CAALA 31st Annual Las Vegas Convention August/September 2013 LIEN ON ME A PRIMER IN LIEN MANAGEMENT. By Scott J. Corwin

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1 SECTION 14 LIENS

2 LIEN ON ME A PRIMER IN LIEN MANAGEMENT By Scott J. Corwin In recent years, the personal injury attorney has become the collection agent for everyone and every entity trying to collect on a lien against a third party or first party tort recovery. It is almost as though we work for the mob. So how do we handle representing our clients and at the same time protect our clients and ourselves from liability owed to lien holders and maximize our clients recoveries in their tort claims? It can be a daunting task for the personal injury attorney. However, if you arm yourself with the facts and law concerning potential lien claims and take a few simple steps, addressing lien claims can become quite manageable. a. Determine the potential liability for lien claims immediately: i. Gather information in the initial client interview. ii. Review medical records thoroughly. iii. How old is your client? iv. Who does your client work for? v. Is your client permanently disabled? b. New File Instruction Sheet and checklists c. Send notices to potential lien claimants immediately: i. Place lien claimants on notice at the outset of your case. ii. Purpose to ascertain lien amounts as soon as possible. iii. Certain lien claimants can take a very long time to collect payment data and present a lien claim. Examples include Medi-Cal and Kaiser Permanente (through its third party representative The Rawlings Company) d. Form letters can save time and help automate repetitive tasks: i. Medi-Cal form letter. ii. Medicare form letter. e. Periodically follow up with potential lien claimants during the course of your representation of your client: i. Your clients continuing treatment may increase initial lien amounts presented by lien claimants. ii. Staying current on the amount of the potential lien claims is helpful in the representation of your clients personal injury claim - knowledge is power. f. When is it time to confirm lien claim final amounts and negotiate with potential lien claimants? i. Ascertain final lien amounts before initiating settlement discussions with insurers and defense counsel where possible. ii. iii. In advance of mediations, arbitrations, settlement conferences and trial. Having a sum certain for amounts owed to potential lien claimants helps with presenting firm figures to your clients during settlement discussions and hearings as to the amount of your clients net settlement proceeds. iv. Confirm final lien amounts and negotiated discounts with lien claimants in writing. v. Sliding scale agreements for reimbursement of lien claims in advance of mediations, arbitrations, settlement conferences and trial. g. Specific types of liens claims you can anticipate in personal injury claims:

3 i. Medicare liens (1) The CMRS notice and resolution process. (2) Consider hiring a Medicare lien third party resolution company. ii. Medi-Cal liens (1) Otherwise known as the slowest lien resolution process ever. iii. Hospital Statutory liens for emergency room care (1) Civil Code Section 3045 iv. Kaiser Permanente liens (1) The Rawlings Company (2) Civil Code Section 3040 v. County Hospital liens vi. vii. Contractual liens Health insurance liens (1) Anthem Blue Cross (2) Blue Shield (3) Screen Actors Guild viii. ERISA lien claimants beware the pitfalls ix. Automobile medical payments liens Remember, the best defense is a good offense. When you are retained by a personal injury client, do not wait until post settlement or conclusion of your claim to ascertain liability for potential lien claims. Determine your clients liability in advance and you will be thankful you did.

