medical expenses as a term of a settlement agreement.

The amendment to MSP, the Medicare, Medicaid and SCHIP Extension Act of 2007 (“MMSEA”), was signed into law on December 29, 2007, and it will become fully effective beginning in the second quarter of 2010. The MMSEA imposes obligations on the parties to a liability settlement involving a Medicare beneficiary to:

	(1)		report the settlement to CMS;
	(2)		resolve any conditional Medicare payments that have been previously made; and
	(3)		provide for the payment of future medical expenses as a term of the settlement so that Medicare payment for the injury or illness will not be required.

Noncompliance carries a $1,000 per day, per claim penalty for the failure to report an applicable insurance settlement to CMS. Although there remain many uncertainties surrounding the practical application of the MMSEA, a recent filing by the United States Department of Justice (“DOJ”) in United States v. Stricker, 09 CV 2423 (N.D. Alamaba) signals that the parties and entities involved in a liability settlement agreement must, at the very least, make a good faith effort to comply with the provisions of the MSP and report certain Medicare beneficiary information to CMS.

In Stricker, filed in December 2009, the DOJ filed suit under MSP to recover Medicare payments that were made to the plaintiffs in a consolidated lawsuit (hereinafter “Abernathy lawsuit”). The Abernathy lawsuit was resolved by a $300 million settlement agreement in December 2003, which was paid, in part, by Travelers Indemnity Company and American International Group, Inc. In Stricker, the government sued the attorneys and law firms who represented the plaintiffs in the Abernathy lawsuit, the named defendants in the Abernathy lawsuit, as well as AIG and Travelers.

The Stricker complaint alleges that the defendants failed to ascertain whether any of the plaintiffs in the Abernathy lawsuit were Medicare beneficiaries prior to making the settlement payments. It also claims the defendants failed to reimburse the United States government for conditional payments made on behalf of Medicare beneficiaries. The DOJ sued for full reimbursement, as well as double damages because of the necessity to initiate a lawsuit.

Stricker is still in the early stages of the litigation process. It remains to be seen how zealously the government will prosecute this lawsuit. Nonetheless, the case should serve as a warning to all of the participants involved in a liability settlement, including insurance companies, that the federal government intends to aggressively recoup payments under the MSP. See also United States v. Harris, 08 CV 102, 2009 U.S. Dist. LEXIS 23956 (N.D. W. Va. March 26, 2009) (granting summary judgment against a plaintiff’s attorney for failing to reimburse Medicare under the MSP after a liability settlement was executed).

Compliance with the MSP and MMSEA is complicated, and issues involving these statutes will undoubtedly arise as liability agreements are negotiated and drafted. Contact Denise A. Holzka (dholzka@hpmb.com) or Jesse Capell (jcapell@hpmb.com) if you have any questions about this subject.