Hospital Liens: Factual and Legal Reduction Strategies

February 13, 2020

By: Michael Walrath

Some of the most frustrating and murky issues facing attorneys representing injured clients stem from alleged direct provider “liens” against settlement proceeds. The positions of various state bar associations on these issues, and the limited law delineating them, have historically been ever-shifting and evolving.

Ethical Obligation to Protect Liens

One constant in this otherwise uncertain area, is this: Attorneys representing injured Plaintiffs in personal injury actions have an ethical responsibility to use all reasonable efforts to resolve disputes between clients and known third-party lienholders.

Pursuant to the rules of most state bar associations and the ethics opinions interpreting them, injury attorneys cannot unilaterally arbitrate lien disputes. If a dispute cannot be resolved through negotiation, then injury attorneys should consider the possibility of depositing the disputed funds into the registry of the applicable court and proceed to adjudicate the dispute. Ethics committees in many states have stated that injury attorneys should endeavor to assist clients and third-party lienholders in effecting a compromise and resolving lien disputes, if possible. If such efforts fail, lawyers are often encouraged to institute interpleader actions in a court of competent jurisdiction naming their client and the physician as co-defendants. For obvious reasons, this should be a last resort and is not the only option in so far as adjudication goes, even at impasse. Other options include suits against providers for overcharging, unfair or deceptive billing practices, unfair debt collection practices, declaratory relief, or similar.

Unreasonable Hospital Charges

While not necessarily in the lien context, the overarching issue of unreasonable medical charges, especially hospital charges, have become increasingly prevalent in national and local news. Headlines like the following are appearing across the country, almost daily:

‘I wasn’t doing anything crazy’ | Florida man faces $100K hospital bill after e-scooter crash (ABC News, July 19, 2019)

When a hospital sling costs 900% more than Amazon’s price, something is very wrong (Los Angeles Times, Sep 13, 2019)

‘Really astonishing’: Average cost of hospital ER visit surges 176% in a decade, report says (USA TODAY, Jun 4, 2019)

Hospital charges, untethered to their internal costs or the average amounts they negotiate, receive and accept as payment in full, have skyrocketed. Thankfully, only a small percentage of the patient population is even asked to pay full billed charges, and an even smaller fraction pays them. But unfortunately, plaintiffs injured in third-party liability scenarios are among those unlucky patients.

Thankfully, the law in most states allows patients to challenge unreasonable hospital charges. The touchstone of such a challenge usually centers on the reality that the parties to the agreement to pay for the services, i.e., the hospital and the patient, do not agree on a price term. The “open price term” doctrine ensures that while a contract can be concluded and binding without agreement to price, a “reasonable” price is imported into that “open price term” contract. A quote from the seminal case in Florida sums up this concept as follows:

A patient may not be bound by unreasonable charges in an agreement to pay charges in accordance with “standard and current rates.” When a contract fails to fix a price furthermore, a reasonable price is implied. Humana thus is limited to reasonable compensation.

Payne v. Humana Hospital Orange Park, 661 So.2d 1239 (Fla. 1^st DCA 1995). With the reasonableness challenge on solid legal footing, the common law in most states goes on to illuminate the types of evidence relevant to reasonable value. There are essentially types of evidence which show up in state case law across the country, as follows: 1) the average charges in the community for identical care (often referred to as “usual and customary rates” or UCR), 2) the average amounts providers accept as payment in full across the entire spectrum of payers, including managed care, often referred to as “average reimbursement rates,” and 3) the “cost of care” which includes evidence of the provider’s internal cost structure. A federal case which set these factors out clearly has been effectively adopted in several states, in whole or in part, describes these elements as follows:

Plaintiff’s claim of unreasonable pricing for hospital services could be proved based on the following non-exhaustive types of evidence: (1) the relevant market price for hospital services (including the rates charged by other similarly situated hospitals for similar services); (2) the usual and customary rate Mercy charges and receives for the services in question; and (3) Mercy’s internal cost structure.

Colomar v. Mercy Hospital, Inc., 2007 U.S. Dist. LEXIS 52659 (S.D. Fla. 2007). Texas is one such state, and its Supreme Court held as follows when addressing discovery issues in a case wherein a plaintiff challenged the reasonableness of hospital charges asserted under Texas’ hospital lien statute:

In any event, for discovery purposes a hospital’s costs surely have some bearing on the reasonableness of its patient charges. See Colomar, 461 F. Supp. 2d at 1272 (noting that a hospital’s internal cost structure could play a role in evaluating a claim of unreasonable pricing). Accordingly, we hold that the trial court did not order the production of irrelevant information.

