Art of Settlement
In today’s complicated regulatory landscape, a comprehensive plan for compliance has become vitally important to personal injury practices. Lawyers assisting catastrophically disabled clients are personally exposed to government recovery actions, damages and malpractice risks daily when they handle or resolve such cases. The list of things to be concerned about is growing daily.
This page helps lawyers navigate these complexities encountered at settlement by boiling down the issues in an easy to understand fashion, making it an essential item on every trial lawyer’s bookmarks list. With the guidance of nationally recognized settlement compliance expert Jason Lazarus, you will be able to issue spot to make sure you protect your client as well as your firm.
This page dedicated to regulatory compliance when resolving catastrophic claims will teach you about:
- Resolution of healthcare liens
- Closing cases compliantly at settlement
- Medicare Secondary Payer Compliance
- Preservation of needs-based government benefits
Resolution of Healthcare Liens – The Problem for Plaintiff Personal Injury Law Firms
You might ask yourself, why hire experts to assist with lien resolution when I can do it myself. You also might ask whether it is ethically permissible to outsource lien resolution to a lien resolution company. The first question is quite simple to answer and the second one requires a little more examination of the rules regulating lawyers.
The problem really starts with the responsibilities a law firm has at the beginning of each new case as it pertains to liens. I use lien synonymously with subrogation, reimbursement, and debts here even though there are differences. Given the law, a law firm must track liens that are asserted against their client’s personal injury claim and in some instances will have an affirmative duty to investigate and identify possible liens (Medicare & Medicare Advantage plans are good examples).
The law firm must determine whether a lien holder’s claim has merit and is legally valid. To reach resolution, this requires a law firm to have significant contact and interaction with a variety of lien holders along with recovery vendors. At the conclusion of the case, it frequently requires protracted negotiations to reach an agreement to resolve the claims made by a lien holder or recovery vendor against a settlement, judgment, or verdict. The bigger issue, given the distractions it creates, is that law firms frequently wait too long to begin to negotiate a reimbursement to a lien holder which can delay disbursement to the injury victim. All the foregoing creates pressure on law firms to outsource lien resolution functions.
As to the question of why outsource, it really comes down to efficiency and results. When resolving a lien on behalf of an injury victim, you typically are either dealing with a government benefit health plan or an aggressive recovery vendor on behalf of a plan. Dealing with Medicare, Medicaid, FEHBA on the government side can be time consuming and ineffective. Having to negotiate with and against recovery contractor groups for Medicare Advantage plans and Rawlings, Equian, Optum and Conduent can be equally difficult if not more so. Recovery contractors are massive corporations whose sole reason for existence is to take dollars from a personal injury victim’s recovery. They do this by relying upon the efforts of talented trial lawyers who secure settlements and receive verdicts. These recovery contractors have very deep pockets and large staffs to pursue nothing but liens which makes for lopsided battles.
So, to sum up succinctly why you may want to hire an expert lien resolution group to help you and your client:
- To make your law firm more efficient by reducing operating expenses
- Give you a deep team of experts to fight the massive recovery vendors and
- Most importantly, get the best possible resolution for the injury victim when it comes to what must be paid back to a lien holder
Ethics of Outsourcing Lien Resolution
The question at hand is what are the ethical rules guiding the outsourcing of lien resolution services to experts? The ABA’s Formal Ethics Opinion 08-451 is a great starting point for the analysis. While it does not address lien resolution directly, it does give the guiding framework for outsourcing. The operative provisions of the ethics opinion state:
“A lawyer may outsource legal or nonlegal support services provided the lawyer remains ultimately responsible for rendering competent legal services to the client under Model Rule 1.1. In complying with her Rule 1.1 obligations, a lawyer who engages lawyers or nonlawyers to provide outsourced legal or nonlegal services is required to comply with Rules 5.1 and 5.3. She should make reasonable efforts to ensure that the conduct of the lawyers or nonlawyers to whom tasks are outsourced is compatible with her own professional obligations as a lawyer with “direct supervisory authority” over them.
In addition, appropriate disclosures should be made to the client regarding the use of lawyers or nonlawyers outside of the lawyer’s firm, and client consent should be obtained if those lawyers or nonlawyers will be receiving information protected by Rule 1.6. The fees charged must be reasonable and otherwise in compliance with Rule 1.5, and the outsourcing lawyer must avoid assisting the unauthorized practice of law under Rule 5.5.”
