Keefe, Campbell & Associates, LLC

Editor’s comment: When you see our federal legislative leaders slapping each other’s backs and high-fiving over the U.S. House of Representatives passing their version of government-mandated health care, please remember conventional estimates are your taxes will certainly be raised at least $500 billion over the next decade. The members of the House have also voted to magically “borrow-spend” about $700 billion during the same period despite the fact the U.S. budget deficit is at a record high. When we see the folks in Washington cheering about spending gobs of money they don’t even have on such things, we are reminded of the quote attributed to Margaret Thatcher: “The problem with socialism is that eventually you run out of other people’s money.”

At the same time, we were sent an important thought by one of our knowledgeable readers about the private cause of action in federal Medicare lien recovery. One of the relatively new obstacles to the efficient settlement of workers’ comp and personal injury claims is resolving outstanding Medicare liens. All observers complain about the Center for Medicare Services’ (or CMS’) slow response time and apparent lack of efficiency.

Further complicating matters, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) and the Medicare, Medicaid, and SCHIP Extension Act of 2007 contain important changes that suggest attorneys representing either workers’ comp and personal injury claimants will have to set aside portions of the settlement to reimburse Medicare for future accident-related payments. However, hidden in the headaches that go with resolving Medicare liens is an enforcement provision that gives Medicare beneficiaries a private cause of action allowing the beneficiary to sue for double the amount of what Medicare paid which has not be repaid for the accidental injuries or exposures.

This private cause of action is often over-looked by insurance carriers/TPAs, claims handlers and defense lawyers. If it is not quickly and properly addressed by the knowledgeable risk/claims manager, wily Plaintiff/Petitioner lawyers may use it to increase the value of their cases and bring about higher and more costly settlements. There is also a clear problem that is something of a claims “land-mine”—no one reserves for claims’ mistakes like not reimbursing a conditional payment to Medicare.

The private cause of action is set forth in 42 U.S.C. § 1395y, and provides:

(A) Private cause of action

There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with paragraphs (1) and (2)(A).

The purpose of this private cause of action statute was to help the federal government recover conditional payments from insurers or other primary payers, to encourage private parties to enforce Medicare’s rights, and to save money for the taxpayers. The premises underlying the private cause of action are:

(1) The beneficiary can be expected to be more aware than the government of whether other entities may be responsible to pay medical expenses,

(2) Without double damages, the beneficiary might not be motivated to sue an insurer/TPA because Medicare may have already paid the expenses and the beneficiary would have nothing to gain by pursuing the primary payer, and

(3) With the private right of action and double damages, the beneficiary can pay back the government for its outlay and still have money left over to pay for the litigation.

The 2003 amendments to the MMA were specifically enacted to overturn previous court decisions that limited the effectiveness of the MSP private cause of action. The 2003 Amendments made it easier for injured Medicare recipients to bring these private actions on behalf of CMS-Medicare against an expanded class of entities and individuals with insurance, and clarified when such entities are required to pay the Medicare beneficiary’s medical expenses.

The three critical amendments established:

(A)    All businesses, trades or professions shall be deemed to have insurance regardless of whether or not it carries its own risk.

(B)    Any judgment or payment conditioned upon the recipient’s compromise, waiver or release whether or not there is a determination or admission of liability will demonstrate a plan’s responsibility to reimburse Medicare.

(C)    Reimbursement to Medicare was no longer tied to anticipation of “prompt” payment because the Secretary of Health and Human Services may make conditional payments if a primary plan has not made, or cannot reasonably be expected to make payments with respect to such services promptly.

Prior to the 2003 amendments, it was not clear whether Medicare had a right of reimbursement from certain self-insured defendants. After the amendments, it became crystal clear Medicare’s right of reimbursement applies to practically all tort or workers’ comp settlements in which Medicare payments have been made on behalf of the tort plaintiff.

