Special Challenges for the Toxic Torts Practitioner Steven J. Joffe and Maria A. Caruana

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1 T o x i c T o r t s a n d E n v i r o n m e n ta l L a w Taming the MMSEA Beast By Mary Ellen Gambino, Special Challenges for the Toxic Torts Practitioner Steven J. Joffe and Maria A. Caruana The frustration may be eased, as Congress, the courts, and Medicare all have their sights on the same goal. Mary Ellen Gambino is a partner in Wilson Elser s toxic tort, environmental and energy practice in San Francisco. Steven J. Joffe is a partner in Wilson Elser s general liability and casualty, securities, and toxic tort, environmental and energy practices in Los Angeles. Maria A. Caruana is of counsel for Wilson Elser in San Francisco, where her practice areas include toxic tort and mass tort litigation. 8 For The Defense April DRI. All rights reserved.

2 More than two years have passed since most of us who defend toxic tort cases first heard of Section 111 of the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA). In that time, many have experienced the frustration of finally reaching a settlement agreement, only to spend countless additional hours, weeks even months coming to terms with plaintiffs counsel on the Medicare issues and release language. Even then, after the ink has dried, we are left with a sense of unease. In the jumble of MMSEA catch-phrases, acronyms, alerts, guidelines, and, frankly, inconsistent advice from Centers for Medicare and Medicaid Services (CMS) contractors, we cannot help wondering if we succeeded in protecting our responsible reporting entity (RRE) clients from the threatened penalties and double damages payments that could result from noncompliance, albeit inadvertent noncompliance. As conscientious legal counsel, our obligation is to educate ourselves on the potential pitfalls of the MMSEA and protect our RRE clients. As toxic tort defense counsel, we have the added challenges of grappling with these issues in the context of mass tort litigation, as well as interpreting the Act s special provisions geared toward addressing injuries resulting from toxic exposures involving multiple defendants. All this, while heeding the not- so- subtle message launched at us by the government when it filed the Stricker complaint (U.S. v. Stricker (CV ) September 30, 2010), bringing lawyers into the mix of parties potentially responsible for Medicare reimbursement. Although that case had a happy ending for defendants when the U.S. District Court for the Northern District of Alabama held that the claims were barred by the applicable statutes of limitations, the government s intent to seek reimbursement aggressively from primary insurers, corporate defendants and plaintiffs attorneys cannot be ignored, nor can we discount the possibility that, where colorable claims can be put forth against them, defense attorneys are also fair game. MMSEA: A Brief History A Medicare beneficiary s duty to repay Medicare for health care costs is not new. It has existed since the December 5, 1980, enactment of the Medicare Secondary Payer Act (MSPA). The court succinctly articulated the goal of the Act in the Stricker decision: Though it has been called convoluted and complex by some courts and labeled a model of un- clarity (Estate of Urso v. Thompson, 309 F. Supp. 2d 253, 259 (D. Conn. 2004)), the MSPA (or the MSP statute), put simply, is a statutory reimbursement mechanism for the government to recover expenses conditionally paid by Medicare. See 42 U.S.C. 1395y. Under certain conditions, the MSPA deems that Medicare will be the secondary rather than primary payer for its insureds. In those circumstances, where Medicare pays a health care tab that later was or should have been picked up by the primary insurer, it can recover that money from the recipient of the payment or the primary insurer. What is new is the obligation of defendants and their insurers to report to Medicare any payment obligation to a Medicare beneficiary or face severe penalties. Where, in the past, release language indemnifying the releasee from all liens was sufficient to shelter a defendant from Medicare claims, now that precaution is not enough. The MMSEA provisions directed to insurers and self- insureds took effect on July 1, The MMSEA amends the MSPA. Of particular importance to the toxic tort defense attorney, Section 111 of the Act places the responsibility on our insurance company and self- insured clients (among the groups referred to as RREs by the Act) to report settlements, judgments, awards, or other payment obligations to a Medicare beneficiary. At the time of this writing, failure to properly report invites the onerous civil penalty of $1,000 per day. These new RRE reporting requirements are Medicare s safety net, backing up the MSPA s long- standing requirement that Medicare For The Defense April

