Health
care and the law
Subrogation
traps for vulnerable plaintiffs
J. Thomas Henretta
A plaintiff
who has received a damages award may be forced to repay government
benefits. Here's how to help your clients protect their just compensation.
The job
of plaintiff attorneys is to redress injuries suffered by
clients at the hands of tortfeasors, and they work hard to obtain
compensation for their clients. But if a client has received payments
from a government agency through Medicare or Medicaid, the agency
may have the right to be repaid out of a settlement or damages award
through the right of subrogation. Lawyers have an obligation to advise
clients of this possibility and to avoid subrogation traps that may
lurk in their cases.
Subrogation
is "the right of one who has paid an obligation which another should
have paid to be indemnified by the other."1 It developed as an equitable
doctrine to prevent a plaintiff from receiving double recovery, but
today the right of subrogation in personal injury actions usually
arises out of contract or statute.
Medicare
is the federal program that provides health insurance for the elderly
and disabled. Medicaid is generally administered by a state or county
agency and provides medical expense coverage to certain residents
whose income falls below a specified level. It is better known as
welfare or general assistance.
Administrators
of these programs have become aggressive about collecting their subrogation
claims. A lawyer who wins the battle by obtaining a settlement or
damages award for a client may end up losing the war because the money
must be turned over to a subrogated entity.
If
a client is faced with a claim for reimbursement of Medicare or Medicaid
payments, the attorney must be familiar with the rules and regulations
governing these programs in order to seek a waiver or to structure
a payment plan. Attorneys representing disabled clients should also
be aware that a supplemental needs trust may sometimes be used to
provide money for such clients' special needs without jeopardizing
their eligibility for Medicaid.
Medicare
and subrogation
Congress
enacted the Medicare Secondary Payer (MSP) statute in 1980. It provides
that Medicare is required to pay benefits only secondarily—after
certain other kinds of insurance have paid eligible claims. MSP makes
Medicare payments secondary to employer group health plans, liability
insurance covering personal injury actions, and workers' compensation
insurance.2
When
an injured party's medical ex penses are covered by other insurance,
Medicare may pay the expenses first, but only when the other insurer
will not pay promptly. Medicare payments are made conditionally. When
the other insurer's payment has been made or could be made to the
injured party, the government is entitled to recover what it paid.
Medicare
benefits are administered by the Centers for Medicare and Medicaid
Services (CMS), formerly the Health Care Financing Administration.
CMS is an agency of the Department of Health and Human Services (HHS).
The agency is empowered to handle disputes over Medicare payments.
The
HHS has published regulations to implement the secondary-payer statute.3
These regulations give CMS broad subrogation rights.4 The agency has
the right to recover its payments from any entity—including an
insurance beneficiary, health care provider or supplier, physician,
attorney, state agency, or private insurer—that has received
a third-party payment.5 If the entity has received payment, it must
reimburse Medicare within 60 days.6
These
regulations also grant Medicare subrogation rights that are superior
to any other lien or interest on the proceeds of a damages award,
including Medicaid. These rights apply even when the agency does not
give notice to the parties of its claim. They also apply even when
the liability insurer and the parties' attorneys did not actually
know that the plaintiff received Medicare payments, if they should
have known of Medicare's potential claim. The Medicare lien also takes
priority over an attorney's lien for fees and expenses.
The
secretary of HHS is authorized to contract with fiscal agents to administer
the Medicare program. These agents determine whether benefits are
due and their amounts, and they make the benefit payments to claimants.
Agents
that administer "Part A" benefits—expenses for hospitals, skilled
nursing facilities, home health agencies, and similar services—are
known as intermediaries. Agents that administer "Part B" benefits—expenses
for services rendered by physicians and most ambulance providers and
for durable medical equipment—are known as carriers.
When
a Medicare beneficiary receives payment from a third party as a result
of a judgment or settlement, CMS is generally entitled to recover
the total amount of its "overpayment." Repayment is made either in
a lump sum or in installments, with interest added.7 But a recipient
of Medicare can raise defenses to defeat or reduce Medicare's claim
on third-party liability insurance payments by requesting compromise
or waiver of the claim.
First,
a Medicare beneficiary can seek a compromise of the amount sought
by CMS for reimbursement. The amount recovered through a compromise
must bear a reasonable relationship to the amount of the claim, and
it must be recoverable by CMS through its collection procedures.
In
deciding whether to compromise a claim, CMS considers the likelihood
of collecting 100 percent of the claim. Factors the agency considers
in this determination include the recipient's age, health, present
and potential income, and whether or not CMS is likely to obtain a
judgment against the recipient.
Medicare
will generally reduce its claim to take into account the costs that
it would incur in procuring an award against a beneficiary, including
attorney fees and court costs.8
A
client can also ask Medicare to waive its claim in whole or in part.
Medicare will not consider a waiver request until the client receives
the third-party payment. Interest begins to run on a Medicare demand
for repayment 30 days from the date of demand. Plaintiff attorneys
should, therefore, consider advising their clients to pay Medicare
claims while negotiating a waiver. If Medicare grants a waiver re
quest, the client's payment will then be refunded.