In re N. Cypress Med. Ctr. Operating Co., No. 16-0851, 2018 Tex. LEXIS 1148, at *18 (Apr. 27, 2018). While not an exclusive list of evidence relevant to reasonable value, the above factors lend a good starting point, in most states.

Hospital Liens

Hospital liens are the mechanism which “attach” a hospital “debt” to a personal injury settlement. These liens attach only to settlement proceeds, they do not attach to any other personal or real property of the patient/plaintiff. The easy way to understand and remember the difference between “liens” and “debts” is that DEBTS ATTACH TO PEOPLE, while LIENS ATTACH TO PROCEEDS. Hospital liens have been the subject of much litigation, nationally. Forty states and the District of Columbia[1] have enacted state statutes creating hospital liens. In contrast, Florida instead offers lien rights on a county by county basis. I strongly recommend a LEXIS or West Law search of your state statute and review of the cases cited below. Treatment, rights, and obligations, penalties for impairment, and general interpretation of everything from equity to timely filing, vary widely by state.

Case Study

As part of every presentation to injury firms across the country, I always start by asking about the status quo. Firstly, what size discounts do you typically see on cases with full settlements (what is the “worst” discount you would agree to and what is a good day) when negotiating a hospital lien? The numbers I am told are surprisingly consistent. Typically, I am told they would never settle for less than a 20% discount, and a 40% discount is a “home run” (on a fully-funded case; i.e., equitable reductions vary based upon settlement size).

Accordingly, the following chart displays an actual Synergy case, which was analyzed for “reasonable value” and ultimately resolved at a discount. Compare the values for the “worst” average discount (20% off), the “home run” discount (40% off) and the results of instead reducing to various percentages above “reasonable value.”

“Status Quo” negotiated discounts from Full Billed Charges ($95,457.12)

20% Discount	30% Discount	40% Discount
$76,365.70	$66,819.98	$57,274.27
(a 641% profit to the hospital)	(a 418% profit to the hospital)	(a 344% profit to the hospital)

Enhanced “Cost Up” Negotiations, from the Reasonable Value of Care ($20,000)

125% Reasonable Value	150% Reasonable Value	100% Reasonable Value
$25,000	$30,000	$40,000
(a 74% discount from FBC)	(a 69% discount from FBC)	(a 58% discount from FBC)

As illustrated above, negotiating up from the “Reasonable Value” (cost of care plus a reasonable profit), often results in much deeper discounts, while negotiating down from the Full Billed Charges often results in significant overpayments to the hospital.

Synergy offers two products to assist with hospital and other direct provider liens, as follows:

Reasonableness Reports. Synergy analyzes your provider bills/liens, eliminates all non-billable charges and reprices billable charges to a reasonable profit above cost. The fee for Reports is 15% of the additional savings you obtain in your negotiations, using the Report.
Full Negotiation Services. Using the same data, analysis and methodologies, coupled with Synergy’s hundreds of years of combined experience negotiating the release of health liens, Synergy will negotiate for you and charges 15% of the additional savings we obtain.

As you know, 100% of all post-settlement time and resources spent resolving liens are “sunk costs” on your files. Synergy’s efforts often result in deeper discounts than are typically obtained negotiating in-house. Accordingly, the “path of least resistance” also happens to the road to the deepest discount. Please consider Synergy on your next hospital/provider lien issue and see why thousands of attorneys across the country rely on Synergy to save their clients money, while also saving their staff time.

Please do not hesitate to contact us with any questions and thank you for your support.

[1] See Ala. Code § 35-11-370; Alaska Stat. § 34.35.450; Ariz. Rev. Stat. Ann. § 33-931; Ark. Code Ann. § 18-46-101; Cal. Civ. Code § 3045.1; Colo. Rev. Stat. Ann. § 38-27-101; Conn. Gen. Stat. Ann. § 49-73; Del. Code Ann. tit. 25, § 4301; D.C. Code § 40-201; Ga. Code Ann. § 44-14-470; Haw. Rev. Stat. § 507-4; Idaho Code Ann. § 45-701; 770 Ill. Comp. Stat. Ann. 23/1; Ind. Code Ann. § 32-33-4-1; Iowa Code Ann. § 582; Kan. Stat. Ann. § 65-406; La. Rev. Stat. Ann. § 9:4751; Me. Rev. Stat. tit. 10, § 3411; Md. Code Ann., Com. Law § 16-601; Mass. Gen. Laws Ann. Ch. 111, § 70a; Minn. Stat. § 514.68; Mo. Ann. Stat. § 430.230; Neb. Rev. Stat. Ann. §§52-401 & 52-402; Nev. Rev. Stat. Ann. § 108.590; N.H. Rev. Stat. Ann. § 448-A:1; N.J. Stat. Ann § 2a:44-35; N.M. Stat. Ann. § 48-8-1; N.Y. Lien Law § 189; N.C. Gen. Stat. Ann. § 44-49; N.D. Cent. Code Ann. § 35-18-01; Okla. Stat. Ann. tit. 42 §§43 & 44; Or. Rev. Stat. Ann. § 87.555; R.I. Gen. Laws Ann.§§9-3-4 to 9-3-8; S.D. Codified Laws § 44-12-1; Tenn. Code Ann. § 29-22-101; Tex. Prop. Code Ann. § 55.001; Utah Code Ann. § 38-7-1; Vt. Stat. Ann. tit. 18, § 2253; Va. Code Ann. § 8.01-66.2; Wash. Rev. Code Ann. § 60.44.010; Wis. Stat. Ann. § 779.80

