LIENS
Welcome to Synergy’s blog page dedicated to the topic of lien resolution. Our team of subrogation experts share their InSights and knowledge on the latest developments and best practices in lien resolution. Stay up-to-date with the latest trends and strategies to ensure that you have the information you need to navigate the complexities of lien resolution.
March 2, 2020
The 11th Circuit Court of Appeals weighed in on the question of whether the Medicare statute, which provides a three-year timeline to the government to request repayment, applies to a private entity providing Medicare benefits (Medicare Advantage plans). The Court’s answer is that the claims filing provision does not bar a claim and that the timeline is not a precondition to filing suit.
Basic primer on Medicare. When Medicare pays for accident-related treatment, it is entitled to be paid by the primary payor. Its payment is made as a conditional payment, conditioned on repayment when other funds become available. In the case of an accident, that could be medical payments coverage, bodily injury coverage or an uninsured/underinsured coverage. If Medicare seeks reimbursement and is denied, the United States can sue the primary plan to recover its payment. If the cause of action is successful, Medicare can be awarded double damages.
Section 1395y(b)(2)(B)(iii) contains a three-year statute of limitations that requires the government to sue within three years of the date that Medicare receives notice of a primary payer’s responsibility to pay.
(iii) Action by United States
… An action may not be brought by the United States under this clause with respect to payment owed unless the complaint is filed not later than 3 years after the date of the receipt of notice of a settlement, judgment, award, or other payment made pursuant to paragraph (8) relating to such payment owed.
(vi) Claims-filing period
Notwithstanding any other time limits that may exist for filing a claim under an employer group health plan, the United States may seek to recover conditional payments in accordance with this subparagraph where the request for payment is submitted to the entity required or responsible under this subsection to pay with respect to the item or service (or any portion thereof) under a primary plan within the 3-year period beginning on the date on which the item or service was furnished.
A few sections down lies § 1395y(b)(3)(A), which provides a private cause of action available to Medicare beneficiaries and other private entities if a primary plan fails to provide primary payment or reimbursement. This section does not contain a statute of limitations.
(A) Private cause of action
There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).
This is where the Medicare Advantage plan enters. In 1997, Congress enacted Medicare Part C or “Medicare Advantage” program (also known as MAP, Med A, MA, MAO). These plans are administered by private insurance companies that provide Medicare benefits for fixed fees from the Center for Medicare and Medicaid Services. 42 U.S.C. § 1395w-22(a)(4) states that a Medicare Advantage plan may charge a primary plan when a payment “is made secondary pursuant to section 1395y(b)(2).” This established that Medicare Advantage plans can sue under the MSPA to recover from primary plans if they do not pay. These plans must use the MSPA’s private cause of action versus the government cause of action.
In the MSPA Claims v. Kingsway Amigo, 2020 U.S. App. LEXIS 4554 (February 13, 2020), the Court found that there is nothing within the statutory language or structure to suggest the Medicare Advantage plan must comply with the claims filing provision as a prerequisite to seeking reimbursement. The decision starts with a warning as the second sentence of the opinion acknowledges that the case “turns on a careful examination of the often-convoluted rules governing the federal Medicare program.” The court painstakingly reviews the statutory structure of the Medicare statute even with a little levity; the opinion states “Okay, time for a deep breath and a summary.”
The Court found that the dependent “notwithstanding” clause and the permissive term “may” in the actual text of the MSP claims filing provision means that Medicare Advantage plans are not required to bring suit as a prerequisite in the 3-year period. Specifically stating, “[w]ords in a statute must be interpreted according to their ordinary meaning and “may” cannot, by any rendering, mean “must.” The Court finds that when a statute uses the word “may,” it “implies that what follows is a permissive rule and that it does not create a separate bar that private Medicare Advantage plans must overcome in order to sue.
