New York Federal District Court Reminds that CMS Right to Reimbursement of Conditional Payments from Beneficiaries Accrue Only After a Primary Payment

051816_1352_VirginiaFed1.jpgOn July 11, 2016, the United States District Court for the Eastern District of New York published its opinion on Sexton v. Medicare, concluding the Court lacked subject matter jurisdiction over plaintiff’s claim; thereby granting the Secretary of the United States Department of Health and Human Services (HHS) motion to dismiss. The Court reminds us all that although Medicare’s right of action to recover overpayments from primary payers accrues as soon as it learns that payment has been made or could be made under workers’ compensation, any liability or no-fault insurance, or an employer group health plan, the Centers for Medicare and Medicaid Services (CMS) right of action against beneficiaries only accrues after the beneficiary has received a primary payment – a settlement, judgment, award or other payment.

Facts and Historical Background

On December 6, 2014, Kevin Sexton (plaintiff) was struck by a distracted driver in the Bronx. According to the complaint and police report, the driver of the other car was a licensed taxi or limousine driver insured by American Transit Insurance Company (ATIC). Plaintiff alleges that he suffered injuries including fractures of his tibia and fibula as a result of the accident and had a rod placed in his leg.

Because plaintiff was a Medicare beneficiary, Medicare paid certain medical expenses related to the December 6, 2014 accident. On February 3, 2015, the CMS, which administers Medicare on behalf of the HHS, sent plaintiff and his attorney a letter notifying him that Medicare had conditionally paid medical expenses totaling $678.60 for treatment of his accident-related injuries. The February 3, 2015 letter stated that plaintiff “may be required to reimburse Medicare for medical expenses.” The letter was clear, however, that plaintiff was not yet being billed. The letter stated, in bold type: “THIS IS NOT A BILL. DO NOT SEND PAYMENT AT THIS TIME.”

On June 10, 2015, CMS sent a fundamentally identical letter to plaintiff and his attorney identifying an additional $25,262.15 in conditional payments for medical expenses arising from plaintiff’s December 6, 2014 accident. Based on a letter filed by plaintiff on June 27, 2016, further payments have since been made by Medicare on plaintiff’s behalf.

Following his receipt of the February 3, 2015 letter from the CMS, plaintiff filed the instant action seeking to compel Medicare “to recover the funds from American Transit Ins. Co. or from the providers that Medicare knowingly paid by mistake instead of from” plaintiff. Defendant subsequently served a motion to dismiss on plaintiff, which plaintiff did not timely oppose. After defendant’s motion was filed, the court provided plaintiff with additional time to file an opposition. When plaintiff again failed to respond to defendant’s motion, the court deemed the motion fully briefed.

Defendant moved to dismiss this action on two bases. First, “defendant argues that plaintiff’s claim is not ripe for judicial review because plaintiff has not suffered an actual or imminent injury where defendant’s right to collect any purported Medicare overpayments from plaintiff rests on contingent, future events that may not occur.” Second, “defendant contends that plaintiff failed to avail himself of and exhaust administrative remedies and satisfy the prerequisites to defendant’s waiver of sovereign immunity and, thus, the action must be dismissed.”

The Medicare Secondary Payer Act

Where payment has been made, or can reasonably be expected to be made for medical expenses under a primary plan, Medicare generally will not pay the medical expenses42 U.S.C. § 1395y(b)(2)(A). If a primary plan has not made or cannot reasonably be expected to make payment promptly, however, Medicare may conditionally pay for medical expenses42 U.S.C. § 1395y(b)(2)(B)(i). Medicare may later seek reimbursement from a primary plan or an entity that received a payment from a primary plan42 U.S.C. § 1395y (b) (2) (B) (ii) (“A primary plan, and an entity that receives payment from a primary plan, shall reimburse Medicare for medical expenses if it is demonstrated that such primary plan has or had a responsibility to make payment”) 42 C.F.R. § 411.24(b). “A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured or by other means” 42 U.S.C. § 1395y (b) (2) (B) (ii).

The government’s right to recoup overpayments permits it to recover directly from beneficiaries who receive primary payments42 C.F.R. § 411.24(g) (“CMS has a right of action to recover its payments from any entity, including a beneficiary that has received a primary payment”). If CMS determines that it has a right of recovery against a beneficiary, the agency will issue an “initial determination” identifying the “recovery claim against a beneficiary for services or items for which Medicare already paid.” 42 C.F.R. § 405.924(b) (14). The initial determination by CMS is administratively appealable42 C.F.R. §§ 405.940-978; 42 C.F.R. §§ 405.1000-1054, 405.1100-1140. After exhausting administrative appeals, an unsatisfied beneficiary may seek judicial review of the Secretary’s final decision. 42 U.S.C. § 405(g); 42 U.S.C. § 1395ff (b) (1) (A) “Judicial review of claims arising under the Medicare Act is available only after the Secretary renders a ‘final decision’ on the claim.”