3 Toxic Torts and Environmental Law be reimbursed for conditional payments within 60 days of receipt of the payment. The bottom- line motivation, of course, is to ensure that somehow, some way, Medicare will get paid. MMSEA: The Ensuing Challenges Fortunately, the MMSEA beast stumbled at the starting gate. Where, in the past, release language indemnifying the releasee from all liens was sufficient to shelter a defendant from Medicare claims, now that precaution is not enough. As we all know, the mandatory reporting commencement dates were pushed back several times as our RRE clients geared up for this new undertaking; and the extra time was a godsend. As the RREs mastered the finer points of reporting, they tasked their outside defense lawyers with timely collection of information they would need to report and with conveying the message to plaintiffs counsel that all settlements would be conditioned on receipt of this information and the inclusion of specific Medicare release language in the settlement agreements. Immediately, these new rules of engagement became problematic in the area of mass torts. Plaintiffs counsel balked at having their many clients sign forms under oath that were not required by the laws in their jurisdictions. Where standing orders issued in complex litigation prevented defendants from serving special discovery requests early in the litigation, some plaintiffs firms were unwilling to stipulate to providing early answers. Each RRE drafted Medicare release language that passed its corporate counsel s approval, but plaintiffs counsel, accustomed to cranking out identical forms of release for the hundreds 10 For The Defense April 2012 of cases they run through their offices, refused to start crafting special language for each defendant. As a result, funding of settlements was delayed while waiting for information to be exchanged and for release language to be agreed upon. MMSEA: The Solutions So where are we now, two years into this MMSEA adventure? How has court intervention helped or hindered efforts to tame the MMSEA beast? What is on the horizon in this area? Procedures for MMSEA compliance are still developing. In the meantime, across the country, jurisdictions have grappled with disputes between litigants who disagree on what is required to comply with the Act. Courts are diligently working to ease the strain on parties and the court system imposed by the MMSEA. Finding a scheme within which to accomplish this important goal fairly is paramount. Some courts have issued standing orders and case management orders to aid the litigants in complying with the Act. Generally, this judicial activity has occurred in mass tort litigation, specifically asbestos litigation. Judges in complex litigation departments in at least five jurisdictions have been compelled to resolve issues ranging from the necessity of reporting pre- December 5, 1980, exposures to how settlement funds should be held and disbursed. Clarification of Pre-December 5, 1980, Reportable Claims In Philadelphia County, one of the jurisdictions that addressed MMSEA issues, the Complex Litigation Center of the Philadelphia Court of Common Pleas ruled on the issue of whether pre- December 5, 1980, exposures can constitute a reportable event. In the spring of 2011, the issue arose in the context of a motion to enforce settlements in a case where the alleged and established exposure pre-dated December 5, 1980, but defendants still wanted the settlement funds escrowed until Medicare evaluated the potential for a reimbursement claim and notified the parties of their final decision. This matter was of significant enough interest for the court to allow amicus briefing. In addition, Medicare was served with formal notice of the hearing, but did not appear. At the time, the operative version of the CMS User Guide used the phrase alleged, established, and/or released while giving guidance on what constitutes a post- December 5, 1980, exposure: RREs generally are not required to report liability insurance (including selfinsurance) or no-fault insurance settlements, judgments, awards or other payments where the date of incident (DOI) as defined by CMS was prior to December 5, (See exception in discussion below of cases involving exposure. ) For claims involving exposure, this means that there was no exposure on or after December 5, 1980, alleged, established, and/or released. If any exposure for December 5, 1980, or a subsequent date was claimed and/or released, then Medicare has a potential recovery claim and the RRE must report for Section 111 purposes. MMSEA Section 111 Medicare Secondary Payer Mandatory Reporting for Liability Insurance (Including Self- Insurance), No- Fault Insurance, and Workers Compensation User Guide Version 3.1 (July 12, 2010), pp The court weighed the rights and needs of plaintiffs in exigent cases to have their settlements funded in a timely fashion against the interests of defendants to be protected from Medicare claims and penalties. It chose to give Medicare the benefit of the doubt in concluding it would eventually have the common sense to clarify and perhaps even codify what everyone seemed to believe was the case that with or without the references to alleged and released, the government would not require a defendant to pay twice in cases where the exposure is established to have occurred solely pre- December 5, The court s order followed: Pursuant to Section 111 of the Medicare, Medicaid and & [sic] SCHIP Extension Act of 2007, 42 U.S.C. 1395y(b)(8) and the Centers for Medicare and Medicaid Services (CMS) User Guide, Medicare does not require reporting settlements for asbestos exposure claims occurring before December 5, See CMS User Guide (July 12, 1996), p. 96. All funds due and owing pursuant to the above shall be paid in full forthwith.

