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  • Writer's pictureMichael Kornhauser

Lien on Me (Part 1): How a Medicare Lien Can Impact Your Nursing Home or Assisted Living Facility Abuse and Neglect Case


The word lien in block letters.

If you bring a lawsuit against a nursing home or assisted living facility for negligence and/or wrongful death, and some or all of the post-injury care is covered by Medicare, then the injured individual or the Estate, as applicable, will likely be required to pay a portion of the recovery back to Medicare to satisfy any outstanding medical liens. As a result, many victims of abuse and neglect (and/or their families) often wonder whether it makes sense to file a lawsuit if they are simply going to have to hand the money over to satisfy a lien. In this blog, we shed light on whether it makes sense to file a lawsuit when faced with a Medicare lien.

Medicare vs. Medicaid

Because these terms are so often confused, let’s start by distinguishing between Medicare and Medicaid. Medicare is a federal health insurance program that caters primarily to individuals aged 65 and older or those with certain disabilities. It covers a spectrum of medical services, including hospital stays and rehabilitation. Medicaid is a joint federal and state program that extends health coverage to low-income individuals and families, offering services that encompass long-term care in nursing homes and assisted living facilities. For those who are sometimes confused by the terms, here are two simple tricks to keep them straight: (a) Medicare ends in an “e”. That “e” stands for “elderly”. Medicare is for those over age 65. (b) Medicaid ends in “aid”. You aid those who are less fortunate. Medicaid is for low-income individuals.

What is a Lien?

In legal terms, a “lien” is a claim against an individual’s property to secure payment of a debt. In the context of nursing home and assisted living facility negligence or wrongful death cases, both Medicare and Medicaid have mechanisms in place to assert “liens” on settlements or judgments related to medical expenses they covered. In this blog, we will focus on Medicare liens.

Medicare Liens (also known as Recovery Claims)

Under Federal law, Medicare has the right to recover the costs of medical care originally paid by Medicare if there is any recovery from a related nursing home or assisted living facility injury case. See 42 C.F.R. 411.24(b) (“CMS may initiate recovery as soon as it learns that payment has been made or could be made under…any liability…insurance…”). See also 42 C.F.R. 411.24(g) (“CMS has a right of action to recover its payments from any entity, including a beneficiary, provider, supplier, physician, attorney, State agency or private insurer that has received a primary payment.”). While most attorneys refer to this as a Medicare lien, the proper term is a Medicare or Medicare Secondary Payer “recovery claim”.

How Much Does Medicare Take Back?

As a preliminary matter, Medicare reduces its recovery to account for the costs of procuring the judgment or settlement. What that means is that Medicare will not attempt to take any portion of the recovery that will be set aside to pay your attorney or the costs associated with the lawsuit (e.g., service of process, court reporters, testifying experts, etc.). That said, there are two formulas to consider:

 

(a)    When Medicare Payments are Less Than the Recovery (42 C.F.R. 411.37(c))


When conditional Medicare payments for related care and treatment are less than the amount of the recovery, Medicare uses the following formula:

 

  1. Identify the Total Procurement Cost: Add your attorneys’ fees and taxable costs to determine the Total Procurement Cost.

  2. Find the Ratio: Take the Total Procurement Cost and divide that by the Gross Recovery Amount (the Gross Recovery Amount is the total amount of a settlement or judgment before any deductions are made for attorneys’ fees and costs).

  3. Determine the Medicare Reduction: Multiply the Medicare claim amount by the ratio to determine the reduction amount.

  4. Identify the Final Demand: Take the recovery claim amount and subtract the reduction amount to determine Medicare’s final demand. This will be Medicare’s final lien amount.

 

Let’s put this formula to work with an example: Assume your hypothetical nursing home negligence case settles for $100,000 and your attorney is entitled to a fee of 33.33% of the settlement. Your attorney also had $2,500 in taxable costs at the time of settlement. Medicare claimed conditional payments of $15,000. In this example, the Total Procurement Costs are $35,830 (33.33% of the settlement, plus costs). Now, let’s find the ratio: $35,830 divided by $100,000 equals .3583. Next, take the Medicare claim of $15,000 and multiply it by the ratio of .3583. That gives you $5,374.50. Finally, take the Medicare claim of $15,000 and reduce it by the reduction amount of $5,374.50. This gives you a final Medicare Demand of $9,625.50.