The key to avoiding exposure—pay Medicare back!! If you learn Medicare made a conditional payment of a medical bill or bills that might or could arguably be reasonable, necessary and related to the covered event, don’t hold it. All relevant case law indicates the cause of action exists when the insurer/TPA was aware of the conditional payment and ignored Medicare’s interest. Then, and only then, can the Plaintiff/Petitioner file to seek double recovery for the unreimbursed payment.

Court decisions decided since the enactment of the 2003 amendments consistently permit the private cause of action to proceed against insurers and similar entities including employers, who are deemed responsible for the tort or workers’ comp victim’s injuries. Lawyers representing tort and workers’ comp claimants may understand the MSP private cause of action and may use it as a tool to advance clients’ interests. Before a case goes to trial, Plaintiff/Petitioner lawyers can now use the threat of a Medicare Secondary Payer private cause of action lawsuit to potentially increase the settlement demand or bring a reluctant Defendant to the settlement table.

Risk/claims managers, insurance carriers/TPAs and defense lawyers should keep in mind that the MSP private cause of action can be brought as a separate count in a personal injury lawsuit, or it can be brought as a separate claim after a judgment is obtained against tort defendants. The timing of when the MSP private cause of action can be brought depends on the facts and circumstances of the particular case.

The MSP private cause of action has been strengthened by recent legislation and court rulings. Plaintiff/Petitioner lawyers are rapidly learning about it and may incorporate the use of its double damages provision to benefit their clients. The sheer number of current and future Medicare beneficiaries and recipients demonstrates how important the MSP private cause of action could be to personal injury and worker’s compensation practitioners. Currently, there are forty-one million (41,000,000) beneficiaries in the Medicare health care system. In the next few years, it is estimated an additional seventy-four million (74,000,000) baby boomers will start entering the Medicare system.  These statistics, coupled with the recent changes to the law that strengthen the MSP private cause of action, require risk/claims managers, insurance carriers/TPAs and defense attorneys to understand how and when the MSP private cause of action can be used.

If you have any questions or comments, please forward them to our resident Blog Administrator, Arik D. Hetue, J.D. who can be reached at ahetue@keefe-law.com or post them later today on our award-winning blog at www.keefe-law.com/blog.

Editor’s comment: From our review, it would appear lawsuit lenders may be funding allegedly work-related surgeries in central Illinois. We are learning more and more about this interesting medical/surgical situation. A hand/arm surgeon appears to be diagnosing “repetitive trauma” conditions and then doing numerous arm, elbow, wrist and hand surgeries on workers’ compensation claimants. We understand the surgeon is doing bilateral CTS releases, he also does repeat bilateral CTS releases. In our experience, most hand surgeons do not repeat or perform revision CTS releases. For example, take a look on the web at: http://content.karger.com/produktedb/produkte.asp?typ=fulltext&file=000167875

Our research further indicates this hand/arm surgeon is joining with a lawsuit lender and is clearly mining what we have called the “Tunnels of Illinois” by doing not only bilateral CTS releases; the surgeon also combines that type of surgery with bilateral cubital tunnel releases. In some patients, this surgeon does the “Big Six” by doing six surgeries on the same claimant, sometimes based on subjective complaints alone. The surgeon does both carpal tunnels, both cubital tunnels and both shoulders, sometimes on patients with minimal, moderate or non-existent EMG/NCV findings. As we have advised in the past, we feel the incidence and prevalence of cubital tunnel surgeries in Illinois workers’ compensation vastly outpaces the incidence of this rare surgery anywhere else on the planet—the reason for the high level of cubital tunnel surgery is the reward. Most folks currently receive $15K-$50,000 in permanency for what is truly a minor surgical revision of the elbow(s)—while that is a lot of money anywhere, it is a pile of gold in depressed central Illinois.