4 NEW FILE INSTRUCTIONS CASE NAME: ADD TO OUTLOOK CONTACT LIST ADD TO OPEN FILES EXCEL LIST ADD TO ACTIVE CASE EXCEL LIST CASE NO: ADD TO DOCTOR TRACKING EXCEL LIST CALENDAR SOL/COURT DATES IN OUTLOOK OPEN WP COMPUTER DIRECTORY OPEN TRUST "ACCT" & GENERAL "CUSTOMER" IN QUICKBOOKS PREPARE FOLLOW UP SHEET INVESTIGATOR TO INTERVIEW WITNESSES/PHOTO SCENE SECURE CAR PHOTOS/PD ESTIMATE CHECK FOR CONFLICT [GET WAIVER IF NEEDED] GOVERNMENT CLAIM FOR DAMAGES VERIFY PLAINTIFF INSURANCE VERIFY TAX ID NUMBERS FOR CLIENT/PROVIDERS/ATTORNEYS COMPLETE NEW CLIENT INTAKE SHEET CREATE - MEDICAL LEDGER CREATE-NOTES LEDGER P-1 [THANK YOU LETTER TO CLIENTS] F-10 [W/CARD - THANK YOU LETTER FOR REFERRAL] P-5 & P-6 [CONFLICT WAIVERS FOR DRIVER & PASSENGER(S)] 1-1 [REP LETTER TO DEF INSURANCE] (INCLUDE INDEX INFO) PD-1 [PD INSPECTION REQUEST TO DEFENDANT INSURER] I-2 [REP LETTER TO CLIENT INSURANCE] PD-2 [PD INSPECTION REQUEST TO CLIENT INSURER] 1-10 [PD, PHOTOS, TOW, RENTAL LETTER TO INSURER] D-3 [SPOILIATION LETTER TO ALL DEFENDANTS & INSURERS] D-1 [REP LETTER TO DEFENDANT] MD-1 [MEDICAL REQUEST LETTER] PR-1 [ORDER POLICE REPORT] MD-1.FD [ORDER FIRE/AMBULANCE REPORT] E-1 [LOE LETTER TO EMPLOYER] W-1 [REQUEST WITNESS STATEMENT] F-4 [INVESTIGATIONS WITNESS STATEMENT REQUEST] MD-2 [MEDI-CAL LIEN NOTICE] MD-3 [MEDICARE LIEN NOTICE] DMV-1 [WITH SR-1 FORM] DMV-1 [WITH SR-19 - UM CASE ONLY] ISO SEARCH SUBMISSION S:\WP\WORK\New File Instruction

5 SCOTT J. CORWIN A PROFESSIONAL LAW CORPORATION WILSHIRE BOULEVARD SUITE 1160 LOS ANGELES, CALIFORNIA TELEPHONE: (310) FACSIMILE: (310) SCOTT@SJCLAW.COM WEBSITE: July 18, 2013 DEPARTMENT OF HEALTH SERVICES RECOVERY SECTION/PERSONAL INJURY UNIT P.O. Box Sacramento, CA ATTN: MARSHA FREER, SUPERVISOR VIA FAX (916) & CERTIFIED MAIL RE: Our Client: Date of Accident: File Number: Dear Ms. Freer: This letter willserve to constitute Notice to the Director of the Department of Health Services, pursuant to Welfare & Institutions Code , etseq., of my representation of X in a personal injury claim against a third party. Medi-Cal benefits may have been paid on behalf of X arising out of this claim. The following is the information required to be provided in this Notice: 1. MEDI-CAL RECIPIENT'S NAME: 2. MEDI-CAL ID NUMBER: 3. SSN: 4. DOB: 5. DATE OF INJURY: 6. NAME, ADDRESS AND DATES OF TREATMENT OF TREATING PROVIDERS: 7. LAWSUIT INFORMATION: No Lawsuit Filed; 8. PRIVATE HEALTH COVERAGE: No Private Health Coverage Please immediately compile Medi-Cal payment information and the claim for lien reimbursement and forward that information to me as soon as possible. I will calendar receipt for a response from you for X. Thank you for your immediate attention to this matter. Very truly yours, S:\WP\WORK\MD-2.wpd

