USDOJ Means Business with Conditional Payment Reimbursements.

Article by Zachary D. De Leon, Esq.

Executive Summary.

· On February 23, 2023, the United States Department of Justice (the “USDOJ”) announced a settlement agreement with a Baltimore-based law firm, Kandel & Associates, P.A., and its founding Partner, Nelson R. Krandel, Esq., (collectively the “Law Firm”) to resolve allegations that the Law Firm failed to reimburse the United States for certain Medicare payments the government had previously made to medical providers on behalf of the Law Firm’s clients.

· In addition to the parties agreeing to terms regarding reimbursement of conditional payments made by Medicare on behalf of the Law Firm’s clients, the USDOJ ensured the settlement agreement contained terms mandating internal compliance procedures at the Law Firm.

· This settlement, which is one of many over the past years, highlights the need for a higher standard of Medicare Secondary Payer (“MSP”) compliance. All plaintiff law firms, insurance carriers, and self-insureds need to establish an MSP compliance program, as suggested by the USDOJ, to ensure the USDOJ does not come knocking on their door to enforce the provisions of the MSP Act against them.

Background on CMS’s Right of Recovery.

The MSP Act imposes obligations on parties attempting to resolve liability, workers’ compensation, and other types of insurance claims. The MSP Act broadly prohibits Medicare from making payment for a beneficiary’s medical expenses where payments has been made, or can reasonably expected to be made promptly, under a workers’ compensation plan, an automobile plan, a liability insurance plan (including self-insurance) or a no-fault plan. 42 U.S.C. § 1395y(b)(2)(A)(ii).

This broad prohibition applies to both past medical expenses as well as future medical expenses. With respect to past medical expenses, the applicable statutory text reads, “Payment…may not be made…with respect to any item or service to the extent that…payment…can reasonably be expected to be made under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan)…” Id. With respect to future medical expenses, the applicable statutory text reads, “Payment…may not be made…with respect to any item or service to the extent that payment has been made…under a workers’ compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan)…” Id.

There is one exception to this broad statutory prohibition known as a “conditional payment.” Congress authorizes the United States Department of Health and Human Services and its Secretary to make a conditional payment on behalf of a Medicare beneficiary when payment has not been made and cannot reasonably be expected to be made. 42 U.S.C. § 1395y(b)(2)(B)(i). As the Centers for Medicare and Medicaid Services (“CMS”) is a sub-agency of the United States Department of Health and Human Services, the Secretary delegates the task of making conditional payments and running the MSP program to CMS.

Under certain circumstances, Medicare has a right to recover any conditional payments made. However, this right of recovery is not automatic. Two (2) things must occur for CMS to recover a conditional payment. First, a primary plan or payer, as defined above, must accept responsibility for a claimant’s medical expenses. 42 U.S.C. § 1395y(b)(2)(B)(ii). Second, that responsibility must be evidenced by a judgment, a compromise for release, or other means. Id. Unless both events occur, CMS has no right of recovery for conditional payments.

For purposes of resolving past conditional payment obligations with CMS, there is an applicable general timeline. After the two (2) above instances have been met, CMS, after receiving notification regarding the resolution of the case, will issue what is known as a conditional payment letter to a claimant and their attorney. This conditional payment letter will present an itemized list of medical expenses paid for by Medicare that are supposedly related to the incident which gave rise to the claims litigated by the claimant and the defendant party.

At this point in time, the claimant and their attorney will have the opportunity to examine and audit the conditional payment letter’s medical expense itemization to determine what expenses within that itemization were, and were not, related to the incident which gave rise to the claimant’s claims. The claimant and their attorney will then have the opportunity to dispute unrelated charges on the itemization and have Medicare remove such charges from their conditional payment amount.

This process will then be “rinse and repeat” until the claimant and their attorney feel confident that the conditional payment letter has been properly audited and modified to represent a proper conditional payment request amount.

At this point, the claimant and their attorney will request CMS, through their contractor, issue a final demand letter for past conditional payments made. CMS will then issue such a letter, and at this point in time, a clock will begin to tick.

If sixty (60) days after CMS issues their final demand letter to a claimant, payment has not been received, interest will begin to accrue against the demanded conditional payment amount.

If ninety (90) days after CMS issues their final demand letter to a claimant, payment has not been received, CMS will then issue an intent to referral letter. Such a letter will indicate CMS’s intent to refer the matter to the United State Department of Treasury (the “USDOT”) for the purpose of garnishing the claimant’s wages, or to refer the matter to the USDOJ for the purpose of pursuing civil claims against the claimant.

