III. Liens Under Federal Law

• Library: The Law of Automobile Insurance in SC (SCBar) (2015 Ed.)

III. Liens Under Federal Law

A. Medicare (and the Medicare Secondary Payer program)

Congress enacted Medicare in 1965. Authorized by Title XVIII of the Social Security Act, Medicare is the federal health insurance program that provides coverage for the following beneficiary groups:

1. Individuals over 65 years of age;
2. Individuals under 65 years of age who have received Social Security disability insurance benefits for at least 24 months (29 months after the onset of disability); and
3. Individuals with end-stage renal disease.³⁰

Medicare is divided into three parts, each of which covers different things. For qualified beneficiaries, Medicare Part A covers expenses for hospitals, skilled nursing facilities, home health care, and hospice care. Medicare Part B covers physicians' services and ancillary healthcare expenses such as physical and speech therapy, inpatient and outpatient medical and surgical services, laboratory tests, and durable medical equipment. Medicare Part C governs Medicare Advantage Organizations. Medicare Part D covers prescription expenses.

The United States Department of Health and Human Services (DHHS) administers the Medicare program. Until 2001, the Health Care Financing Agency (HCFA), a division of the DHHS, regulated the Medicare system in conjunction with contracting agencies in every state.³¹ Since 2001, however, HCFA's responsibilities have been transferred to the new Centers for Medicare and Medicaid Services (CMS).

Under the Medicare Secondary Payer (MSP) system, Medicare will not pay for medical items or services to the extent that:

[1] payment has been made, or can reasonably be expected to be made, with respect to the item or service ..., or
[2] payment has been made, or can reasonably be expected to be made ...under a workmen's compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no-fault insurance.³²

The MSP program purports to "prevent the unjust enrichment of the tortfeasor or its liability insurer at the expense of the Government."³³ Thus, "Medicare benefits are secondary to benefits payable by a primary payer even if State law or the primary payer states that its benefits are secondary to Medicare benefits or otherwise limits its payments to Medicare beneficiaries."³⁴

The Omnibus Reconciliation Act of 1980 amended the MSP provisions of the Social Security Act to make Medicare's liability secondary with respect to claims for medical items or services also payable under policies of automobile liability insurance, uninsured motorist insurance, or underinsured motorist insurance.³⁵ Under the amendment,

[l]iability insurance means insurance (including a self-insured plan) that provides payment based on legal liability for injury or illness or damage to property. It includes, but is not limited to, automobile liability insurance, uninsured motorist insurance, underinsured motorist insurance, homeowners' liability insurance, malpractice insurance, product liability insurance, and general casualty insurance.³⁶

The amendment also covers no-fault insurance:

No-fault insurance means insurance that pays for medical expenses for injuries sustained on the property or premises of the insured, or in the use, occupancy, or operation of an automobile, regardless of who may have been responsible for causing the accident. This insurance includes but is not limited to automobile, homeowners, and commercial plans. It is sometimes called "medical payments coverage," "personal injury protection," or "medical expense coverage."³⁷

Even though primary responsibility for payment of injury-related medical expenses lies with these forms of insurance, Medicare may make conditional payments pending the resolution of litigation against the insurance carriers or their insureds.

1. Conditional Payments

Medicare may make conditional payments if a primary liability or no-fault insurer has not paid promptly for Medicare-covered expenses, a liability insurer has denied the claim, or if the beneficiary has not filed a claim with the carrier.³⁸ Medicare can then recover these expenses through the MSP program once the beneficiary obtains a settlement or judgment against the liability insurer or its insured.³⁹

With respect to claims against no-fault insurance carriers, "[t]he beneficiary is responsible for taking whatever action is necessary to obtain any payment that can reasonably be expected under no-fault insurance."⁴⁰ If the beneficiary fails to file a proper claim for reasons other than physical or mental incapacity, Medicare will not pay for the medical services or items in question.⁴¹ "However, if a claim is denied for reasons other than not being a proper claim, Medicare pays for the services if they are covered under Medicare."⁴²

2. Medicare's Right of Reimbursement

For any conditional payment made, Medicare has a statutory right of reimbursement

A primary payer, and an entity that receives payment from a primary payer, must reimburse CMS for any payment if it is demonstrated that the primary payer has or had a responsibility to make payment....

