Render unto Caesar

A 70-year-old man was admitted to the hospital for a bowel resection. Following surgery, the patient's condition worsened considerably; He spent months in the ICU on a ventilator, was fed through a gastrostomy tube, and his mental status waned. After some time, it was suspected that his deteriorating condition might be related to sepsis from a bowel perforation. Subsequent surgery confirmed this diagnosis. Attempts to repair the perforation failed, and, ultimately the patient died.

Medicare paid the patient's medical bills, which exceeded $500,000. The patient's family commenced a lawsuit, alleging that the surgeon's negligence caused the bowel perforation. During the litigation, the Medicare Trust Fund sent a correspondence to the patient's estate, asserting a claim of reimbursement for the benefits Medicare paid from any recovery that the estate might obtain.

This scenario is no doubt familiar for those who litigate medical malpractice cases. Whether the federal government maintains a valid right of reimbursement is important to both plaintiffs and defendants. If plaintiffs must reimburse the government from a recovery for Medicare benefits they receive, then litigants must account for that during settlement negotiations. This may make settlements difficult or even impossible to work out, especially when the lien amount exceeds the value of the case.

The validity of the government's claim for reimbursement has been hotly contested, particularly over the last 2 years. The recent enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MPDA) seeks to resolve any existing dispute in favor of Medicare's right of reimbursement. This article addresses the recent history of this dispute, Congress's response, and the impact this law likely will have on medical malpractice litigation.

Medicare's Asserted

Right of Reimbursement

In 1980, Congress amended the Medicare program by enacting the Medicare as Secondary Payer (MSP) statute. 42 U.S.C. '1395y(b). The MSP sought to maintain the fiscal integrity of the Medicare program by lowering overall Medicare payments. To do so, the MSP required Medicare recipients to exhaust all available insurance coverage before turning to Medicare to pay medical bills: “[T]he MSP assigns primary responsibility for medical bills of Medicare recipients to private health plans when a Medicare recipient is also covered by private insurance.” Fanning v. United States, 346 F.3d 386, 389 (3rd Cir. 2003); see 42 U.S.C. '1395y(b)(2)(A)(ii) (Medicare payments for medical treatment “may not be made … to the extent that … payment has been made or can reasonably be expected to be made promptly … under a workmen's compensation law or plan … or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.”)

In addition, under the MSP, any payment by Medicare that a primary plan should have paid is conditional and subject to reimbursement. 42 U.S.C. '1395y(b)(2)(B)(i). If the primary plan does not reimburse Medicare, then the MSP provides the government with a cause of action against the primary plan or anyone who received payments from a primary plan in which the government may collect double damages. 42 U.S.C. '1395y(b)(2)(B)(ii).

Until recently, the MSP defined a “primary plan” as “a group health plan or large group health plan … a workmen's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance … under which payment for medical care has been made or can reasonably be expected to be made promptly.” 42 U.S.C. '1395y(b)(2)(A). The regulations define “promptly” as “payment within 120 days after receipt of the claim.” 42 C.F.R. '411.21. The issues to be litigated, therefore, generally involve whether an entity is a “plan,” and whether it can be expected to make “prompt” payments.

Recent Case Law

In recent years, the government has argued that the MSP entitles it to reimbursement of funds it has paid from third-party tortfeasors as well as payees such as plaintiffs in underlying litigation. Generally, the federal courts have rejected these arguments for two reasons: 1) the tortfeasors do not provide a “primary” or “self-insured” plan; and 2) even if the tortfeasors provide such a plan, payment by the tortfeasor cannot be expected to be “made promptly.” If the tortfeasor does not provide a “primary” or “self-insured” plan, or cannot be expected to make payments “promptly,” then courts regularly have ruled that the MSP does not apply and the government cannot be reimbursed. However, a recent decision by the U.S. Court of Appeals for the Eleventh Circuit has caused a split in the circuits, making it more challenging for the practitioner to follow the case law, pending resolution of this issue by Congress or the U.S. Supreme Court. Some courts have considered whether the government has a right of reimbursement under the Medical Care Recovery Act (MCRA), 42 U.S.C. ' 2651. Whether the government does have such a right is beyond the scope of this article. Suffice it to say, however, that while one court holds that it does (Thompson v. Goetzmann, 315 F.3d 457, 464-65 (5th Cir. 2002)), the more reasoned approach suggests that it does not. See U.S. v. Baxter Healthcare Corp., 345 F.3d 866, 898 n26 (11th Cir. 2003); U.S. v. Philip Morris Inc., 116 F. Supp. 2d 131, 140-44 (D.D.C. 2000); and In re Diet Drugs, 2001 U.S. Dist. LEXIS 2959 (E.D.Pa. 2001).