To summarize, if you are going to outsource you must remain ultimately responsible for the work and provide “direct supervisory authority” over those to whom you outsource to. You must protect confidential information and ensure that the provider who will be outsourced to is competent and suitably trained. Disclosure and informed consent of the outsourcing should be obtained from the client.
While that is the general framework, some states have further defined what is ethically required when outsourcing lien resolution. One great example of this is New York. In an opinion issued in July of 2008, the NYCLA Professional Ethics Committee permitted New York lawyers to retain an outside lien resolution law firm and charge its fee as an expense of litigation paid by the client. According to the opinion, NYCLA, Ethics Op. 739 (7/7/2008), with the client’s informed consent, a personal injury law firm may contract with a lien resolution firm and asses its fee as a cost in a contingency fee arrangement as long as the fee was reasonable.
The definition of the fee being reasonable was analyzed in terms of “net benefit to the client”. The example was given that a “lawyer who outsources a complex lien problem to another attorney who, in turn, resolves it for a fraction of the lien amount, gains a net benefit to her client.” The general parameters of outsourcing in New York were laid out as:
“It is ethically permissible for a plaintiff’s personal injury attorney to retain a specialty firm to handle the resolution of a Medicare, Medicaid or private healthcare lien on a settled lawsuit. Under the following conditions, the fee for said outside service may be charged as a disbursement against the total proceeds of the settlement: (a) at the outset of the representation, the Retainer Agreement with the client provides that the attorney may do so, and the client has given informed consent thereto; (b) the actual charges are passed on to the client at cost (without any overage or surcharge) and must be reasonable; (c) the transaction results in a net benefit to the client on each lien negotiated; ( d) the transaction complies with all principles of substantive law, including the fee limitations on contingent fees in the New York Judiciary Law and Appellate Division rules; and ( e) the referring attorney remains responsible for the overall work product. If counsel cannot comply with all of the above conditions, the fee for said services should be charged against the attorney contingency fee.”
ERISA governs nearly all employer health plans. The primary exceptions are government employer plans governed by FEHBA and state government or church plans which are governed by state law. Most, if not all, ERISA health insurance plans state that injuries caused by a liable third party are not a covered expense and require reimbursement when a plan pays for injury related medical expenses (often referred to as subrogation clauses). ERISA provides that health plans which qualify under its provisions can bring a civil action under section 502(a)(3) to obtain equitable relief to enforce the terms of the plan. Appropriate equitable relief is really the only enforcement mechanism an ERISA plan can utilize to address its reimbursement rights contained in the plan. While that all may sound simple, ERISA is a “compressive and reticulated statute” which means that the law on this subject is quite complicated. So the Supreme Court has clarified exactly what is appropriate equitable relief under ERISA over the last twenty years.
For clients who are on Medicaid, they will most likely have a Medicaid lien when their case is settled. When Medicaid has made payments for medical expenses related to an injury, it may assert a lien against the beneficiary’s recovery under state Medicaid third party recovery laws. Every state must comply with federal Medicaid statutes and regulations to participate in the joint federal-state Medicaid program. Pursuant to Title XIX of the Social Security Act, the federal Medicaid program requires every participating State to enact a “third party liability” provision which empowers a State to seek reimbursement from liable third parties for injury related medical expenditures paid on behalf of a Medicaid recipient. In order to comply with this requirement, a State Medicaid program must have statutory provisions under which the Medicaid recipient is considered to have assigned to the State his or her right to recover from liable third parties medical expenses paid by Medicaid. Federal law codifies this stating:
(H) that to the extent that payment has been made under the State Plan for medical assistance in any case where a third party has a legal liability to make payment for such assistance, the State has in effect laws under which, to the extent that payment has been made under the State Plan for medical assistance for health care items or services furnished to an individual, the State is considered to have acquired the rights of such individual to payment by any other party for such health care items or services.
Despite the mandate in federal law for state Medicaid agencies to seek reimbursement from liable third parties by “acquiring the rights of such individual to payment by any other party for such health care items or services,” there are important limitations on a State’s recovery rights which protect the Medicaid recipient’s property. The limitation comes from the federal anti-lien statute which proclaims “[n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid,” and the federal anti-recovery statute at §1396p(b)(1) states “[n]o adjustment or recovery of any medical assistance correctly paid on behalf of an individual under the State plan may be made.
The tension between these provisions in federal law and state law recovery statutes has become the source of litigation in federal as well as State courts.