Plaintiff Lacks a Claim That is Ripe for Adjudication

Defendant first argues that “the court lacks subject matter jurisdiction over plaintiff’s action because plaintiff has not suffered an actual or imminent injury.” Defendant contends that “Medicare’s claim for reimbursement has not yet accrued because no event has triggered a primary insurer’s obligation and plaintiff has not been requested to reimburse the program.” In other words, because Medicare may never become entitled to reimbursement from plaintiff, defendant posits, there is no live dispute between the parties.

Although CMS has the right of action to recover overpayments against primary insurers “as soon as it learns that payment has been made or could be made under workers’ compensation, any liability or no-fault insurance, or an employer group health plan,” 42 C.F.R. § 411.24(b); 42 U.S.C. § 1395y(b)(2)(B)(iii) its right of action against beneficiaries only accrues after the beneficiary has received a primary payment.42 C.F.R. § 411.24(g) (“CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment.”); see also 42 U.S.C. § 1395y(b)(2)(B)(iii), which says “the United States may 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.”

Plaintiff contends that “Medicare has improperly sought to recover purported overpayments directly from him, rather than from the insurer of the driver of the vehicle that struck him.” The February 3, 2015 letter CMS sent to plaintiff stated explicitly, however, that it “IS NOT A BILL” and that plaintiff should “NOT SEND PAYMENT AT THIS TIME.” The letter merely explained that plaintiff “may be required to reimburse Medicare for medical expenses related to his liability claim.”

The Court explains that “Medicare may eventually determine that a primary insurer is responsible for covering medical expenses related to plaintiff’s injuries. In that case, it may seek reimbursement against the primary insurer or, if plaintiff has received a payment, against plaintiff himself.”42 U.S.C. § 1395y (b) (2) (B) (iii). In other words, “if a primary insurer directly reimburses Medicare for all of the purported overpayments, Medicare would not seek repayment from plaintiff himself. Alternatively, Medicare may determine that there was no overpayment.” As the above hypothetical situations illustrate, plaintiff’s alleged injury is purely conjectural. Because he “alleges only a potential for injury that has not yet occurred and because that potential is born of nothing more than hypothesis and conjecture,” the Court concludes plaintiff lacks standing to sue.

As noted above, on June 10, 2015, plaintiff received a nearly identical letter naming additional conditional payments made by Medicare on plaintiff’s behalf. The June 10, 2015 letter, like the February 3, 2015 letter, provided that plaintiff “may be required to reimburse Medicare.” It did not establish Medicare’s right of recovery against plaintiff. Additionally, on June 27, 2016, defendant filed a letter with the court explaining that further conditional payments had been made by Medicare on plaintiff’s behalf. The letter, however, explained: “HHS is not aware of any events at this time that would give rise to a claim for recovery against Plaintiff under the Medicare Act.” Even if events since the filing of the complaint had demonstrated Medicare’s right to recover overpayments, plaintiff was obligated to establish his standing to sue at the outset of the litigation.

Conclusion

Because the court lacks subject matter jurisdiction to hear plaintiff’s claim against defendant, the court need not address defendant’s alternative arguments. For the foregoing reasons, the court concludes plaintiff’s complaint is dismissed with prejudice pursuant to Fed. R. Civ. P. 12(b)(1) for lack of jurisdiction.

The court reminds us all that although CMS has the right of action to recover overpayments against primary insurers as soon as it learns that payment has been made or could be made under workers’ compensation, any liability or no-fault insurance, or an employer group health plan, right of action against beneficiaries only accrues after the beneficiary has received a primary payment. That rule not only applies to beneficiaries, but also to providers, suppliers, physicians, attorneys, state agencies or private insurers that have received a primary payment. In other words, Medicare may recoup reimbursement from any entity that has received payment from a primary plan or from the proceeds of a primary plan’s payment to any entity.

 

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About Rafael Gonzalez

As vice president of strategic solutions, Rafael Gonzalez serves as a thought leader on all aspects of Medicare and Medicaid compliance issues, including mandatory insurer reporting, conditional payments resolution, Medicare set aside allocations, CMS approval, and professional administration of Medicare set asides and special needs trusts. Prior to joining Helios, over the last 30 years, Rafael served as director of Medicare & Medicaid compliance and post settlement administration for Gould & Lamb in Bradenton, Florida. Before that, he served as chief executive officer for the Center for Lien Resolution, the Center for Medicare Set Aside Administration and the Center for Special Trusts Administration in Clearwater, Florida. Prior to that, he served as corporate counsel for FCCI Insurance, a workers’ compensation/property casualty insurance company in Sarasota, Florida. And before that, he practiced social security disability, workers’ compensation, longshore and personal injury law in Tampa, Florida. Rafael Gonzalez received his Bachelor of Science degree from the University of Florida and his Jurisprudence Doctorate degree from the Florida State University.

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