Primary and Self-Insured Plans

In U.S. v. Philip Morris, 156 F. Supp. 2d. 1 (D.D.C. 2001), the government, relying on the MSP, sued tobacco companies to recover health costs that it paid for the treatment of tobacco-related injuries. While the district court agreed that, under the MSP, the government has a right to recover such costs from a “primary plan,” the court noted that the MSP's “clear purpose was to grant the government a right to recover Medicare costs from insurance entities.” Id. at 5 (citing U.S. v. Philip Morris, 116 F. Supp. 2d 131, 146 n.22 (D.D.C. 2000) (emphasis added)). Ruling that the defendant tobacco companies were not insurance entities, nor did they maintain “self-insured plans” as the MSP defines that term, the court dismissed the government's claim. Id. at 5-8; see also Mason v. The American Tobacco Co., 346 F.3d 36, 41, 42 (2d Cir. 2003) (dismissing the government's claim for reimbursement of Medicare payments because the defendant tobacco companies were not self-insured plans even though they 1) declared “that they will meet future tort liability through internal funds, and not through the purchase of liability insurance,” and 2) set aside funds to cover future liabilities).

The court in In re Diet Drugs, 2001 U.S. Dist. LEXIS 2959 (E.D.Pa. 2001) faced the same issue. In that case, defendant American Home Products and a class of plaintiffs who were allegedly injured by ingesting diet drugs reached a settlement agreement. Because some of the class plaintiffs had received Medicare benefits to pay for treatment allegedly brought about by the plaintiffs' ingestion of the diet drugs, Medicare sought reimbursement from the settlement proceeds under several provisions, including the MSP. As in Philip Morris, the federal district court denied the government's application, holding that the defendant tortfeasor was not a primary plan or a self-insured plan simply because it had the ability to and did in fact fund the settlement. Id. at 34-41. But see U.S. v. Baxter Healthcare Corp., 345 F.3d 866, 893-99 (11th Cir. 2003) (finding that the defendants were “self-insured” under the MSP by establishing a settlement fund to pay for the medical costs of the plaintiff class members).

The cases discussed above have dealt with the government's asserted lien in the context of mass tort litigation. Recently, the Fifth Circuit addressed this issue in the context of a single plaintiff versus single defendant litigation. In Thompson v. Goetzmann, 315 F.3d 457 (5th Cir. 2002), withdrawn on rehearing though affirmed by 337 F.3d 489 (5th Cir. 2003), a patient underwent the placement of a hip prosthesis manufactured by Zimmer. Complications arose, which led to additional surgeries and treatment. Medicare paid for all the medical treatment. The patient sued Zimmer, asserting that the hip prosthesis was defectively designed. The case was settled, and Zimmer paid the patient $256,000. Zimmer funded the settlement; nothing was paid by insurance. Following this case, the government sued the patient, her attorney, and Zimmer under the MSP for reimbursement of the medical expenses it had paid.

In considering the government's claim, the Fifth Circuit first addressed whether Zimmer maintained a “primary plan” or “self-insured plan.” The court noted that such plans require “an entity's ex ante adoption, for itself, of an arrangement for 1) a source of funds and 2) procedures for disbursing these funds when claims are made against the entity.” Id. at 462-63. Relying on leading insurance treatises and similar cases, the court concluded that “an entity's negotiating of a single settlement with an individual plaintiff is [in]sufficient in and of itself for such entity to be deemed as having a 'self-insurance plan.'” Id. at 463. Because Zimmer did not maintain a plan of self-insurance, the court determined that Zimmer and the plaintiff were not liable to the government under the MSP.

Prompt Payments

Some courts have also rejected the government's argument that tortfeasors maintain a primary or self-insured plan because they do not make payments “promptly” as that term is defined by the Medicare regulations.

