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Post-Settlement Increase of Medicare Conditional Payment Claims Results in Further Litigation

A recent case concerning Medicare Conditional Payment Claims serves as a reminder of the importance of handling the research and resolution process carefully and timely. In this case, the decedent, Anna Osterbye, was injured in a house fire that was the alleged result of negligence on the part of Selective Insurance Company of America’s (“Selective”) insured. Osterbye sued Selective’s insured and, following mediation, the Osterbye’s estate (Plaintiffs) settled the matter, accounting for Medicare conditional payment claims in the amount of $13,562.90. No plan was made for any post-settlement changes to Medicare’s claim amount.

As agreed in the Release, Plaintiffs reimbursed Medicare in the amount of $13,562.90. However, Medicare then issued a formal demand for reimbursement of an additional $118,071.28 in conditional payments. Plaintiffs exhausted administrative remedies with Medicare before filing suit in the United States District Court for the District of New Jersey (Osterbye v. United States, 2020 U.S. Dist. LEXIS 116591, June 30, 2020). Plaintiffs alleged that Selective filed a separate conditional payment claim file with CMS without informing Plaintiffs, and then failed to reimburse Medicare under the Medicare Secondary Payer Act.

Selective moved to dismiss Plaintiffs’ claims as time-barred. The court determined, however, that Plaintiffs’ claims were not time-barred, since Plaintiffs were required by the Medicare Act to exhaust administrative remedies before seeking judicial review. Plaintiffs filed suit mere months after exhausting administrative remedies.

Selective also moved for the court to dismiss the matter based on the Release’s language that Plaintiffs “release[d] and g[a]ve up any and all claims and rights which [Plaintiffs] may have” against the defendant. Plaintiffs, however, argued that the Release was invalidated, as the same was based on their understanding that Medicare’s conditional payment claim was for $13,562.90, a “critical mistake of fact.” The court declined to dismiss the suit, indicating that the question of the parties’ assumptions at the time of executing the Release is a factual inquiry that should be decided at a later stage in the proceedings. As such, Selective’s Motion to Dismiss was denied. We will keep you apprised of further developments.

Parties should be aware that Medicare will continue to research conditional payment claims until they are notified of settlement, and the conditional payment amount may unexpectedly change. The possibility of the same should be addressed as part of settlement negotiations. Let us assist with all aspects of Medicare conditional payment claim research and resolution to and through settlement. We are happy to help.


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