6 The Lien Resolution Group Protecting Proceeds and Government Benefits The Medicare Lien Resolution Process Step One: Contact Medicare. According to 42 U.S.C. 1395y(b), it is the attorneys affirmative duty to notify the Medicare Coordination of Benefits Contractor (COBC) to determine if Medicare has any interest in the case. The case can be called into the COBC office at Step Two: Once the case is called into COBC, fax the case particulars to the MSP Recovery Contractor (MSPRC) at Make sure to provide: 1.) Clients name and address. 2.) DOB 3.) Social Security Number 4.) Medicare Number 5.) Date of incident 6.) Type of incident 7.) Injury description with the proper ICD-9 diagnosis codes if possible Lastly, make sure you include your contact information and an executed CMS approved HIPAA release. The HIPAA releases change from time to time so feel free to contact our firm for an updated version. Step Three: Once the information has been faxed to MSPRC, wait 4 or 5 days and call MSPRC to make sure they received the fax and the case has been entered into their system. The correct number is It usually takes approximately 65 days to receive a conditional payment summary of services. Step Four: Once you receive the Conditional Payment Summary, it is the attorneys' duty to remove any items not related to the incident. If there are treatments included for pre-existing conditions, it is always best practice to have supporting documentation from any treating physicians. It is important to note that Medicare does not agree with the removal of services related to the exacerbation of an underlying condition. Medicare can and will claim the total amount of its payments (usually seen in Medical Malpractice cases). Step Five: Mail back the Conditional Payment Summary with the final settlement details, i.e. total settlement, costs, disbursements, etc. Medicare will then remove the unrelated items, calculate their "Procurement Offset", and send back the Final Demand for payment. Step Six: You now officially have 60 days to make payment from the date of the Final Demand or interest may begin to accrue. The MSP Department usually extends this to 180 days for payment, however, after the 180 day period, the 275 Route 304, Suite 300, Bardonia, New York Phone: Fax:

7 department will send the law firm an "intent to refer" letter to the Department of Treasury for collection. They will then provide an additional 60 days to respond. So, in reality, the parties settling the case really have 240 days to address Medicare's payment. Waiver/ Compromise: Compromise: In certain situations it may be appropriate to seek a compromise with Medicare. The attorney and Medicare may enter into pre-settlement discussions regarding compromising a claim. Medicare's offer is binding should the plaintiff/beneficiary agree to such a compromise. If the compromise is accepted, the plaintiff/beneficiary has no further appeal rights. Compromises are handled by the CMS Regional Offices (RO) pursuant to the Federal Claims Collection Act. Every favorable compromise of debt over $100, must be referred to the Department of Justice for final determination. Waiver: Medicare will consider requests to have the claim waived in its entirety. Medicare can grant a full or partial waiver of its claim. The decision is almost always based on financial hardship circumstances. Issues such as: 1.) The hardship created by paying the initial claim 2.) Future out of pocket expenses 3.) The beneficiary's resources available to meet these expenses. 4.) Any adverse effect on the beneficiaries' standard of living going forward. Appeal We recommend that the entire amount of the final demand is paid within sixty (60) days to avoid accruing interest. If there are unrelated charges on the final demand letter, an appeal must be submitted to have them removed. Appeal letters are generally addressed within 60 days, but not always. Some exceed this time frame considerably. If there is consensus on the appeal that the charges are unrelated, a refund check will be issued for the difference. There are three potential stages to the appeal. 1) The first appeal goes to MSPRC. Ifthey deny it and the dispute remains, then 2) The appeal is sent to Maximus Federal Services. If Maximus denies it, 3) Request an AU Hearing. It is important to note that in the past CMS has not participated in the AU hearing. However, the elapsed time from when the case settles to the hearing could be months. Joshua Frankl (ifrankl@helpwithliens.com) Brett Newman (bnewman@helpwithliens.com) The above is a general outline ofthe lien resolution process that we employ. Not all lien issues willfollow this precise process. There is no guarantee that following this outline will ensure that your lien will be resolved in part or infull. 275 Route 304, Suite 300, Bardonia, New York Phone: Fax:

