■ Mary Ellen Gambino is a partner in Wilson
Elser’s toxic tort, environmental and energy practice in San Francisco. Steven J. Joffe is a partner in Wilson Elser’s general liability
and casualty, securities, and toxic tort, environmental and energy prac-tices in Los Angeles. Maria A. Caru-ana is of counsel for Wilson Elser in San Francisco, where her practice areas include toxic tort and mass tort litigation.
Taming the
MMSEA Beast
Special Challenges
for the Toxic Torts
Practitioner
By Mary Ellen Gambino,
Steven J. Joffe
and Maria A. Caruana
T
he frustration may be
eased, as Congress, the
courts, and Medicare
all have their sights
on the same goal.
tration of finally reaching a settlement agreement, only to spend countless addi-tional hours, weeks—even months—com-ing to terms with plaintiffs’ counsel on the Medicare “issues” and release language. Even then, after the ink has dried, we are left with a sense of unease. In the jum-ble of MMSEA catch-phrases, acronyms, alerts, guidelines, and, frankly, inconsis-tent advice from Centers for Medicare and Medicaid Services (CMS) contractors, we cannot help wondering if we succeeded in protecting our responsible reporting entity (RRE) clients from the threatened penalties and double damages payments that could result from noncompliance, albeit inadver-tent noncompliance.
As conscientious legal counsel, our obli-gation is to educate ourselves on the poten-tial pitfalls of the MMSEA and protect our RRE clients. As toxic tort defense coun-sel, we have the added challenges of grap-pling with these issues in the context of mass tort litigation, as well as interpreting the Act’s special provisions geared toward addressing injuries resulting from toxic exposures involving multiple defendants. All this, while heeding the not- so- subtle message launched at us by the government when it filed the Stricker complaint (U.S. v. Stricker (CV-09-2423) September 30, 2010), bringing lawyers into the mix of parties potentially responsible for Medicare reim-bursement. Although that case had a happy ending for defendants when the U.S. Dis-trict Court for the Northern DisDis-trict of Ala-bama held that the claims were barred by the applicable statutes of limitations, the government’s intent to seek reimbursement aggressively from primary insurers, cor-porate defendants and plaintiffs’ attorneys cannot be ignored, nor can we discount the possibility that, where colorable claims can be put forth against them, defense attor-neys are also fair game.
MMSEA: A Brief History
A Medicare beneficiary’s duty to repay
Medicare for health care costs is not new. It has existed since the December 5, 1980, enactment of the Medicare Sec-ondary Payer Act (MSPA). The court suc-cinctly articulated the goal of the Act in the
Stricker decision:
Though it has been called ‘convoluted and complex’ by some courts and labeled a ‘model of un- clarity’ (Estate of Urso v. Thompson, 309 F. Supp. 2d 253, 259 (D. Conn. 2004)), the MSPA (or the MSP statute), put simply, is a statutory reim-bursement mechanism for the govern-ment to recover expenses conditionally paid by Medicare. See 42 U.S.C. §1395y. Under certain conditions, the MSPA deems that Medicare will be the secondary rather than primary payer for its insureds. In those circumstances, where Medicare pays a health care tab that later was or should have been picked up by the pri-mary insurer, it can recover that money from the recipient of the payment or the primary insurer.
What is new is the obligation of defend-ants and their insurers to report to Medi-care any payment obligation to a MediMedi-care beneficiary or face severe penalties. Where, in the past, release language indemnify-ing the releasee from all liens was suffi-cient to shelter a defendant from Medicare claims, now that precaution is not enough. The MMSEA provisions directed to insur-ers and self- insureds took effect on July 1, 2009. The MMSEA amends the MSPA. Of particular importance to the toxic tort defense attorney, Section 111 of the Act places the responsibility on our insurance company and self- insured clients (among the groups referred to as RREs by the Act) to report settlements, judgments, awards, or other payment obligations to a Medicare beneficiary. At the time of this writing, fail-ure to properly report invites the onerous civil penalty of $1,000 per day. These new RRE reporting requirements are Medi-care’s safety net, backing up the MSPA’s long- standing requirement that Medicare
defend toxic tort cases first heard of Section 111 of the
Medicare, Medicaid and SCHIP Extension Act of 2007
(MMSEA). In that time, many have experienced the
frus-T o x i c frus-T o r frus-T s a n d E n v i r o n m E n frus-T a l l a w
be reimbursed for conditional payments within 60 days of receipt of the payment. The bottom- line motivation, of course, is to ensure that somehow, some way, Medi-care will get paid.
