Haro v. Sebelius Reversed (in part): Medicare May Seek Upfront Reimbursement of Conditional Payments Despite Pending Appeals/Waivers

Some of us in the industry may remember an interesting case back from May of 2011 where a class of Medicare beneficiaries successfully obtained an injunction against CMS for certain conditional payment reimbursement practices. The two conditional payment practices that Haro sought to enjoin were: 1) requiring pre-payment of an MSP reimbursement claim before the correct amount is administratively determined where the beneficiary either appeals or seeks a waiver, and 2) holding plaintiff attorneys financially responsible for MSP reimbursement if they do not hold or immediately turn over to Medicare their clients’ injury compensation awards. For our prior blog on the district court case, please click here.

The original case involved Patricia Haro (“Haro”) and two other Medicare beneficiaries who all owed conditional payments to CMS but sought appeals or waivers of that amount. The beneficiaries collectively alleged that it was improper for CMS to require upfront payment of the conditional payment amount while an appeal or waiver of the reimbursement amount was pending. Attorney John Balentine, who represented Haro in her personal injury lawsuit, joined the lawsuit alleging that it was improper for CMS to require attorneys to hold settlement funds until Medicare is reimbursed. Additionally, Balentine alleged that the MSP does not support an attorney being held personally liable for unreimbursed conditional payments.

The injunctions as well as the class certification granted by the district court have now been reversed by a recent decision out of the Ninth Circuit Court of Appeals.[1] More specifically, although the Ninth Circuit found that the plaintiff Haro demonstrated standing on behalf of the class of Medicare beneficiaries, and Haro’s attorney independently demonstrated standing to raise his individual claim, the Ninth Circuit concluded that the beneficiaries’ claims were not adequately presented to the agency at the administrative level, and therefore the district court lacked subject matter jurisdiction pursuant to 42 U.S.C. d 405(g). The Appellate court reached the merits of the attorney’s claim, but concluded that the Secretary’s interpretation of the MSP provisions were reasonable; lastly, the Circuit Court did remand the beneficiaries’ due process claim for consideration.

Regarding the beneficiaries’ claims, the reasoning the Ninth Circuit Court of Appeals gave as to why it lacked subject matter jurisdiction is that the beneficiaries did not properly present their claims to CMS. More specifically, the court stated that the beneficiaries did not provide an opportunity for the Secretary to consider the claim and never previously alleged that her interpretation of the MSP provisions exceeded her authority. Although the beneficiaries presented reimbursement disputes and sought waivers or appeals of the reimbursement amount, they did not make an argument to the Secretary that she was exceeding her authority under the MSP by seeking up front reimbursement. Essentially, the Court of Appeals stated that the beneficiaries had to make this argument directly to CMS through the conditional payment negotiation/appeal process before bringing the issue to court. However, the court did remand the beneficiaries’ due process claim for further analysis.

Regarding attorney Balentine’s claims, the Ninth Circuit conducted a thorough analysis of both his standing to bring the claim and the reasonableness of his claim. Regarding standing, since Balentine is not a Medicare beneficiary and therefore could not present his challenge through the same administrative channel as Medicare beneficiaries, the court was able to make an exception and therefore was able to maintain subject matter jurisdiction over the claim.

However, regarding reasonableness, the Circuit Court looked to the MSP provision that states that “an entity that receives payment from a primary plan, shall reimburse [Medicare] for any [secondary payment] if it is demonstrated that such primary plan . . . had a responsibility to make [a primary] payment,” 42 U.S.C. § 1395y(b)(2)(B)(ii), but it does not define “entity.” Therefore, the question for the court was whether an attorney could be considered an “entity.” In looking at this, the court determined that there is no statutory basis to distinguish between entities that receive payment from a primary plan and end-point recipients. Essentially, an attorney does receive payment from a primary plan in a literal sense. Additionally, the 2003 MSP amendments indicate that Congress intended a broad construction of “entity that receives payment from a primary plan.” Lastly, the court found that the Secretary’s interpretation of the MSP is reasonable in that it increases the likelihood that proceeds will be available for reimbursement to Medicare.

So what does this reversal out of the Ninth Circuit mean? With the injunctions against CMS now being lifted, we may see CMS again sending conditional payment demands to collection agencies while waiver or appeals are being pursued. This was a practice that was put on hold after the district court decision was issued back in 2011. The decision as it relates to the attorney’s claim is not surprising; many of us remember cases such as U.S. v. Harris from a few years ago where a plaintiff attorney was held personally liable for unreimbursed conditional payments by CMS.

What we should learn from this case is 1) beneficiaries should always ensure that claims have been properly presented and that they have exhaust administrative remedies before bringing an issue with the conditional payment amount itself or CMS’ conditional payment recovery practices to review by a court; and 2) while it is unlikely that CMS will begin sending conditional payment demands to collections while an appeal or waiver is being pursued as they did in the past, CMS now technically has the legal right to do so with the injunctions being lifted; therefore, settling parties should be aware of this possibility. Additionally, parties should be aware, as always, that interest will accrue on final demands not paid within 60 days of their issue date.

PMSI will continue to follow the remand of the beneficiaries’ due process claims and any future updates on the Haro case.

[1] Haro v. Sebelius, 2013 U.S. App. LEXIS 18353 (September 4, 2013).

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