Resolution of Conditional Payments for Personal Injury Settlements

January 17, 2020

By Jason D. Lazarus, J.D., LL.M., MSCC, CSSC

Failure to Pay Equals Personal Liability

The government takes its reimbursement rights seriously and is willing to pursue trial lawyers who ignore Medicare’s interest. On March 18, 2019, the United States Attorney for the District of Maryland announced that a Maryland personal injury law firm had agreed to pay the United States $250,000 to settle allegations that the firm failed to reimburse Medicare for payments made on behalf of its client. As part of the settlement, the firm “also agreed to (1) designate a person at the firm responsible for paying Medicare secondary payer debts; (2) train the designated employee to ensure that the firm pays these debts on a timely basis; and (3) review any outstanding debts with the designated employee at least every six months to ensure compliance.”

This is the second such settlement in last year. Back In June of 2018, the U.S. Department of Justice announced a settlement with a Philadelphia personal injury law firm involving failure to reimburse Medicare. The firm agreed to start a “compliance program” and the DOJ stated that this “settlement agreement should remind personal injury lawyers and others of their obligation to reimburse Medicare for conditional payments after receiving settlement or judgment proceeds for their clients.”

Consequently in today’s complicated regulatory landscape, a comprehensive plan for Medicare compliance has become vitally important to personal injury practices. Lawyers assisting Medicare beneficiaries are personally exposed to damages and malpractice risks daily when they handle or resolve cases for Medicare beneficiaries. A prime example of the risk and personal liability is U.S. v. Harris, a November 2008 opinion.[1] In Harris, a personal injury plaintiff lawyer lost his motion to dismiss against the U.S. Government in a suit involving the failure to satisfy a Medicare subrogation claim. The plaintiff, the United States of America, filed for declaratory judgment and money damages against the personal injury attorney owed to the Centers for Medicare and Medicaid Services by virtue of third party payments made to a Medicare beneficiary.[2] The personal injury attorney had settled a claim for a Medicare beneficiary (James Ritchea) for $25,000.[3] Medicare had made conditional payments in the amount of $22,549.67. After settlement, plaintiff counsel sent Medicare the details of the settlement and Medicare calculated they were owed approximately $10,253.59 out of the $25,000 settlement.[4] Plaintiff counsel failed to pay this amount and the Government filed suit.

A motion to dismiss filed by plaintiff counsel was denied by the United States District Court for the Northern District of West Virginia despite plaintiff counsel’s arguments that he had no personal liability. Plaintiff counsel argued that he could not be held liable individually under 42 U.S.C. 1395y(b)(2) because he forwarded the details of the settlement to the government and thus the settlement funds were distributed to his clients with the government’s knowledge and consent. The court disagreed. The court pointed out that the government may under 42 U.S.C. 1395y(b)(2)(B)(iii) “recover under this clause from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.” Further, the court pointed to the federal regulations implementing the MSPS which state that CMS has a right of action to recover its payments from any entity including an attorney.[5] Subsequently, the U.S. Government filed a motion for summary judgment against plaintiff counsel. The United States District Court, in March of 2009, granted the motion for summary judgment against plaintiff counsel and held the Government was entitled to a judgment in the amount of $11,367.78 plus interest.[6]

Resolution of the Government’s interests concerning conditional payment obligations is simple in application but time-consuming. The process of reporting the settlement starts with contacting the Benefits Coordination Recovery Contractor (BCRC).[7] This starts prior to settlement so that you can obtain and review a conditional payment letter (CPL).[8] These letters are preliminary and cannot be relied upon to satisfy Medicare’s interest. However, they are necessary to review and audit for removal of unrelated care. Once settlement is achieved, Medicare must be given the details regarding settlement so that they issue a final demand. Once the final demand is issued, Medicare must be paid its final demand amount regardless of whether an appeal, compromise or waiver is sought.[9] Paying the final demand amount within sixty days of issuance is required or interest begins to accrue at over ten percent and ultimately it is referred to the U.S. Treasury for an enforcement action to recover the unpaid amount if not addressed.[10]

