The Secondary Payer Mouse Trap

The Secondary Payer Mouse Trap: Staying Safe When Medicare’s Final Demand Exceeds the Conditional Payments

***NEWSLETTER***

"This blog post is intended solely for educational and informational purposes and does not constitute legal advice. The content herein should not be relied upon as a substitute for professional legal consultation. Reading this post does not create an attorney-client relationship with The Lien Project, PC or any of its attorneys. For personalized legal guidance, please consult The Lien Project, PC."

Dealing with CMS and its contractors regarding conditional payment liens in personal injury cases can feel like an exercise in futility. You try to do everything right: you notify CMS of the claim and clearly identify the injuries; you review the conditional payment ledger for unrelated charges; you use the conditional payments as Howell specials for past medical damages and resolve the case. You notify CMS of the settlement, finalize the disbursement, and deposit the settlement funds into your client trust account.

Then the CMS Final Demand arrives—and it includes hundreds of thousands of dollars in payments that were never included in the conditional payment ledger.

Houston, we have a problem. But whose problem is it?

In Osterbye v. United States, 2020 U.S. Dist LEXIS 116591 (June 30, 2020), the parties had received a conditional payments ledger totaling $13,562.90 and relied on that amount when settling the case. A month and a half later, CMS issued a Final Demand for a staggering $119,071.28.

The reason for the increase? Apparently, the liability carrier had submitted an additional conditional payment report that wasn’t disclosed to the plaintiff during the claim process, and the final demand reflected that new data.

The plaintiff paid CMS the original $13,000 and proceeded through the CMS administrative appeals process. She argued that she should not be responsible for the increased amount because only the smaller figure was asserted during litigation. Each appeal was rejected—culminating in a six-year administrative process—at the end of which she finally gained the right to file suit in federal court.

Although initially brought against government defendants, the case ultimately proceeded only against the liability carrier, Selective, under the Secondary Payer Act and common law negligence for its handling of the CMS reporting. Selective moved to dismiss, arguing the plaintiff had waived her rights by signing a release and that the statute of limitations had long since passed. But the court found that the claims under the Secondary Payer Act didn’t ripen until the Medicare Appeals Council denied the final appeal—meaning the six-year statute had only just begun.

As for the release, the court found that the plaintiff had pled enough facts to establish a mutual mistake of fact, potentially voiding the release. Under New Jersey law (and generally across jurisdictions), a mutual mistake occurs when both parties are mistaken about the same material fact within the contract. A unilateral mistake, by contrast, occurs when only one party is mistaken. If the non-mistaken party knows—or should know—about the mistake, rescission may be appropriate. If not, the remedy may be reformation of the agreement.

Osterbye is far from resolved, but it raises important red flags about CMS compliance and settlement strategy.

Key Takeaways

1. Don’t rely on the conditional payment ledger—wait for the Final Demand. Remember: the CPL is conditional. CMS performs a final “sweep” of payments when issuing its Final Demand.
2. As plaintiff’s counsel, make your own reports to CMS. Report the claim, review the CPL, and notify CMS of the settlement yourself. Don’t rely solely on the defense or liability carrier to do it correctly.
3. Audit the CPL against known providers, treatment dates, and claimed damages. Ensure nothing is missing. If you have documentation for additional treatment that’s not listed, it becomes harder to argue reliance on the CPL later.
   1. Corollary: If unrelated care appears on the CPL, request removal before asking for the Final Demand. Failure to do so may be interpreted as waiver of your right to dispute it later.
4. Carefully draft your settlement agreement terms regarding liens and indemnity. Boilerplate language may unintentionally shift lien responsibility back onto the plaintiff—or even plaintiff’s counsel. Be precise.

Explore More Resources with Lien Project Network

For a deeper dive into lien resolution strategies, settlement planning, and reimbursement challenges, explore our educational modules. Lien Project Network serves as a trusted resource for plaintiff attorneys, providing insights on financial planning, public benefits, and structured settlements in the context of lien management.

Need Assistance? Work With The Lien Project, PC

If you need expert legal assistance in navigating lien resolution, reimbursement claims, or settlement planning, our team at The Lien Project, PC is ready to help. As an LPN member, you earn credits that can be applied toward lien reduction and resolution services provided by The Lien Project, PC, allowing you to offset up to $900 per year. Your investment in continuing education through Lien Project Network not only enhances your lien resolution skills but also reduces the cost of engaging legal experts when needed.

Schedule a Consult today to see how we can help maximize your client’s recovery.