I. Introduction

In a prior article appearing in The Journal of The Missouri Bar, "Liens, Assignments, Subrogation and Other Traps for Claimant's Lawyer," Medicare liens were briefly discussed in the context of a general survey of liens and other third party claims applicable in a personal injury settlement or judgment recovery.³ As noted in our earlier article, Medicare is often the payer of physician's fees, hospitalization charges, and other medically-related expenses for personal injury plaintiffs. As such, Medicare has an interest in the proceeds of any settlement or judgment paid out to claimants whose medical bills were paid in whole or in part by Medicare. The government's rights of recovery and recoupment under the Medicare Secondary Payer Program (MSP) have been generally considered to be far more extensive than those of other public or private payers, including Medicaid. In our earlier article, we acknowledged the extensive reach of Medicare's lien and, based on our reading of the applicable statutes, regulations and case law, recommended that the claimant's attorney negotiate and complete a settlement of Medicare's interest before paying out the residual proceeds of settlement to the claimant.

An article appearing in the September 1997 issue of Trial magazine charged that attorneys in general, and commentators in particular, have grossly overestimated the scope and reach of the Medicare lien and that overreacting to an attorney's supposed legal responsibilities under the Medicare laws could result in a breach of an attorney's duty to his client.⁴ The author, attorney Sally Hart, took the position that an attorney voluntarily paying out a client's settlement or judgment proceeds in the absence of a true lien would violate his/her professional obligations to the client. Ms. Hart contends that the Medicare lien is not a true lien at all, much less a "Super Lien," as some have claimed.⁵ Because of the importance of this issue to practicing attorneys in Missouri and the prevalence of Medicare claims in personal injury settlements, we revisit this subject to explore precisely how the claimant's attorney must resolve the issue, his/her legal responsibilities under Medicare law and regulations, and his/her possibly conflicting professional obligations to the client.

Based on a more exhaustive review of the statutes, regulations, case law, codes of professional responsibility and actual practice, we conclude that our colleague, Sally Hart, is theoretically correct in that the vaunted Super Lien is not a true lien. The law in this area is far from settled, however, and attorneys should proceed with caution. As a matter of careful law practice, we hold to our original recommendation that attorneys settling cases with outstanding Medicare liens attempt to resolve Medicare claims before paying out the proceeds of settlement to the client. Following this procedure will protect the claimant's attorney from later MSP collection efforts by the government and should enable the claimant to maximize his bargaining position vis-a-vis Medicare. Our conclusion carries important implications for both the plaintiff and defense bar.

It appears that the client, not the attorney, has a duty to advise Medicare of a pending settlement or recovery. Medicare, it seems, would have collection rights as to personal injury recovery monies actually in the hands of the attorney. It is arguable that Medicare would have a right to collect from an attorney even after the settlement proceeds have been distributed to the client, although some would argue that the statutes and regulations provide no such right. However, the government has given notice that it would pursue a recovery of Medicare reimbursement against the attorney as well as against the client even after funds have been distributed. The defense attorney must be aware that the claimant's attorney has no direct duties to Medicare, but that Medicare's subrogation rights can extend to a liability insurer.

A. Medicare and Liability Settlements/Judgments

Most members of the legal profession have at least a general understanding of how Medicare works. Medicare is the federal health insurance program that offers coverage for certain types of services to individuals who are either more than 65 or who are less than 65 and have received Social Security disability benefits for at least 24 months (essentially children, widows and widowers), or who may qualify on the basis of end-stage renal disease.⁶ The Medicare program is administered by the Health Care Financing Administration (HCFA), a division of the U.S. Department of Health and Human Services. To determine if an individual is entitled to benefits, the Social Security Administration contracts with private insurers to process claims, to maintain beneficiary records, and to investigate fraud, abuse and recovery activities.⁷

Medicare is often the initial payer of medical, hospital, and other medically-related expenses for personal injury plaintiffs. What distinguishes Medicare from other health care insurers, including Medicaid, is federal regulations allowing Medicare what has been commonly called subrogation and lien rights believed to be far superior to any other interest on a settlement or judgment proceeding.⁸