Resolution of Conditional Payments – Appeal, Compromise or Waiver

The repayment formula for Medicare is set by the Code of Federal Regulations. 411.37(c) & (d) prescribe a reduction for procurement costs and that is it.[11] The formula does not take into account liability related issues in the case, caps on damages or policy limits. The end result can be that the entire settlement must be used to reimburse Medicare. The only alternatives are to appeal, which requires you to go through four levels of internal Medicare appeals before you ever get to step foot before a federal judge or compromise/waiver. There is plenty of case law requiring exhaustion of the internal Medicare appeals processes which means that Medicare appeals are lengthy as well as an unattractive resolution method.[12] What makes them even more unattractive is the fact that interest continues to accrue during the appeal so long as the final demand amount remains unpaid.

An alternative resolution method is requesting a compromise or waiver post payment of the final demand. By paying Medicare their final demand and requesting compromise/waiver, the interest meter stops running. If Medicare grants a compromise or waiver, they actually issue a refund back to the Medicare beneficiary. There are three viable ways to request a compromise/waiver. The first is via Section 1870(c) of the Social Security Act which is the financial hardship waiver and is evaluated by the BCRC.[13] The second is via section 1862(b) of the Social Security Act which is the “best interest of the program” waiver and is evaluated by CMS itself.[14] The final is under the Federal Claims Collection Act and the compromise request is evaluated by CMS.[15] If any of these are successfully granted, Medicare will refund the amount that was paid via the final demand or a portion thereof depending on whether it is a full waiver or just a compromise.

[1] U.S. v. Harris, No. 5:08CV102, 2009 WL 891931 (N.D. W.Va. Mar. 26, 2009), aff’d 334 Fed. Appx 569 (4^th Cir. 2009).

[2] Id. at *1.

[3] Id.

[4] Id.

[5] See 42 C.F.R. 411.24 (g).

[6] U.S. v. Harris, No. 5:08CV102, 2009 WL 891931 at *5.

[7] See https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Attorney-Services/Attorney-Services.html

[8] See https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Attorney-Services/Conditional-Payment-Information/Conditional-Payment-Information.html

[9] Id.

[10] 42 C.F.R. 411.24(m).

[11] 42 C.F.R. 411.37(c) &(d).

[12] A perfect example of this is Alcorn v. Pepples out of the Western District of Kentucky. In Alcorn, the court held that “Alcorn’s claim with respect to the Secretary arises under the Medicare Act because it rests on the repayment obligations set forth under 42 U.S.C. § 1395y. She therefore must exhaust the administrative remedies established under the Medicare Act before this court may exercise subject matter jurisdiction over her claim.” Alcorn v. Pepples, 2011 U.S. Dist. LEXIS 19627 (W.D. Ky. Feb. 25, 2011).

[13] 42 U.S.C. § 1395gg

[14] 42 U.S.C § 1395y

[15] 31 U.S.C. § 3711

Publix Super Markets, Inc. v. Figareau et. al.

January 17, 2020

In Publix Super Markets, Inc. v. Figareau et. al., Case No. 8:19-cv-545, 2019 WL 6311160 (M.D. Fla. Nov. 25, 2019), the Court permitted an ERISA self-funded health plan’s equitable lien claim to attach to the plaintiff attorney. This case is further evidence that using Synergy Settlement’s Lien Resolution service can be essential to fully resolve asserted liens and ensure that you, your client and your firm are protected.

Publix provides a health benefit plan that is ERISA self-funded (“The Plan”). Figareau and Paul are the parents of a child who sustained a birth injury. The Plan paid $88,846.39 in related medical expenses. The case settled and the “funds are housed in a designated structured settlement account established by [Paul and Figareau].”

Publix initiated an action against Figareau and Paul, as well as their attorney and the attorney’s firm (“Attorney Defendants”) seeking to obtain appropriate equitable relief to enforce the Plan’s reimbursement provisions. Specifically, Publix sought reimbursement of the settlement funds and equitable relief in the form of a constructive trust or equitable lien on the amounts held or controlled by the defendants as a result of the settlement of the underlying case.

Defendants argued numerous points including the fact that the attorney and law firm are not parties to the Plan and therefore the claims against them are not cognizable. The Court found that the claim against the Attorney Defendants are cognizable because they hold the settlement proceeds in trust or otherwise possess the funds. Specifically, a lien or constructive trust on funds in possession of the Attorney Defendants is imposed by the express terms of the Plan. The Court reiterated earlier decisions where it was stated that “the most important consideration is not the identity of the defendant, but rather that the settlement proceeds are still intact, and thus constitute an identifiable res that can be restored to its rightful recipient.”