In In re Diet Drugs, the court noted that “the obligation to make prompt payment `under' the plan … makes an entity a 'primary' payer and the government the 'secondary' payer.” 2001 U.S. Dist. LEXIS 2958 at *41. Given the delays inherent in litigation, particularly mass tort litigation, the court concluded that a products liability insurance policy is not the type that the government reasonably could expect would make “prompt” payments under the act, ie, within 120 days after receipt of the claim, and, thus, could not be a plan obligated to reimburse the government's asserted Medicare lien. Id.

This issue took center stage in the recent Goetzmann opinions. Even after determining that the third-party tortfeasor, Zimmer, did not maintain a self-insured plan under the MSP, the court nevertheless considered whether Zimmer was a qualifying plan under the MSP because it could “be expected to pay [the patient's] health care claim 'promptly,' as required under the MSP statute.” Goetzmann, 315 F.3d at 467. Relying on In re Diet Drugs as well as In re Orthopedic Bone Screw, 202 F.R.D. 154, 167-69 (E.D. Pa. 2001), and In re Dow Corning Corp., 250 B.R. 298, 348 n.29 (Bankr. E.D. Mich. 2000), the court initially ruled that the delay associated with products liability litigation leads to the conclusion that Zimmer could not pay within 120 days of the claim. Because Zimmer could not do so, its payment for medical bills would not be “prompt” under the MSP. As a result, Zimmer could not be considered a “primary” or “self-insured” plan under the act and would not be obligated to reimburse the government.

On rehearing, however, the Fifth Circuit withdrew that section of its earlier opinion that led to the conclusion that Zimmer did not maintain a statutorily approved plan because it could not make “prompt” payment. The court noted that following the plain language of the statute may create the “absurd result” of precluding “the right of reimbursement from any disputed or potentially disputed funds,” despite a statutory scheme that allows the government a cause of action to recover such funds. 337 F.3d at 492. Nevertheless, the court let the balance of its opinion stand because Zimmer was not otherwise a primary or self-insured plan and, thus, the MSP did not apply.

Under slightly different facts, the Eleventh Circuit reached a different conclusion in U.S. v. Baxter Healthcare Corp., 345 F.3d 866 (11th Cir. 2003). Baxter arose out of the settlement of a class-action products liability suit against manufacturers of silicone breast implants. As part of the settlement, those defendants agreed to cover certain health care expenses incurred by members of the class. The government in turn sought to intervene to recover medical bills it paid on behalf of Medicare beneficiaries who were treated for conditions related to their breast implants. The district court denied the government's complaint to intervene. In re Silicone Gel Breast Implants Products Liability Litigation, 174 F. Supp. 2d 1242 (N.D. Ala. 2001). The government appealed.

Focusing on the legislative history and intent “that Congress wanted Medicare's payments to be secondary and subject to recoupment in all situations where one of the statutorily enumerated sources of primary coverage could pay instead” (Id. at 888), the Eleventh Circuit chose to interpret the MSP differently. In Thompson or In Re Diet Drugs, for example, the courts read the MSP to say that the government may be reimbursed for its Medicare payment only if a primary plan has paid or is expected to pay within 120 days of the date of claim. The Baxter court, however, took a different approach. The Eleventh Circuit interpreted the MSP to say that “Medicare would endeavor not to pay where a 'primary plan' has paid or is expected to pay promptly, but any payment that Medicare does make is secondary and is subject to reimbursement from sources of primary coverage under the statute.” Id. at 886.

Congress Responds

The recent Baxter opinion notwithstanding, the government has suffered one setback after another when seeking reimbursement from recoveries in third-party claims for medical bills the Medicare Trust Fund has paid. This has been the result of the “government urging statutory constructions … that are entirely unsupported by the statute and which appear to be intended to convert the MSP from an important and sensibly fashioned cost-cutting measure into a mere, heavy-handed collection tool.” Goetzmann, 337 F.3d at 503-04 (quoting Dow Corning Corp., 250 B.R. at 336 n.21). Should the government persist in this approach, the Fifth Circuit has warned that it could face “sanctions for unnecessarily protracting baseless or even frivolous litigation.” Id. at 504. Instead, the court urged the government to turn its attention to Congress. Id. at 503-04. It did, and Congress responded.

On Dec. 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MPDA). Embedded within the hundreds of pages that comprise the MPDA sit several provisions that seek to resolve the disputes discussed above.