Under statutory and regulatory law,⁹ Medicare payment may not be made for any item or service in which "payment has been made or can reasonably be expected to be made" under workers' compensation law, an automobile or liability insurance policy or plan, or an employer health plan.¹⁰ However, payments can be made in the event that a recipient will not receive prompt payment from a third-party payer or from the proceeds of liability settlement or judgment.¹¹ Importantly, however, these payments are conditioned on reimbursement to Medicare if and when payment for the same services is received from a liability or no-fault insurer.¹² Therefore, Medicare's liability to pay under these circumstances is secondary, while all others bear primary responsibility.¹³ Thus, if Medicare pays the medical expenses for a personal injury claimant, that payment is subject to recovery should the claimant ultimately prevail in receiving a settlement or collecting on a judgment.¹⁴

B. Subrogation or Lien

Lawyers commonly refer to Medicare's right of recovery in these situations as either a lien or a subrogation right. The lien has even been referred to by some breathless commentators as the Super Lien.¹⁵ When dealing with recovery in personal injury cases, it is important to understand the meaning given to both concepts, lien and subrogation. "Lien" has been defined as "[a] claim or charge on property for payment of some debt, obligation, or duty" and a "[t]ie that binds property to a debt or claim for its satisfaction."¹⁶ A lien is a claim or charge imposed upon specific property, whereas a "subrogation" is "[t]he substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities."¹⁷ Liens attach a charge to property, whereas subrogation attaches a claim or right to a person or other legal entity. In a personal injury settlement, a lien must be paid off directly by the attorney before funds are disbursed to the client. If not, the attorney may incur a personal liability to account to the lienholder.

II. Attorneys' Common Understanding of Medicare's So-Called "Super Lien"

To aid Medicare in its recovery of these reimbursed funds, the statute and regulations give HCFA the ability to seek payment from a wide range of individuals who, as one commentator put it, "knew or should have known about its payments but failed to protect Medicare's recovery rights."¹⁸ Generally, if payment is not made to Medicare prior to disbursement of settlement or judgment funds, recovery will be directed toward the beneficiary, using future Social Security benefit payment to offset the uncollected funds.¹⁹

However, Medicare has other legal options. Again, it is commonly believed that if Medicare's interest is not repaid, anyone who could have protected Medicare's interest may be liable for such repayment.²⁰ This idea possibly arises from 42 U.S.C. § 1395y(b)(2)(B)(ii), by which an action may be brought against an entity responsible for payment or "any other entity . . . that has received" a third party payment.²¹ Under the regulations, this includes even lawyers whose fees are paid from settlement proceeds. Under 42 CFR § 411.24(g), Medicare has a right of recovery from parties who receive third party payments. "HCFA 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 third party payment."²² As Sally Hart put it in her Trial magazine article, "Many personal injury attorneys think they must act virtually as collection agents for Medicare in its MSP [Medicare Secondary Payer] recovery efforts."²³ This supposed misconception is said to arise from a misreading of the aforementioned statute and accompanying regulations. These sections have been argued to give MSP claims lien status, which Ms. Hart points out has been held by at least one U.S. District Court to be an incorrect reading of the statute. In addition, according to Ms. Hart, these sections may have been misread to extend the special rule granting certain collection powers over insurance companies to attorneys for beneficiaries.

III. The Misconceptions: A Second Look at the "Super Lien"

In the past, Medicare representatives have referred to recovery claims as liens when dealing with attorneys and beneficiaries. As a result, many Missouri attorneys concluded that they owed Medicare the same duties to protect the lienholder's property interest in liability insurance proceeds as exists with respect to hospital liens. However, in Zinman v. Shalala, a nationwide class action, the court held that Medicare does not possess a lien right.²⁴

The MSP statute does not state that Medicare has a lien, it articulates Medicare's right as a claim to recover from entities who, pursuant to the statute, are required to pay primary . . . [T]he MSP statute does not give the government a claim against property. The statute states that the government may bring an action against any entity which is responsible to pay primary . . . [T]he Court concludes that Medicare does not have a lien interest in the settlement awards.²⁵

A. Ms. Hart's Ethical Dilemma Argument

In light of the holding that the Medicare Secondary Payer recovery claim does not have lien status, Ms. Hart suggests that several results follow.²⁷ First, an attorney has no affirmative duty to notify Medicare that there are, or may be, personal injury awards due to the client. Medicare regulations do impose a duty of cooperation on the beneficiary²⁸ and a duty to notify on the insurance company,²⁹ but Ms. Hart writes that those regulations impose no similar duties on the plaintiff's attorney.³⁰ Ms. Hart suggests the attorney is only obligated to advise the client of MSP recovery program rules and let the client decide how he or she wishes to proceed vis-a-vis Medicare.³¹ After being advised, if the client decides to take the proceeds from the attorney and deal with Medicare directly, there exists no statutory penalty on the attorney.³² Ms. Hart claims that the client's practical ability to qualify for a waiver or compromise in some cases might even be enhanced if the proceeds have already been spent for necessaries.