8 LETTER OF REPRESENTATION It is hereby agreed (Attorney for Client) will use the services of The Lien Resolution Group (hereinafter "TLRG") to negotiate with the State and Federal Medicaid agencies, CMS, ERISA and private insurance plans to discuss resolution of clients' respective obligation with these agencies. Medicare Beneficiary Name: HIC#: Date of Incident: The period of healthcare information to be disclosed are stated on the original or duplicate original copy of each client's health information HIPAA form. The medical record and billing to be released/discussed include any and all medical and billing record of each client and further includes the release of information concerning drug and/or alcohol abuse, an/or psychiatric and/or HIV/AIDS records release. The purpose of this disclosure of information relates to a civil litigation. This Agreement is binding upon ATTORNEY and TLRG, and upon the directors, officers, employees and agents of each. This Agreement is effective as of the later date of execution and will continue indefinitely, unless terminated on thirty (30) days written notice by either party. However, TLRG's obligations of confidentiality and restrictions on use of the Information disclosed by TLRG shall survive termination of this Agreement. CONFIDENTIALITY AGREEMENT This non-disclosure agreement ("Agreement") is between (hereinafter "Attorney") at located at ; and The Lien Resolution Group (hereinafter "TLRG") having their business location at 275 Route 304, Suite 300, Bardonia, New York Therefore, Attorney and TLRG agree as follows: That the disclosure of information by Attorney is in strictest confidence and thus TLRG will: a. Not to disclose to any other person the information b. Use the information only for the above purpose

9 c. Restrict disclosure of the information solely to those employees oftlrg having a need to know such information in order to accomplish the purpose stated above. It is agreed and understood by both parties that TLRG is bound by the terms of the HIPPA Release/Proof of Representation and any other confidentiality clauses signed. I understand and accept the terms of this engagement: Attorney Signature Date Agent of: The Lien Resolution Group Date Privacy Statement This document contains legally privileged and confidential information intended only for the individual or entity named within. If the reader is not the intended recipient, or the agent responsible to deliver it to the intended recipient, you are hereby notified that any review, dissemination, distribution or copying of this communication is prohibited. A photocopy or facsimile of this Letter of Representation shall be valid and given the same force and effect as the original.

10 Form Approved Social Security Administration omb No Consent for Release of Information SSA will not honor this form unless a/1 required fields have been completed (*signifies required field). TO: Social Security Administration *Name *Date of Birth *Social Security Number I authorize the Social Security Administration to release information or records about me to: *NAME *ADDRESS The Lien Resolution Group 275 Route 3 04, Suite 3 00 Bardonia, New York * I want this information released because: to determine eligible government There may be a charge for releasing information. benefits * Please release the following information selected from the list below: You must check at least one box. Also, SSA will not disclose records unless applicable date ranges are included. I I Social Security Number l~l Current monthly Social Security benefit amount n Current monthly Supplemental Security Income payment amount l~l My benefit/payment amounts from to I 1My Medicare entitlement from to I Medical records from my claims folder(s) from to If you want SSA to release a minor's medical records, do not use this form but instead contact your local SSA office. I I Complete medical records from my claims folder(s) I I Other record(s) from my file (e.g. applications, questionnaires, consultative examination reports, determinations, etc.) I am the individual to whom the requested information/record applies, or the parent or legal guardian of a minor, or the legal guardian of a legally incompetent adult. I declare under penalty of perjury in accordance with 28 C.F.R (d)(2004) that I have examined all the information on this form, and on any accompanying statements or forms, and it is true and correct to the best of my knowledge. I understand that anyone who knowingly or willfully seeking or obtaining access to records about another person under false pretenses is punishable by a fine of up to $5,000. I also understand that any applicable fees must be paid by me. Signature: ; *Date: Relationship (if not the individual): *Daytime Phone: Form SSA-3288 ( ) EF ( )

