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February 7, 2012

Recent New York Decisions Demonstrate the Need for Extreme Caution When Addressing Settlements Involving Medicare Issues

At the time of settlement of personal injury actions, Medicare liens are a source of anxiety for defense attorneys and insurance adjusters. These liens may swell to tens and even hundreds of thousands of dollars, all of which are recoverable by the government directly from the defendant. As such, these issues must be addressed and resolved in the settlement documents. A recurring issue arises when defense counsel is provided with executed releases before all of the lien issues are resolved, thereby creating the additional concern of paying the settling plaintiff within 21 days, pursuant to the requirements of CPLR 5003-a. Unfortunately, there are few court decisions addressing this precise issue. In Panella v. CBS Broadcasting, Inc., 2011 NY Slip Op 32349U (N.Y. Sup. Ct. Sept. 1, 2011), the Court held that a defendant may properly wait until it received confirmation of the amount of the lien from the Centers for Medicare and Medicaid Services ("CMS") before paying the settlement.

In Panella, a personal injury action, Plaintiffs' counsel advised opposing counsel that he was in the process of verifying Medicare lien issues. Three months later, the parties agreed to settle the matter. Despite the fact that the parties had yet to receive confirmation from CMS as to the presence of a Medicare lien, Plaintiffs' counsel tendered executed general releases and a hold-harmless agreement. Defendants objected to the settlement documents, arguing that the documents did not adequately address potential Medicare reimbursements. Defendants in turn proposed revisions to the hold harmless agreement to protect them in the event that Plaintiffs failed to reimburse Medicare.

Prior to receiving confirmation from CMS, Plaintiffs' counsel provided revised settlement documents, including Medicare-issue protecting language. One of the settling Defendants objected, and refused to provide its portion of the settlement funds prior to receipt of a Conditional Payment Letter from CMS. Although Plaintiffs' counsel and the sole objecting Defendant agreed that Plaintiffs would place a portion of the settlement proceeds in escrow pending receipt of the Conditional Payment Letter from CMS, Plaintiffs subsequently entered judgment against the objecting Defendant for its portion of the settlement proceeds, including interest, costs and disbursements. Said Defendant paid its share the following day, but moved to vacate the interest, costs and disbursements. The Supreme Court granted the Defendant's motion, holding that the general release provided by Plaintiffs was defective because it did not provide for the release of any Medicare liens. Therefore, it did not trigger the Defendant's obligation to pay under CPLR 5003-a, until the Medicare issues are resolved by Conditional Payment Letters from CMS.

Despite the Court's decision in Panella, practitioners would be wise to address settlements with Medicare with extreme caution. Just weeks after Panella, the Appellate Division, Fourth Department, affirmed the award of interest, costs and disbursements on a judgment where a Release as a result of a settlement acknowledged the presence of the Medicare lien, and where a portion of the settlement would be used to satisfy the lien; but the parties' stipulation of settlement imposed no additional requirement on the plaintiff, such as providing a CMS verification letter prior to payment. Tencza v. St. Elizabeth Medical Center, 2011 NY Slip Op 6776 (4th Dep't Sept. 30, 2011). In order to protect clients and carriers, defense counsel must insist that any Medicare lien verification measures be: (1) addressed in settlement negotiations; (2) contained in the settlement papers; and (3) clearly agreed to by all parties before the plaintiff tenders a Release.

If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Practice Area.


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