Legal Ethics Corner

Ethics Corner is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association for SDCBA members.

Medicare Reporting Requirements Make Settlement Even More Difficult

You are hired by an insurance company to represent an insured based on claims of personal injury.  You reach a settlement that makes both the insured and insurer happy.  The insured and the plaintiff are eager to bring the matter to a close.  But is the plaintiff medicare eligible?  Is the insurance company which hired you required to report the settlement to the Centers for Medicare and Medicaid Services (“CMS”)?   What are the consequences to the insurance company of not reporting the settlement? 

As of January 1, 2010, Senate Bill 2499 requires insurers and self-insured entities to report certain settlements to the CMS when the plaintiff is either a current Medicare beneficiary or just Medicare eligible.  Failure to comply with the reporting requirements can result in a $1,000 daily fine. (42 USC §1395y(b)(8)(E).)  Insurers in a case have an affirmative obligation to notify Medicare upon the resolution, (i.e. settlement, judgment, etc.) of a claim which involves a payment to an eligible Medicare recipient.  It is the obligation of the insurer to determine whether the recipient of the payment is entitled to Medicare benefits and whether Medicare must be placed on notice of the settlement.  (42 USC §1395y(b)(8)(A).)

Medicare eligible individuals include: 1) a person 65 years old; 2) a person or their spouse who has Medicare-covered government employment; 3) a person who is under 65 years old, but has received Social Security or Railroad Retirement Board disability benefits for at least 24 months; 4) a person who is eligible to receive Social Security or Railroad benefits but hasn't yet filed for them; 5) a person who has “End-Stage Renal Disease” and meets certain other requirements.

The attorney needs to put both clients on notice of these issues.  Generally, an insurer owing a duty to defend an insured  “has the right to control defense and settlement of the third party action against its insured, and is … a direct participant in the litigation.” (Gafcon, Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1407.)  An “attorney retained by an insurance company to defend its insured under the insurer's contractual obligation to do so represents and owes a fiduciary duty to both the insurer and insured....” (Id. at p. 1406 [emphasis added].)  Attorneys have a duty to communicate all significant developments to their clients requiring the full and fair disclosure to the client of any procedural or substantive matters which would materially affect his/her client’s rights and interests. (Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176; CRPC, Rule 3-500.) A $1,000 daily fine easily falls within these duties of disclosure. 

Therefore, there is simply no avoiding the issue in the context of a settlement.  Other States have taken notice of the situation.  The Florida Bar Staff found a lawyer should not agree to personally indemnify an opposing party for claims under the Medicare Secondary Payor Act as it violates Florida rules and a lawyer should not require that another attorney enter into an agreement to personally indemnify an opposing party, as that also violates Florida Rules of Professional Conduct. (Florida Bar Staff Opinion 30310, April 4, 2011.)

To avoid these problems before entering a settlement in principal, counsel should take immediate action upon retention, via written discovery or otherwise, to determine if the plaintiff is Medicare eligible and, if so, what Medicare’s claim is against any potential settlement.  This is the most accessible avenue to avoiding the aforementioned issues upon agreement to settlement terms.

-- Andrew Servais

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**