MMSEA: The Ensuing Challenges
Fortunately, the MMSEA beast stumbled at the starting gate.
As we all know, the mandatory report-ing commencement dates were pushed back several times as our RRE clients geared up for this new undertaking; and the extra time was a godsend. As the RREs mastered the finer points of reporting, they tasked their outside defense lawyers with timely collection of information they would need to report and with convey-ing the message to plaintiffs’ counsel that all settlements would be conditioned on receipt of this information and the inclu-sion of specific Medicare release language in the settlement agreements.
Immediately, these new rules of engage-ment became problematic in the area of mass torts. Plaintiffs’ counsel balked at having their many clients sign forms under oath that were not required by the laws in their jurisdictions. Where standing orders issued in complex litigation prevented de-fendants from serving special discovery requests early in the litigation, some plain-tiffs’ firms were unwilling to stipulate to providing early answers. Each RRE drafted Medicare release language that passed its corporate counsel’s approval, but plain-tiffs’ counsel, accustomed to cranking out identical forms of release for the hundreds
of cases they run through their offices, refused to start crafting special language for each defendant. As a result, funding of settlements was delayed while waiting for information to be exchanged and for release language to be agreed upon.
MMSEA: The Solutions
So where are we now, two years into this MMSEA adventure? How has court inter-vention helped or hindered efforts to tame the MMSEA beast? What is on the horizon in this area?
Procedures for MMSEA compliance are still developing. In the meantime, across the country, jurisdictions have grappled with disputes between litigants who dis-agree on what is required to comply with the Act. Courts are diligently working to ease the strain on parties and the court system imposed by the MMSEA. Finding a scheme within which to accomplish this important goal fairly is paramount. Some courts have issued standing orders and case management orders to aid the litigants in complying with the Act. Generally, this judicial activity has occurred in mass tort litigation, specifically asbestos litigation. Judges in complex litigation departments in at least five jurisdictions have been com-pelled to resolve issues ranging from the necessity of reporting pre- December 5, 1980, exposures to how settlement funds should be held and disbursed.
Clarification of Pre-December 5, 1980, Reportable Claims
In Philadelphia County, one of the juris-dictions that addressed MMSEA issues, the Complex Litigation Center of the Phil-adelphia Court of Common Pleas ruled on the issue of whether pre- December 5, 1980, exposures can constitute a report-able event. In the spring of 2011, the issue arose in the context of a motion to enforce settlements in a case where the alleged and established exposure pre-dated December 5, 1980, but defendants still wanted the settlement funds escrowed until Medicare evaluated the potential for a reimburse-ment claim and notified the parties of their final decision. This matter was of signifi-cant enough interest for the court to allow amicus briefing. In addition, Medicare was served with formal notice of the hearing, but did not appear.
At the time, the operative version of the
CMS User Guide used the phrase “alleged, established, and/or released” while giv-ing guidance on what constitutes a post- December 5, 1980, exposure:
RREs generally are not required to report liability insurance (including self- insurance) or no-fault insurance set-tlements, judgments, awards or other payments where the date of incident (DOI) as defined by CMS was prior to December 5, 1980. (See exception in discussion below of cases involving “exposure.”)
For claims involving “exposure,” this means that there was no exposure on or after December 5, 1980, alleged, estab-lished, and/or released. If any exposure for December 5, 1980, or a subsequent date was claimed and/or released, then Medicare has a potential recovery claim and the RRE must report for Section 111 purposes.
MMSEA Section 111 Medicare Secondary Payer Mandatory Reporting for Liability Insurance (Including Self- Insurance), No-Fault Insurance, and Workers’ Compensa-tion User Guide Version 3.1 (July 12, 2010), pp. 95–96.
The court weighed the rights and needs of plaintiffs in exigent cases to have their settlements funded in a timely fashion against the interests of defendants to be protected from Medicare claims and penal-ties. It chose to give Medicare the benefit of the doubt in concluding it would eventually have the common sense to clarify and per-haps even codify what everyone seemed to believe was the case—that with or without the references to “alleged” and “released,” the government would not require a de-fendant to pay twice in cases where the exposure is “established” to have occurred solely pre- December 5, 1980.
