A Conference Report

By Tom Hagy

What are the common misconceptions around reporting?   Have your fiduciary obligations to clients changed?  What about requests for private personal information from claimants?  Or complex litigation involving multiple parties and many years and layers of insurance coverage?  What about Medicare set asides and settlement language?  Will plaintiff attorneys sign indemnification agreements?

On Sept. 21, 2010 HB produced a seminar titled “The Medicare Mandatory Reporting Requirements.”   The program was chaired by defense attorney John O’Meara of Bremer Whyte Brown & O’Meara, Woodland Hills, Calif., and toxic tort plaintiff attorney Michael Armitage of Water & Kraus of El Segundo, Calif.

O’Meara and Armitage were joined by David Stern, VP, West Coast Casualty Service Inc., Agoura Hills, Calif., to discuss the necessity and benefits of early disclosures in cases, as well as the most practical, real-world implications of the MMSEA reporting requirements.  [Note:  The seminar took place before Oct. 1, 2010 and before the ruling that dismissed the Department of Justice suit in U.S. v. Stricker.]

O’Meara started off with the tone-setting question:  Why do we care about the reporting requirements?  “There are pretty serious penalties [so there is] a pretty heavy hammer.  If your settlement doesn’t protect their interests, Medicare can say we do not acknowledge your allocation and refuse future benefits of a claimant if they don’t feel Medicare has been taken care of, and gives the plaintiff right to go after someone who didn’t set aside enough money.”

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Common Misconceptions About Reporting

A defense attorney may think, “My client didn’t do anything wrong so why do I have to worry about it?”  O’Meara said, “Liability is not the issue.  It’s whether or not compensation has been paid, whether you believe you have liability or not.”

A plaintiff attorney might think: “I haven’t seen a lien so I don’t know anything!”   “We all know that is not the factor,” O’Meara said.  “It is the obligation of the RRE whether there has been a Medicare payment or the potential for a Medicare payment, and it’s not their obligation to notify you.”

As for insurance, he said, “It doesn’t matter whether you have coverage.  If a check is cut, you have an obligation.”

O’Meara posed the question to plaintiff attorney Armitage:  Does this new issue with Medicare Act change your fiduciary obligations to your client in regard to Medicare? “You have to make sure you’re satisfying your duty of care to your client and comply with the statute,” Armitage answered, “and sharing information to make sure obligations are met on the defense side as well.”

Early Questions

“Has the resurgence of this issue caused you to change the questions you ask your clients up front?” O’Meara asked.

“Not yet,” Armitage replied, “but it is changing.  If you know you’re going to deal with it at the end, start asking the questions up front.   I am going to start finding information at the beginning of the case.  Clearly now, given the timeline, you need to start getting the information from Medicare.   Don’t wait until before trial.”

With regard to “kitchen sink” allegations in complaints, O’Meara asked, “Do you think now as a plaintiff attorney you will be more reluctant to allege more questionable claims of past or future medicals?”

“I’m not sure it’s that important right now,” Armitage said.  “But practicing in the toxic tort area, what do I do when I have a claim of exposure that’s around 1980 or after 1980?   Am I going to allege an exposure after 1980 that I am not absolutely certain of and hope to prove it later?  I think that’s something you’re going to look at a little bit closer because it may implicate Medicare lien issues that it wouldn’t have otherwise.”

“Do you think these issues will make it less likely for you to take a case for a Medicare recipient?” O’Meara asked.

“No,” Armitage answered.  “As long as you’re looking at the issues up front, I don’t think it changes your intake.”

O’Meara asked:  “As far as Medicare resolution strategy, what are your best practices?  Do you handle the liens in house or use a third party?”  Armitage said his firm does it both ways:  in house and using third-party firms.

Privacy Concerns

HIPAA is an issue and Social Security numbers are being requested, O’Meara noted.  “How do you handle giving out private information about your client?”

“We were just discussing that in the asbestos context,” Armitage answered, “because it’s been around for a while.  We have general orders in Los Angeles and San Francisco that you do provide HIPAA releases and you provide Social Security numbers.  And we do that and don’t stand in the way.  In our jurisdiction we don’t object to that especially since it helps get to a prompt resolution of the case.”