A primary payer's responsibility for payment may be demonstrated by —

(1) A judgment;
(2) 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 payer or the primary payer's insured; or
(3) By other means, including but not limited to a settlement, award, or contractual obligation.⁴³

"This means that a primary payer may not extinguish its obligations under the MSP provisions by paying the wrong party — for example, by paying the Medicare beneficiary or the provider when it should have reimbursed the Medicare program."⁴⁴ In general, CMS has authority to pursue recovery under the Federal Claims Collection Act from any entity "includ[ing], but not limited to, insurers or self-insurers, third[-]party administrators, and all employers that sponsor or contribute to group health plans or large group health plans."⁴⁵ This is significant for insurance pools, because every entity that contributes to the pool is now made a "primary payer" by regulation.⁴⁶

Medicare can exercise this right of recovery in any of four ways. First, Medicare has a direct right of action, pursuant to which CMS can proceed directly against an entity who has received a primary payment.⁴⁷ Second, Medicare has a subrogation interest, under which it can authorize another party to represent its interests or can stand in that party's shoes in exercising its right to reimbursement.⁴⁸ Third, CMS can intervene in ongoing litigation.⁴⁹ Finally, CMS "may recover by direct collection or by offset against any monies CMS owes the entity responsible for refunding the conditional payment."⁵⁰ Each of these methods is "separate and distinct" from the others, giving CMS the utmost flexibility in pursuing Medicare's right of recovery.⁵¹

a. Direct Right of Action

Under 42 U.S.C. § 1395y(b)(2)(B)(ii) and § 1395y(b)(3)(A), "CMS has a direct right of action to recovery to recover from any primary payor."⁵² Medicare's direct right of action generally does not depend on any claims filing requirements imposed to the contrary by the insurance plan providing primary coverage.⁵³ The right thus confers standing upon the government to bring an action independently of the Medicare beneficiary or any other party in interest.⁵⁴ Nevertheless, the beneficiary has a duty to cooperate in such litigation, and if the beneficiary refuses to do so, CMS may recover from the beneficiary directly.⁵⁵

"CMS may initiate recovery 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."⁵⁶ Unlike Medicare's right of reimbursement against workers' compensation settlements, though, Medicare can claim reimbursement against proceeds from liability or no-fault insurance through the date of settlement of judgment only.⁵⁷

b. Subrogation

"With respect to services for which Medicare paid, CMS is subrogated to an individual, provider, supplier, physician, private insurer, State agency, attorney, or any other entity entitled to payment by a primary payer."⁵⁸ "This right of subrogation gives [CMS] the right to be put in the legal position of the beneficiary in order to recover from third parties who are legally responsible to the beneficiary for a loss."⁵⁹ Furthermore, Medicare retains a subrogation interest even though the entity to whose rights CMS is subrogated has not actually received payment from the responsible party and, thus, does not necessarily attach to any property interest of that party.⁶⁰ For these reasons, Medicare's interest is not a "lien" in the legal sense of that term, but rather a right to recover or a right to reimbursement only.

The option of subrogation is different than Medicare's direct right of action in that CMS need not be a party to the litigation. For example, an eligible healthcare provider may bring an action to enforce Medicare's reimbursement rights, thus subrogating Medicare to any recovery obtained.⁶¹ Medicare's right to subrogation also has priority over other claims against the proceeds of litigation: "the statutory language of § 1395y(b) and its legislative history establishes that the United States' right of reimbursement is paramount to all other subrogated parties' claims as a matter of law."⁶²

c. Intervention

As opposed to initiating an action to recover provisional payments, CMS can join or intervene in any ongoing litigation that involves Medicare's reimbursement interest.⁶³

d. Direct Collection or Offset of Providers' Account

The final method by which Medicare can obtain reimbursement is by collecting the amount of reimbursement directly from accounts of the medical provider for which Medicare owes payments or by offsetting future...