Haro v. Sebelius Case Update

In Haro v. Sebelius, 2013 U.S. App. LEXIS 18353 (Dist. Az September 4, 2013), the Court of Appeals for the Ninth Circuit vacated injunctions entered by the United States District Court of Arizona and reversed the district court’s summary judgment order in favor of a class of Medicare beneficiaries who challenged the Secretary of Health and Human Services’ (Secretary) practice of demanding “up front” payment for conditional payment claims from beneficiaries appealing or seeking a waiver of the reimbursement obligation. The beneficiaries alleged that the Secretary exceeded her authority under the Medicare Secondary Payer Act (MSPA) by (1) demanding payment before resolution of the appeal and waiver processes and (2) by instructing the beneficiaries’ attorney to withhold the settlement funds until Medicare was reimbursed. Unfortunately, the court was unable to address the first issue because this argument had not been included in the beneficiaries’ appeals or waiver requests and thus, Medicare had not yet had an opportunity to address the matter. Here, we are once again reminded of the importance of ensuring that any and all arguments be addressed in Medicare’s administrative appeals process so that, if the matter reaches the court, the court will have jurisdiction over the issue.

The court was able to address the second issue, whether the Secretary exceeded her authority by demanding that the beneficiaries’ attorney withhold the settlement funds until Medicare was reimbursed. The court looked to the reimbursement provision of the MSPA (42 U.S.C. 1395y(b)(2)(B)(ii)) and determined that because an attorney who receives settlement proceeds, even as an intermediary, has received payment from a primary plan in a literal sense, the attorney is an entity that “shall reimburse” Medicare. Thus, it was reasonable for the Secretary to demand that the attorney withhold the settlement funds until Medicare had been repaid.  While the court did not go so far as to decide whether the Secretary has authority to bring an action to recover secondary payments against an attorney who has disbursed settlement proceeds, that would not be a big step from the court’s holding here. Regardless, attorneys should not ignore Medicare’s demand to hold settlement funds in trust until Medicare has been reimbursed. Even without such instruction from Medicare, doing this is the best way to ensure that the conditional payments are resolved and all parties are protected from issues arising in the future.