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Administrative Remedies Must Be Exhausted When Disputing Medicare Conditional Payment Claims

This matter arises out of Plaintiffs’ prior suit seeking damages for injuries or death alleged to have resulted from exposure to hazardous, toxic, and radioactive substances handled by Defendants Mallinckrodt, Inc. and Cotter Corporation at various times between 1942 and 1973.

Of the hundreds of consolidated cases, most were involved in Master Settlement Agreements providing lump-sum payments to be divided among applicable Plaintiffs. Per the Plaintiffs, CMS asserted a right to recovery under the Medicare Secondary Payer Act (MSPA) against some Plaintiffs’ settlements.

Prior to pursuing administrative remedies through Medicare, Plaintiffs petitioned the U.S. District Court for the Eastern District of Missouri, for a declaration that CMS had no right to recover against the settlements because the injuries at issue occurred prior to December 5, 1980, when the MSPA became effective. McClurg v. Mallinckrodt, 2020 U.S. Dist. LEXIS 147830, E. Dist. Mo., August 17, 2020. Plaintiffs also moved that the court allocate settlement proceeds between healthcare items and services and non-healthcare damages, such as pain and suffering, in an effort to prevent Medicare from seeking reimbursement for the full settlement amounts. The Plaintiffs’ motion was denied.

In its decision, the court reiterated that, per well-established case law, a successful plaintiff in a civil action who received settlement funds from a tortfeasor is an entity receiving payment from a primary plan and, therefore, CMS can seek reimbursement for conditional payments from the Plaintiffs under the MSPA.

Further, the court held that, even though the Plaintiffs’ claims require interpretation of the Medicare Act, including how to apply the effective date, administrative remedies must be exhausted prior to seeking judicial recourse. As such, the court held that it lacked subject-matter jurisdiction until the Plaintiffs exhaust administrative remedies through CMS.

Finally, the court held that the Plaintiffs’ request for the court to allocate damages between medical and liability damages should also be raised during the Medicare administrative review process.

Courts have been consistent in requiring that administrative remedies be exhausted prior to seeking judicial recourse, even when there are questions regarding the interpretation of the Medicare Act. Therefore, we strongly recommend that the administrative dispute and appeal process for conditional payment claims not be neglected to ensure that all arguments are preserved if judicial recourse is eventually sought.

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