The court’s order followed:
Pursuant to Section 111 of the Medicare, Medicaid and & [sic] SCHIP Extension Act of 2007, 42 U.S.C. 1395y(b)(8) and the Centers for Medicare and Medicaid Services (CMS) User Guide, Medicare does not require reporting settlements for asbestos exposure claims occurring before December 5, 1980. See CMS User Guide (July 12, 1996), p. 96.
All funds due and owing pursuant to the above shall be paid in full forthwith.
Where, in the past,
release language
indemnifying the releasee
from all liens was sufficient
to shelter a defendant from
Medicare claims, now that
precaution is not enough.
filed in the Asbestos Mass Tort Pro-gram in the Philadelphia Court of Com-mon Pleas.
Order, dated May 25, 2011, In Re: Asbestos Litigation, October Term 1986 No. 0001, In the Court of Common Pleas of Philadelphia County, Trial Division—Civil.
As predicted by the court, further com-ment on the meaning of the December 5, 1980, trigger in reportable exposure cases was forthcoming by the CMS when, on September 29, 2011, it issued a long-awaited alert on the subject, titled, “Expo-sure, Ingestion, and Implantation Issues and December 5, 1980 (12/5/1980),” which was later incorporated in the current User Guide Version 3.3 (December 16, 2011), p. 112–113 (hereinafter “User Guide”). The substance of that alert was as follows.
In the following situations, Medicare will assert a recovery claim against set-tlements, judgments, awards, or other payments, and the Medicare, Medic-aid, and SCHIP Extension Act of 2007 (MMSEA) Section 111 MSP mandatory reporting rules must be followed:
• Exposure, ingestion, or the alleged
effects of an implant on or after 12/5/1980 is claimed, released, or effectively released.
• A specified length of exposure or
ingestion is required in order for the claimant to obtain the settlement, judgment, award, or other payment, and the claimant’s date of first expo-sure plus the specified length of time in the settlement, judgment, award, or other payment equals a date on or after 12/5/1980. This also applies to implanted medical devices.
• A requirement of the settlement,
judgment, award, or other payment is that the claimant was exposed to, or ingested, a substance on or after 12/5/1980. This rule also applies if the settlement, judgment, award, or other payment depends on an implant that was never removed or was removed on or after 12/5/1980.
When all of the following criteria are met, Medicare will not assert a recov-ery claim against a liability insurance (including self- insurance) settlement, judgment, award, or other payment; and MMSEA Section 111 MSP reporting
defendants are involved, the claimant must meet all of these criteria for each individual defendant in order for a set-tlement, judgment, award, or other pay-ment from that defendant to be exempt from a potential MSP recovery claim and MMSEA Section 111 reporting):
• All exposure or ingestion ended,
or the implant was removed before 12/5/1980; and
• Exposure, ingestion, or an implant
on or after 12/5/1980 has not been claimed and/or specifically released; and
• There is either no release for the expo -sure, ingestion, or an implant on or after 12/5/1980; or where there is such a release, it is a broad general release (rather than a specific release), which effectively releases exposure or ingestion on or after 12/5/1980. The rule also applies if the broad general release involves an implant.
While this “clarification” perhaps is not as precise as it could have been, the criti-cal development was CMS’s acknowledge-ment, at last, that Medicare will not assert a recovery claim solely because a “broad gen-eral release” releases the defendant from liability for exposure on or after Decem-ber 5, 1980.
Guidance from the Courts through Case Management Orders
Also dealing with the MMSEA and the procedures by which settlement funds are transferred and held, Wayne County, Mich-igan, has implemented a case manage-ment order for plaintiffs and defendants in asbestos litigation, imposing certain guidelines. Most notably, in this jurisdic-tion, the court requires plaintiffs’ counsel to hold settlement funds in trust for reim-bursement to Medicare. Case Management Order 17 provides:
Plaintiff’s attorney shall (1) hold all settlement proceeds in a client trust account or similar account to be used to reimburse Medicare, if necessary; (2) provide Defendant with a copy of the final demand letter, waiver letter or no- conditional payment letter issued by Medicare or the Coordination of Bene-fits Contractor (COBC); and (3) provide Defendant with proof of full payment of
Management Order prior to disbursing to Plaintiff any proceeds received in con-nection with this settlement.
