Background of Subrogation

What is subrogation? Black’s Law Dictionary defines subrogation as “The substitution of one party for another whose debt the party pays, entitling the paying party to rights, remedies, or securities that would otherwise belong to the debtor.” In fact, subrogation is a statutory right to reimbursement, often characterized by legal scholars as the right of one party to “stand in the shoes” of another party for legal purposes. In most instances, a lawyer, and more importantly her client, may face substantial consequences for failing to subrogate after either settlement or judgment of a personal injury case.

Although this important obligation binds attorneys, many still do not understand its basic concept in litigation. Perhaps a simple analogy will help. Let’s take a 72-year-old grandmother, Marcia, who is driving home from the market one day. However, on her way home while proceeding legally through a protected intersection, she is struck by a tortfeasor who failed to observe the red light. Assume for our purposes, the other driver’s automobile insurance carrier would not pay for Marcia’s medical bills relating to the injuries stemming from the collision in a timely fashion. Further, the medical providers pursued payment for 120 days from the tortfeasor, were unsuccessful, and knew that Marcia was on Medicare. The providers then sent claims to Medicare which paid for accident-related treatment. At some point in the future, Marcia settles her personal injury claim with the tortfeasor’s insurance carrier.

Does Marcia, or her attorney, have any duty to advise Medicare that this was accident related? Does Marcia have to pay Medicare back? Well, federal law mandates that Medicare’s “right of recovery” is automatic, paying out expenses to reimburse Medicare before any personal injury settlements or judgments as a result of the negligence of tortfeasors are paid. Not surprisingly, federal law designates Medicare subrogation as a superior lien to all other interests on the proceeds from the personal injury settlement or judgment, including the plaintiff attorney’s lien. The kicker: The Medicare lien does not require written or actual notice. So this means that if Medicare pays any amount, it has a superior lien, and you may be without any knowledge that Medicare has made any payments at all. If your client is Medicare eligible, it is instructive to put Medicare on notice of potential subrogation, if for nothing else, to get the ball rolling quicker.

Many of you might say, “When I started practicing law, Medicare didn’t want their money back. Have I been screwing up all of these years?” The answer is probably yes, but for other reasons than not paying back Medicare (insert laughter here). Until 1980, Medicare was the primary payer for Medicare recipients regardless of the reason for health care. Then, years after observing private insurance companies adding into their contracts the right to obtain subrogation in third party cases, Congress figured it would be a good idea to try and get some tax dollars back from third parties. Congress, doing what is does best, stealing a good idea and then screwing it up, eventually set up the system that is currently in place.

Medicare Secondary Payer Act

To be consistent, Congress amended the Social Security Act to add the Medicare Secondary Payer Act, which effectively enacted Medicare “liens.” Congress amended the Social Security Act again in 2003 to clarify its position that self-insured entities were included in the Medicare Secondary Payer Act. So, after the 2003 amendment, it became clear that all third-party recoveries were subject to reimbursement on the Medicare Secondary Payer Act.

Now let’s get into some nuts and bolts of Medicare subrogation. Do I have to pay Medicare back? Well this all depends on the answers to two important questions. First, does a primary payer exist? Primary payers include group health plans, workers’ compensation, auto or liability insurance (including self-insurance), and no-fault insurance (i.e. med pay or PIP). Second, was a conditional payment made? A conditional payment is a payment made by Medicare. If the answer to each question is yes, then you must pay Medicare back. In typical car wreck, slip/fall and medical malpractice cases, the answer to both of these questions are yes.

When an individual is enrolled in Medicare, meaning they are age 65 or older, age 65 or under with certain disabilities, or other special permitting characteristic such as end-stage renal disease, subrogation may occur any time the individual is injured by a third party tortfeasor and Medicare picks up the tab for all or part of the medical bills. The Medicare statute allows the federal government, which paid for the medical bills of the injured party, to be first in line to get its money back. After there has been a settlement or judgment in the case, the government subrogates the claim of the injured party and superimposes a “superior lien,” as mentioned above, on the recovery amount. What we have learned about the effect of a superior lien is that the government gets the recovery amount up to what they paid for medical expenses, not the injured party.

Are providers required to submit to Medicare? The short answer is no. However, providers are required to pursue payment from the primary payer for a period of 120 days following treatment. If the primary provider has not made payment at the end of the 120 days, the provider MAY bill Medicare or continue to wait for payment from a future insurance settlement.

So, what are we going to do about all of this? Medicare really has a “right of recovery.” It’s not a lien; it’s a superior lien indeed. When an injured party receives Medicare benefits, they are put on constructive notice. As mentioned previously, the kicker is Medicare does not have to send anyone notice of a lien since the statute is clear in providing notice itself. Likewise, penalties for failing to reimburse range in severity and are something no lawyer wants to face. The federal government is authorized to sue an attorney who knowingly disregards a Medicare right of reimbursement. So, back to the point: what in the heck are we supposed to do?

First, how do we even know if Medicare has a lien since there isn’t any real notice requirement? Well, look at your CLIENT! As we discussed earlier, look at the eligibility requirements for Medicare. Namely, look at their age. If your client falls within a category of Medicare eligibility and has received medical treatment for injuries relating to third party negligence, Medicare has to pay all or part of the related medical bills.