Another point argued by the defendants is that this action “creates an impermissible conflict of interest between [the Attorney Defendants], the minor child, and Publix,” and that “[i]t would be unethical . . . for [the Attorney Defendants] to represent Publix in a contingency fee contract and protect the interest of Publix over the minor.” The Court found that “the funds held in trust by the Attorney Defendants are, as alleged, subject to a lien by agreement under the Plan. Their possession of the funds does not create a conflict of interest.”

It’s always best for lien resolution to not reach this level. Synergy is your partner to bring these matters to conclusion, limiting your liability and giving you peace of mind.

DOJ Pursues Philadelphia Law Firm Over Six Thousand Dollars’ Worth of Conditional Payments, Firm Settles with DOJ

January 8, 2020

By: Jason D. Lazarus, J.D., LL.M., MSCC

The Department of Justice (DOJ) is serious about and intent on enforcement of the Medicare Secondary Payer Act when it comes to conditional payments. There are now numerous examples of these actions being taken by the DOJ. In this instance, the case against a Philadelphia-based law firm was handled by Assistant United States Attorney Michael S. Macko, acting upon a referral from Eric S. Wolfish, Assistant Regional Counsel for the U.S. Department of Health and Human Services, Office of the General Counsel, Region III. In a recent release, U.S. Attorney William M. McSwain announced “that a Philadelphia-based personal injury law firm, Simon & Simon, P.C., has entered into a settlement agreement with the United States to resolve allegations that it failed to reimburse the United States for certain Medicare payments.”

According to a press release issued by McSwain, “[t]he government alleged that at various points between 2014 and 2019, Medicare made conditional payments to healthcare providers to satisfy medical bills of eight of the firm’s clients. Although Medicare demanded that Simon & Simon repay the resulting Medicare debts, the firm allegedly failed to do so.” As part of the settlement, like in other cases, the firm agreed to pay $6,604.59 to satisfy the debt owed to Medicare. In addition, the firm agreed to “(1) name a person responsible for paying Medicare secondary payer debts; (2) train the employee to ensure that the firm pays these debts on a timely basis; (3) review any additional outstanding debts to ensure compliance; and (4) provide written certifications of compliance.” The firm also acknowledged that any future “failure to submit timely repayment of Medicare secondary payer debt may result in liability for the wrongful retention of a government overpayment under the False Claims Act.”

According to the release:

“The government’s investigation arose under the Social Security Act’s Medicare Secondary Payer provisions. This law authorizes Medicare, as a secondary payer, to make conditional payments for medical items or services under certain circumstances. When an injured person receives a settlement or judgment, Medicare regulations require entities who receive the settlement or judgment proceeds, such as the injured person’s attorney, to repay Medicare within 60 days for its conditional payments. If Medicare does not receive timely repayment, these regulations permit the government to recover the conditional payments from the injured person’s attorney and anyone else who received the settlement or judgment proceeds.”

No law firm wants to have the DOJ investigating them for failing to reimburse conditional payments. According to the press release by the DOJ, “[t]his settlement agreement should remind personal injury lawyers and others of their obligation to reimburse Medicare when they receive settlement or judgment proceeds for their clients,” said U.S. Attorney McSwain. “Lawyers need to set a good example and follow the rules of the road for Medicare reimbursement. If they don’t, we will move aggressively to recover the money for taxpayers.” Given the foregoing, in today’s complicated regulatory landscape, a comprehensive plan for Medicare compliance has become vitally important to personal injury practices. Lawyers assisting Medicare beneficiaries are personally exposed to damages and malpractice risks daily when they handle or resolve cases for Medicare beneficiaries. Synergy can be your resource for total Medicare compliance and help you avoid the liability illustrated by these types of government actions. For a deeper dive, you can view the following 15-minute video presentation on this subject at: https://youtu.be/2EH7QWjj2zw.

Reduce Taxes and Save for Retirement with Attorney Fee Deferrals

A few months ago, a trial attorney in New York City had just settled a big case. He was like a lot of people reading this article; well-respected, successful, hardworking. But while he was excited about the result, he was frustrated with the massive amount of taxes he would have to pay. So, he decided to consider deferring his fee.

He learned that deferring fees is similar to the deferred compensation programs offered to top executives at Fortune 500 companies. Just like in a 401(k), you don’t pay taxes on the fee until you receive it. In the meantime, the money earns the returns of various investments that you or your financial advisor chooses – stocks, bonds, real estate, etc. But unlike a 401(k), there is no limit on how much you can defer.