In the vast majority of patients we are aware of, this surgeon has not recommended any pre-surgical conservative care for any of them. Therefore, it remains unknown whether conservative care could have alleviated the symptoms. We understand these surgeries are being financed by what we feel is an unusual financial/medical practice of this hand/arm surgeon selling “accounts receivable” to the subsidiary of a lawsuit lending company named MedFinance for 48.5% of the applicable CPT code in the Illinois Medical Fee Schedule. MedFinance is on the web at http://www.medfinance.us/index.asp.

The “accounts receivable” sale occurs either before or immediately after surgery is performed to insure the surgeon is paid the 48.5% of the Medical Fee Schedule amount immediately. The surgeon claims MedFinance is in the “risk buying” business. If the disputed surgical bill is later awarded by an Arbitrator and affirmed by the Commission, MedFinance gets as much as 100% of the fee schedule and, having already paid 48.5% out, they would receive the balance when paid. It would appear obvious that someone somewhere thinks the chance of getting an award on the most questionable carpal tunnel, cubital tunnel and shoulder surgeries is a wildly easy bet in this state. It is our further understanding that, in their view, there is no “kickback” in such an arrangement and they are not charging or sharing medical fees. It is our understanding MedFinance asked this hand/arm surgeon to set up shop downstate. We also understand the hand/arm surgeon has never sold an account receivable to MedFinance on anything other than a WC case. The hand/arm surgeon has advised he sold his “accounts receivable” to MedFinance prior to surgery actually being performed.

The hand/arm surgeon advised the various patients do not undergo conservative care as no one would treat them because they did not have the means to pay for it. We counter to indicate it is our understanding the surgeon is not checking for group medical coverage—the patients where this is happening all come from the workers’ comp arena.

We did the research and the Illinois Secretary of State’s website indicates MedFinance is owned by a corporation named LAWSUIT CASH ADVANCE LLC. It is a Minnesota based company with its corporate headquarters listed in Minneapolis, MN. You can readily find this organization on the web at: www.lawsuitcashadvance.com. These are the nice folks who will lend a claimant $5,000 today and, if they get a lawsuit recovery in 36 months, they have to pay back a mere $28,000. Don’t take our word for that—they have a calculator on their website that provides the result. Trust us, that math is making lots of workers’ comp claims start to move like greased lightning.

What is troublesome for the Illinois WC industry when one sees such hand, arm and elbow surgeries being financed and paid for in the unusual fashion outlined in the middle of this article is Illinois’ sky-high permanency values that come with each related surgery. For example, most of these surgeries will provide the worker with permanency values of 15-25% loss of use of the hand for the CTS release and 20-60% loss of use of the arm for the combination of cubital tunnel and rotator cuff surgeries to a single arm. When such surgeries are being performed on both hands/elbows and shoulders, if the employee returns to work at the same job and same rate of pay, the PPD value for even a mid-range income will be well into the six-figure range. As we have told all of you, if the employee gets the “golden diagnosis” of permanent restrictions and cannot return to the same job at the same rate of pay, an Illinois claim falls into the wage differential dance and the claim moves into the high six-figure to low seven-figure range.

We know there are folks at the IWCC who are learning of these issues. We are asking everyone to start taking a hard look at the need for surgeries when there is no attempt at pre-surgical conservative care. We hope our honest and hard-working Arbitrators and Commissioners at the IWCC are going to start to ask tough questions about these interesting surgical and financial practices. Our advice to our defense clients is to start to learn and further investigate what is going on and fight, fight, fight—the Commission can’t take any action if you blindly accept what is going on.

We appreciate your thoughts and comments.

Editor’s comment: Issues you may face in managing an Illinois workers’ compensation claim is what to do when you receive a notice of claim for a lien or order for withholding against pending workers’ compensation benefits or lump sum settlements. In looking at our Workers’ Compensation Act, Section 21 addresses the issue of lien, assignment, attachment or garnishment. The Act states

“no payment, claim, award or decision under this Act shall be assignable or subject to any lien, attachment or garnishment, or be held liable in any way for any lien, debt, penalty or damages, ….”