O’Meara pointed out that there is a ruling from Alaska where a court upheld a motion to compel a plaintiff’s Social Security number.  The court agreed with the defense argument that the number was necessary to comply with Medicare.

Regarding Medicare set asides, they are not required pursuant to the act.  “What would you do,” O’Meara asked, “when the RRE says we will settle but are concerned about being held liable later so we’re going to mandate a Medicare set aside?”

“I would oppose an effort to do a set aside in a toxic tort case, but I would try to look into other ways to try to protect the paying parties concerns over that,” Armitage said.  “But if the RRE mandates a set aside, you would resist that?” O’Meara asked.  Armitage said, “I would oppose that in our litigation, because from what I understand it’s only required in workers comp and similar types of insurance payer situations.”

‘Over My Dead Body’

Next, O’Meara framed questions about settlement agreements.  “What about adding language indicating full compliance with the Medicare Act, dealing with issues such as set aside?   Are there specific terms you would absolutely not permit in the settlement agreement?  Some of these issues protect you as the plaintiff attorney as well, and is that given any consideration as to what you put in the settlement agreement?”

“Absolutely,” Armitage said.  “And it’s starting to become an issue and starting to appear in releases, in our claims, and in our litigation in general.  We’re always open to having language in there that protects the parties within reason, but the ‘over my dead body’ language would be language that requires the plaintiff’s law firm to indemnify the defense law firm or the insurance company in this area.  It’s already becoming an issue in asbestos litigation in San Francisco and there’s a big battle going on with that now, in fact.  There will be a hearing on that issue.”

Defense counsel discuss defense and indemnity from the claimant themselves, O’Meara said, asking,   “Would you permit your client to sign that sort of an agreement?”

“We haven’t faced that issue but expect it will come up in the San Francisco general order,” Armitage said.  “But for certain issues on related matters we have agreed to indemnification language.  I think we’d always consider it, but I can’t say definitively that we would and it would depend on the language.”

The Claims Professional

O’Meara turned to David Stern and asked:   “From the claims professional side, do you think the claims community is going to insist on such language?”

“We’re seeing more and more requests for indemnification language especially in the area where future medicals have been alleged,” Stern explained.  “The good news is that in 90% of the cases, once the case is settled the plaintiff and its medicals do go away.  It’s that 10% of the time that we do have that concern.  And we are requesting indemnification agreements from plaintiffs’ law firms, with resistance, and the plaintiffs themselves.”

“If the amount in controversy is significant, do you see that as a deal breaker?” O’Meara asked.

“It depends on the case,” Stern answered.  “It depends on the allegations.  It depends on aggregates and on exposure to the policyholder.  There are a variety of things that come into play.  But if you’re paying big money and you have potential exposure for big money, yeah, that might be a deal breaker.”

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New Lingo

Of the impact of the requirements on defense counsel, O’Meara said, “This is all brand new.  This is lingo defense counsel do not speak.  And we are being asked by insurance company clients and our large self-insureds to guide them through the process.  This is an area where defense counsel have an obligation to their RREs.  Defense counsel must be learned enough in this area to advise their RREs as to reporting issues, settlement documents, what to do to protect themselves and their insureds.   I don’t think defense counsel can pass the buck. “

“Once litigation happens,” O’Meara continued, “defense counsel becomes the gathering arm of the RRE.  They need to get the query information if the RRE has not yet obtained it . . . .  It is absolutely imperative that claimants’ counsel and defense counsel work together, which I know can be challenging.   This is an area where cooperation is key.   So defense counsel needs to put out the olive branch and let plaintiffs’ counsel know that they want to cooperate in the process.”

O’Meara said defense counsel needs to advise the RRE of key dates, such as discovery cutoff dates, settlement conference dates, and trial dates.  “The RRE has information to gather, queries they need to make, reporting they need to do, and defense counsel needs to make it clear that, ‘Hey, we have a settlement conference coming up on X date’ because those dates will trigger the RRE to get into motion. “This is especially true for trial dates.   “We’re going to face more and more with impending trial dates where plaintiffs’ counsel want to settle, defense counsel want to settle, insurance companies want to settle, and we all need to settle, but we can’t get the information quick enough from the government in order to actually settle the case.”