Specifically, Section 301 of the MPDA retroactively amends the MSP to do four things:

• Strike the word “promptly” from 42 U.S.C. ' 1395(y)(b)(2)(A)(ii) so that it is not necessary that a payment be made within 120 days in order for an entity making that payment to be considered a primary plan. H.R. 1, ' 301(a)(1) (2003) (enacted);
• Expand the definition of a “self-insured plan” to include “[a]n entity that engages in a business, trade, or profession … if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part.” H.R. 1, ' 301(b)(1) (2003) (enacted);
• Require a primary plan or entity that receives payment from a primary plan to reimburse the government if that plan had a responsibility to make such payment as demonstrated by a judgment or settlement (whether or not there is a determination or admission of liability). H. R. 1, ' 301(b)(2)(A) (2003) (enacted); and
• Authorize the government to bring a claim for double damages against parties responsible to make payments as a primary plan, which includes settling tortfeasors. H.R. 1, ' 301(b)(3) (2003) (enacted).

From the legislative history, the intent of these amendments is clear. On July 17, 2003, during his testimony before the House Ways and Means Committee, William H. Jordan, Senior Counsel to the Assistant Attorney General for the Civil Division, reiterated the MSP's original goal: “to protect the fiscal integrity of the Medicare program by making Medicare a secondary, rather than a primary, payer of health benefits.” Waste, Fraud, and Abuse in Federal Programs: Hearing on H.R. 1 Before the House Comm. on Ways and Means, 108th Cong. (2003) (statement of William H. Jordan, Senior Counsel to the Assistant Attorney General for the Civil Division). By specifically citing the Fifth Circuit's first opinion in Goetzmann and the federal district court's opinion in Fanning, Jordan emphasized that these amendments will allow the government to obtain reimbursement even if the plan's payment is not “prompt.” In addition, according to Jordan, these amendments allow the government to seek reimbursement from primary plans, including third-party tortfeasors, and entities receiving payments from those plans, including Medicare beneficiaries. Jordan also noted that the amendments clarify that a “self-insured plan” is simply one that carries its own risk, in whole or in part.

The 'New MSP'

By amending the MSP, the government has sought to foreclose attempts to avoid reimbursing the government for Medicare benefits from recoveries in subsequent lawsuits. The amended MSP intends to eliminate the argument raised by defendant tortfeasors that they do not have an obligation to reimburse the government because they are not 'primary plans' or because they cannot make prompt payments. In addition, the MPDA intends to eliminate any arguments raised by plaintiffs/Medicare beneficiaries that they are not obligated to reimburse the government from their recovery in a third-party litigation because they did not receive the payments from a “primary plan” that could be expected to make “prompt” payments.

In the context of medical malpractice litigation, therefore, the MPDA attempts to hold responsible each of the parties to a litigation involving a Medicare recipient for reimbursing the government. These include the plaintiff/patient and defendant/health care provider, as they may be recipients of Medicare benefits, as well as the defendant's insurer, which may be a “primary” or “self-insured” plan. In that case, each party has certain responsibilities if a plaintiff to litigation is a Medicare recipient.

First, the parties must determine the existence and amount of such a lien. This information can be obtained from the appropriate Medicare Trust Fund with an executed release or authorization. Unfortunately, this is a timely process and should be undertaken early in the litigation and updated throughout the litigation, as appropriate.

Second, the parties, and particularly the plaintiff, should obtain not simply a lien amount from the Medicare Trust Fund, but also a list of all Medicare payments, including the names of the providers, dates and reason for treatment. Inadvertently, the Medicare Trust Fund may calculate the lien to include payments for medical bills that are not related to the underlying litigation. Those bills, of course, need not be reimbursed. This will ensure the correct reimbursement amount.

Third, practitioners should keep in mind that the lien amount is actually the total Medicare benefits reduced by the “procurement costs,” which are the percentage of the attorneys' fee and costs and disbursements incurred to obtain the recovery. The parties should know this total reimbursement amount before engaging in settlement negotiations, because if this amount is too large, it may preclude settlement.

Finally, when resolving a case in which the government claims a Medicare reimbursement, the defense should either make the reimbursement directly, or secure the plaintiff's assurance in the release – by certification, or through some other appropriate means — that the plaintiff will reimburse the government.

The government has tried, perhaps now successfully, to close the door on those parties who previously sought to avoid reimbursing Medicare benefits. Knowing the rules will avoid exposing clients who have an obligation to reimburse the government to “double damages” should they fail to make the timely reimbursement.