In reviewing the case law interpreting this section of the Illinois Act, the court in Mentzer v. Van Scyoc held workers’ compensation benefits cannot generally be applied to debts of claimant, even when reduced to judgment, unless some specific statutory provision so provides. Therefore, the specific statute which authorizes or provides for enforcement of the lien must be examined to determine whether there is a specific provision which would require enforcement of the lien against workers’ compensation benefits. If not, that specific lien is not enforceable against workers’ compensation benefits.

If you receive an order or claim for lien which is unenforceable against workers’ compensation benefits, we suggest you contact us or your selected defense counsel for updated advice. There are five common liens or other claims you may encounter.

a. Garnishment/wage deduction order

The Illinois Wage Garnishment Act permits a judgment creditor to obtain an order requiring a judgment debtor’s employer to pay a portion of the employee’s income directly to the creditor. There is no specific statutory provision indicating that workers’ compensation benefits are subject to wage deduction orders.

In addition, the case of East Moline Works Credit Union v. Linn held exemption from garnishment attaches to workers’ compensation benefits that have been paid as well as compensation that may be due or become due. Therefore, wage deduction orders are not enforceable against workers’ compensation benefits.

b. Child support order and spousal maintenance order

Withholding of income for payment of child support and/or maintenance of a spouse is addressed in both the Illinois Marriage and Dissolution of Marriage Act and the Non-support of Spouse and Children Act. Both Acts contain identical provisions for withholding of income to secure payment of support.

The Act specifically provides that “Income” includes workers’ compensation payments. In addition, the Act also contains a provision specifically stating any other state or local laws which limit or exempt income or the percentage of income that can be withheld shall not apply. Therefore, any order for child support or spousal maintenance is enforceable against workers’ compensation benefits. These orders may include withholding for current support payments as well as including additional dollar amounts or percentage of income amounts for delinquent payments.

Both Acts specifically provide penalties for noncompliance. If an employer willfully fails to withhold or pay income pursuant to a properly served order, then the obligee (individual to whom the support payment is owed), public office or employee may file a complaint against the employer. The Circuit Court would then notify the employer of the time and place for hearing on the complaint. If the court finds in favor of the complaining party, the court enters a judgment directing the employer to pay the total amount which it willfully failed to withhold.

There is an additional provision which indicates that an employer, who knowingly fails to pay any amount withheld within 10 calendar days of the date income is paid to the employee, is subject to a penalty of $100.00 for each day the amount withheld is late after the expiration of 10 calendar days. Therefore, it is important that funds withheld from workers’ compensation payments due to a child support order or spousal maintenance support order are paid promptly.

c. Physicians’ liens

The Illinois Physicians Lien Act provides that physicians practicing in Illinois who provide services by way of treatment to injured persons have a lien upon all claims and causes of action for the amount of reasonable charges up to the date of payment of damages. The Act specifically makes an exception so it does not cover services rendered under the provisions of the Workers’ Compensation Act.

Therefore, like wage deduction orders, physicians liens are not enforceable against workers’ compensation benefits.

d. Public aid lien

The Department of Public Aid has a right of subrogation to any right of recovery the recipient of that aid may have under terms of any private or public health care coverage or casualty coverage. The Public Aid Code specifically includes coverage under the Workers’ Compensation Act. In order to enforce its rights, the Department may either intervene or initiate proceedings for the cost of services provided by the Department.

If Public Aid paid medical expenses as a result of injuries later deemed to be compensable under workers’ compensation, you may receive a subrogation notice. Medical expenses must be reimbursed from funds owed petitioner in settlement of the workers’ compensation claim.

e. Federal tax lien

The Internal Revenue Service, pursuant to Section 6321 of Tax Code, has advised that federal tax liens attach to all property. With such broad power, the Internal Revenue Service may issue a tax lien which would be enforceable against workers’ compensation benefits. This lien would attach to any benefits, settlement or permanency award.