In Re: All Asbestos Personal Injury Cases, Case No. 03-310422-NP, In the Circuit Court for the County of Wayne, State of Michigan. The Order does not distinguish between pre- and post- December 5, 1980, exposures.
The court in Delaware has taken steps to facilitate the transfer of necessary infor-mation from plaintiffs to defendants. It has amended its Standing Order No. 1 in the
In Re: Asbestos Litigation cases to impose upon plaintiffs a duty to provide certain information to defendants 30 days after the filing of a new complaint. To fulfill this duty, plaintiffs must provide the orig-inals of fully completed and properly exe-cuted Section 111 compliance forms, which provide RREs with the items they need to report to Medicare properly, as well as the authorization to release information forms (Medicare Form A-2), which allow the CMS to release information to the RREs con-cerning conditional payments made by Medicare to or on behalf of the injured party and allow the RREs to disclose the injured party’s Social Security number (SSN) to CMS and their contractors, and to the Social Security Administration to determine social security benefits. The forms are attached to the Amended Stand-ing Order No. 1.
Madison County, Illinois, implemented an order, filed April 1, 2010, that both outlines the procedure by which defend-ants are able to obtain Medicare- related information and suggests best practices for handling settlement funds. The order attaches Medicare Forms A-1 (Medicare Eligibility), A-2 (Authorization to Release Information) and B (Confidential Report-ing Information). Plaintiffs must deposit the completed Forms A-1 and A-2 at the same time they deposit answers to inter-rogatories in the central records deposi-tory (CRD) that has been set up for In Re: All Asbestos Litigation Filed in Madison County. No trial setting will be ordered until this has occurred.
As a condition of any settlement, plaintiff is required to complete Form B promptly and provide it to the settling de-fendant, along with the release or
settle-T o x i c settle-T o r settle-T s a n d E n v i r o n m E n settle-T a l l a w
ment agreement. No settlement is final and enforceable until this form has been turned over. Plaintiffs are not required to complete any additional forms or answer interroga-tories or requests for admissions in order to comply with or assist in complying with the MMSEA reporting requirements. The order requires Form B to be kept confiden-tial, except to defend against a claim for lien or fine in connection with reporting. If a defendant intends to report information to Medicare that is not consistent with the information provided on Form B, the de-fendant must first give plaintiff reasonable notice of the information it plans to report.
Other protocol is established to ensure prompt, full disclosures and accuracy of information, including requiring plaintiffs to deposit in the CRD a document show-ing the initial amount claimed by Medi-care on its lien, as soon as that information is known, as well as verification of the sat-isfaction, discharge or release of the lien when that occurs.
The court gives its stamp of approval to a form of settlement release attached to the order, but falls short of requiring its use. It comments that “best practices” would require the release to include a provision that “settlement funds may need to be held by plaintiff’s counsel,” presumably until the Medicare claims are resolved.
Working Together
In one jurisdiction, court- encouraged cooperation among the parties has led to a workable solution. San Francisco Supe-rior Court has a dedicated asbestos depart-ment, with general orders issued under the
In Re: Complex Asbestos Litigation caption. So far, however, the court has declined to issue a general order pertaining to Medi-care reporting and compliance.
Instead, in 2010, the court formed a committee of defense counsel to “hash out” their differences with one local plain-tiffs’ firm that has a substantial number of cases in that jurisdiction. The result was a court- approved agreement between that plaintiffs’ firm and the defendants repre-sented on the committee—many of whom were covered by a number of major insur-ance companies. While no other parties were bound by the agreement, the involve-ment of the RRE insurers seems to have greatly broadened the number of
defend-ants who would be on board with the agree-ment, even though they were not per se represented on the committee. Also, the court’s endorsement of the agreement is an encouragement to parties that did not participate on the committee to accept the terms of the agreement nonetheless. The outcome is that the number of stalemates in funding settlements seems to have been greatly reduced since the agreement was reached in the fall of 2010.
As part of the San Francisco agreement, the plaintiffs’ firm that participated on the committee agreed to provide the neces-sary reporting information, including the health insurance claim number (HICN). Plaintiffs’ counsel also agreed to complete and provide Medicare Forms A-1, A-2, and B, and, when applicable, a declaration signed by the injured plaintiff or the rep-resentative of a decedent’s estate affirm-ing that the injured party is not Medicare eligible. The parties agreed on the Medi-care language to be used in the settlement releases, including a provision making the release enforceable under Cal. Code Civ. Pro. Section 664.6, which allows the court to retain jurisdiction over the enforcement of the settlement agreement and provides for the recovery of attorneys’ fees and costs by the prevailing party.