A 70-year-old man was admitted to the hospital for a bowel resection. Following surgery, the patient's condition worsened considerably; He spent months in the ICU on a ventilator, was fed through a gastrostomy tube, and his mental status waned. After some time, it was suspected that his deteriorating condition might be related to sepsis from a bowel perforation. Subsequent surgery confirmed this diagnosis. Attempts to repair the perforation failed, and, ultimately the patient died.

Medicare paid the patient's medical bills, which exceeded $500,000. The patient's family commenced a lawsuit, alleging that the surgeon's negligence caused the bowel perforation. During the litigation, the Medicare Trust Fund sent a correspondence to the patient's estate, asserting a claim of reimbursement for the benefits Medicare paid from any recovery that the estate might obtain.

This scenario is no doubt familiar for those who litigate medical malpractice cases. Whether the federal government maintains a valid right of reimbursement is important to both plaintiffs and defendants. If plaintiffs must reimburse the government from a recovery for Medicare benefits they receive, then litigants must account for that during settlement negotiations. This may make settlements difficult or even impossible to work out, especially when the lien amount exceeds the value of the case.

The validity of the government's claim for reimbursement has been hotly contested, particularly over the last 2 years. The recent enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MPDA) seeks to resolve any existing dispute in favor of Medicare's right of reimbursement. This article addresses the recent history of this dispute, Congress's response, and the impact this law likely will have on medical malpractice litigation.

Medicare's Asserted

Right of Reimbursement

In 1980, Congress amended the Medicare program by enacting the Medicare as Secondary Payer (MSP) statute. 42 U.S.C. '1395y(b). The MSP sought to maintain the fiscal integrity of the Medicare program by lowering overall Medicare payments. To do so, the MSP required Medicare recipients to exhaust all available insurance coverage before turning to Medicare to pay medical bills: “[T]he MSP assigns primary responsibility for medical bills of Medicare recipients to private health plans when a Medicare recipient is also covered by private insurance.” Fanning v. United States, 346 F.3d 386, 389 (3rd Cir. 2003); see 42 U.S.C. '1395y(b)(2)(A)(ii) (Medicare payments for medical treatment “may not be made … to the extent that … payment has been made or can reasonably be expected to be made promptly … under a workmen's compensation law or plan … or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.”)

In addition, under the MSP, any payment by Medicare that a primary plan should have paid is conditional and subject to reimbursement. 42 U.S.C. '1395y(b)(2)(B)(i). If the primary plan does not reimburse Medicare, then the MSP provides the government with a cause of action against the primary plan or anyone who received payments from a primary plan in which the government may collect double damages. 42 U.S.C. '1395y(b)(2)(B)(ii).

Until recently, the MSP defined a “primary plan” as “a group health plan or large group health plan … a workmen's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance … under which payment for medical care has been made or can reasonably be expected to be made promptly.” 42 U.S.C. '1395y(b)(2)(A). The regulations define “promptly” as “payment within 120 days after receipt of the claim.” 42 C.F.R. '411.21. The issues to be litigated, therefore, generally involve whether an entity is a “plan,” and whether it can be expected to make “prompt” payments.

Recent Case Law

In recent years, the government has argued that the MSP entitles it to reimbursement of funds it has paid from third-party tortfeasors as well as payees such as plaintiffs in underlying litigation. Generally, the federal courts have rejected these arguments for two reasons: 1) the tortfeasors do not provide a “primary” or “self-insured” plan; and 2) even if the tortfeasors provide such a plan, payment by the tortfeasor cannot be expected to be “made promptly.” If the tortfeasor does not provide a “primary” or “self-insured” plan, or cannot be expected to make payments “promptly,” then courts regularly have ruled that the MSP does not apply and the government cannot be reimbursed. However, a recent decision by the U.S. Court of Appeals for the Eleventh Circuit has caused a split in the circuits, making it more challenging for the practitioner to follow the case law, pending resolution of this issue by Congress or the U.S. Supreme Court. Some courts have considered whether the government has a right of reimbursement under the Medical Care Recovery Act (MCRA), 42 U.S.C. ' 2651. Whether the government does have such a right is beyond the scope of this article. Suffice it to say, however, that while one court holds that it does ( Thompson v. Goetzmann , 315 F.3d 457, 464-65 (5th Cir. 2002)), the more reasoned approach suggests that it does not. See U.S. v. Baxter Healthcare Corp. , 345 F.3d 866, 898 n26 (11th Cir. 2003); U.S. v. Philip Morris Inc. , 116 F. Supp. 2d 131, 140-44 (D.D.C. 2000); and In re Diet Drugs , 2001 U.S. Dist. LEXIS 2959 (E.D.Pa. 2001).