The importance of this decision can’t be overstated. With no statute of limitations, the private cause of action provisions that MAO’s have been using so aggressively to recover are even more powerful. Insurers are becoming increasingly more fearful of failure to repay MAOs and this can lead to delays in resolution of a settlement when there are potential Medicare conditional payment or advantage plan liens. In addition, personal injury lawyers can be the targets of these types of private causes of action as well which in turn gives trial lawyers another thing to worry about when it comes to lien resolution. Because of these sorts of issues, now more than ever, insurers may want to directly pay MAO liens back directly and demand indemnification.
To avoid these types of scenarios and alleviate concerns, work with Synergy as your partner in bringing to resolution all liens asserted by Medicare Advantage plans, Medicare supplement plans and traditional Medicare outside of litigation. We also offer lien reduction services for many other lien types including ERISA, FEHBA, Military, Disability and Medicaid.
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. 1st 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
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 (4th 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
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.
Teresa S. Kenyon
A fleeting memory of Montanile may have plaintiff attorneys encouraging injured parties to quickly spend their settlement funds thereby avoiding the lien asserted by their health plan. This would be a false narrative that could prove to be costly. No doubt about it, ERISA self-funded plan rights are often unyielding. But overall, they still need to be addressed head-on and brought to definite resolution. Fortunately for the injured party, if the health plan fails to take appropriate action then the Plan’s rights are not as ironclad as it may have thought. If all of the pieces of the puzzle are all there, Montanile can be a positive and the injured party can retain more of their settlement funds. Unfortunately, when some of those pieces of the puzzle are missing, handling and ultimately paying the lien is still required.
As you may recall, in Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S Ct 651 (2016), the Court found that if a plaintiff fully exhausts the settlement funds so that they are no longer in the possession and control of the plaintiff, then an ERISA plan could not make a claim against the plaintiff since the subject of their claim, the settlement fund, is fully dissipated. However, there are limitations and exceptions to this. To mirror the facts in Montanile that brought the success, two key pieces must be in the puzzle. First, the plaintiff attorney must be cooperative with the Plan and show a good faith effort to resolve the lien claim. Second, if the Plan is unresponsive in return, then the funds can arguably be spent on nontraceable items. Miss these two pieces and you’ll likely have a negative result.
There is no doubt that Montanile was a win for injured parties especially following the other ERISA related US Supreme Court decisions of McCutchen, Seraboff, and Knudson that have ultimately served to provide strength to self-funded plans seeking reimbursement against an injured party’s settlement funds. Understandably, it may be tempting in a post-Montanile world for plaintiff attorneys to just ignore the lien, take their fee and disburse the remaining funds to their client – doing so in the name of Montanile. However, that is not usually a recommended course of action. The best way to handle an asserted ERISA lien is to resolve the asserted ERISA lien; reach an agreement with the lien holder thereby fully and completely bringing the matter to a close. This avoids any potential ethical issues for attorneys in states that follow ABA Ethical Rule 1.15 which provides:
(e) When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute. ABA Rule 1.15.
and it ensures that the client is protected from any later action from the Plan including offset of future benefits or the time and expense of defending a reimbursement action brought by the Plan. Attorney due diligence is key. Avoiding the lien holder and hiding from the reimbursement demand is not suggested. In fact, it is not at all what Montanile or his attorney did. A key piece in Montanile is that the plaintiff attorney demonstrated due diligence by informing the ERISA plan of the pursuit of a third-party claim, cooperating with the Plan by signing additional agreements (which isn’t recommended), and giving the Plan fourteen (14) days’ notice with an opportunity to object before disbursing the remaining settlement funds. These actions matter. Without these pieces of plaintiff counsel’s due diligence, the Court would have likely ruled differently.
Notifying the Plan is the first step to showing due diligence. As most plaintiff attorneys know, self-funded plans have expanded their policy language to encompass all defenses as case law evolves. The plan language has been repeatedly modified to ensure the Plan is in a robust posture for reimbursement. Most policy provisions state that a plan participant must notify the Plan that they are pursuing a third-party liability claim. If the Plan does not respond, then that piece of Montanile puzzle is present. On the other hand, if the Plan is never informed, then the plan participant cannot later argue that the Plan did not respond timely and that piece is forever missing.