Federal
regulations govern the waiver process.9 Generally, Medicare will waive
its claim if assertion of the claim would defeat the purpose of the
Medicare program. This standard is ordinarily satisfied when a Medicare
repayment would deprive a person of income required for ordinary and
necessary living expenses. The critical question is whether a settlement
or damages award will be used for the client's treatment and care.
If so, a waiver request will generally be granted.
Medicaid
and supplemental needs trusts
State-administered
Medicaid programs vary among states, but there are many similarities
in the way subrogation claims are handled.
For
example, state Medicaid administrators may compromise claims using
criteria similar to those used under Medicare. Requests for compromise
are usually sent to the department of human services for the state
or county where the Medicaid beneficiary resides. Also, state Medicaid
administrators will often negotiate reductions in their claims for
the potential costs of collecting the claims.
Medicaid
eligibility is based on financial need, and most of a person's assets
are included in determining eligibility for the program—even
assets that have been placed in a trust. This means that people who
have special health care needs, such as the disabled, can be forced
to exhaust all their financial resources before they be come eligible
for assistance.
A
supplemental needs trust is one device that can blunt the impact of
Medicaid eligibility determinations. It allows some disabled people
to maintain a reserve fund for special needs without jeopardizing
their eligibility, because assets in the trust are not counted.10
The
1993 amendments to the Omnibus Budget Reconciliation Act federalized
the treatment of these trusts, known as "(d)(4)(C) trusts" for the
section of the U.S. Code that governs them.11 Before 1993, some states
counted assets in a supplemental needs trust toward Medicaid eligibility,
and other states did not.12
Supplemental
needs trusts can be established for the benefit of disabled victims
of wrongdoing. They can be used during the disabled person's lifetime
for educational, recreational, and leisure activities or services,
as well as for medical care not covered by insurance, government benefits,
or other funds.13
The
following requirements must be met to establish a supplemental needs
trust:
· The
trust must be established by a parent, grandparent, or legal guardian
of the disabled person, or by a court, even when the trust is supported
by the disabled person's own funds.
· The
trust cannot be created after the person reaches the age of 65.
· The
beneficiary of the trust must be "disabled" as defined by the Supplemental
Security Income program.14
· When
the beneficiary dies, the trust is required to reimburse the state
for any Medicaid assistance paid on his or her behalf. 15
Representing
vulnerable clients such as the disabled, the elderly, and those with
limited assets is rewarding, but negotiating the Medicare-Medicaid
maze can be daunting.
Plaintiff
attorneys new to this arena are not alone: The U.S. attorney for each
state is a good source of information on Medicare regulations, and
help is available from the National Academy of Elder Law Attorneys.
Helping vulnerable clients protect their settlements or damages awards
from subrogation traps is worth the trouble of studying the intricacies
of Medicare-Medicaid law. ?
Notes
1. BLACK'S
LAW DICTIONARY 1427 (6th ed., West 1990).
2. 42
U.S.C. §1395y(b)(2)(A)(ii) (1991).
3. See
42 C.F.R. §§405.322-405.325 (2002). Effective Nov. 13, 1989,
certain portions of 42 C.F.R. §405 were amended and redesigned
under a new section, §411. See Medicare as Secondary Payer
and Medicare Recovery Against Third Parties, 54 Fed. Reg. 41,716-17
(Oct. 11, 1989). The redesignation table for 42 C.F.R. §405 Subpart
C is located at 54 Fed. Reg. 41,733.
4. 42
C.F.R. §§411.26(a)-(b).
5. Id.
§411.24(g).
6. Id.
§411.24(h).
7. Id.
§401.607.
8. Id.
§411.37(a)(1).
9. See
20 C.F.R. §§404.506-404.512.
10. See
A. Frank Johns, Preserving Assets with Supplemental Needs Trusts,
TRIAL, Nov. 1998, at 90.
11. 42
U.S.C. §1396p(d)(4)(C).
12. For
examples of cases holding that assets placed in supplemental needs
trusts are not included in determining Medicaid eligibility, see Zeoli
v. Comm'r of Soc. Servs., 425 A.2d 553 (Conn. 1979); Ala. Medicaid
Agency v. Primo, 579 So. 2d 1355 (Ala. Civ. App. 1991); Kegal
v. State, 830 P.2d 563 (N.M. Ct. App. 1992). For cases holding
that such assets are included, see Ark. Dep't Human Servs. v. Donis,
655 S.W.2d 452 (Ark. 1983); Barham v. Rubin, 816 P.2d 965 (Haw.
1991).
13. Johns,
supra note 10.
14. 42
U.S.C. §423(d)(1).
15. See
William L. Winslow, Safeguarding Benefits for the Injured,
TRIAL, June 1996, at 58.
J.
Thomas Henretta practices law in Akron, Ohio. He wishes to thank Caroline
D. Imhoff for her research and assistance with this article.
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