 

What does this mean for you? Let’s break it down:

 

  • Total Sum to Allocate (Settlement): $100,000

  • Attorneys’ Fees and Costs: $35,830

  • Medicare Payment: $9,625

  • Payment to Client: $54,544.50

         

(b)   When Medicare Payments Equal or Exceed the Recovery (42 C.F.R. 411.37(d))


When conditional Medicare payments for related care and treatment equal or exceed the amount of the recovery, Medicare uses the following formula:


  1. Identify the Total Procurement Cost: Add your attorneys’ fees and taxable costs to determine the Total Procurement Cost.

  2. Identify the Final Demand: Take the Gross Recovery Amount and subtract the Total Procurement Cost. This will be Medicare’s Final Demand.

 

Let’s put this formula to work with an example: You obtain a judgment at trial in your hypothetical assisted living facility negligence case for $100,000. The Defendant decides that it will not appeal the judgment and will cooperate in satisfying the judgment and closing the matter. To that end, the Defendant sends a check for $100,000. Assume that your attorney is entitled to a fee of 33.33%. Your attorney also had $15,000 in taxable costs. Medicare claimed conditional payments of $120,000. In this example, the Total Procurement Costs are $48,330 (33.33% of the judgment, plus costs). Next, take the Gross Recovery Amount of $100,000 and subtract the Procurement Cost of $48,330. The remaining balance of $51,670 will be the amount that must be paid to Medicare.

 

What does this mean for you? Let’s break it down:

 

  • Total Sum to Allocate (Judgment): $100,000

  • Attorneys’ Fees and Costs: $48,330

  • Medicare Payment: $51,670

  • Payment to Client: $0.00

 

In this scenario, unless the lien can be reduced and/or negotiated, the client would not entitled to retain any portion of the judgment. However, what the client and the attorney may not know at the beginning of the case is the total amount of the final recovery, if any. In other words, if the final recovery in the above example, whether via settlement or trial, exceeded the conditional Medicare payments, then Medicare would use the first formula and the client would be entitled to retain a portion of the judgment.

Can We Negotiate Medicare Liens?

It depends. In all circumstances, a Plaintiff should review the components of the lien or recovery claim to determine whether any line items are unrelated to the issues involved in the case. If a Plaintiff can convince Medicare that one or more line items should be excluded from the lien or recovery claim, the Plaintiff can reduce the amount he or she might be required to pay.

 

If a Plaintiff is dealing with a lien or recovery claim asserted by a Medicare Advantage plan, the Plaintiff can also try to negotiate a reduction on the lien. To do so, the Plaintiff might propose that the lienholder take a proportional reduction on its lien. Under a proportional reduction theory, a Plaintiff might suggest that the Plaintiff’s attorney take 1/3 of the recovery, the Plaintiff takes 1/3 of the recovery, and the remaining lienholders split the final 1/3 of the recovery in proportion to the size of their respective liens.

 

Why would a lienholder agree to this? The answer is simple. Generally, the Plaintiff is in the driver’s seat when it comes to settling a claim or pursuing a claim to a final judgment. If lienholders are unwilling to compromise (and, as a result, a Plaintiff is faced with the prospect of a nominal recovery), the Plaintiff can dismiss the case, and nobody gets paid. On the other hand, if the lienholders agree to a pro rata or proportional distribution, the lienholders may be able to recover at least a portion of their lien. Oftentimes, the something is better than nothing argument can be persuasive.

 

If Medicare is the lienholder (rather than a Medicare Advantage Plan), a Plaintiff will typically have a more difficult time securing a reduction in the lien or recovery claim as Medicare rarely veers from its recovery formulas.

Holding Facilities Accountable

While Medicare liens are an important consideration; sometimes, the decision to pursue legal action against a negligent nursing home and/or assisted living facility goes beyond financial considerations. Sometimes it's about holding negligent nursing homes and assisted living facilities accountable for the pain and suffering they caused. Sometimes, it's about speaking up for someone who could not speak for themselves. Sometimes, it's about standing up for someone who could not stand up for themselves. At FIDJ, we work tirelessly to hold facilities accountable for their wrongs.



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