Primary and Self-Insured Plans

In U.S. v. Philip Morris , 156 F. Supp. 2d. 1 (D.D.C. 2001), the government, relying on the MSP, sued tobacco companies to recover health costs that it paid for the treatment of tobacco-related injuries. While the district court agreed that, under the MSP, the government has a right to recover such costs from a “primary plan,” the court noted that the MSP's “clear purpose was to grant the government a right to recover Medicare costs from insurance entities.” Id. at 5 (citing U.S. v. Philip Morris , 116 F. Supp. 2d 131, 146 n.22 (D.D.C. 2000) (emphasis added)). Ruling that the defendant tobacco companies were not insurance entities, nor did they maintain “self-insured plans” as the MSP defines that term, the court dismissed the government's claim. Id. at 5-8; see also Mason v. The American Tobacco Co., 346 F.3d 36, 41, 42 (2d Cir. 2003) (dismissing the government's claim for reimbursement of Medicare payments because the defendant tobacco companies were not self-insured plans even though they 1) declared “that they will meet future tort liability through internal funds, and not through the purchase of liability insurance,” and 2) set aside funds to cover future liabilities).

The court in In re Diet Drugs, 2001 U.S. Dist. LEXIS 2959 (E.D.Pa. 2001) faced the same issue. In that case, defendant American Home Products and a class of plaintiffs who were allegedly injured by ingesting diet drugs reached a settlement agreement. Because some of the class plaintiffs had received Medicare benefits to pay for treatment allegedly brought about by the plaintiffs' ingestion of the diet drugs, Medicare sought reimbursement from the settlement proceeds under several provisions, including the MSP. As in Philip Morris, the federal district court denied the government's application, holding that the defendant tortfeasor was not a primary plan or a self-insured plan simply because it had the ability to and did in fact fund the settlement. Id. at 34-41. But see U.S. v. Baxter Healthcare Corp. , 345 F.3d 866, 893-99 (11th Cir. 2003) (finding that the defendants were “self-insured” under the MSP by establishing a settlement fund to pay for the medical costs of the plaintiff class members).

The cases discussed above have dealt with the government's asserted lien in the context of mass tort litigation. Recently, the Fifth Circuit addressed this issue in the context of a single plaintiff versus single defendant litigation. In Thompson v. Goetzmann , 315 F.3d 457 (5th Cir. 2002), withdrawn on rehearing though affirmed by 337 F.3d 489 (5th Cir. 2003), a patient underwent the placement of a hip prosthesis manufactured by Zimmer. Complications arose, which led to additional surgeries and treatment. Medicare paid for all the medical treatment. The patient sued Zimmer, asserting that the hip prosthesis was defectively designed. The case was settled, and Zimmer paid the patient $256,000. Zimmer funded the settlement; nothing was paid by insurance. Following this case, the government sued the patient, her attorney, and Zimmer under the MSP for reimbursement of the medical expenses it had paid.

In considering the government's claim, the Fifth Circuit first addressed whether Zimmer maintained a “primary plan” or “self-insured plan.” The court noted that such plans require “an entity's ex ante adoption, for itself, of an arrangement for 1) a source of funds and 2) procedures for disbursing these funds when claims are made against the entity.” Id. at 462-63. Relying on leading insurance treatises and similar cases, the court concluded that “an entity's negotiating of a single settlement with an individual plaintiff is [in]sufficient in and of itself for such entity to be deemed as having a 'self-insurance plan.'” Id. at 463. Because Zimmer did not maintain a plan of self-insurance, the court determined that Zimmer and the plaintiff were not liable to the government under the MSP.

Prompt Payments

Some courts have also rejected the government's argument that tortfeasors maintain a primary or self-insured plan because they do not make payments “promptly” as that term is defined by the Medicare regulations.

In In re Diet Drugs, the court noted that “the obligation to make prompt payment `under' the plan … makes an entity a 'primary' payer and the government the 'secondary' payer.” 2001 U.S. Dist. LEXIS 2958 at *41. Given the delays inherent in litigation, particularly mass tort litigation, the court concluded that a products liability insurance policy is not the type that the government reasonably could expect would make “prompt” payments under the act, ie, within 120 days after receipt of the claim, and, thus, could not be a plan obligated to reimburse the government's asserted Medicare lien. Id.