Teach the Judges

“This is also new from the courts and most judges who don’t have a workers comp background don’t understand this stuff at all,” O’Meara explained.  “It’s fully incumbent on defense counsel to educate the court.  When the court tries to throw a case on fast track, you really need to make sure the court knows, this is a Medicare issue, we have to get information from Medicare, we can’t necessarily settle the case in the next 60 days.”

Speaking to defense counsel, he said, “You will come up against some plaintiffs’ lawyers that do not understand this process and you are going to have to explain it to them.”

With regard to the RRE, O’Meara said defense counsel need to assist them in getting an appropriate settlement agreement.   “It’s defense counsel’s job to ensure, that if there are future medicals, that the issue of the obligation of the claimant to do a personal set aside, even if they don’t do a formal one, that they advise them of their obligations to protect themselves.  This should be in the settlement agreement.  I am a big proponent of putting in as many indemnities as you can get and see if the plaintiffs will sign them.”

O’Meara’s best advice to defense counsel?  “Don’t touch the money!   Do not take settlement checks and deposit them in your trust accounts.   Do not have your name on the check.  Don’t touch the money and you will not be in that chain and you will not be at risk.”

Respondeat Superior

David Stern, whose company represents 50 carriers and 3,000 self-insureds, discussed his red flags.  “One of the things that concern me from the early days when Medicare first started talking about the statutory claim issue that they have is respondeat superior. As an insurer, as the third-party administrator, as an independent adjuster, as an investigator, on a day-to-day claim aspect in third-party claims, you know or should know better, whether a claim is or will become Medicare eligible.  [James Tanella, managing director for PACE Claims Services, an earlier speaker] made a very good reference when he talked about a minor who was receiving benefits from a Medicare beneficiary or maybe a deceased parent or guardian.  These are things you have to start looking at.  The non-traditional things that we’re beginning to see creep up in the third-party claim arena.  And the problem is that even though Medicare has supplied the appropriate affidavit of no Medicare coverage, you have to keep it in mind that that claimant might become Medicare eligible as a direct result of another accident or as the result of a beneficiary claim.”

Not only have reporting obligations changed, but larger issues are in motion too.  “You have to start taking a look at who your claimant really is because the problem is that we’re an ever-changing society,” Stern said.  “With a changing national health care system, with changing taxes, with changing insurance requirements, changing eligibility requirements – things are in a constant mode of change.  So whether somebody is Medicare eligible today might change tomorrow.”

Eligibility Unclear

O’Meara asked:  “What if you can’t determine if a claimant is Medicare eligible?”

“You have the option of not settling,” Stern began.  “I have a significant claim where an eggshell plaintiff who was on Medicare was injured in the hands of one of our insured’s employees and the [attorney] just told me, ‘[The claimant] submitted $30,000 in medicals and I am not giving you the medical information.’  I said, ‘Well, put it in suit.’   He said, ‘Why?  Don’t you want to settle?’  I said, ‘No, not at the risk of a thousand-dollar-a-day fine.   The bottom line is that this case will never be settled prior to Oct. 1.  The bottom line is that I am not putting my company’s E&O at issue, and I am not doing that on behalf of my principal.  So either you give it to me or we can move this thing along or I will get [the medical information] by sending the case through discovery channels.’   And eventually we will get it.  And we will follow the law and we will document our files as to the problems.”

“Can you see a situation, maybe a small enough claim,” O’Meara asked, “where your principal has a small time on the risk, where you might settle and take your chances?”

“I would probably not do it especially in the area of a self insured,” Stern replied. “That’s a client who is dependent on me as a fiduciary for their money.  If the carrier says let’s settle it, it’s a $500 claim, remember I am a representative of that carrier, it’s the carrier who’s the RRE and has the risk and the penalties that go along with it.”

Claim Estimation

“Do you see settling and estimating Medicare’s potential claim?” O’Meara asked.

“No; I hate that,” Stern answered.  “Guessing is always the worst.”  Medicare is going to want their statutory claim and wants to be sure that they give you a lien and you protect it.

“What do we do in big, complex cases, with lots of insurers and multiple parties?  How do we handle those?” O’Meara asked.

