Turning The Tables On Medicare Secondary Payer Problems

Follow Up on Blog Post 19 re Osterbye

Turning The Tables On Medicare Secondary Payer Problems

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If you’ve been the victim of a Medicare conditional payment dispute through no fault of your own, you may be entitled to compensation. That’s exactly what a New Jersey plaintiff’s attorney demonstrated in Osterbye v. United States, after spending over six years battling a Medicare demand that had allegedly been hidden from him until after the personal injury case had already been resolved.

Briefly, in the Osterbye case, the plaintiff’s counsel was unaware that Medicare had created two separate conditional payment cases for the same personal injury matter. Consequently, the plaintiff settled the PI case and paid one conditional payment demand, without knowing that another set of conditional payments was lurking out of sight. When Medicare subsequently came after the plaintiff for more than $100,000 in additional conditional payments, over six years of administrative appeals and litigation ensued.

In a particularly interesting twist, the plaintiff ended up dropping its disputes with the federal government and instead just pressing multiple claims in federal court against the liability carrier that was involved in the underlying personal injury case.

Ultimately, the plaintiff voluntarily dismissed the case shortly after the federal district court released a 12(b)(6) ruling in favor of the plaintiff. We do not know exactly how the case resolved, but in light of the court’s ruling, we can surmise the case resolved favorably to the plaintiff.

So how was the plaintiff’s counsel in Osterbye able to turn the tables on a Medicare reimbursement disaster and seek damages from the liability carrier?

We have a good idea of what could have put the liability carrier on hot coals: exposure to double damages, attorney fees, and costs of suit under the Medicare Secondary Payer Act.

Osterbye is one of the very few cases in which an individual plaintiff viably asserted the Medicare Secondary Payer Act’s (“MSPA”) private cause of action. The private cause of action has a notoriously nebulous history, and it is the basis for the rising tide of reimbursement claims from private Medicare Advantage plans.

The most potent aspect of the private right of action is access to double damages, and possibly attorney’s fees.

To review, the MSPA private cause of action establishes “a private cause of action for damages (which shall be double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement)” as required by the MSPA. 42 U.S.C. § 1395y(b)(3).

The MSPA defines a “primary plan” as “a group health plan or large group health plan, … a workmen’s compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance” that is required to make payment under the MSPA. 42 U.S.C. § 1395y(2)(A)(ii). The precise definition of a “primary plan” is not settled; some courts see the Medicare beneficiary and plaintiff’s counsel as primary plans, while others stick to the literal text of the statute. See, e.g., Aetna Life Ins. Co. v. Guerrera, 300 F. Supp. 3d 367 (D. Conn. 2018) (holding that the private right of action can only be brought against “primary plans” as stated in the Act, and dismissing claims against a plaintiff/beneficiary and plaintiff’s law firm while citing contrary rulings from other courts).

A primary plan is required to make reimbursement for the cost of items or services when “it is demonstrated that such primary plan has or had a responsibility to make payment with respect to such item or service. A primary plan’s responsibility for such payment may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination or admission of liability) of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means.” 42 U.S.C. § 1395y(2)(B)(ii).

Relying on a literal reading of the MSPA, the Osterbye plaintiff drafted a compelling claim under the MSPA’s private right of action. Essentially, the plaintiff alleged that the plaintiff demanded payment for medical expenses (presumably by way of lawsuit or demand letter) from the defendant’s liability carrier, but the carrier failed to make prompt payment to cover the plaintiff’s medical expenses. Therefore, the plaintiff had to rely on the Medicare system to make payments for which the defendant, and by extension the liability carrier, were ultimately responsible to pay.

As a liability carrier required to make payment under the MSPA, the carrier became a “primary plan.” As a primary plan which failed to make a primary payment as required by the MSPA, the liability carrier was subject to suit under the MSPA’s private cause of action.

On that basis, the plaintiff brought a claim under the private right of action, seeking double damages, attorney fees, and costs—and the claim survived a motion to dismiss. Suddenly, the liability carrier was exposed to more than $200,000 in damages for a plaintiff’s Medicare expenses, plus attorney fees, all relating to a six-year-old settlement.

In addition, the plaintiff asserted negligence claims against the liability carrier, which were premised upon allegations that the liability carrier caused the whole mishap by initiating a Medicare conditional payment claim without notifying the plaintiff. Thus, the plaintiff allegedly settled the liability claims and reimbursed Medicare, without knowing the carrier had initiated a second, much larger conditional payment case.

The plaintiff specifically alleged that a “conditional payment claim initiated by [the liability carrier] resulted in additional and other medical expenses being claimed by Medicare as conditional payment for which reimbursement was sought, but were not factored into the settlement reached with this defendant’s insured because [the liability carrier] did not disclose that another claim was initiated by them and pending.” If true, this would appear to be very concerning conduct by the liability carrier, and a strong basis for a claim.

Furthermore, as noted in our prior post, the court ruled against the liability carrier’s attempt to enforce the settlement agreement. The carrier had argued that the agreement waived any right to pursue additional Medicare reimbursement. However, the court ruled that the settlement could be undone based on the doctrine of mutual mistake, with the facts to be explored later. The court also ruled that the statute of limitations for suing the carrier was tolled during the six-year administrative appeals process.

More Lessons from Osterbye

As Osterbye makes clear, Medicare and Medicare Advantage reimbursement is incredibly complex. The legal framework is in constant flux, and even minor oversights can create long-term consequences. That’s why it’s critical to begin evaluating and documenting Medicare-related issues from the outset of every case. Making a clear record that you’ve taken all the right steps may ultimately be your best defense—and sometimes your best offense.

If, like in Osterbye, you’ve handled Medicare compliance properly and something still goes wrong due to another party’s error or misconduct, you may have a viable claim. When dealing with a problematic “primary plan,” consider whether the Medicare Secondary Payer Act’s private cause of action could offer a path forward. Citing Osterbye may be enough to bring reluctant parties to the table.

Looking ahead, private Medicare Advantage plans are increasingly invoking the MSPA’s private right of action to enforce reimbursement claims. This same mechanism may be available to plaintiffs and their counsel who have been harmed in those disputes. Osterbye serves as a compelling reminder that when Medicare issues spiral out of control, knowing how to respond can turn a costly setback into a recovery opportunity.

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