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Withholding Settlement Proceeds Until Medicare Signs Off

Withholding Settlement Proceeds Until Medicare Signs Off

You have been in a terrible motor vehicle accident and suffered severe injuries. Your attorney explained to you that you will need to repay Medicare for the medical bills they paid. After negotiations, you have agreed to a settlement amount with the other driver’s insurance company. Your lawyer informs you that the adjustor now says the funds will not be issue without Medicare being listed on the check or a letter from Medicare that confirms the medical lien has been resolved. The adjustor explains his supervisor is concerned that the carrier will be sued by Medicare if the lien is not paid. Your attorney confirms that a settlement with Medicare may take some time. You have bills to pay and just want to get what was agreed to in the settlement agreement. Good thing you are represented by Bordas & Bordas, because we know the law that will force the insurance company to immediately issue the settlement check. Let me share the same with you.

First, let me explain why the insurance company might be concerned with being sued by Medicare, if the carrier settles the claim with you. Pursuant to the Medicare Secondary Payer Act ("MSPA"), Medicare is a secondary payer meaning that Medicare can only pay bills not paid by a "primary payer." If Medicare makes a payment and a primary payer is identified, the primary payer must reimburse the United States. 42 U.S.C. §1395y(b)(2). The MSPA identifies an automobile or liability insurance policy as a primary payer. 42 U.S.C. §1395y(b) (2)(A)(ii). This means that if the insurance company has made a settlement payment and it is later discovered that Medicare had already made a payment for the same services or items, the insurance company which paid the settlement amount can be required to reimburse Medicare pursuant to regulations promulgated by the U.S. Department of Health and Human Services to implement the MSPA.

Now let’s talk about why the insurance company cannot withhold the settlement proceeds when an agreement was already made without a requirement the check is made payable to Medicare and/or receiving a letter from Medicare confirming the lien is resolved before the money will disbursed. In Pennsylvania, the issue of whether a defendant can withhold payment of a settlement or verdict amount until Medicare issues a no-lien letter or the plaintiff waives future Medicare reimbursements for the injury is controlled byZaleppa v. Seiwell, 9 A.3d 632. (Pa. Super. Ct. 2010). In Zaleppa, a personal injury case, the jury returned a verdict of $15,000 to be paid to the plaintiff.Idat 633-634. The defendant argued that the trial court erred in denying her post-trial motion that the court either order her to name Medicare, along with the plaintiff, as a payee on the verdict amount, or pay the verdict pending notification from Medicare notifying her that all outstanding liens had been paid. Idat 634. 

The Superior Court affirmed the trial court’s ruling, holding that the defendant’s statutory obligation under the MSPA to reimburse Medicare was “distinct from Medicare's statutory right of reimbursement.” Id at 638. Furthermore, the court interpreted that the MSPA’s statutory scheme was “not designed to enable private parties to act on behalf of the United States government as ‘private attorneys general.’” Id at 639 quoting Stalley v. Catholic Health Initiatives, 509 F.3d 517, 523 (8th Cir. 2007). 

The court held that it was Congress’s intent, based express language of the MSPA, “to bestow only the United States government with the authority to recover outstanding conditional Medicare payments.” Idat 639. “The MSPA expressly provides that only the United States government, not a private entity, may file a lawsuit in which the rights of the government are asserted.”Id. The court held that it was Congress' intent that the MSPA would only allow the United States government “to vindicate its own interests in reimbursement,” and that that intent “must be applied throughout the MSPA.” Id. Therefore, the court ruled that the prohibition of private parties acting on behalf of the United States government through the MSPA extended to all phases of litigation. Id

The Honorable Judge R. Stanton Wettick, Jr. of the Allegheny County Court of Common Pleas applied the Zaleppadecision in his ruling on a case with circumstances mirroring our client’s.Wimberly v. Katruska, 25 Pa. D. & C. 5th 532 (C.P. 2012). In Wimberly, plaintiff’s claims were settled for $9,000 in a telephone conversation between counsel. Idat 533. The defendant argued that, as a matter of law, the insurance company was entitled to withhold payment of the settlement until Medicare issued a no-lien letter, so as to avoid potential double payment. Id. Plaintiff petitioned the court to enforce the settlement. Id. Judge Wettick ruled that Zaleppacontrolled the dispute, and that the defendant’s argument thatthe insurance company was entitled to withhold payment until Medicare issued a no-lien letter was “without merit.” Id at 535. Critically, Judge Wettick found that “unless there is a specific agreement conditioning payment on a no-lien letter, it is a matter of contract law that a defendant cannot subsequently raise new conditions regarding the payment that the defendant agreed to make.” Id.

Judge Wettick then turned to the defendant’s second argument in opposition to Plaintiff’s Petition to Enforce Settlement, which was that prior to agreement being reached, the parties agreed thatpayment would “be conditioned on plaintiff's counsel obtaining documentation from Medicare stating whether plaintiff is currently receiving Medicare benefits and what, if any, benefits were paid that were related to the accident.” Id at 536. Plaintiff’s counsel denied having ever agreed to such a condition. Id.

Judge Wettick applied the same analysis he used in a similar case, Exp. Boxing & Crating, Inc. v. Tech Met. 56 Pa. D. & C.4th 393 (C.P. 2001)(where the parties stipulated that a deal had been reached, and that the terms in dispute, “pro rata release” and “pro tanto” had never been used in any discussion). Id at 537. Ruling that the settlement agreement was a contract governed by general rules of contract interpretation, Judge Wettick held that “[t]he common expectation [of a settlement agreement] is that a defendant will promptly pay the settlement amount.” Id at 538-539. Following that logic, Judge Wettick ruled that, “since the only dispute was over whether payment of the agreed-upon settlement amount was conditioned upon defendant’s receipt of a no-lien letter [from Medicare],” the defendant had the burden of proving the same. Id

This is directly applicable to our hypothetical case. The MSPA prohibits private defendants from acting on behalf of the United States government during any phase of litigation. In Zaleppa, the Superior Court of Pennsylvania applied the MSPA to the post-trial phase of litigation by affirming the trial court’s denial of a defendant’s motion to add Medicare as a payee to the jury verdict. 

At the Allegheny County Court of Common Pleas, Judge Wettick applied Zaleppato a settlement agreement, finding that, as a matter of law, the defendant was not entitled to withhold the settlement payment because he had not received a no-lien letter. Critically, Judge Wettick found that “unless there is a specific agreement conditioning payment on a no-lien letter, it is a matter of contract law that a defendant cannot subsequently raise new conditions regarding the payment that the defendant agreed to make.” 

Our hypothetical case perfectly mirrors Wimberly v. Katruska. During negotiation, there was no mention of a Medicare set-aside. The adjustor added this as a condition for payment after the agreement was reached. Therefore, it would be the carrier’s burden to prove that payment of the agreed-upon settlement amount was conditioned upon receipt of a Medicare set-aside. Once again, Bordas and Bordas would make sure the justice is achieved swiftly and the money would immediately be issued the client. 

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