Most ERISA Plan Administrators and their recovery vendors have responded to the Montanile case by clearly objecting to disbursement of settlement funds during negotiations. Plan Administrators now make faster decisions when negotiating lien claims. As negotiations stall, they are prepared to file legal action, provide the necessary testimony, and actively litigate their claim. Plans are being more proactive rather than waiting around for a windfall. The industry has a very different landscape from a decade ago, whereby Plans did not necessarily expect to see subrogation dollars. Now, the Plan’s outstanding subrogation interests are often represented as a line item on their accounts receivable. Thus, the more aggressive nature of pursuing their claims including asserting a claim directly against the tortfeasor and filing civil actions for reimbursement against injured parties. Plaintiff counsel’s mild cooperation with the Plan from the onset is likely to pacify most Plan Administrators and keep their assertive action and interference at bay.
Note that the Montanile Court made it clear that had the Plan taken more aggressive action, and sooner, that their recovery rights may have been preserved. The crux of the Montanile case is that when negotiations stalled, it was Montanile’s attorney who continued to be active by voicing his intent to distribute the settlement funds to Montanile unless the plan objected within 14 days. The Plan was radio silent. For six months. Ultimately, because of their inactivity, the funds had been dissipated by Montanile by the time the Plan brought its subrogation enforcement claim in the form of a reimbursement action. Although Montanile is a win for injured parties, an important puzzle piece is that plaintiff counsel must show due diligence to ensure that proper steps are taken. If the Plan fails to act, then piece one of Montanile can be relied on for plaintiff’s benefit.
Funds spent on non-traceable items
The second piece of the puzzle is examined more fully in another reimbursement action pursued by The Board of Trustees of the National Elevator Industry Health Benefit Plan. The Plan ensured that they did not fail to act timely this time and immediately took steps to ensure the reimbursement of the Plan when there was a third-party liability settlement. In Board of Trustees of National Elevator v. Goodspeed, 2019 WL 1934475 (E.D. Pa. May 1, 2019), the focus was on what the funds were dissipated on – whether they were traceable or not. Here, unfortunately for the Goodspeeds’ the Court found that their attempt to dissipate funds under a Montanile theory failed and that there was still an identifiable fund of which the Plan’s equitable lien could attach. The pertinent language from Montanile is:
“We hold that, when a participant dissipates the whole settlement on nontraceable items, the fiduciary cannot bring a suit to attach the participant’s general assets under §502(a)(3) because the suit is not one for ‘appropriate equitable relief’.” Justice Thomas in Montanile
In Goodspeed, the injured tort victim netted $304,463.22 after deducting attorney fees and costs. The Plan had notified the Goodspeeds’ attorney that they held a lien on the settlement proceeds prior to the case settling. Nonetheless, the attorney disbursed all $300,000plus to the Goodspeeds’ and did not reimburse the Plan’s asserted equitable lien of $82,088.36. The Goodspeeds’ deposited the check in their joint savings account in October 2017. Between October 2017 and May 2018, the couple spent or withdrew more than $304,463 from the account. Specifically, and traceably, they transferred $200,000 to a certificate of deposit with right of survivorship and purchased a van for $62,000. Presumably, the Goodspeeds’ believed that these actions would defeat the Plan’s reimbursement right because the funds were not only comingled with other general assets but also because the funds were dissipated. Regrettably, this belief was incorrect. The Court specifically found that there is an identifiable fund and allocation of the fund was now ready to be discussed.
The second key piece to Montanile is that the dissipation of funds must be attributed to nontraceable items. It is not enough to fall into the Montanile bucket by just dissipating the funds. The use of the funds must be nontraceable which would include food, travel, remodeling a house, paying off bills, or other disposable items. Traceable items include identifiable things like vehicles and certificates of deposit as specifically outlined in Goodspeed.