This issue took center stage in the recent Goetzmann opinions. Even after determining that the third-party tortfeasor, Zimmer, did not maintain a self-insured plan under the MSP, the court nevertheless considered whether Zimmer was a qualifying plan under the MSP because it could “be expected to pay [the patient's] health care claim 'promptly,' as required under the MSP statute.” Goetzmann, 315 F.3d at 467. Relying on In re Diet Drugs as well as In re Orthopedic Bone Screw, 202 F.R.D. 154, 167-69 (E.D. Pa. 2001), and In re Dow Corning Corp., 250 B.R. 298, 348 n.29 (Bankr. E.D. Mich. 2000), the court initially ruled that the delay associated with products liability litigation leads to the conclusion that Zimmer could not pay within 120 days of the claim. Because Zimmer could not do so, its payment for medical bills would not be “prompt” under the MSP. As a result, Zimmer could not be considered a “primary” or “self-insured” plan under the act and would not be obligated to reimburse the government.

On rehearing, however, the Fifth Circuit withdrew that section of its earlier opinion that led to the conclusion that Zimmer did not maintain a statutorily approved plan because it could not make “prompt” payment. The court noted that following the plain language of the statute may create the “absurd result” of precluding “the right of reimbursement from any disputed or potentially disputed funds,” despite a statutory scheme that allows the government a cause of action to recover such funds. 337 F.3d at 492. Nevertheless, the court let the balance of its opinion stand because Zimmer was not otherwise a primary or self-insured plan and, thus, the MSP did not apply.

Under slightly different facts, the Eleventh Circuit reached a different conclusion in U.S. v. Baxter Healthcare Corp. , 345 F.3d 866 (11th Cir. 2003). Baxter arose out of the settlement of a class-action products liability suit against manufacturers of silicone breast implants. As part of the settlement, those defendants agreed to cover certain health care expenses incurred by members of the class. The government in turn sought to intervene to recover medical bills it paid on behalf of Medicare beneficiaries who were treated for conditions related to their breast implants. The district court denied the government's complaint to intervene. In re Silicone Gel Breast Implants Products Liability Litigation, 174 F. Supp. 2d 1242 (N.D. Ala. 2001). The government appealed.

Focusing on the legislative history and intent “that Congress wanted Medicare's payments to be secondary and subject to recoupment in all situations where one of the statutorily enumerated sources of primary coverage could pay instead” (Id. at 888), the Eleventh Circuit chose to interpret the MSP differently. In Thompson or In Re Diet Drugs, for example, the courts read the MSP to say that the government may be reimbursed for its Medicare payment only if a primary plan has paid or is expected to pay within 120 days of the date of claim. The Baxter court, however, took a different approach. The Eleventh Circuit interpreted the MSP to say that “Medicare would endeavor not to pay where a 'primary plan' has paid or is expected to pay promptly, but any payment that Medicare does make is secondary and is subject to reimbursement from sources of primary coverage under the statute.” Id. at 886.

Congress Responds

The recent Baxter opinion notwithstanding, the government has suffered one setback after another when seeking reimbursement from recoveries in third-party claims for medical bills the Medicare Trust Fund has paid. This has been the result of the “government urging statutory constructions … that are entirely unsupported by the statute and which appear to be intended to convert the MSP from an important and sensibly fashioned cost-cutting measure into a mere, heavy-handed collection tool.” Goetzmann, 337 F.3d at 503-04 (quoting Dow Corning Corp., 250 B.R. at 336 n.21). Should the government persist in this approach, the Fifth Circuit has warned that it could face “sanctions for unnecessarily protracting baseless or even frivolous litigation.” Id. at 504. Instead, the court urged the government to turn its attention to Congress. Id. at 503-04. It did, and Congress responded.

On Dec. 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MPDA). Embedded within the hundreds of pages that comprise the MPDA sit several provisions that seek to resolve the disputes discussed above.