Medicare Conditional Payments
Congress has given the Centers for Medicare and Medicaid Services (hereinafter CMS) both subrogation rights and the right to bring an independent cause of action to recover its conditional payment from “any or all entities that are or were required or responsible . . . to make payment with respect to the same item or service (or any portion thereof) under a primary plan.” Furthermore, CMS is authorized under federal law to bring actions against “any other entity that has received payment from a primary plan.” Personal injury lawyers have been sued under this provision for failing to repay a Medicare lien. Most ominously, CMS may seek to recover double damages if it brings an independent cause of action. Given all of the foregoing, Medicare subrogation law is a problematic area for personal injury practitioners. The MSPA presents liability concerns for personal injury practitioners because of its complexity, and the difficulty in dealing with Medicare’s subrogation bureaucracy.
Medicare Advantage Plan Liens (MAO/Part C)
Some clients, post-accident, may have switched over to a Part C Medicare Advantage Plan. Therefore, even if you have gone through the resolution process for your client and gotten the Medicare conditional payment related issues dealt with you might not be finished. What lurks out there is that a Part C Advantage Plan (hereinafter MAO) may have paid for some or all of your client’s care. You may wonder how that is possible when you were told that the client was a Medicare beneficiary and Part A/B was paid back for conditional payments. The reason is that MAOs aren’t Medicare and injury victim clients can elect to enroll in an MAO during relevant enrollment periods. Therefore, a MAO may have made payments after election of which you are completely unaware. Neither Medicare, BCRC nor CMS will alert you to this fact nor do they have any information as it relates to MAOs. Therefore, attorneys handling matters that involve a Medicare beneficiary must be vigilant and do their own due diligence to track down possible MAO liens or face the possibility of having to personally pay the lien times two. Although shocking, it is an area of the law that is rapidly developing in favor of MAO plans.
The Federal Employees Health Benefits program provides health insurance coverage federal employees, retirees and their survivors. Federal law, found at 5 U.S.C. § 8901 et seq. (Federal Employees Health Benefits Act or FEHBA), governs these programs which provides benefits to millions of federal workers and their dependents. FEHBA authorizes the Office of Personnel Management (OPM) to enter into contracts with private insurance carriers to administer FEHB plans. OPM’s contracts have traditionally required the private insurance carriers to pursue subrogation and reimbursement. According to the Supreme Court, “FEHBA expressly ‘preempt[s] any State or local law’ that would prevent enforcement of ‘the terms of any contract’ between OPM and a carrier which “relate to the nature, provision, or extent of coverage or benefits (including payments with respect to benefits).” Id. § 8902(m)(l).” “In a 2015 regulation, OPM codified its longstanding position that FEHBA-contract provisions requiring carriers to seek subrogation or reimbursement ‘relate to … benefits’ and ‘payments with respect to benefits,’ and therefore FEHBA preempts state laws that purport to prevent FEHBA insurance carriers from pursuing subrogation and reimbursement recoveries. 5 C.F.R. § 890.106(h).”
Military Lien Resolution
While much more attention is paid to Medicare, ERISA and other lien types, federal reimbursement rights of military programs should be on a trial lawyer’s radar. With a rise in those serving in the US military abroad leaving their families at home, claims involving these plans are rising. There are three different types of coverages available to those in the military and their dependents/survivors. First, the Veterans Health Administration delivers healthcare insurance to eligible and enrolled veterans encompassing both inpatient and outpatient services at their facilities. Second, ChampVA is health insurance provided through the Civilian Health and Medical Program of the Department of Veteran Affairs for the spouse or child of a Veteran with disabilities or a Veteran who has died. Third, Tricare is the Department of Defense’s health care program for active-duty and retired service members and their families. The legal starting point for reimbursement claims when it comes to the military is the Federal Medical Care Recovery Act (FMCRA). It is found at 42 U.S.C. §§ 2651-2653 and provides the federal government with the right to recover the medical expenses incurred for medical care of an injured beneficiary when there is a liable third party. Under this act, the United States has a right to recover the reasonable value of the care and treatment from the person(s) responsible for the injury. It is noteworthy that there really is no “military lien” and instead a direct cause of action against the third party under FMCRA. In addition, 10 U.S.C. §1095 is the basis upon which the government relies to recover from liable third parties and requires the beneficiary to protect its interests. The government, through these military healthcare programs, demands that plaintiff attorneys sign protection agreements to acknowledge the claim and protect the interests of the federal government. Signing these types of agreements is generally not advisable for the reasons I outline below. Accordingly, health insurance coverage under the Veterans’ Administration (VA), ChampVA and Tricare all have recovery rights under FMCRA and other provisions of the federal law.