A recent decision out of the United States District Court for the District of New Jersey is sending warning signals and a reminder to implement proactive practices to primary payers.

Jean S. Goldstein

The decision arises from Osterbye v. United States and came before the court on the defendant’s motion to dismiss plaintiff’s complaint. 

Background of the case

The plaintiffs’ decedent, Anna May Osterbye, was a Medicare beneficiary and was injured in a fire at her home that allegedly resulted from the negligence of a plumbing contractor insured by Selective Insurance Company of America (defendant).

In 2011, Osterbye initiated suit against the contractor. Prior to trial, the parties agreed to mediation and ultimately settled the matter. The settlement was for a lump sum in the amount of $740,000 based on known damages, including $13,562.90, which was estimated to be the Medicare conditional payment amount for which Medicare would seek reimbursement.

On April 29, 2013, plaintiffs executed a release, under which they “release[d] and gave up any and all claims and rights which [plaintiffs] may have against [the plumbing contractor]” and also agreed that they would not seek any further payment.

Upon the parties’ settlement, the plaintiffs reimbursed $13,562.90 to Medicare. However, on June 4, 2013, Medicare issued a final conditional payment demand letter for an additional amount of $118,071.28. The plaintiffs alleged that Selective had initiated a separate conditional payment claim with Medicare and failed to inform plaintiffs, resulting in Medicare requesting additional reimbursement for conditional payments made and were not factored in the parties’ settlement. 

The plaintiffs challenged the reimbursement request and proceeded through the process of seeking administrative remedies through the Medicare appeals process. On June 26, 2019, the Medicare Appeals Council dismissed the plaintiffs’ request for review, at which time they exhausted all administrative remedies.

On Aug. 28, 2019, the plaintiffs filed the action against the United States, the secretary of Health and Human Services, United States Department of Health, and Selective, of which Selective remains as the only defendant.

Plaintiff alleged that Selective failed to reimburse Medicare for Osterbye’s medical expenses under the Medicare Secondary Payer Act (“MSP”) and that Selective negligently initiated and failed to disclose a separate conditional payment recovery claim with Medicare. Selective filed the motion to dismiss at issue in this decision.

Court analysis

Defendant’s motion to dismiss asserted two main arguments for which dismissal would be appropriate:

1. The statute of limitations time-bars plaintiff’s MSP claim.
2. Dismissal is appropriate based upon the settlement agreement and release.

The court’s brief analysis:

• Statute of limitations defense denied.
  • With respect to the statute of limitations defense, the court explained that it may not exercise jurisdiction over a matter that arises under the MSP until appropriate administrative remedies have been exhausted. In this case, the plaintiff sought to address the $118,000 reimbursement request through the Medicare appeals process. Consequently, administrative remedies were not exhausted until June 26, 2019 — more than years after the settlement and release were executed when the Medicare Appeals Council dismissed the plaintiffs’ request for review. Plaintiffs were unable to seek judicial review on their MSP claim until all administrative remedies were exhausted. Therefore, the court determined that it was not apparent on the face of plaintiffs’ complaint that plaintiffs’ MSP private cause of action is time-barred, and it denied the motion to dismiss. 
• Dismissal based upon settlement agreement denied.
  • The defendant argued that the court should dismiss plaintiffs’ claims by enforcing the terms of the release as executed, because plaintiffs “release[d] and g[a]ve up any and all claims and rights which [plaintiffs] may have” against the defendant and further argued that that, by executing the release, plaintiffs waived their right to pursue the additional Medicare reimbursement request. In direct opposition to this argument, the plaintiffs asserted that the release was invalid because the parties’ settlement was based on the original $13,562.90 Medicare amount, not the additional $118,000, and that the release was, therefore, based on a “critical mistake of fact.” The court opined that it would not determine whether the release should be nullified, as this was a matter to be determined at a later time. For purposes of the motion to dismiss, it was sufficient that plaintiffs alleged that the settlement was for a lump sum based on known damages, including the $13,562.90 that was estimated for reimbursement of conditional payments, and the release was not based on the additional conditional payments amount of $118,000. The court, therefore, declined to dismiss the plaintiffs’ claims based on the terms of the settlement agreement/release.

Key takeaways and tips

The ultimate outcome of this case is yet to be determined. However, there are several clear warning signals and reminders that primary payers should pay close attention to. In consideration of this most recent decision, we offer the following tips: 

1. Do not wait until the settlement of a claim to identify all possible conditional payments. Medicare conditional payment investigation and resolution should be done well in advance of settlement discussions.
2. Make sure to obtain a final conditional payment demand amount prior to settlement to determine any and all conditional payments made by Medicare.
3. Understand the conditional payment recovery process. As seen here, relying on an initial conditional payment letter, and not a final demand amount, can leave a primary payer open to significant exposure. Understanding the conditional payment recovery process also includes understanding the inner workings of the Medicare administrative appeals process, and the associated delays as seen in this case.
4. Ensure that the settlement terms address the manner by which conditional payments and liens pre- and post-settlement have been and will be resolved. A settlement agreement should memorialize all of the efforts to address all conditional payments.
5. Do not rely solely on a statute of limitations defense. We have clearly seen cases challenge and address when the appropriate and applicable statute of limitations has tolled. This case is a clear reminder that while over six years passed prior to the filing of this claim in a United States District Court, the appropriate administrative remedies were to be exhausted prior to the filing. The Medicare appeals process is quite lengthy and delayed, and for this reason, proactive processes and practices are vital in properly resolving conditional payments, avoiding unnecessary costs, undue delay and litigation expenses.

Jean S. Goldstein is senior legal counsel for Medval. This post from the Medval blog is republished with permission.