Stern, whose portfolio includes construction defect and mass tort litigation, said that where his client may be a “very small intricate piece” of the case, where he might represent one of 300 contractors and a small time on the risk, “You go back to the rules of Medicare, which says that if you have a claim you must report.  I take that as an obligation that I am the one that has to report.”

Clarifying, O’Meara asked, “So every carrier with time on the risk must independently query and independently report?”

“Since everybody has the obligation, everybody should do it,” Stern said.

“What about when you are one of the carriers on the risk or one of many parties and your settlement doesn’t come close to satisfying the entire amount of Medicare’s obligation, would you just cut that check directly to Medicare?  How would you handle that?” O’Meara asked.

Court Direction

Stern said he hasn’t seen that yet and there is no direction from courts at this point.  But, especially in the area of complex litigation, he said, “I would probably turn to the direction of a state or federal court judge for some guidance.  And I would turn to defense counsel to work with the plaintiffs to come up with some sort of solution because they have to bring Medicare to the table to figure it out.”

“How about the issue of trusts that are established for future claims?” O’Meara asked.

“This hasn’t come up yet,” Stern said, “but the bottom line is that if a Medicare set aside is required I would think we’d have to work with plaintiffs’ counsel, defense counsel as well as the court to determine whether we should bring in a third-party vendor to administrate something like that and work out a formula in which to fund it.”

SIRs / High Deductibles

O’Meara raised the case of an SIR or high deductible entity? “Who is the RRE?”

“This is becoming an interesting question,” Stern began. “Certainly with a self-insured retention the law is pretty clear that the self-insured entity has a duty to act as the RRE.  The question as to the deductible, though, is one that is going to be significant as we go forward.  But I think that the government is the one that really has to respond here.  The deductible is part of the contract, part of the insuring agreement between the insurer and its policyholder.  I would say that for purposes of reporting the greater duty is to the RRE or the insurer, because, let’s say for argument’s sake that the insured who has a $500,000 liability deductible goes out of business and disappears, the carrier is still on the hook for the payment of that deductible and then it can seek recourse and chase after monies it paid in the bankruptcy proceeding . . . .  Because of the language in the agreement I would say that it’s the insurer who has that obligation in a deductible situation.”

Mirror Image Files

O’Meara turned to discussion around files submitted to Medicare.  “It is really important to have a strong idea of the exact nature of the injury involved,” he said.  “It’s very important that the RRE and the claimant’s files with Medicare be what they call ‘mirror image.’  You want to be sure that the plaintiff, when they are reporting to Medicare, the data codes, the injury involved, that it’s the exact same ones that you are.  Because, if not, there are going to be problems, there’s going to be delay, and you don’t want that.  Make sure that from the defense counsel standpoint, that’s where we can help you out.  Make sure that you insist that defense counsel gets you as quickly as possible an exact description of the injuries.”

During Discovery

What should defense counsel be doing for clients?   First, O’Meara said, they need to determine whether the claim involves past or future medical treatment.  If the case is pure property damage, there is no issue.

Defense counsel need to determine whether the case is dealing with personal injuries.  Does that include emotional distress?  “It does include emotional distress to the extent that Medicare has paid past medical expenses for that emotional distress or could in the future,” O’Meara said.   “That is considered a personal injury so that is included in the process.  Have your lawyers get that information.   Find out if [the claimant is] a past Medicare beneficiary or if they may be a Medicare beneficiary soon.   Are they currently Medicare eligible or are they likely to become Medicare eligible by the end of the claim? You want your attorneys to get you accurate medicals, because if you know the entire universe of the medical bills in the case, you have a pretty good idea at least, what is the outside of Medicare’s potential claim.  If you know 100% of what they paid in the past, then you can work from there and see how much was paid by Medicare.”

O’Meara continued:  Find out if Medicare has paid anything relative to the loss.  “One place you can look if you have an uncooperative plaintiff’s counsel:  hospital records.  Most hospital records will reflect if there has been a submission to Medicare, so take a look at the medical bills, hospital records, the intake sheet, to see if Medicare is listed.”

Sizing Up the Other Side

O’Meara said defense counsel needs to “gauge the sophistication of opposing counsel in Medicare issues” and their willingness to cooperate.  “The closer the cooperation the better off you are [and] the quicker you can get to the finish line.”