This can significantly reduce your tax burden in two ways. First, as with a 401(k), when you pay taxes later, your money grows faster. Second, by spreading the income out over time, you can end up in a lower tax bracket.

In addition to reducing his tax burden, this attorney learned that deferring his fee enabled him to better meet his cash-flow needs. While he wasn’t allowed to accelerate his scheduled distribution payments, he could choose to re-defer his payments within the rules of tax-deferred compensation. In addition, fee deferrals can be used as “golden handcuffs” to retain key associates, whereby if they leave too soon their deferred bonus comes back to the firm.

Ultimately this attorney did his due diligence and decided to defer a $1,000,000 of his fee. He ultimately chose to defer to significantly reduce his tax burden and better control his cash-flow needs.

Key Takeaways

Attorneys can defer compensation like Fortune 500 executives do, to reduce their tax burdens
Tie your fee to the returns of investments that you select – stocks, bonds, real estate, etc.
Exercise better control over the timing of payments, and the resulting taxation.
Use “golden handcuffs” to retain key associates, whereby if they leave too soon their deferred bonus comes back to the firm.

This attorney is one of the hundreds that have deferred fees in recent years. In fact, the concept has been around for decades. A lawyer’s right to defer fees was established by the U.S. Tax Court in Childs v. Commissioner (1994) and affirmed two years later by the 11th Circuit U.S. Federal Appeals Court. The IRS also cited the Childs case favorably in Private Letter Ruling 200836019.

From a legal perspective, fee deferrals are materially subject to the same body of tax rules that govern Nonqualified Deferred Compensation (NQDC), namely the constructive receipt and economic benefit doctrines. As mentioned earlier, Fortune 500 companies have been using NQDC for many decades to attract and retain their top executives.

So, what are the steps to defer? The steps are quite simple – and similar to a traditional fee structure. The attorney must enter into a Deferred Payment Agreement before the final settlement (i.e. before signing the release). Each partner decides how much to defer and for how long. This is the most critical part of the process.

It is also recommended that deferral language is added to the fee agreement with your client providing the client’s consent to fee deferrals and that the defendant is instructed to wire the deferred amount directly to the trustee and custodian. Payment instructions are often included in the release agreements, as well. In some cases, settlement monies are first paid into a Qualified Settlement Fund (QSF) and form there wired to the trustee and custodian. A QSF is basically an escrow account or trust that provides the necessary time for proper settlement planning and liens negotiation. In essence, it gives both the clients and the attorneys more time to figure out what to do with the settlement monies without the involvement of the defendant.

Fee deferrals can offer a range of benefits, from reducing an attorney’s tax burden to increasing their access to cash and helping them retain key associates. Deferring fees is not for everyone, however, particularly if an attorney needs the money now. And if an attorney does want to defer, selecting the right provider is critical to the safety of the deferral.

Liability Medicare Set-Asides (LMSAs): Is It Time to Start Worrying?

B. Josh Pettingill

For over a decade, there has been episodic activity from Centers for Medicare and Medicaid Services (CMS) on Liability Medicare Set-Asides (LMSAs), including but not limited to, policy memorandums, Medicare Learning Network announcements, a notice of proposed rulemaking with subsequent withdrawal, an advanced notice of a notice of proposed rulemaking as well as the hiring of a new review contactor. As of the date of this update, we are still without formal policies for how to properly consider Medicare’s future interests in liability claims. But is it time for trial attorneys to start worrying? This brief post will provide some suggestions to be well-prepared for formal guidelines on LMSAs.

Key Takeaways

Medicare Secondary Payor (MSP) compliance is serious business and should not be ignored.
Plaintiff attorneys must establish an internal screening process for their liability cases involving Medicare beneficiaries.
Plaintiff attorneys must be vigilant about MSP compliance from the start of the case.
MSP compliance starts at the intake of the case.

If your firm does not have an internal process for auditing Medicare-eligible plaintiffs when you undertake representation, then you probably should be worried. If you are on the sidelines waiting around for formal guidelines to be implemented before you start being proactive on the issue, you are doing a disservice to yourself and your clients, as well as putting yourself at risk of being made an example by CMS for non-compliance with the MSP statute. This is so because the Department of Justice has already sued two different personal injury firms over non-compliance with the MSP related to conditional payments (see previous post HERE). You could also be setting yourself up for a legal malpractice claim for failure to educate your clients on the need to properly consider Medicare’s future interests. The good news is that it is not too late; the below can help get you started on establishing a framework within your firm for handling cases with Medicare-eligible plaintiffs.

