The Secondary Payer Mouse Trap
Dealing with CMS and its contractors regarding conditional payment liens in personal injury cases can seem like an exercise in futility. You try to do everything right. You put them on notice of your claim and identify the claimed injuries. You review the conditional payment ledger for unrelated items. You use the conditional payments as “Howell” specials for past medical damages and get the case resolved. You notify CMS of the settlement, complete the settlement process, and get the money into the client’s trust account. Then, the CMS Final Demand shows up and it includes hundreds of thousands of dollars in payments not included in the conditional payment ledger!
In Osterbye v United States, 2020 U.S. Dist LEXIS 116591 (June 30, 2020) the parties received a conditional payments ledger totaling $13,562.90 and relied upon this in settling the case. A month and a half later CMS issued a massively increased final demand for $119,071.28.
Apparently, the liability carrier who initiated the CMS reports, made a separate conditional payment claim that was not disclosed to the plaintiff during the claim processes, which accounted for the increase in the final demand.
The plaintiff paid CMS the undisputed $13,000 and worked through the CMS administrative appeal process. The plaintiff argued she shouldn’t be responsible for the increased demand because she only asserted the smaller amount in support of her recovery.
The appeals were rejected at each stage, a process taking six years. By exhausting the lengthy administrative process, the plaintiff gained the right to file suit in federal court. Although government defendants were initially named, the case ultimately proceeded only against Selective (the liability carrier) based upon the Secondary Payer Act and common law negligence for the carrier’s handling of the conditional payment claim.
Selective moved to dismiss the lawsuit, claiming the plaintiff relinquished her rights by signing a release in the personal injury lawsuit. Selective also asserted that the statute of limitations had long passed. The court found that because the claims were brought under the Secondary Payer Act, they did not ripen until the Medicare Appeals Council denied the final administrative appeal. As such, the 6 years MSP SOL had just started to run. On the release issue, the court found that the plaintiff alleged sufficient facts to show a mutual mistake of fact which could nullify the terms of the personal injury release.
Although the court in Osterbye was reviewing the mutual mistake doctrine under New Jersey law, it is generally aligned across the nation. A mutual mistake occurs when the parties to a contract are both mistaken about the same material fact within their contract. They are at cross-purposes. There is a meeting of the minds, but the parties are mistaken. Hence the contract is voidable. A unilateral mistake occurs when only one party is mistaken as to the subject matter or the terms contained in the contract agreement.
Determining whether the non-mistaken party is aware that the other party does not understand the term in the contract often drives the remedy. If the non-mistaken party knows or should know that the other party has made a unilateral mistake, the result is usually contract rescission (cancellation). On the other hand, if the other party was not aware of the mistake, the contract can be rewritten (i.e. reformation).
The Osterbye case appears far from over and we will follow whether the plaintiff is successful in forcing the settling liability carrier to pay the CMS lien.
- Don’t rely on the conditional payment ledger – you need a final demand. Understand that a conditional payment ledger (CPL) is “conditional” and CMS will conduct a final “sweep” when producing a “Final Demand”.
- As plaintiff’s counsel - make your own reports to CMS of the claim, review the CPL and report settlement. Do not trust the liability carrier with proper reporting.
- Check payments on the CPL against known providers and treatment dates and against what you have claimed in the liability case. Make sure nothing is missing from the CPL. If you have documentation of additional treatment or charges, it will be difficult to claim you relied on a CPL that does not include all of the care for injuries you are claiming. Corollary: If the CPL includes payments for care not related/claimed in the case - call that out to the contractor to be removed before requesting a final demand. Failure to do so may result in the contractor claiming you have waived the right to challenge payments thereafter.
- The terms of your settlement agreements related to liens and indemnity issues should be thoroughly considered and carefully drafted. Boilerplate language often results in unexpected exposure to the plaintiff and their counsel.
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