Tell counsel you want to have a mirror image file.  “That should be part of your vocabulary and should be something your defense counsel is aware of,” O’Meara said.  “Claimant’s counsel does not have the same access to information that you do as an RRE so it’s beneficial to plaintiff counsel to cooperate with the defense side because they can provide you with information that may be difficult for you to get yourself.  Bottom line is:  if the RRE is not satisfied with the information they might not show you the money.”

“Claimant’s counsel needs to understand that they have potential exposure if Medicare’s interests are not protected,” O’Meara warned.  “Be aware of your time frames because on this issue we are all walking a tight rope. “

Get Started Early

“Maybe one of the most important factors” O’Meara said:  “It is never too early to start discussing settlement language.”

He said defense counsel will have a standard form that they will develop over time and that they will want to use, but not every claimant’s attorney is going to accept that language.  “The quicker you can start negotiating things such as indemnity language and language regarding future set asides the better off you’re going to be. Also, even if you have not yet settled the case, if you’re in a mediation setting, if you are in a mandatory settlement conference, and you can get in with the judge to start discussing those terms early, the better off you are.”


“There is nothing that has been mandated pursuant to the act that says what kind of a settlement agreement you have to have or what the settlement agreement will say in it,” O’Meara explained.  “You can take a variety of different tacks.  You can do an allocation for future medicals for instance without getting such approvals from CMS. You can go to CMS and try to get them in advance of a settlement to say, ‘yes, we agree that that is a good set aside.’  You can declare in the settlement agreement that there is no future medical exposure that has been addressed in the settlement agreement, although that is not binding on Medicare.  If they find that that was not in good faith you can still face penalties.  Or if it’s a small enough case and you have the guts to go forward with it, you can just not allocate at all and take your chances.”

“The bottom line is:  allocations or options are just suggestions,” O’Meara warned.  “The attorney and the RRE should establish your own protocols and decide what your tolerance for risk is.   Of course, the bigger the settlement, the lower your tolerance for risk should be.”

Multi-Party Settlements

One of the seminar attendees asked:  If you have multiple parties in a settlement, who is obligated to satisfy the Medicare component?

O’Meara answered:   “Once we know the number we know the demand.  If that settlement amount for your client is below Medicare’s demand, I think you have to satisfy Medicare first.   Medicare is the primary payer.  They get paid first. “

The audience member continued her question, saying just one insured can have multiple carriers, so there will be a lot of reporting for Medicare to sort through.  “At some point I am not sure who is leading the boat here.”  She said her company, an insurer, should be able to look to its outside counsel.   “We are responsible, but I think we have the right to rely upon our counsel who we’re paying to defend the case all along to give us the advice as to what we’re supposed to do.  Then you can coordinate with plaintiff’s counsel directly and make sure we have a mirror image; otherwise you’ve got 20 people for one insured or one case, all trying to mirror image the same person.”

“I want to separate past medical payments from future medical payments,” O’Meara said.   “[Regarding] the issue of the potential that Medicare may have a payment in the future:  Medicare does not get any money for that.  They only get paid what they paid in the past.”   He continued that “if you are dealing with the issue of future . . . if you are the first of multiple carriers, you need to make sure your settlement agreement addresses the claimant’s obligation to take care of themselves, and that you have internally allocated money for the future medicals.”

“And we all know that even though the plaintiff counsel might sign on the bottom line and say, ‘Yeah, I understand I have to allocate $100,000 for future medicals,’” O’Meara explained, “there is no mechanism to compel them to do that.  You are just doing your job and allocating to the futures and what they do with the money is basically their responsibility later.”

Plaintiffs Already Dealing With It

“In a liability case,” Armitage added to the answer, “your obligation as an RRE is just to report.  There is no set aside obligation for future medicals.  On the past medicals you need to understand, that as plaintiff’s counsel we’re already dealing with it.  For cases settling now before Oct. 1, we’re already dealing with Medicare.  Medicare has inserted itself into almost all of our cases if you have a Medicare eligible plaintiff.  We’re already out there trying to get conditional payment letters from them, trying to resolve that.  Because we tell our clients we can’t really process all of your settlements, in other words pay you all of the money that we have recovered for you until we take care of Medicare.   It’s frustrating because Medicare is moving very slowly and it’s very hard to get them to give you that final number.  And that’s really where your obligation is.  Maybe it’s in the form of the language in your settlement agreement to make sure this is being done.  I can speak for my firm and other firms like mine.  We’re already aware of this; we’re already dealing with Medicare to resolve their liens because we have to.  We have the fiduciary obligation to make sure that gets done and we also don’t want to become exposed to a claim from Medicare that we didn’t take care of that lien.  That obligation has existed for some time.”