MMSEA: A Bright Spot (or Two) on the Horizon
As confounding as MMSEA compliance has been for RREs and their counsel, attempts by the CMS to give guidance have brought some relief, and at the time of this writing, proposed revisions to the legislation prom-ise more improvements.
A September 29, 2011, CMS alert announced a change in the implementa-tion timelines for reporting. Secimplementa-tion 111 reporting has been delayed for certain TPOC (total payment obligation to claim-ant) settlements, judgments, awards or other payments. Where the TPOC is more than $100,000 and the payment is made on or after October 1, 2011, it was required to be reported in the quarter beginning Jan-uary 1, 2012. TPOCs more than $50,000 paid on or after April 1, 2012, must be reported in the quarter beginning July 1, 2012. TPOCs more than $25,000 paid on or after July 1, 2012, must be reported in the quarter beginning October 1, 2012. All
TPOCs above the minimum threshold that are paid on or after October 1, 2012, must be reported in the quarter beginning Jan-uary 1, 2013.
This significant reduction in the number of cases that will require reporting during the first year was most likely prompted by the strain on Medicare of processing the information with which it had been inun-dated. Nevertheless, it brings relief to the RREs as well by allowing additional time to comply with the reporting requirements.
On March 14, 2011, H.R. 1063, the Strengthening Medicare and Repaying Taxpayers Act of 2011 (SMART Act) was introduced with bipartisan sponsorship to the 112th Congress. Representatives Tim Murphy (R-PA) and Ron Kind (D-WI) sponsored the bill. The Medicare Advi-sory Recovery Coalition (MARC) supports this legislation and is pushing for its pas-sage, as it serves the interests of the CMS and the insurance industry. The bill, still in the early stages of the legislative pro-cess, has been referred to various commit-tees for hearing prior to a vote. Of course, many bills never survive this process, but as of the writing of this article, the passage of this bill looks hopeful. A hearing held on June 22, 2011, by the Subcommittee on Oversight and Investigation and the Com-mittee on Energy and Commerce was a step ahead for the eventual passage of H.R. 1063 and the goal of modifying the MSPA. On October 17, 2011, Senators Portman (R-OH) and Wyden (D-OR) introduced S. 1718 (identical to H.R. 1063) in the Senate.
H.R. 1063/S. 1718 would improve the MSPA by amending it to create a process for Medicare to advise the parties of how much Medicare is owed before settlement, among other notable changes. Of particular interest to RREs is an amendment making the assessment of penalties discretionary and creating safe harbors where no pen-alties will be assessed for specific conduct. The proposed amendment will eliminate the mandatory word “shall” and inserts the discretionary language, “may be subject to a civil money penalty of up to $1,000 for each day of noncompliance.” Additionally, penalties will be assessed only for conduct that is determined to be knowing, willful, and repeated. Depending on the eventual definition of the reporting requirement
safe harbors, this legislation may offer enhanced certainty and protection for set-tlements in toxic tort cases.
Another amendment would require Medicare to develop a method for identi-fying Medicare beneficiaries other than the beneficiary’s SSN or HICN, thus eliminat-ing the issues ariseliminat-ing when a plaintiff re-fuses to produce the numbers. Also, an RRE that does not have to obtain those numbers will not have to manage the added respon-sibility of keeping those numbers private.
The bill also aspires to bring some
fis-setting an established threshold amount below which MSPA compliance would not be required. This would eliminate Medi-care’s expending resources far out of proportion to its possible recovery in a par-ticular case. This single threshold amount would be calculated by the Chief Actu-ary of the CMS and would be published no later than November 15 of each year, giving some consistency to the reporting process. Finally, the bill would mandate a three-year statute of limitations within which the United States could pursue a claim or
States could not pursue an action unless its complaint were filed “not later than 3 years after” the date of receipt of notice of a settlement, judgment, award, or other payment. No civil money penalty could be imposed unless notice was “provided not later than 3 years after the date by which information was required to be submitted.”
The MMSEA beast may not be docile yet, but with Congress, the courts, and Medi-care all setting their sights on the same goal, we can be optimistic that eventually the beast will be tamed.