11 MEDI-CAL LIEN UPDATE: 2013 By Steven B. Stevens Medi-Cal s Right of Reimbursement Medi-Cal is California s implementation of Medicaid, a federal medical assistance program. program, Title 42, section 1396 of the United States Code authorizes annual appropriations from Congress to the States to enable them to create and maintain medical assistance programs. 42 U.S.C. 1396; Wel. & Inst. C et seq.; see generally Olszewski v. Scripps Health, 30 Cal.4th 798, 135 Cal.Rptr.2d 1 (2003). The federal Medicaid Act requires states to seek reimbursement for Medicaid payments from third-party tortfeasors. 42 U.S.C. 1396a(a)(25). The Department of Health Care Services, usually files a lien against the injured plaintiff-beneficiary s tort action, though it has the right to file an action against the tortfeasor. Wel. & Inst. Code , (c). The devil, as it is said, is in the details. How should the lien be calculated? Arkansas Dept. of Health and Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct (2006), held that a state seeking reimbursement of Medicaid benefits by lien on a third-party action cannot lay claim to more than the portion of [the Medical beneficiary s] settlement that represents medical expenses. Ahlborn, 547 U.S. at 280, 126 S.Ct. at In Ahlborn, the Arkansas Medicaid program permitted the state to assert a lien on a beneficiary s action against that tortfeasor. The Medicaid beneficiary in Ahlborn was involved in an automobile accident and suffered serious injuries, for which the Arkansas paid benefits for $215,000 for 1 medical care. The beneficiary, in her third-party action against the other driver, sought damages for past medical expenses, loss of earnings, loss of earning capacity, and pain and suffering. The Medicaid beneficiary settled her third-party action for $550,000. The settlement was not allocated among the categories of damages. Arkansas, relying upon its statutes, asserted a lien for the entire amount it paid in Medicaid benefits. California had a similar statute in Wel. & Instit. Code (a) ( the court... shall... allow as a first lien against the amount of the settlement... the reasonable value of additional benefits provided to the beneficiary under the Medi-Cal Program.... ). Federal Medicaid law requires States receiving Medicaid funds to take all reasonable measures to ascertain the legal liability of third parties... that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service) to pay for care and services available under the plan. 42 U.S.C. 1396a(a)(25)(A). The States must seek reimbursement for such assistance to the extent of such [third-party s] legal liability. 42 U.S.C. 1396a(a)(25)(B). Congress authorized States to acquire only those rights of such individual [beneficiaries] to payment by any other party for such health care items or services. 42 U.S.C. 1396a(a)(25)(H). Medicaid beneficiaries assign to the States only their rights... to payment for medical care from any third party. 42 U.S.C. 1396k(a)(1)(A). As Ahlborn explained, the focus of the federal statutes is on the beneficiary s assignment of rights to receive payment for medical care that was already paid by medical assistance. Section 1396k(a) does not require Medicaid beneficiaries to assign to the States their rights to payment for other injuries, such as lost wages. Ahlborn, 547 U.S. at 280, 126 S.Ct. at Congress also barred the States from imposing liens against a recipient s property in order to recover benefits paid on his behalf for medical care and services. Section 1396p(a)(1), the Anti-Lien Provision, states that, 1 All numbers in this article are rounded off.