Second, if Medicare pays the medical expenses for your client, Medicare now is entitled to its superior lien and must reimburse Medicare within 60 days after receiving final demand from Medicare. This is set by federal statute. Another kicker: you MUST notify Medicare of any settlement or judgment! This is also set by statute. I’m sure you can guess just what money reimburses the government if you fail to notify Medicare of the settlement or judgment: the attorney’s fee! Not surprisingly, federal statute also mandates it. The bad news for those paying on behalf of the third party tortfeasor is that the insurance company can face double liability if it does not ensure any Medicare lien is paid. So to recap, Medicare can recover from the injured party, the attorney, and the negligent party payer. In fact, Medicare will collect until it is fully reimbursed, even at the cost of leaving the injured victim without any recovery. However, Medicare will reduce its lien to allow attorneys to get some of their costs and fees associated with working the case. So let’s get this right the first time and avoid any additional headaches.

Now that we have a basic understanding of Medicare’s right to recovery, how do we notify Medicare? Written notice with medical authorization is required and its prompt submittal will expedite the final distribution of settlement proceeds. Written notice should include at a minimum, the beneficiary’s claim number (usually the client’s social security number), the date of the accident, the name and address of the liability carrier, and the name and address of the beneficiary’s insurer. For clarity and to avoid delay, you may also include additional information concerning the medical providers, dates of service, any discharge dates, and the nature and extent of the beneficiary’s injuries. Of course, any missing information will be requested and required.

Medicare can waive its claims or compromise with the beneficiary. In fact, under § 1870(c) of the Social Security Act, the attorney may request a waiver of a claim but it must be based on a real financial hardship. Not surprisingly, waiver of a Medicare claim is rare.

Procedure To Get A Final Demand From Medicare

Now that we have covered what subrogation is, the extent of Medicare’s right of recovery, and how this affects us, let’s take a quick look at the essential steps in the Medicare subrogation process. Beginning with the onset of the events that lead us to subrogation, at some point an injury occurs as a result of the negligence of a third party. Next, the injured party who is a Medicare beneficiary receives treatment from a provider. During billing, the provider attempts to obtain payment from the primary payer while Medicare makes a conditional payment. The Coordination of Benefits Contractor (Medicare agency) is then notified of the possibility that the primary payer may make payments as well. Next, the Medicare Secondary Payer Recovery Contractor (MSPRC) issues the Rights and Responsibilities letter. MSPRC then identifies Medicare claims related to the primary payer and issues a conditional payment letter. Any disputed claims are submitted to MSPRC and the final demand amount is then paid.

There is no right or wrong procedure to ensure mastering the art of Medicare subrogation. However, it is important to be consistent with your approach and setup a procedure so no subrogation, especially Medicare subrogation, is missed. Below is a tried and proven method that my office has put in place through years of trial and error.

First, have a clear-cut procedure for setting up and monitoring Medicare files. Call Medicare and set up your claim with the information we discussed earlier. Create a template that is easy for you and your staff to recognize and use as a routine part of the case. Docket reminders beginning with a follow up reminder 1 week after you set up the claim to fax the Initial Letter to MSPRC. This allows Medicare to have enough time to transfer the file to MSPRC. We refer to this as the initial Medicare letter. If you already have medical specials together, go ahead and send a cover sheet showing who the providers are and the dates of treatment. Just as we discussed earlier, this will only help to expedite the handling of your case. Then, docket another reminder for 20 business days from the date you set up the claim to call MSPRC to request a conditional payment letter (CPL).

You will be informed that the CPL will arrive in 30-45 days. After you have requested the CPL, make another docket reminder for 45 business days to confirm receipt of the CPL. This reminder will prompt you to contact MSPRC again if the CPL has not been received. When the CPL is received, you will need to verify changes against your balance call sheet, if you have one, or against the specials. If there are any unrelated charges you will need to send a dispute letter to MSPRC. Medicare will send you a red form that the client needs to sign, with the first page of the letter telling you what information is required to be filled out. Send this form to the client with a Medicare Red Form Letter and a SASE (self-addressed stamped envelope). If the Medicare recipient is deceased, you must send in an authorization form signed by the personal representative of the estate along with the court order certifying the appointment. If there is not going to be a probate of the deceased estate, submit a copy of the client’s trust or will naming the trustee or executor.

In the event there is a dispute in charges, you will need to submit a Medicare dispute letter. This is done to remove charges from the conditional payment letter. The Medicare dispute letter should include the client’s name, health insurance claim number, and date of accident, and a copy of the CPL attached with the ICN for each unrelated charge. The Medicare dispute letter needs to also explain why the charges are unrelated and request that they be removed. Finally, fax Medicare the form with a cover sheet stating that it is a Medicare dispute letter.

Congratulations! You have received a good CPL and have reached a settlement with the other side. Now you have to send the final settlement information to MSPRC. The letter must have a printout of your costs and attach either a letter confirming the settlement amount or the signed release. It is imperative that an attorney sign this letter, not the client. Lastly, fax the letter to MSPRC and docket a follow up for 1 week to call MSPRC to have them process the final demand. Upon receipt of the final demand, docket a reminder for 55 days from the date of the letter for the due date to pay the demand because you only have 60 days to pay. Now you are on your way to working within the framework of the Medicare Secondary Payer Act and not becoming the subject of federal litigation yourself.

That is Medicare subrogation in a nutshell. Of course as statutes are constantly being amended and changed, it is ever more critical to ensure your firm is working hard to maintain its up-to-date Medicare subrogation knowledge by, you guessed it, reading articles like this one.