Conditional Payment Confusion Wreaks Havoc in Settlement
The practice of law requires lawyers to represent their clients zealously and competently. The American Bar Association’s Model Rules for Professional Conduct state that “competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.” When representing a Medicare beneficiary in a personal injury case, competent representation also requires a good understanding of the impact of the Medicare Secondary Payer Act on the settlement. It is also important that Medicare Secondary Payer Compliance service providers provide competent advice to their clients. The Osterbye v United States, 2020 U.S. Dist LEXIS 116591 (June 30, 2020) case highlights the havoc that conditional payment confusion may cause in a case.
In Osterbye, the United States District Court for the District of New Jersey was presented a Motion to Dismiss the Osterbye complaint based on the parties’ settlement agreement and a statute of limitations defense. The Court denied the motion and declined to dismiss Plaintiffs’ claims.
By way of background, the underlying claim involved a Medicare beneficiary, Ms. Osterbye, who was injured in a fire at her home on April 25, 2009. She filed suit claiming the fire was allegedly due to the negligence of a plumbing contractor who was insured by Selective Insurance. Medicare paid for Ms. Osterbye’s injury-related medical treatment. The parties eventually reached a settlement agreement for $740,000.00 for known damages. This figure included the sum of $13,562.90 based on Medicare’s interim conditional payment information. On April 29, 2013, Plaintiffs signed a Release giving up “all claims and rights” against the plumbing contractor. Plaintiffs also agreed not to “seek anything further, including any other payments.”
Although Plaintiffs reimbursed Medicare for the $13,562.90 in conditional payments, Medicare subsequently issued a final demand on June 4, 2013. The demand sought the additional amount of $118,071.28. This amount had not been considered or addressed in the parties’ settlement agreement. Plaintiffs disputed the conditional payment demand through Medicare’s administrative appeal process. The Medicare Appeals Council dismissed Plaintiffs’ request for review on June 26, 2019. Plaintiffs subsequently filed this action against the United States, the Secretary of Health and Human Services, the U.S. Department of Health and Selective Insurance. The federal Defendants were later dismissed from the action.
Plaintiffs sought relief from the District Court arguing that Selective should have reimbursed Medicare for Ms. Osterbye’s medical expenses under the Medicare Secondary Payer Act (MSP). Plaintiffs also argued that Selective “negligently initiated and failed to disclose a separate conditional payment claim with Medicare.” Selective moved to dismiss the counts based on a six-year MSP statute of limitations defense. Selective also argued that Plaintiffs’ claims should be dismissed based on the terms of the settlement Release. The Court was not persuaded by the statute of limitations defense noting that Plaintiffs were required to exhaust the administrative remedies under the Medicare Act prior to filing suit. Since Plaintiffs were only able to seek judicial review after June 26, 2019, their filing of this suit on August 28, 2019 was timely. The negligence claim was allowed to stand with the MSP claim.
In regard to Selective’s argument that the executed Release barred Plaintiffs from pursuing any additional claims against Selective, the court noted Plaintiffs position that the Release was invalid based on the doctrine of mutual mistake. In New Jersey, “a compromise which is the result of a mutual mistake is not binding and consent to a settlement agreement is not considered freely given when it is obtained as the result of a mistake.” Wallace v. Summerhill Nursing Home, 380 N.J. Super. 507, 883 A.2d 384 (N.J. Super. Ct. App. Div. 2005). The Court further quoted the Restatement (Second) of Contracts, stating “Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performance, the contract is voidable by the adversely affected party.”The District Court declined to dismiss Plaintiffs’ claims based on the terms of the Release finding that a factual inquiry into the basic assumptions of the parties at time of release would be appropriate.
This case illustrates the complications that may arise in settlements involving Medicare beneficiaries. Parties should be aware of the differences between Medicare’s interim conditional payment and final conditional payment information in order to avoid unexpected reimbursement demands. Interim conditional payment figures are subject to change once Medicare performs a final conditional payment sweep after settlement. The final conditional payment sweep will be triggered by the Section 111 Mandatory Insurer Reporting of the Total Payment Obligation to Claimant (TPOC) by the liability plan. Compliance with Section 111 mandatory reporting would never be a “negligent initiation of a separate conditional payment claim.” Furthermore, parties can secure final conditional payment figures through the proper use of the final conditional payment process that is available through the Medicare Secondary Payer Recovery portal. If the area of MSP compliance is outside of your area of expertise, you should be sure to seek assistance from experts.
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