12 [n]o lien may be imposed against the property of any individual prior to his death on account of medical assistance paid or to be paid on his behalf under the State plan. 2 Ahlborn concluded that Section 1396a(a)(25)(B) s reference to reimbursement for such [medical] assistance to the extent of such legal liability applies only to the liability of third-parties to pay for care and services available under the plan. Ahlborn, 547 U.S. at 280, 126 S.Ct. at 1761 (emphasis in original). Again, the statute does not sanction an assignment of right to payment for anything other than medical expenses not lost wages, not pain and suffering, not an inheritance. 547 U.S. at 281, 126 S.Ct. at 1761 (emphasis added). California s Legislative Response to Ahlborn The California Legislature in 2007 amended Welfare & Institutions Code section The statute now states: No settlement, judgment, or award in any action or claim by a beneficiary to recover damages for injuries, where the director has an interest, shall be deemed final or satisfied without first giving the director notice and a reasonable opportunity to perfect and to satisfy the director's lien. Recovery of the director s lien from an injured beneficiary s action or claim is limited to that portion of a settlement, judgment, or award that represents payment for medical expenses, or medical care, provided on behalf of the beneficiary.... In determining what portion of a settlement, judgment, or award represents payment for medical expenses, or medical care, provided on behalf of the beneficiary and as to what the appropriate reimbursement amount to the director should be, the court shall be guided by the United States Supreme Court decision in Arkansas Department of Health and Human Services v. Ahlborn (2006) 547 U.S. 268 and other relevant statutory and case law. California s Judicial Response to Ahlborn Ahlborn did not answer the next troublesome question: What portion of the beneficiary s settlement is the extent of such [third-party s] legal liability. 42 U.S.C. 1396a(a)(25)(B). A settlement with an individual plaintiff is negotiated and paid as a lump sum. The parties do not usually separately negotiate and resolve past care, future care, loss of income, loss of earning capacity, general damages and other items. A trio of cases have endorsed a ratio, or percentage, calculation as a reasonable method of apportioning an unallocated settlement for purposes of calculating the Department s recovery or lien. Compare the plaintiffbeneficiary s settlement to his overall damages and apply the resulting ratio or percentage to the paid Medi- Cal benefits. In Bolanos v. Superior Court, 169 Cal.App.4th 744, 87 Cal.Rptr.3d 174 (2008), the plaintiff filed a medical malpractice action against her health care providers for catastrophic injuries. The Medi-Cal program spent $746,000 for her care. Bolanos settled the medical malpractice action for $1,500,000. The Department wanted $546,000 to satisfy its lien. Bolanos contended that her total damages were between $6 million and $11.4 million dollars, depending on her life expectancy. The Department contended that it was entitled to recover the entire amount it expended (minus a portion of attorneys fees and costs). The trial court denied 2 Two exceptions a lien created by a judgment against the recipient for benefits incorrectly paid on his behalf, and a beneficiary who is an inpatient at a nursing facility, 42 U.S.C. 1396p(a)(1)(A), (B) do not usually apply to beneficiaries who are suing third-party tortfeasors.

13 the plaintiff s motion to reduce the Department s lien, but the Court of Appeal reversed. [A] settlement that does not distinguish between past medical expenses and other damages must be allocated between these two classes of recoveries. Without such an allocation, the principle set forth in Ahlborn, that the state cannot recover for anything other than past medical expenses, cannot be carried into effect. Bolanos, 169 Cal.App.4th at 753, 87 Cal.Rptr.3d at 180. Bolanos explained that a rational method of allocating a portion of a settlement to past medical expenses is to compare the total settlement to overall damages and apply that ratio or percentage to the paid Medi-Cal benefits. This is not to say that the Ahlborn formula is the only one to be followed; there is nothing in that decision that compels this. What matters is that past medical expenses are distinguished in the settlement from other damages on the basis of a rational approach; it may be that the parties can reach an agreement without recourse to the Ahlborn formula. In fact, subdivision (a) of section urges the parties to do so. Bolanos, 169 Cal.App.4th at 754, 87 Cal.Rptr.3d at 181. The appellate court returned the matter to the trial court so it could make a finding of the plaintiff s life expectancy and, thus, a determination of the present value of her total lifetime damages. Lima v. Vouis, 174 Cal.App.4th 242, 94 Cal.Rptr.3d 183 (2009), the second decision, on similar facts endorsed the Bolanos approach to allocating a portion of a settlement to past Medi-Cal benefits. Based on the holding in Ahlborn... we conclude that the trial court was required to distinguish past medical benefits in the settlement from other categories of damage using a rational approach that takes into consideration the trial court s various findings, including its findings concerning the total value of plaintiff s damages and the reasonableness of the settlement amount in light of those total damages. Lima, 174 Cal.App.4th at 260, 94 Cal.Rptr.3d at 196. A trial court violates the principles of Ahlborn if it fail[s] to determine the portion of the settlement proceeds allocable to past medical expenses and instead allow[s] the Department to recover the entire amount of its lien, less attorneys fees and costs. Lima, 174 Cal.App.4th at 260, 94 Cal.Rptr.3d at 197. Lima next addressed the method by which a trial court can make that allocation. Lima acknowledged that there might be other equitable ways to allocate the settlement, but it endorsed the use of a ratio that compares the settlement to the total damages. The plaintiff introduced evidence of her special and general damages, including expert declarations for life care planner and economist. She showed that her recovery was 6.75% of her total damages and argued that the Department recovery should be calculated using that percentage. Based on the unchallenged findings of the trial court, plaintiff s computation using a ratio of 6.75 percent to reduce the amount of past medical expenses appears to be a fair approach to the allocation issue. Lima, 174 Cal.App.4th at 261, 94 Cal.Rptr.3d at 197. The ratio methodology, while not mandated by Ahlborn, is certainly reasonable especially when the Department is making no effort to assist in the prosecution of the third-party action. The Department has never proposed any other methodology for calculating its recovery, other than insistence that it should recover all benefits paid (minus a portion of attorneys fees and costs).