Identify Medicare beneficiaries as soon as possible so you can stay ahead of the MSP compliance issues.
Follow CMS guidelines for reporting and resolving conditional payments.
Investigate whether the client has ever received benefits under a Medicare Advantage plan (MAO – Part C). If yes, make sure to resolve the lien as it can be “hidden” (see previous post HERE)
Audit your files at the beginning of the intake process and group the cases into categories based on the injuries, potential future care, available coverage, and potential settlement value to determine which files might be candidates for formal MSA screening.
Identify all forms of health insurance coverage and disability benefits upon intake of the case so you know what liens have to be resolved as well as whether Medicare’s future interests need to be considered.
Determine at the onset if future medicals are claimed which will be a key determinant in whether a Medicare Set-Aside should be considered.
Update your retainer agreement language to allow you to engage your own Medicare experts as a case cost to the client.

From what we have observed firsthand, Medicare is not regularly denying claims on the basis that injury-related care should be paid for out of an MSA account (read more HERE); however, as recently as last month, CMS indicated that change is imminent as it relates to liability claims[1]. Whether or not CMS ever provides formal guidelines on liability MSAs, trial lawyers must establish their own processes for screening and auditing liability case files. For more information about liability MSAs visit us at https://partnerwithsynergy.com/total-medicare-compliance/.

[1] This was mentioned at the National Alliance of MSA Professionals (NAMSAP) annual conference in Baltimore, Maryland.

Medicare Set-Aside Self-Administration: What is new?

B. Josh Pettingill

Last week, the Centers for Medicare and Medicaid Services (CMS) issued the latest edition of their Medicare Set-Aside (MSA) self-administration toolkit. This toolkit is intended to serve as a guidebook or roadmap for how to properly administer a Workers’ Compensation Medicare Set-Aside (WCMSA) account. The statistics show that 99% of claimants elect to self-administer their MSA account. The problem with that is 98% of them are probably doing it the wrong way. For a summary of best practices for administration of the WCMSA, you can view one of our older posts here which goes into greater detail. To download the latest edition of the toolkit, please click here.

One key addition to the toolkit is that claimants can now submit their annual attestation forms through the CMS portal. The attestation is the yearly accounting CMS wants to see on how the funds were spent. In years past, these forms had to be sent by snail mail. Unfortunately, most claimants who self-administer have likely never completed the attestation. The electronic option makes it a lot easier to do that now. As a follow-up, CMS will be hosting two separate webinars to highlight this latest feature. For more information, or to register for the webinar, you can visit the CMS website.

An alternative to MSA self-administration is professional administration. Pooled Trust Services is the only group offering MSA administration through a trust solution. With both a professional administrator and corporate trustee, there is no greater protection for the claimant. That way, everyone can have the peace of mind that the claimant’s Medicare benefits will never be disrupted. At minimum, best practices for attorneys handling workers’ compensation claims involving a Medicare Set-Aside account would be to include a hard copy of the toolkit or a link with the electronic version for reference. To learn more about professional administration, visit our website.

Medicare Compliance, or Else Redux: A Third Law Firm Settles with the DOJ for Failing to be MSP Compliant

By Jason D. Lazarus, J.D., LL.M., MSCC

The government takes its reimbursement rights seriously and is willing to pursue trial lawyers who ignore Medicare’s interest. On November 4^th, 2019, The United States Attorney for the District of Maryland announced that a Baltimore-based law firm paid the United States $91,406.98 to resolve allegations that it failed to pay back Medicare for conditional payments that had been paid on behalf of firm clients. The press release, while scant on details, seems to indicate that the firm had entered into a joint-representation agreement with co-counsel who in turn did not reimburse Medicare at settlement. According to U.S. Attorney Robert K. Hur, “Plaintiffs’ attorneys cannot refer a case to or enter into a joint representation agreement with co-counsel and simply wash their hands clean of their obligations to reimburse Medicare for its conditional payments.” He went on to say, “We intend to hold attorneys accountable for failing to make good on their obligations to repay Medicare for its conditional payments, regardless of whether they were the ones primarily handling the litigation for the plaintiff.”

Similarly, earlier this year in March, the United States Attorney for the District of Maryland announced that a Maryland personal injury law firm had agreed to pay the United States $250,000 to settle claims that it did not reimburse Medicare for payments made on behalf of a firm client. As part of the settlement, the firm “also agreed to (1) designate a person at the firm responsible for paying Medicare secondary payer debts; (2) train the designated employee to ensure that the firm pays these debts on a timely basis; and (3) review any outstanding debts with the designated employee at least every six months to ensure compliance.”