O’Meara said, “There may be a bottom line where there’s a threshold where every dollar in settlement that comes in goes to Medicare and the claimant doesn’t get a dime until they reach that threshold where Medicare is satisfied that their statutory claim has been satisfied.”

“In some toxic torts,” Armitage sais, “like the one that I deal with the most – mesothelioma, which is a grievous injury – you have huge medical expenses.  We have Medicare liens that can be in excess of $500,000.  So it depends on the amount of treatment the plaintiff receives.”

Indemnity Provisions

Another audience question, posed to plaintiff attorneys about indemnity agreements that flow to their firms:  “Do you think the case against agreeing to indemnity provisions is weaker when you are dealing with a wrongful death case versus a living plaintiff because of that fear of those future set asides versus what is clearly a capped amount of expenses that have acquired since the person died?”

“That’s going to be a non-starter,” Armitage said.  “I think I speak for most of the plaintiffs’ bar that we’re not going to sign this kind of agreement.  We’re not going to expose ourselves to direct liability.”

“Flip it around,” he said.  “I don’t think defense firms want to expose themselves to indemnifying their clients – the insurance company or the defendant – for their conduct or misconduct.  That’s just not a traditional obligation that you are going to take on.   We already have the fiduciary obligation in making sure that these liens are paid and that Medicare is not ignored.  We have potential exposure to Medicare if we don’t take care of their lien, and that’s been the law for a long time.  We always been very concerned about that if there is a lien asserted.  Now we have the additional obligation that even if no lien has been asserted, if our client is Medicare eligible we have do deal with this.”  He said plaintiff attorneys have to find out from Medicare to see if they failed to send them a lien.  “But as far as indemnifying a defendant’s or insurance company’s obligation to report or to comply with this, I just don’t see firms doing that.  Plaintiffs’ lawyers are not going to take on that additional obligation themselves.”

O’Meara, adding the defense perspective, said, “I have had in my settlement agreements for 20 years ‘any liens, claims, etcetera, arising out of this case or to be satisfied by the plaintiff and you agree to indemnify us’ – I’ve never had a plaintiff attorney bat an eyelash at that – until now.”

Satisfaction Guaranteed

Another audience member posed this question:  “If the plaintiffs’ bar may not want an indemnification clause, what about the language allowing them to provide information that those liens have been satisfied?  We have that language already in releases saying you will satisfy the lien.   How about documentation after the lien has been paid?  Would that be agreeable?”

“I wouldn’t have any opposition to language like that if it’s already been resolved,” Armitage said.  “You don’t always have that luxury of having it resolved at the time of the settlement, but certainly if it’s accurate I wouldn’t have an opposition to that.”

“What kinds of records should be maintained?” an audience member asked.

“Any letters that have been sent, any forms that were filled out by claimants saying we were not Medicare eligible, your query responses that have come back from Medicare saying ‘no,’ your discovery responses from plaintiffs’ attorneys saying ‘my client is 30 and never had any problem before and is not Medicare eligible.’  Any document you can use to justify your position,” O’Meara explained.

Penalties Are For Punishing

As for all the potential for penalties and double damages, O’Meara offered a relatively comforting prediction.  “I believe those [penalties] are going to be more punitively applied to those who more willfully failed to comply.  If you have a paper trail and there’s an honest mistake, most likely – and the experts may disagree – but from the lawyer in me and from what I have read and heard – tells me that they may hit you for what you owe, but if you have a paper trail and you can show that you acted in good faith, you probably won’t have the punitive damages.”

As for how reporting works for bankruptcy trust claims, an audience member who attended MCS conference calls said it was a matter MCS was still working on.

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Disclaimer: This summary or the original session are not intended to and do not constitute legal advice.

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