14 In the third California appellate decision, Lopez v. Daimler Chrysler Corp., 179 Cal.App.4th 1373, 102 Cal.Rptr.3d 285 (2009), the court relied upon Bolanos and reached the same conclusions about the reasonableness and equity of using a ratio based on settlement to overall value, and applying it to the paid Medi-Cal benefits. The United States Supreme Court Revisits Medicaid Liens The United States Supreme Court recently endorsed California s approach to allocating a lump sum settlement between past medical expenses that Medi-Cal paid and the plaintiff-beneficiary s other damages. In Wos v. E.M.A. ex rel. Johnson, U.S., 133 S.Ct. 1391, 2013 WL (2013), a North Carolina statute required a plaintiff-medicaid beneficiary to pay up to one-third of her tort recovery to the state as reimbursement for Medicaid benefits paid to health care providers on her behalf. This one-third apportionment was without regard to the plaintiff s tort damages and without regard to whether she recovered in settlement all or only a fraction of her total damages. The United States Supreme Court struck down the North Carolina statute, finding that it violated United States Code Title 42, section 1396p(a)(1) (the Anit-Lien Provision of the Medicaid statute). The flaw of North Carolina s statute was that, by setting a presumption that one-third of all tort recoveries were allocated to Medicaid benefits, there was no individualized determination of what portion of a lump sum settlement could be allocated to past medical expenses paid by the Medicaid agency. When the State and the beneficiary are unable to agree on an allocation, Ahlborn noted, the parties could submi[t] the matter to a court for decision. Id., at 288, 126 S.Ct The facts of the present case demonstrate why Ahlborn anticipated that a judicial or administrative proceeding would be necessary in that situation. Of the damages stemming from the injuries E.M.A. suffered at birth, it is apparent that a quite substantial share must be allocated to the skilled home care she will require for the rest of her life....it also may be necessary to consider how much E.M.A. and her parents could have expected to receive as compensation for their other tort claims had the suit proceeded to trial. An irrebuttable, one-size-fits-all statutory presumption is incompatible with the Medicaid Act s clear mandate that a State may not demand any portion of a beneficiary s tort recovery except the share that is attributable to medical expenses. Wos, U.S. at, 133 S.Ct. at 1399 (emphasis added). Wos turned to how such an allocation could be made. Wos cited with approval California s Welfare & Institutions Code section States have considerable latitude to design administrative and judicial procedures to ensure a prompt and fair allocation of damages. Sixteen States and the District of Columbia provide for hearings of this sort, and there is no indication that they have proved burdensome.... See, e.g., Cal. Welf. & Inst. Code Ann (a) (West 2011). Wos, U.S. at, 133 S.Ct. at 1401 (emphasis added).