Specifically, Section 301 of the MPDA retroactively amends the MSP to do four things:

• Strike the word “promptly” from 42 U.S.C. ' 1395(y)(b)(2)(A)(ii) so that it is not necessary that a payment be made within 120 days in order for an entity making that payment to be considered a primary plan. H.R. 1, ' 301(a)(1) (2003) (enacted);
• Expand the definition of a “self-insured plan” to include “[a]n entity that engages in a business, trade, or profession … if it carries its own risk (whether by a failure to obtain insurance, or otherwise) in whole or in part.” H.R. 1, ' 301(b)(1) (2003) (enacted);
• Require a primary plan or entity that receives payment from a primary plan to reimburse the government if that plan had a responsibility to make such payment as demonstrated by a judgment or settlement (whether or not there is a determination or admission of liability). H. R. 1, ' 301(b)(2)(A) (2003) (enacted); and
• Authorize the government to bring a claim for double damages against parties responsible to make payments as a primary plan, which includes settling tortfeasors. H.R. 1, ' 301(b)(3) (2003) (enacted).

From the legislative history, the intent of these amendments is clear. On July 17, 2003, during his testimony before the House Ways and Means Committee, William H. Jordan, Senior Counsel to the Assistant Attorney General for the Civil Division, reiterated the MSP's original goal: “to protect the fiscal integrity of the Medicare program by making Medicare a secondary, rather than a primary, payer of health benefits.” Waste, Fraud, and Abuse in Federal Programs: Hearing on H.R. 1 Before the House Comm. on Ways and Means, 108th Cong. (2003) (statement of William H. Jordan, Senior Counsel to the Assistant Attorney General for the Civil Division). By specifically citing the Fifth Circuit's first opinion in Goetzmann and the federal district court's opinion in Fanning, Jordan emphasized that these amendments will allow the government to obtain reimbursement even if the plan's payment is not “prompt.” In addition, according to Jordan, these amendments allow the government to seek reimbursement from primary plans, including third-party tortfeasors, and entities receiving payments from those plans, including Medicare beneficiaries. Jordan also noted that the amendments clarify that a “self-insured plan” is simply one that carries its own risk, in whole or in part.

The 'New MSP'

By amending the MSP, the government has sought to foreclose attempts to avoid reimbursing the government for Medicare benefits from recoveries in subsequent lawsuits. The amended MSP intends to eliminate the argument raised by defendant tortfeasors that they do not have an obligation to reimburse the government because they are not 'primary plans' or because they cannot make prompt payments. In addition, the MPDA intends to eliminate any arguments raised by plaintiffs/Medicare beneficiaries that they are not obligated to reimburse the government from their recovery in a third-party litigation because they did not receive the payments from a “primary plan” that could be expected to make “prompt” payments.

In the context of medical malpractice litigation, therefore, the MPDA attempts to hold responsible each of the parties to a litigation involving a Medicare recipient for reimbursing the government. These include the plaintiff/patient and defendant/health care provider, as they may be recipients of Medicare benefits, as well as the defendant's insurer, which may be a “primary” or “self-insured” plan. In that case, each party has certain responsibilities if a plaintiff to litigation is a Medicare recipient.

First, the parties must determine the existence and amount of such a lien. This information can be obtained from the appropriate Medicare Trust Fund with an executed release or authorization. Unfortunately, this is a timely process and should be undertaken early in the litigation and updated throughout the litigation, as appropriate.

Second, the parties, and particularly the plaintiff, should obtain not simply a lien amount from the Medicare Trust Fund, but also a list of all Medicare payments, including the names of the providers, dates and reason for treatment. Inadvertently, the Medicare Trust Fund may calculate the lien to include payments for medical bills that are not related to the underlying litigation. Those bills, of course, need not be reimbursed. This will ensure the correct reimbursement amount.

Third, practitioners should keep in mind that the lien amount is actually the total Medicare benefits reduced by the “procurement costs,” which are the percentage of the attorneys' fee and costs and disbursements incurred to obtain the recovery. The parties should know this total reimbursement amount before engaging in settlement negotiations, because if this amount is too large, it may preclude settlement.

Finally, when resolving a case in which the government claims a Medicare reimbursement, the defense should either make the reimbursement directly, or secure the plaintiff's assurance in the release – by certification, or through some other appropriate means — that the plaintiff will reimburse the government.

The government has tried, perhaps now successfully, to close the door on those parties who previously sought to avoid reimbursing Medicare benefits. Knowing the rules will avoid exposing clients who have an obligation to reimburse the government to “double damages” should they fail to make the timely reimbursement.