Ms. Hart explains that the Medicare statute and regulations clearly give Medicare a right of action to recover conditional payments from an attorney who has the settlement or judgment proceeds in his or her possession.³³ However, the penalty provisions giving the agency a right of action against an entity that has transferred proceeds without paying Medicare specifically apply only to insurance companies and do not specify that Medicare has a right to seek transferred proceeds from attorneys who have paid out a settlement to their client.³⁴ The regulations' special rule for insurance companies has been widely assumed to apply also to attorneys. However, the rule specifically states:

In the case of liability insurance settlements and disputed claims under employer group health plans and no-fault insurance, the following rule applies: If Medicare is not reimbursed as required by paragraph (h) of this section, the third party payer [liability insurance, employer health plans and no-fault insurance] must reimburse Medicare even though it has already reimbursed the beneficiary or other party."³⁵ (emphasis added)

No such special rule applies to parties who merely receive third party payments other than insurance companies and employer heath plans. Under the precise terminology of the regulations, Medicare is given no specific right of action against attorneys who distribute funds to their clients after properly advising them of potential MSP recovery claims.³⁶

Thus, reading all of the regulations together, § 411.24(g) might well be read as authorizing recovery against attorneys only when they are still holding insurance proceeds that they received for the beneficiary. However, no case law or agency interpretation currently confirms such a reading of the statute and regulations. The case of United States v. Sosnowski³⁷ has been cited to support the claim that Medicare has a cause of action against the lawyer and/or the client for recovery of third party payments received in settlement and disbursed to the client.³⁸ In Sosnowski, the government was granted summary judgment against a Medicare recipient and his lawyer, jointly and severally, for failing to reimburse Medicare after receiving judgment proceeds in a personal injury case. Although attorney Sally Hart discounts the effect of this case and states that there is no indication in the opinion that the defendant lawyer was not holding the insurance proceeds for which Medicare sued, the opinion does, in fact, recite the claim by the defendants that the proceeds of settlement had been disbursed.³⁹ If words in the opinion are to be given their usual and customary meaning, this would imply that the attorney had paid out the expenses of suit, deducted his agreed contingent fee, and paid the remainder of the funds to the client.

As noted by Sally Hart, however, the case was decided on the unrelated, disputed issues of estoppel and default. The defendants did not appear to challenge the right of the government to seek funds apparently no longer in the hands of the attorney. The court did hold that the double damage provisions were not applicable against the Medicare client and his attorney, but rather that the double damage provisions were only applicable against insurance companies. This case, therefore, would certainly constitute some authority that Medicare's claim is enforceable with respect to claimant's attorneys who have received and disbursed insurance proceeds on behalf of their client. However, no case has been found that squarely holds that the Medicare statutes and regulations give Medicare a right to recover proceeds of settlement or judgment from a claimant's attorney previously received and disbursed to the client.

B. Government's Response

There are several counter points, however, which should be explored. Mark Cameli, Assistant U.S. Attorney appearing for the government in Sosnowski, responded to Ms. Hart's article in a June 1998 letter to the editor of Trial magazine.⁴⁰ In his response, he brings to our attention that the MSP statute and regulations focus on "whether an entity has received [third party payment]; once an entity has received them, it is liable to Medicare regardless of what it does with the proceeds." Mr. Cameli further states that Ms. Hart's article "ignores the fact that attorneys who have entered into contingency fee arrangements will still retain a share of the proceeds even after they have disbursed some of the proceeds to their clients."⁴¹

Mr. Cameli also argues the article erroneously asserts that an attorney has no duty to advise Medicare that a beneficiary has received a personal injury award, relying on 42 C.F.R. § 411.24(h), which states, "[I]f the beneficiary or other party receives a third party payment, the beneficiary or other party must reimburse Medicare within 60 days," (emphasis added) noting that beneficiaries and their attorneys who fail to fulfill this duty invite government lawsuits and legal malpractice claims.⁴² In addition, Mr. Cameli writes that encouraging beneficiaries to spend the money rather than turning it over to Medicare in hopes of increasing a compromise or waiver could actually hurt the client's chances, because the HCFA can consider the action as a factor weighing against a compromise or waiver.⁴³

