State Court Upholds Medicare Advantage Plan Recovery When Payment Exceeds Billed Charges

In Kaiser Foundation Health Plan, Inc. v. Brice, 2022 Wash. App. LEXIS 1133 (Wash. Ct. App. 2022), the Washington Court of Appeals addressed the recovery rights of Medicare Advantage Plans when the amount paid by the Advantage Plan exceeds the billed charges. Brice, a Medicare beneficiary, had settled a dental malpractice claim. Kaiser Foundation Health Plan, her Medicare Advantage Plan, had paid for a significant amount of follow up treatment and asserted a lien. Brice argued that the Medicare Advantage Plan lien should be reduced because Kaiser had paid $113,387.18 for a hospital stay despite the hospital only billing $50,088.86. Kaiser declined to reduce the lien amount because the payment was based on its contract with the hospital and Medicare requirements.

After settling the dental malpractice claim, Brice’s attorney sent a check to Kaiser for a reduced amount that the attorney argued Kaiser was owed. Kaiser in turn filed a declaratory judgment action in state court arguing for its recovery of the full lien amount and was granted summary judgment. On appeal, the Washington Court of Appeals looked to 42 U.S.C. § 1395w-22(a)(4), which provides that Medicare Advantage Plans may charge an “individual to the extent that the individual has been paid under such law, plan, or policy for such services.” The court also looked to 42 C.F.R. § 422.108(d)(2), which provides that Medicare Advantage Plans may charge a beneficiary “to the extent that he or she has been paid by the carrier for covered medical expenses.” The court also reviewed Brice’s coverage agreement with Kaiser, which provided that Brice “shall reimburse [Kaiser] for all benefits provided, from any amounts [Brice] received … on account of such injury … whether by suit, settlement or otherwise.” Because the settlement was sufficient to compensate Brice for the amount paid by Kaiser, the court held that Kaiser was entitled to recovery its full lien amount.

Because Kaiser had to file a declaratory judgment action to recover the full amount of its lien, the court held that the lien should not be reduced for procurement costs based on 42 C.F.R. § 411.37(e). The court noted that the issue was whether Kaiser had to file suit because Brice opposed Kaiser’s recovery. Because Brice only paid a reduced amount and did not proactively seek a determination of the appropriate lien amount, the court found that Kaiser did not clearly have a better alternative to filing suit. As such, the court upheld the lower court’s decision to deny a procurement cost reduction.

The case does not address the availability of the administrative appeals process for Medicare Advantage Plan liens. It is apparent that Brice did not seek a reduction of the lien amount through the administrative appeals process.

Although the court held that the Medicare Advantage Plan could recover for the amount it paid for Brice’s hospital stay even though the hospital bill was for a substantially lower amount, Medicare’s practice in such cases is to only seek recovery for the amount billed. Chapter 7 of the Medicare Secondary Payer Manual provides the guidance below, though this guidance was not addressed by the court.

If, under the Prospective Payment System (PPS), Medicare pays a provider, physician, or other supplier more than its charges, the MSP contractor does not recover more than the charges from a beneficiary’s liability settlement. See P.L. 98-21 (97 Stat. 65, April 20, 1983). (Under Medicare regulations, a beneficiary who must refund a Medicare payment made to a provider, physician, or other supplier is liable only to the extent that the beneficiary benefited from the payment. Since the beneficiary would have had to pay only the provider, physician, or other supplier’s charges in the absence of Medicare, the beneficiary is not liable for refunding more than the charges). The provider, physician, or other supplier is not required to refund the excess of the Medicare payment rate over the provider, physician, or other supplier’s charges. See Medicare Financial Manual, Chapter 3 (Overpayments), Section 110.1.