Liability plaintiff loses its right to reimbursement; So does Medicare

In a case out of the Court of Appeals of Oregon, Rhoades v. Beck,  2014 Ore. App. LEXIS 82 (January 23, 2014), a personal injury lawsuit gone wrong demonstrates that when parties do not consider Medicare’s interests during their settlement discussions, not only can the plaintiff lose her right to reimbursement, so can Medicare.

This case involved a motor vehicle collision. The plaintiff and her husband both filed personal injury actions against the defendant. The plaintiff alleged, among other things, that she had incurred medical expenses in the sum of $45,517.69. Trial was scheduled for early May 2010, shortly before the scheduled trial date, the parties’ attorneys discussed settlement and agreed on mutually acceptable terms. In that discussion, the parties agreed that the defendant would pay $15,000.00 to plaintiff, $5,500.00 to plaintiff’s husband, and any personal injury protection (PIP) liens asserted by their auto insurance carrier, in exchange for the plaintiff and her husband holding the defendant harmless from all other liens. The parties subsequently confirmed those terms in an exchange of letters.

After that discussion, the plaintiff received a notice from the MSPRC that there were conditional payments of at least $22,970.62 against plaintiff’s recovery. The plaintiff refused to sign the settlement agreement unless Medicare agreed to waive its lien, but the defendant maintained that their agreement was not dependent on actions by Medicare (the plaintiff’s husband did sign a release as to his claim). The defendant filed a motion for an order requiring plaintiff to sign the documents necessary to complete the settlement. The trial court agreed with the defendant and entered an order granting the defendant’s motion. When the plaintiff refused to sign the settlement documents, the trial court entered a general judgment dismissing the plaintiff’s action.

The plaintiff appealed the trial court’s decision arguing that there was no “meeting of the minds” in the settlement discussions since the reimbursement of Medicare conditional payments would be a material fact that was not considered. The defendant countered that there was no dispute that a settlement agreement had been reached, albeit orally, and that there was evidence that the plaintiff was aware of the existence of Medicare conditional payments at the time of agreement.

The Court of Appeals agreed with the defendant and affirmed the trial court’s decision dismissing the plaintiff’s action. It noted that the record supported the trial court’s implicit finding that the parties’ communications and acts objectively established that they had a meeting of the minds: the parties agreed that the plaintiff would release her claim against the defendant and hold the defendant harmless from all other liens in exchange for the defendant paying the plaintiff $15,000.00 and satisfying the PIP lien. Therefore, the trial court’s legal conclusion that there was an enforceable contract was correct.

This case is noteworthy because in theory it turns out to be a “lose-lose” situation for both the plaintiff and for Medicare, although due to the particular facts of this case it ends up being a wash financially for the plaintiff (Medicare conditional payments exceeded the settlement amount). As to Medicare, because the plaintiff’s claim was dismissed and no final settlement was achieved, Medicare will not issue a final demand to the beneficiary or to the personal injury defendant. Therefore, Medicare will not be able to be reimbursed for the conditional payments it made.

There are only two ways Medicare will ever be able to recover. The first option is if the plaintiff re-files another suit and is successful. The second option or exception may be if PIP benefits remain available, which is unclear in this case. In speaking to the plaintiff’s attorney in this case, Matt T. Parks, he indicated that the PIP coverage never made any medical payments previously in this case. Mr. Parks also indicated that neither side was aware of the fact that Medicare conditional payments had been made; he stressed that it took Medicare thirteen months to respond to his request for a conditional payment demand in this case, which may explain the lack of knowledge regarding conditional payments at the time of settlement negotiations.

However, the plaintiff in this case might be better off not even bothering to re-file a lawsuit, if she is even able to (assuming the case was dismissed without prejudice). With the conditional payment amount in this case (an amended lien later received by the plaintiff showed the current amount due of $23,042.82) exceeding the settlement money she would have received ($15,000), Medicare would have had the right to her entire settlement check of $15,000 and the plaintiff would receive nothing after reimbursing Medicare. However, Medicare would not receive its full amount due and she would not owe beyond what she received in the settlement due to the fact that Medicare only has the right to recover conditional payments up to the amount of the settlement (this is stated in 42 CFR §411.37). Therefore, after receiving a final demand upon receipt of the finalized settlement documents, Medicare would reduce the conditional payment amount from $23,042.82 to $15,000, unless the plaintiff could get Medicare to waive or further reduce the recovery on the basis of hardship.

As a result, it may not make sense for the plaintiff to re-file another suit unless she could somehow get Medicare to agree to waive their recovery or have the defendant agree to reimburse Medicare for its conditional payments, which seems unlikely given the facts in this case. This case is a perfect example of why we should be reminded that not considering Medicare’s interests at the time of settlement and determining who will be responsible and reimburse Medicare for any conditional payments owed can result in the entire settlement falling apart. Many other cases have demonstrated settlements completely falling through due to the failure to consider Medicare’s interests prior to settlement.

If settling parties have all their ducks in a row at the time of settlement, specifically the Medicare “duck,” the Medicare Secondary Payer (MSP) process, as well as the settlement process, can operate as intended.


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