If one hundred and fifty (150) days after CMS issues their final demand letter to a claimant, payment has not been received, CMS will follow through on their intent to referral letter’s threats and refer the letter to the USDOT or the USDOJ. Such action is highly undesirable for any claimant, plaintiff attorney, insurance carrier or self-insured entity as such a situation carries with it grave consequences.

Why, and How, the USDOJ Made Another Example Out of The Law Firm.

In the current case against the Law Firm, the USDOJ’s investigation resulted in allegations that, over many years, Medicare made conditional payments to healthcare providers to satisfy medical bills for the Law Firm’s clients. During that period, the Law Firm litigated, negotiated, and received settlement proceeds for their clients, but neither the firm nor its clients resolved any conditional payment obligations for payments made by Medicare to healthcare providers on behalf of the clients.

In total, this settlement agreement resolved Medicare’s claims that the Law Firm failed to resolve at least twelve (12) conditional payment obligations as required under the MSP Act. Under the terms of the settlement agreement, the Law Firm agreed to pay the United States Government $39,828.66 to resolve the Government’s claims.

In addition, as has been standard in all civil claims brought by the USDOJ against plaintiff attorney firms for reimbursement of past conditional payments made by Medicare, the settlement agreement required the Law Firm to designate personnel within the Law Firm to be responsible for paying any and all conditional payment obligations as required under the MSP Act. Such designation requires training the designated employee to ensure the Law Firm resolves conditional payment obligations on a timely basis, and periodically reviewing any outstanding conditional payment obligations with the designated employee to ensure compliance.

The Press Release issued by the USDOJ’s U.S. Attorney’s Office for the District of Maryland makes clear that such settlements “should remind attorneys of their obligation to reimburse Medicare for conditional payments after receiving settlement or judgment proceeds for their clients. The attorney’s obligation to reimburse Medicare for conditional payments exists regardless of whether they disburse settlement proceeds to their clients before [CMS] contacts them about the existence of an MSP debt.”

The U.S. Attorney for the District of Maryland, Erik L. Barron, stated, “Plaintiffs’ attorneys cannot simply rely on their clients’ representations about their status as Medicare beneficiaries and ignore their obligations to reimburse Medicare for its conditional payments. This is the third matter our office has resolved with attorneys who fail to make good on their obligations to repay Medicare for its conditional payments, and we will continue to investigate these matters, regardless of when settlement distributions are made, and regardless of what clients tell their attorneys regarding their status as Medicare beneficiaries.”

The USDOJ Has Made Clear: “We will continue to investigate these matters,” and Pursue Repayment of Conditional Payments Made.

Whether you are a plaintiff attorney, insurance carrier, self-insured entity, corporate defendant, or any other party that is within the payment stream of settlement or judgment proceeds, you need to ensure your compliance procedures under the MSP Act are air-tight.

In recent years, there have been a slew of cases which indicate the Federal Government’s willingness to pursue any and all claims for reimbursement of conditional payment obligations, no matter the amount of the reimbursement sought. The U.S. Government has pursued claims for conditional payment reimbursement as small as $6,604 from a Philadelphia-based personal injury law firm in 2020. See here. They have also pursued claims and reached settlement agreements for amounts of $250,000 from a Maryland law firm in 2019. See here.

Further, the USDOJ has not only had success in pursuing conditional payment reimbursement from plaintiff law firms, but also from corporate defendants. In 2017, the USDOJ filed civil claims against a plaintiff law firm in Pennsylvania, as well as Bio-Medical Applications of Pennsylvania (a corporate defendant) to obtain reimbursement conditional payments made. Both the plaintiff law firm and the corporate defendant had to pay a share of a $53,295.00 debt, despite settlement language between the law firm and the corporate defendant which placed the responsibility of conditional payment resolution upon the plaintiff law firm. See here.

Step Up Your Compliance Procedures Now or Forever Hold Your Peace.

This new settlement is representative of a substantial effort by the U.S. Government over recent years to pursue claims for reimbursement of conditional payments under the MSP Act. The MSP Act permits Medicare to seek reimbursement directly from primary payers, including workers’ compensation plans, automobile insurance plans, liability insurance plans (including self-insurance), no-fault plans, or another person, such as the Medicare beneficiary or their attorney, who received payment from the primary entity or insurer.

When any such primary payer does not remit payment to Medicare as obligated, you may rest assured the Federal Government can, and will, come knocking on the door for repayment, with prayer for possible double and treble damages depending on the circumstances.

It is best for any individual or entity to ensure that they never have to answer that knock. The best manner to ensure such a knock is never received is to work with an experienced MSP attorney to ensure any and all MSP compliance procedures that individual or entity may have are air-tight.