This is the third such settlement in the last two years. Back in June of 2018, the U.S. Department of Justice announced a settlement with a Philadelphia personal injury law firm involving failure to reimburse Medicare. The firm agreed to start a “compliance program” and the DOJ stated that this “settlement agreement should remind personal injury lawyers and others of their obligation to reimburse Medicare for conditional payments after receiving settlement or judgment proceeds for their clients.” The U.S. Attorney’s office also stated, “When an attorney fails to reimburse Medicare, the United States can recover from the attorney—even if the attorney already transmitted the proceeds to the client. Congress enacted these rules to ensure timely repayment from responsible parties, and we intend to hold attorneys accountable for failing to make good on their obligations.”

Consequently, in today’s complicated regulatory landscape, a comprehensive plan for Medicare compliance has become vitally important to personal injury practices. Lawyers assisting Medicare beneficiaries are personally exposed to damages and malpractice risks daily when they handle or resolve cases for Medicare beneficiaries. Synergy can be your resource for total Medicare Compliance. For a deeper dive, you can view the following 15-minute video presentation on this subject at: https://youtu.be/2EH7QWjj2zw

Do You Want to Retire With a Six-Figure Pension?

According to Yahoo Finance, in 1998 59% of Fortune 500 companies offered traditionally defined benefit pension plans to new hires. However, by 2017 Yahoo reported that only 16% of those same companies offered a traditional defined benefit pension plan. Defined Benefits Pensions typically pay a retiring employee a percentage of their average earnings for the remainder of their life based on the years with a company.

However, Trial Lawyers are in a unique position to create their own “pension” backed by some of the highest-rated life insurance companies in the world. A lawyer can do so by electing to enter into an attorney fee structure. In 1996, the 11^th Circuit case Childs v. Commissioner was decided which rejected the Internal Revenue Service’s attack on attorney fee structure annuities. Since then, the IRS hasn’t again challenged a lawyer’s ability to invest their fees on a pre-tax and tax-deferred basis. As a result of Childs, like your 401(k) or IRA, an attorney can enter into a fee deferral program and defer the taxation until the funds are withdrawn. The real benefit is there is NO LIMIT on how much you can defer in a calendar year. You can defer $10,000 or $10,000,000 on the same pre-tax basis. So it is really a Super IRA.

Structured attorney fees work very much like a non-qualified deferred compensation plan. The taxes that would be otherwise paid on the fee earned at the time the case is settled are deferred, and that money grows without tax on the growth. When distributions are made, the entire amount distributed during a year is taxable for that year. Based upon a taxpayer’s tax bracket, there may be some distinct tax advantages to entering into this type of arrangement as opposed to being taxed on the entire fee in the year it was earned and investing it after tax.

Time is of the Essence

The most important factor in your retirement planning is time. The interest rate you earn on the funds is helpful but starting early is more valuable. At a recent state trial lawyer convention, they were discussing membership and the host said 8% of their membership responded to a survey that they would retire in the next 5 years. That sparked our interest. We went to the Department of Labor and Statistics to see the workforce demographics reported in 2018 and extrapolated some data to make assumptions about the Trial Lawyer community.

For demographic purposes, you can make the estimation that about 90% of all trial lawyers are between 24 and 65 years of age.

Ages 25 to 34: 23%

Ages 35 to 44: 25%

Ages 45 to 54: 25%

Ages 55 to 64: 19%

If we assume that most attorneys will receive $30,000 from Social Security at age 65, you will need to create another $70,000 to reach six figures. Here is the cost to defer today and set up an annual payment of $70,000 a year at age 65 guaranteed for the remainder of your life.

Age: 33 Cost: $479,889.20

Age: 43 Cost: $659,381.80

Age: 53 Cost: $908,812.80

If you placed the amount above in a traditional attorney fee structure, you would receive $70,000 annually each year for the remainder of your life starting at age 65. For female attorneys, the costs would be slightly higher because females tend to live longer; however, the percentages are the same. If you wait until 43, you will need to invest 37% more to achieve the same payments at retirement age. If you wait until 53, you will need to invest 89% more to achieve the same result.

As you have read in our other Attorney Fee blog posts, there are many ways to defer your fees. This link describes some of the pros and cons of the various options you have available to you.

It is important to understand that regardless of the rate, the longer you wait to start the more you will have to invest to achieve the same benefits. The amount of money you need to invest to achieve your desired goal will always increase. Every delay in starting costs you more money.

The risk you take with the deferrals is very specific to your own personal market experience and tolerance.

Defer Fees on Your Terms

You can start to build your plan with $25,000 or $50,000. You can do it one time or one hundred times. You can defer one year and not the next. One partner in the firm can defer and the other can take their fee now. There really is no limitation to how you use deferral program. The options are endless.

Warren Buffet said, “The rich invest in time. The poor invest in money.” The most important thing to do is start now. Your age does not matter because every day you wait will cost you more for the same plan. The more time you have the less money you need to invest!