4 This finding shall apply to all cases filed in the Asbestos Mass Tort Program in the Philadelphia Court of Common Pleas. Order, dated May 25, 2011, In Re: Asbestos Litigation, October Term 1986 No. 0001, In the Court of Common Pleas of Philadelphia County, Trial Division Civil. As predicted by the court, further comment on the meaning of the December 5, 1980, trigger in reportable exposure cases was forthcoming by the CMS when, on September 29, 2011, it issued a longawaited alert on the subject, titled, Exposure, Ingestion, and Implantation Issues and December 5, 1980 (12/5/1980), which was later incorporated in the current User Guide Version 3.3 (December 16, 2011), p (hereinafter User Guide ). The substance of that alert was as follows. In the following situations, Medicare will assert a recovery claim against settlements, judgments, awards, or other payments, and the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) Section 111 MSP mandatory reporting rules must be followed: Exposure, ingestion, or the alleged effects of an implant on or after 12/5/1980 is claimed, released, or effectively released. A specified length of exposure or ingestion is required in order for the claimant to obtain the settlement, judgment, award, or other payment, and the claimant s date of first exposure plus the specified length of time in the settlement, judgment, award, or other payment equals a date on or after 12/5/1980. This also applies to implanted medical devices. A requirement of the settlement, judgment, award, or other payment is that the claimant was exposed to, or ingested, a substance on or after 12/5/1980. This rule also applies if the settlement, judgment, award, or other payment depends on an implant that was never removed or was removed on or after 12/5/1980. When all of the following criteria are met, Medicare will not assert a recovery claim against a liability insurance (including self- insurance) settlement, judgment, award, or other payment; and MMSEA Section 111 MSP reporting is not required. (Note: Where multiple defendants are involved, the claimant must meet all of these criteria for each individual defendant in order for a settlement, judgment, award, or other payment from that defendant to be exempt from a potential MSP recovery claim and MMSEA Section 111 reporting): All exposure or ingestion ended, or the implant was removed before 12/5/1980; and Exposure, ingestion, or an implant on or after 12/5/1980 has not been claimed and/or specifically released; and There is either no release for the exposure, ingestion, or an implant on or after 12/5/1980; or where there is such a release, it is a broad general release (rather than a specific release), which effectively releases exposure or ingestion on or after 12/5/1980. The rule also applies if the broad general release involves an implant. While this clarification perhaps is not as precise as it could have been, the critical development was CMS s acknowledgement, at last, that Medicare will not assert a recovery claim solely because a broad general release releases the defendant from liability for exposure on or after December 5, Guidance from the Courts through Case Management Orders Also dealing with the MMSEA and the procedures by which settlement funds are transferred and held, Wayne County, Michigan, has implemented a case management order for plaintiffs and defendants in asbestos litigation, imposing certain guidelines. Most notably, in this jurisdiction, the court requires plaintiffs counsel to hold settlement funds in trust for reimbursement to Medicare. Case Management Order 17 provides: Plaintiff s attorney shall (1) hold all settlement proceeds in a client trust account or similar account to be used to reimburse Medicare, if necessary; (2) provide Defendant with a copy of the final demand letter, waiver letter or no- conditional payment letter issued by Medicare or the Coordination of Benefits Contractor (COBC); and (3) provide Defendant with proof of full payment of the final demand as defined in the Case Management Order prior to disbursing to Plaintiff any proceeds received in connection with this settlement. In Re: All Asbestos Personal Injury Cases, Case No NP, In the Circuit Court for the County of Wayne, State of Michigan. The Order does not distinguish between pre- and post- December 5, 1980, exposures. The court in Delaware has taken steps to facilitate the transfer of necessary information from plaintiffs to defendants. It has amended its Standing Order No. 1 in the In Re: Asbestos Litigation cases to impose upon plaintiffs a duty to provide certain information to defendants 30 days after the filing of a new complaint. To fulfill this duty, plaintiffs must provide the originals of fully completed and properly executed Section 111 compliance forms, which provide RREs with the items they