Summary

We suggest that, upon receiving notice of a lien claim involving workers’ compensation benefits, you contact us or your selected defense counsel for updated advice. You probably should notify both claimant and his attorney in writing to confirm both receipt of the claim and your course of action with regard to same.

Please do not hesitate to reply with thoughts and comments.

Editor’s Comment: In the wake of this decision, employers looking to recover workers’ compensation costs pursuant Section 5(b) of the Act are cautioned to spend the money and perfect filing of their own complaint prior to the running of the statute of limitations, or at minimum, ensuring the complaint filed by their employee/Plaintiff has named the proper parties and is timely filed. Failure to do so may cause the employer to lose your lien completely or accept a nominal lien recovery where the employee accepts a far lower settlement than the amount sought by the employer or his/her case is dismissed.

In Pederson v. Mi-Jack Products, Inc., No. 1-07-2327 & 1-07-3228 Cons. (March 10, 2009) 2nd div. (Hall), Plaintiff was injured while at work when a boom from a crane fell upon him. Substantial workers’ compensation benefits were paid and not in dispute. Plaintiff’s civil complaint for product liability, however, named the wrong defendant as the manufacturer of the crane. Further, the statute of limitations had already run.

Plaintiff’s counsel withdrew, citing an impending malpractice suit. Plaintiff proceeded to settle on a pro se basis with the remaining defendants after firing counsel for alleged malpractice. The employer, seeking to recover far more on their lien, then filed their own complaint against the defendants. Defendants motioned for dismissal of the employer’s obviously untimely complaint.

Please note in Eastman v. Messner, Illinois courts ruled an employer of an injured worker had no workers’ compensation lien in a legal malpractice suit brought by an injured worker against their lawyer who committed malpractice, as claimant’s counsel arguably did in this matter. With respect to our courts, we strongly disagree with the Eastman v. Messner ruling and consider it to guarantee double recovery by the injured worker which is precisely what numerous cases outline is what the legal concept of subrogation recovery as defined in Section 5 of the Illinois Workers’ Compensation Act is designed to prevent.

In Pederson, the Appellate Court affirmed the dismissal of the employer’s complaint in the products liability action, since their filing was clearly beyond the statute of limitations. The Court also approved the proposed settlement between Plaintiff and Defendant for an amount less than employer’s workers’ compensation lien, subject to payment of lien. The Court reasoned that, Plaintiff’s incentive to settle with Defendant in order to pursue his legal malpractice claim against his attorneys for suing the wrong company did not give the employer the right to control litigation or settlement of the present claim.

The Court went on to rule that, pursuant to Section 5(b) of Workers’ Compensation Act, the employer has surrendered the right to participate in the litigation after it failed to file suit within three months of expiration of statute of limitations. We find this aspect of the ruling too far-reaching, as it implies the employer cannot “participate” in the civil litigation at all, except as a third party defendant. We feel the Courts should appreciate employers/insurance companies may have workers’ compensation liens approaching $1 million or more in some instances of catastrophic injury. To suggest they have no right to actively participate in the related civil litigation process is unsettling, especially when it leaves the fate of the litigation in the hands of a sometimes unpredictable Plaintiff or their counsel. It is our reasoned impression that, once an employer files their petition to intervene, they should have the option to pursue and protect their lien to the fullest extent, regardless of the agreement reached by Plaintiff in the case.

This case stands for the legal principle that employers should not ever rely on Plaintiff’s counsel to protect their lien interests, particularly when you have clear liability and a substantial workers’ compensation lien. To do so, puts you at risk for what happened in this claim—a bumbling lawyer sues the wrong party or misses the statute of limitations and your rights are lost. The higher your lien rises, the stronger your need to reach out to competent defense counsel who understands the nuances of lien recovery.

This article was drafted by John P. Campbell, Jr., Esq. If you have thoughts or comments on these concepts or need the actual ruling, please send a reply to John at jcampbell@keefe-law.com.