It should be clear at this point that Medicare's strongest right of recovery is directed toward liability insurance companies. Since some consider it an open question as to whether the settling claimant's attorney has either the duty to inform Medicare of a pending settlement or the duty to see that Medicare's interest is satisfied directly out of the settlement proceeds, it seems that the defense attorney must be aware that a failure to account to Medicare leaves the insurance company in the vulnerable position of having a subrogation claim asserted for the Medicare share and possible double damages. It therefore appears that defense counsel should take care to ensure that any claim owed to Medicare has been identified and satisfied prior to finalizing a settlement with a Medicare beneficiary.

IV. Important Factors and Actions to be Taken When Dealing with Medicare Recoveries

A. What Should be Done if the Client Wishes to Notify Medicare in Advance

1. Procedure

Lawyers unfamiliar with Medicare law and policy usually do not provide Medicare contractors with documentation sufficient for the contractor to complete its case file. This, in turn, may delay the final disbursement of the recovery proceeds. Medicare contractors require written notice from the beneficiary's lawyer, including a signed medical authorization. Without a copy of this authorization, Medicare contractors cannot release specific claim information to lawyers.⁴⁴

Any initial written notice should include, at a minimum, the beneficiary's Health Insurance Claim (HIC) number (usually this is the social security number, but not always), the date of the accident, the name and address of the liability carrier, and the name and address of the beneficiary's insurer. It would also be wise to include additional information concerning the medical providers, dates of service, any discharge dates, and the nature of the beneficiary's injuries. This information will assist the contractor in accurately determining Medicare's interest. Any missing information will be requested in writing and must be received before Medicare claim records are searched.⁴⁵

Because the regulations permit Medicare to pursue recovery at any time it learns of a third party payment, it is usually wise to advise Medicare as soon as counsel learns that the client has Medicare entitlement.⁴⁶ It is recommended that client intake forms specifically ask whether the client has received Medicare benefits.⁴⁷ Clients should also be advised to tell their lawyers in the event Medicare entitlement begins while the case is pending. Also, Medicare may continue to pay benefits after it furnishes the amount of its claim. Therefore, one should not request the amount of Medicare's claim so far in advance of the settlement that the information as to the amount of Medicare's claim becomes confused.

If appropriate, the lawyer may request in writing that the statement of Medicare benefits be updated to eliminate claims not related to the injuries and not part of the plaintiff's recovery. Medicare's final interest cannot be determined until after settlement and will require written documentation of the procurement costs in the case. The final interest will then be forwarded to the lawyer in writing.⁴⁸

2. Waiver or Compromise

Medicare can waive its claims if doing so would be in the best interest of the Medicare Secondary Payer program. Intermediaries can consider requests for waivers under § 1870(c) of the Social Security Act, which is a request based strictly on financial hardship.⁴⁹ As a practical matter, Medicare rarely waives but more often compromises such claims.

Requests for compromises of Medicare claims and the appropriate hardship forms should be completed and sent to the intermediary, who will forward the same to the appropriate office. Recommendations to compromise a claim are based on the inability of the debtor to pay the full amount within a reasonable time and the inability of the government to collect within a reasonable time when the debtor refuses to pay.⁵⁰

B. Medicare Must Pay Costs and Attorneys Fees

The Medicare statute itself does not speak to the subject of attorneys' fees directly. However, regulations specify that Medicare will follow the fund doctrine and reduce its recovery to allow for the costs of procuring the judgment or settlement.⁵¹ The current applicable procedures for Medicare intermediary carriers include attorneys' fees and expenses in the procurement costs, so that recovery will be reduced by that amount provided that attorneys' fees do not appear to exceed the prevailing standards in the area.⁵²

If the amount of the Medicare claim is less than the amount of the settlement or judgment, the reduction in attorneys' fees and expenses equals the ratio the attorney's fees and expenses have to the total recovery.⁵³ If the amount of the Medicare claim equals or exceeds the amount of the settlement or judgment, Medicare recovers the full amount of the Medicare claim less the attorney's fees and expenses incurred, even when the beneficiary settles for less than the total damages.⁵⁴