Since Montanile, and as expected, other case decisions have been guided by it and attempted to fill in any gaps or otherwise expand its meaning. In Cognetta v Bonavita, 2018 WL 2744708 (E.D. N.Y) the Plan filed a declaratory action to establish a constructive trust for the benefit of the Plan before the settlement funds were even in existence. The Court allowed it. Other Plans could follow this course of action. Plans are also intervening in the underlying case as a means of protecting their equitable lien and avoiding a Montanile defense. But this is a jungle that most plaintiff personal injury attorneys will not want to enter just to avoid paying an equitable lien claim. Unfortunately, another option for a scorned Plan Administrator is to offset future benefits if the injured party is still an active participant with the Plan. And finally, another risk is that the Plan names the tortfeasor in a subrogation action. Then the terms of the release obtained by the tortfeasor would be triggered whereby the tortfeasor would point to the indemnity clause placing the issue right back in the plaintiff attorney’s lap. Arguably, the Montanile dissipation argument would not be viable in that situation.
Conclusion
In the end, it comes with great risk to bury your head in the sand of Montanile and hope that the equitable lien just goes away. The better course of action is to tackle it head-on, thereby closing the case knowing that the lien issue is resolved completely and not still lingering. Synergy Settlement Services is your ERISA lien experts. We will tirelessly work to reduce the lien claim, bring the matter to a close and eliminate any risk and additional expense for you or your client. To watch our ERISA, Medicare advantage and Medicare refunds training course, visit our video learning center.
To learn more about handling medical liens in a post-montanile world watch our educational video below.
Jason D. Lazarus, J.D., LL.M., CSSC, MSCC
On March 18, 2019, the United States Attorney for the District of Maryland announced that the law firm of Meyers, Rodbell & Rosenbaum, P.A., has 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 second such settlement in the last year. In June 2018, a similar settlement was announced by the U.S. Department of Justice Attorney’s Office for the Eastern District of Pennsylvania. To read more about this prior settlement, click HERE. Both of these settlements should remind attorneys of “their obligation to reimburse Medicare for conditional payments after receiving [a] settlement or judgment proceeds for their clients [as well as] not to disburse settlement proceeds until receipt of a final demand from Medicare to pay the outstanding debt.”
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. The list of things to be concerned about is growing daily. The list includes things such as:
- Not knowing what medical information/ICD codes are being reported by defendant insurers complying with Mandatory Insurer Reporting law (MIR) created by MMSEA.
- Agreeing to onerous “Medicare Compliance” language—that may be inapplicable or inaccurate –which binds the personal injury victim.
- Failing to report and resolve conditional payment obligations leading to personal liability.
- Not using processes to obtain money back from Medicare using the compromise and waiver process.
- Failure to identify a lien, such as those asserted by Medicare Part C lien holders thereby exposing the personal injury lawyer and the firm to double damages.
- Inadequate education of clients about Medicare compliance when it comes to ‘futures’ and the risks of denial of future injury-related care.
What do you do? The answer is to develop a process to identify those who are Medicare beneficiaries in your practice and make sure that a process is put into place to deal with the myriad of issues that can arise. Given the liability a law firm faces for failing to be compliant, outsourcing this function to experts like those at Synergy helps mitigate the firm’s risk. Synergy’s Total Medicare Compliance program allows a law firm to address issues like Medicare Conditional Payment obligations, Medicare Advantage liens as well as Medicare Set Aside concerns by turning to us.
All lawyers assisting those on Medicare must be in the know when it comes to dealing with Medicare conditional payments as well as Part C/MAO liens. Medicare beneficiaries must understand the risk of losing their Medicare coverage should they decide to set-aside nothing from their personal injury settlement for future Medicare covered expenses related to the injury. Ultimately, it is about educating the client to make sure they can make an informed decision relative to these issues. Beyond education of the client, the most critical issue becomes how to properly document your file about what was done and why. This part is where the experts come into play. For most practitioners, it is nearly impossible to know all the nuances and issues that arise with the Medicare Secondary Payer Act. From identifying liens, resolving conditional payments, deciding to set money aside, the creation of the allocation to the release language and the funding/administration of a set aside, there are issues that can be daunting for even the most well-informed personal injury practitioner. Without proper consultation and guidance, mistakes can lead to unhappy clients or worse yet a legal malpractice claim.
For more information about our Medicare Compliance services, click here.
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