need to report to Medicare properly, as well as the authorization to release information forms (Medicare Form A-2), which allow the CMS to release information to the RREs concerning conditional payments made by Medicare to or on behalf of the injured party and allow the RREs to disclose the injured party s Social Security number (SSN) to CMS and their contractors, and to the Social Security Administration to determine social security benefits. The forms are attached to the Amended Standing Order No. 1. Madison County, Illinois, implemented an order, filed April 1, 2010, that both outlines the procedure by which defendants are able to obtain Medicare- related information and suggests best practices for handling settlement funds. The order attaches Medicare Forms A-1 (Medicare Eligibility), A-2 (Authorization to Release Information) and B (Confidential Reporting Information). Plaintiffs must deposit the completed Forms A-1 and A-2 at the same time they deposit answers to interrogatories in the central records depository (CRD) that has been set up for In Re: All Asbestos Litigation Filed in Madison County. No trial setting will be ordered until this has occurred. As a condition of any settlement, plaintiff is required to complete Form B promptly and provide it to the settling defendant, along with the release or settle- For The Defense April

5 Toxic Torts and Environmental Law ment agreement. No settlement is final and enforceable until this form has been turned over. Plaintiffs are not required to complete any additional forms or answer interrogatories or requests for admissions in order to comply with or assist in complying with the MMSEA reporting requirements. The order requires Form B to be kept confidential, except to defend against a claim for lien or fine in connection with reporting. If a defendant intends to report information to Medicare that is not consistent with the information provided on Form B, the defendant must first give plaintiff reasonable notice of the information it plans to report. Other protocol is established to ensure prompt, full disclosures and accuracy of information, including requiring plaintiffs to deposit in the CRD a document showing the initial amount claimed by Medicare on its lien, as soon as that information is known, as well as verification of the satisfaction, discharge or release of the lien when that occurs. The court gives its stamp of approval to a form of settlement release attached to the order, but falls short of requiring its use. It comments that best practices would require the release to include a provision that settlement funds may need to be held by plaintiff s counsel, presumably until the Medicare claims are resolved. 12 For The Defense April 2012 Working Together In one jurisdiction, court- encouraged cooperation among the parties has led to a workable solution. San Francisco Superior Court has a dedicated asbestos department, with general orders issued under the In Re: Complex Asbestos Litigation caption. So far, however, the court has declined to issue a general order pertaining to Medicare reporting and compliance. Instead, in 2010, the court formed a committee of defense counsel to hash out their differences with one local plaintiffs firm that has a substantial number of cases in that jurisdiction. The result was a court- approved agreement between that plaintiffs firm and the defendants represented on the committee many of whom were covered by a number of major insurance companies. While no other parties were bound by the agreement, the involvement of the RRE insurers seems to have greatly broadened the number of defendants who would be on board with the agreement, even though they were not per se represented on the committee. Also, the court s endorsement of the agreement is an encouragement to parties that did not participate on the committee to accept the terms of the agreement nonetheless. The outcome is that the number of stalemates in funding settlements seems to have been greatly reduced since the agreement was reached in the fall of As part of the San Francisco agreement, the plaintiffs firm that participated on the committee agreed to provide the necessary reporting information, including the health insurance claim number (HICN). Plaintiffs counsel also agreed to complete and provide Medicare Forms A-1, A-2, and B, and, when applicable, a declaration signed by the injured plaintiff or the representative of a decedent s estate affirming that the injured party is not Medicare eligible. The parties agreed on the Medicare language to be used in the settlement releases, including a provision making the release enforceable under Cal. Code Civ. Pro. Section 664.6, which allows the court to retain jurisdiction over the enforcement of the settlement agreement and provides for the recovery of attorneys fees