V. Conclusion

We conclude that the Super Lien is not a true lien after all. We qualifiedly conclude that theoretically Medicare would have what might amount to lien rights only as to personal injury recovery monies actually in the hands of the attorney, but no such rights after funds are actually disbursed to the client. In stating this conclusion, we would qualify it by reminding the reader that the case of United States v. Sosnowski may provide some precedent for allowing a claim against an attorney for previously disbursed judgment proceeds. However, we feel that this case is an extremely weak precedent for the reasons discussed above. No case has been found that directly holds that Medicare can recover against an attorney who has already paid out the client's portion of settlement proceeds. An attorney arguably has no duty to contact Medicare to advise of a possible pending recovery in which Medicare might have an interest.

Attorney Sally Hart suggests in her article that a client may actually be in a stronger position to negotiate a compromise settlement with Medicare if the proceeds of settlement have been received by the client and paid out to parties furnishing necessaries. After due consideration, we are unwilling to endorse any such advice to the client, as the various factors that could influence a client's bargaining position after payout of the proceeds are impossible to accurately assess in advance. Although we admittedly overestimated the scope and reach of Medicare's reimbursement rights in our initial article, we stand by our original recommendation that, for all practical purposes, the claimant's attorney better serves the practical, long term interests of his client by attempting to see that third party claimants, Medicare included, are satisfied before releasing settlement proceeds to the client. This approach also eliminates the possibility of suit by Medicare against the settling attorney for the proceeds received on behalf of the Medicare recipient. This approach would, of course, require the informed consent of the client. Defense attorneys, on the other hand, need to be aware that the claimant's attorney has no apparent legal duty either to notify Medicare or account to Medicare out of settlement proceeds. If the claimant's attorney does neither, an insurance company could be the target of a Medicare suit for reimbursement of medical expenses paid out and possibly double damages. Prudent insurance defense attorneys will want to identify outstanding Medicare claims which are applicable against personal injury settlement proceeds and see that Medicare's claims are fully satisfied and released prior to the completion of settlement.

VI. Note on Previous Article

Since the publication of our original article, Liens, Assignments, Subrogation and Other Traps for Claimant's Lawyer, in the July/August 1997 issue of the Journal of The Missouri Bar, we have received many comments from members of the bar and the claims industry about our article. We believe that a few points need further discussion. While we accurately state in our article that an attorney's lien under § 484.130, RSMo 1986, does not attach until a claim or counterclaim is actually filed in a court case, we should also have stated that the companion § 484.140, RSMo 1986, provides for an attorney's lien even in the absence of a court action. However, an attorney wanting to perfect such a lien must provide written notice to proposed defendants. It is assumed that the legislature considered the filing of a claim or counterclaim as sufficient notice of an attorney's lien under § 484.130, RSMo 1986.

Under the section in our original article headed "Hospital Liens," we cite both sections of the applicable statute (§§ 430.230 and 430.235) and state that the hospital lien is limited to $25 per day. Our colleagues representing hospitals advise that they take the position that this limitation was not contained in § 430.235, which was enacted after § 430.230, and therefore that the $25 dollar per day limitation no longer applies. Section 430.235 states that "[n]otwithstanding the provisions of § 430.230 . . . [the hospital's lien is] for the cost of [the] services . . . at reasonable rates not to exceed the customary charges. . . ."(emphasis supplied). Another section, § 430.250, does provide that in those cases where the entire amount of the hospital's charges cannot be paid out of the settlement, the lien can be satisfied by paying the hospital 50ercent of the monies due the patient after attorneys' fees and expenses. Finally, we stated that the written notice provided in § 430.240 must be sent to the tortfeasor, the injured person, and to his attorney. The statute provides that written notice must be sent to the allegedly liable party and contains no requirement that it be sent to the injured person or the tortfeasor's attorney. J. William Turley of Columbia, Missouri Bar member and drector of caims ltigation for Shelter Insurance, advises us that he feels that the statute implicitly requires notice to the tortfeasor, his attorney, and his insurance carrier, if known. We would also like to thank Michael D. Fitzgerald of Kansas City for providing us with the viewpoint of a hospital attorney. We would request those members of the bar and the claims industry using our original article to annotate their copies of the article in accordance with the above.

© 2000, Glenn E. Bradford and Melinda M. Ward