Haro v. Sebelius – US District Court Enjoins Medicare on Behalf of Putative Class Plaintiffs, Medicare beneficiaries, over MSP Collection Practices

Posted date in Jason D. Lazarus, J.D., LL.M., MSCC Liens, Medicare, Medicare Secondary Payer Act, MSP Compliance

I previously wrote about this important case being litigated in Arizona federal district court.  In Haro v. Sebelius, a class of plaintiffs who are Medicare beneficiaries are challenging certain collection practices and procedures employed by the Secretary of the United States Department of Health and Human Services as implemented by CMS.  Specifically, the United States District Court in Arizona has been asked to determine two things.  First, can CMS “require prepayment of a MSP reimbursement claim before the correct amount is administratively determined where the beneficiary either appeals or seeks a waiver of the MSP reimbursement claim”?  Second, can CMS “hold plaintiffs-attorneys financially responsible for MSP reimbursement if they do not hold or immediately turn over to Medicare their clients’ injury compensation awards”?  The court answered both questions in a recent order enjoining Medicare.  The court didn’t reach Due Process clause claims asserted by the class. 

The order enjoined [Medicare] from demanding payment of a MSP reimbursement claim [within 60 days of notice of settlement] with threats of commencing [immediate] collection actions before there is a resolution of an appeal or waiver request.”  In explaining its reasoning for enjoining Medicare the Haro court stated that “the Secretary’s application of the 60-day reimbursement requirement to support immediate collection activities against beneficiaries when the reimbursement claim is in dispute is neither rational nor consistent with the statutory scheme providing for waiver and appeal rights."  If Medicare’s interpretation of the MSP asserted in this case was accepted, the United States District Court of Arizona held it would unnecessarily chill “a beneficiary’s right to seek a waiver or to dispute the reimbursement claim and reaches beyond the fiscal objectives and policies behind the 60-day reimbursement provision.”

In addition, the Court specifically rejected Medicare’s policy of demanding “that attorneys withhold liability proceeds from clients pending payment of amounts claimed by [Medicare] as MSP reimbursement exceeds [the Secretary's] authority under the Medicare statute, and [Medicare] is enjoined from demanding that attorneys withhold liability proceeds from their clients pending payment of disputed MSP reimbursement claims.”  It is important to note that the Court did not enjoin Medicare from recovering unpaid amounts from attorneys.  However, the court in the opinion stated there isn’t “statutory support, either expressly or in the legislative history, to support the Secretary’s assertion that she has a direct cause of action, pursuant to 42 U.S.C. § 1395y(b)(2)(B)(ii), to recover a reimbursement claim from an attorney that has received payment from a primary plan and has passed it along to the beneficiary.”  Of further note, Judge Bury pointed out he “found no case which has considered the propriety of direct recovery actions against attorneys, pursuant to 42 U.S.C. § 1395y(b)(2)(B)(ii) and 42 C.F.R. § 411.24(g), but generally courts and litigants have presumed the correctness of the premise."  In arriving at this conclusion, the court calls into question cases where Medicare successfully recovered monies from attorneys for conditional payments and rejected what it called dicta in United States v. Baxter International, Inc., 345 F.3d 866 (11th Cir. 2003) wherein the 11th Circuit indicated Medicare had a direct right of action against “an attorney, who retains as a right or entitlement only that portion of settlement proceeds that pay for his or her services, [since] an attorney has no right or entitlement to retain any other portion of the settlement awarded his client.”  The court specifically discussed the decision in US v. Weinberg out of the E.D. of P.A. wherein an attorney was sued by Medicare to recover Medicare conditional payments.  The court didn’t address the more recent case of U.S. v. Harris which did address the issue of whether an attorney could be sued personally for failing to repay a Medicare conditional payment. 

I am not really sure what to take away from the discussion regarding attorney liability for unpaid Medicare conditional payments.  The court did discuss liability of attorneys when they are “end-point recipients” of settlement proceeds which it seemed to contrast with recovery from the lawyer’s fees.  The court does not define “end-point recipients” and I have never seen that term defined in the MSP nor do I know how to interpret that term.  What I do know is what US v. Harris and other cases outlined in the Haro decision have held which is that the government may under 42 U.S.C. 1395y(b)(2)(B)(iii), “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.”  In US v. Harris, the court, in support of its judgment against the plaintiff attorney, pointed to 42 C.F.R. 411.24(g) which states that CMS has a right of action to recover its payments from any “entity”, including an attorney. 

While the decision is important, in my opinion, primarily with regard to the Haro court’s holding that collection activities by Medicare are precluded against Medicare beneficiaries pending resolution of waiver requests or appeals, it is very important to keep in mind interest.  The Haro court recognized and approved imposition of 11.375% per annum interest applied retroactively to the date of settlement on amounts due to Medicare.  It found that “[t]he MSP provision that interest will accrue from the notice of the settlement, 42 U.S.C. § 1395y(b)(2)(B)(ii), upon the final determination of a disputed claim, 45 C.F.R. § 30.18(h)(1), is strong incentive for beneficiaries to pay what they owe Medicare prior to expiration of the 60-day time period, leaving only the disputed portion of the claim unpaid.”  What this leaves Medicare beneficiaries and their attorneys with is a difficult choice.  They can pay the entire conditional payment amount including disputed amounts to avoid any interest from accruing or guess what the correct final conditional payment amount will be after removal of the disputed charges with retroactive interest applied only to the disputed amounts determined to be due.  Not a great choice, but at least there are ways to minimize the hefty interest that can accrue during the appeal process. 

I don’t think that the Secretary of Health & Human Services will drop the issues raised by the Haro order.  I suspect that we will have an appeal stemming from this case which may ultimately clarify these issues for good.  A little more clarity and fairness in the area of MSP law would be welcome.