Haro v. Sebelius: Court Orders CMS to Stop Certain Medicare Secondary Payer (MSP) Collections Practices

On May 5, 2011, the Arizona US District Court (Court) ordered the Centers for Medicare and Medicaid Services (CMS) to stop demanding of beneficiaries “payment of a MSP reimbursement claim with threats of commencing collection actions before there is a resolution of an appeal or waiver request” and to stop “demanding that attorneys withhold proceeds from their clients pending payment of disputed MSP reimbursement claims”.

In the underlying cases, the plaintiffs were injured, received medical services conditionally paid for by Medicare, and subsequently received settlement proceeds from a liability insurance company.  CMS, followed its longstanding procedure and sent a demand letter to the plaintiffs and the plaintiffs-attorneys notifying them that the reimbursement claim must be paid within 60 days or interest of 13.375% would accrue and collection actions would be initiated.  Interestingly, each Plaintiff disputed CMS’s conditional payment reimbursement claim.  Plaintiff attorneys were additionally told that Medicare’s claim must be paid up front out of the settlement proceeds before any distribution occurs.

60 Day Requirement – The Court found CMS’s 60-day requirement to collect reimbursement claims from beneficiaries “neither rational nor consistent with the statutory scheme providing for waiver and appeal rights.”  In other words, the Court seems to be saying that it makes no sense to essentially say to the plaintiff, “you can appeal this but, but you have to pay it in sixty days.”  So, the Court ruled that “collection activities are precluded against beneficiaries, pending resolution of waiver requests or appeals…”

Recovery Actions Against Attorneys – The Court found that:

  • Congress never expressly made attorneys responsible for reimbursements to Medicare.
  • CMS cannot force an attorney to turn over to CMS what is essentially the injured persons property.
  • Collection actions against attorneys are also precluded, pending resolution of waiver or appeals.
  • CMS may not preclude plaintiffs-attorneys from disbursing undisputed portions of proceeds to their beneficiary clients.

Class Action Case – The Court certified this as a class action case defining the class broadly as persons who are or will be subject to MSP recovery, and from whom defendant has demanded or will demand payment of MSP claims before there have been determinations of the correct amounts through the waiver or appeal process.

The Court said that it “found no case which considered the propriety of direct recovery actions against attorneys”.  It seems to me that U.S. v. Harris addresses this issue.  Regardless, this is going to be much discussed case, with impact, so stay tuned to industry legal analysis to come and perhaps an appeal by CMS.

Click here to read the order.