Jordan: MSP Not So 'Extraordinary' to Completely Pre-empt State Law

Tuesday, May 10, 2016 | 0

A great MSP case is reported out of Pennsylvania on May 3, involving what the MSP does not do, in particular, pre-empt state law under any circumstances.

Jennifer Jordan

From the brief facts presented in the background,  it is clear that the parties arrived at a lump sum settlement agreement and that the insurer attempted to button up its MSP issues after the fact, making actual disbursement of the settlement funds suddenly contingent upon satisfying those issues not previously discussed at the time of settlement.

Because Pennsylvania Rule of Civil Procedure 229.1 requires payment of settlement funds within 20 days of execution of a settlement agreement and release, the plaintiff filed suit in the Lackawanna County Court of Common Pleas to enforce the settlement. Instead of defending his actions there, the defendant removed the case to federal court solely based on the idea that the issue involved a federal question, claiming the MSP so "extraordinary" a statute that it completely pre-empts state law.  

Nice try, but the court found that "nothing in the MSPA or the Medicare statute demonstrates that the MSPA completely pre-empts state law and therefore the removal of this action was improper." The plaintiff's motion to remand was granted and attorneys' fees and costs were awarded.

Once again we are faced with a situation involving attorneys unfamiliar with the MSP and its actual application throughout the country over more than a decade now, giving great deference to CMS and its overzealous fear tactics, and honestly believing that the MSP issues are so important that they take precedence over all other legal issues, absent which Medicare has nothing to recover from.

Yes, Medicare is absolutely entitled to reimbursement by federal statute, but a primary payer's obligations to satisfy that are secondary to its state law obligations that give rise to the actual obligation to make payment. Absent the defendant's auto policy that contractually requires that it make payment for the legal liabilities of its policy holder governed by state tort law and only up to the limits purchased by said policy holder, Medicare has no reimbursement right, and any treatments paid for by Medicare related to the accident are merely Medicare benefits provided to a statutorily entitled Medicare beneficiary. So trying to allege that Medicare's interests are superior to the state law issues in any way is putting the cart before the horse.

Without more facts provided in the background, it can only be assumed that the word Medicare was not uttered prior to the settlement agreement being reached because had it been, this all could have been avoided. It is actually surprising how often this happens as Medicare continues to be treated as an annoying afterthought in settlement negotiations, perhaps like here the attorneys feel like the federal law will protect the oversight.

Parties are free to contractually agree to any settlement terms, including conditions precedent that involve resolving Medicare issues, and the only way to delay funding of a settlement for MSP issues is by mutual agreement. There is actually a rather robust body of case law that emphasizes the concept of demonstration of a meeting of the minds in MSP cases such as this.

You cannot include Medicare as a payee on a settlement check unless the parties previously agreed. You cannot force one party to fund a Medicare set-aside in excess of the agreed contributions if the settlement agreement expressly outlines the parties' responsibilities and they do not coincide with CMS' opinion. You cannot present a settlement agreement with additional Medicare terms following a mediation agreement that is devoid of the same.

And on the flip side, you cannot enforce a settlement contingent upon CMS approval that has not been received, regardless of a state law such as the one in Pennsylvania that demands payment within 20 days.

The MSP does not create any of these contingencies, only the parties can, by contract, which incidentally will be governed by state law. And if the contingency is not present in that settlement agreement, nothing in the MSP is going to create that obligation, regardless of whether you remove the case to federal court.

The lesson to be learned here is to be proactive with regard to your MSP issues. When you approach a settlement involving an individual over or nearing the age of 65, or someone who is clearly unable to work and likely able to apply for SSDI, ask questions.

Even if all the facts are not clear whether Medicare has an interest, it is completely within the parties' ability to agree to contingencies such as "in the event that plaintiff is to become a Medicare beneficiary" or "despite assertions to the contrary at the time of settlement Medicare seeks reimbursement post-settlement” that outline the parties' post-settlement obligations that can later be enforced under state law contract claims.

Even if Medicare has no obvious present interest and you are still worried, state that "in the event that plaintiff becomes a Medicare beneficiary that he understands.”

CMS will not participate in the settlement itself. It is the parties' responsibility to recognize potential exposures under the MSP and place necessary contingent terms in the settlement agreement to outline how the parties will deal with each other in potential MSP scenarios.

But understand that nothing in the settlement agreement will affect which party CMS may elect to pursue, so the only thing you can do is outline how to deal with one another. Don't give the MSP or CMS more power or authority than Congress intended, and maintain control of your state law issues.

Jennifer Jordan is Medval's chief legal officer. This blog post is republished here with permission.