and costs by the prevailing party. MMSEA: A Bright Spot (or Two) on the Horizon As confounding as MMSEA compliance has been for RREs and their counsel, attempts by the CMS to give guidance have brought some relief, and at the time of this writing, proposed revisions to the legislation promise more improvements. A September 29, 2011, CMS alert announced a change in the implementation timelines for reporting. Section 111 reporting has been delayed for certain TPOC (total payment obligation to claimant) settlements, judgments, awards or other payments. Where the TPOC is more than $100,000 and the payment is made on or after October 1, 2011, it was required to be reported in the quarter beginning January 1, TPOCs more than $50,000 paid on or after April 1, 2012, must be reported in the quarter beginning July 1, TPOCs more than $25,000 paid on or after July 1, 2012, must be reported in the quarter beginning October 1, All TPOCs above the minimum threshold that are paid on or after October 1, 2012, must be reported in the quarter beginning January 1, This significant reduction in the number of cases that will require reporting during the first year was most likely prompted by the strain on Medicare of processing the information with which it had been inundated. Nevertheless, it brings relief to the RREs as well by allowing additional time to comply with the reporting requirements. On March 14, 2011, H.R. 1063, the Strengthening Medicare and Repaying Taxpayers Act of 2011 (SMART Act) was introduced with bipartisan sponsorship to the 112th Congress. Representatives Tim Murphy (R-PA) and Ron Kind (D-WI) sponsored the bill. The Medicare Advisory Recovery Coalition (MARC) supports this legislation and is pushing for its passage, as it serves the interests of the CMS and the insurance industry. The bill, still in the early stages of the legislative process, has been referred to various committees for hearing prior to a vote. Of course, many bills never survive this process, but as of the writing of this article, the passage of this bill looks hopeful. A hearing held on June 22, 2011, by the Subcommittee on Oversight and Investigation and the Committee on Energy and Commerce was a step ahead for the eventual passage of H.R and the goal of modifying the MSPA. On October 17, 2011, Senators Portman (R-OH) and Wyden (D-OR) introduced S (identical to H.R. 1063) in the Senate. H.R. 1063/S would improve the MSPA by amending it to create a process for Medicare to advise the parties of how much Medicare is owed before settlement, among other notable changes. Of particular interest to RREs is an amendment making the assessment of penalties discretionary and creating safe harbors where no penalties will be assessed for specific conduct. The proposed amendment will eliminate the mandatory word shall and inserts the discretionary language, may be subject to a civil money penalty of up to $1,000 for each day of noncompliance. Additionally, penalties will be assessed only for conduct that is determined to be knowing, willful, and repeated. Depending on the eventual definition of the reporting requirement MMSEA, continued on page 79

6 MMSEA, from page 12 safe harbors, this legislation may offer enhanced certainty and protection for settlements in toxic tort cases. Another amendment would require Medicare to develop a method for identifying Medicare beneficiaries other than the beneficiary s SSN or HICN, thus eliminating the issues arising when a plaintiff refuses to produce the numbers. Also, an RRE that does not have to obtain those numbers will not have to manage the added responsibility of keeping those numbers private. The bill also aspires to bring some fiscal sanity to Medicare recovery efforts by setting an established threshold amount below which MSPA compliance would not be required. This would eliminate Medicare s expending resources far out of proportion to its possible recovery in a particular case. This single threshold amount would be calculated by the Chief Actuary of the CMS and would be published no later than November 15 of each year, giving some consistency to the reporting process. Finally, the bill would mandate a threeyear statute of limitations within which the United States could pursue a claim or assess penalties; specifically, the United States could not pursue an action unless its complaint were filed not later than 3 years after the date of receipt of notice of a settlement, judgment, award, or other payment. No civil money penalty could be imposed unless notice was provided not later than 3 years after the date by which information was required to be submitted. The MMSEA beast may not be docile yet, but with Congress, the courts, and Medicare all setting their sights on the same goal, we can be optimistic that eventually the beast will be tamed. For The Defense April