15 The Department s Reaction to Lima-Bolanos-Lopez The Department s prior response, and one that it still asserts in its oppositions to determine Medi-Cal liens, is that Lima, Bolanos and Lopez were wrongly decided. Because that position has proved to be unpersuasive, it has also developed a new strategy. It adopts the Lima-Bolanos-Lopez methodology, but tries to reduce the overall damages by claiming that it will pay for all medical and attendant care for the beneficiary for the rest of her life including as much as fifty or sixty years into the future. The Department tried to make this argument in Lima, but the appellate court rejected it for lack of evidence: DHS asserts that under Ahlborn,... it is entitled to a lien on that portion of the settlement proceeds allocable to past and future medical costs.... DHS s contention in this regard is unsupported by authority; Ahlborn... does not squarely address the issue, but appears to assume that the lien rights under discussion there related to amounts actually paid by the state agency on the Medicaid recipient s behalf. Even assuming, however, that DHS s contention concerning future medical expenses has arguable legal merit, it lacks factual support. The record contains no evidence on the issue of DHS s responsibility for future medical expenses, much less a commitment by DHS to pay such expenses, and the trial court made no findings on the issue. Thus, regardless of its legal merit, we reject the contention concerning future medical expenses because of the lack of factual support. Lima, 174 Cal.App.4th at , 94 Cal.Rptr.3d at (emphasis added). In the Department s most recent oppositions, it tried to fill this gap by having a lower level employee sign a declaration that states, in short, that she has read the Medicaid beneficiary s life care plan and the care in the life care plan is covered by Medi-Cal. The declaration will include a phrase that Medi-Cal benefits include future attendant care by an LVN.... The declaration will conclude with a comment that all of the benefits and services described... will be paid by the Medi-Cal program. There are a few things to note about this type of declaration: First, it is not signed by the Director of the Department of Health Care Services, or by any ranking official. Second, the Department s employee s declaration will not promise or assure the Court that all of the beneficiary s medical and attendant care from the date of the declaration to the end of the beneficiary s life will be paid by Medi-Cal. Nor will the declaration state outright that Medi-Cal will cover around the clock LVN attendant care. In its memorandum of points and authorities, the Department will make those assertions and cite to its employee s declaration. Third, even if the declaration was intended to be interpreted as a promise or assurance that all medical and attendant care will be paid for the next two to sixty years, the Department will not explain how the beneficiary is to hold it to those assurances. When annual funding levels vary with annual revenues, it is impossible for the Department to promise any beneficiary that her care will be covered fifty, or even five, years from now. Government Code section immunizes the Department of these unfulfilled promises: A public entity is not liable for an injury caused by misrepresentation by an employee of the public entity, whether or not such misrepresentation be negligent or intentional. This immunity, in regard to negligent or intentional wrongdoing involving financial or commercial interests, is absolute. Adkins v. State of California, 50 Cal.App.4th 1802, 1819, 59 Cal.Rptr.2d 59, 70 (1996), disapproved on other grounds, City of Moorpark v. Superior Court, 18 Cal.4th 1143, 1156, 77 Cal.Rptr.2d 445, 453 (1998).

16 Most trial courts reject the Department s effort but, regrettably, one trial court partially accepted it. In Aguilera v. Loma Linda Medical Center, a trial court accepted the notion that Medi-Cal can be counted on to provide all medical care outlined in a life care plan for the beneficiary (a child) for the next fifty years. That trial court rejected, however, the Department s argument that it will provide around-the-clock LVN attendant care for the next fifty years. The trial court thus reduced the calculation of overall damages by the present value of the medical care. The Department appealed the trial court s order. The plaintiff-beneficiary cross-appealed, because the trial court refused to allocate any of the attorneys fees to the Department (see below). The propriety of offsetting predicted future payments will also be an issue in the cross-appeal. Watch for Aguilera v. Loma Linda Medical Center, currently pending in the Fourth District. The Problem of Partial Settlements In Branson v. Sharp Healthcare, Inc., 193 Cal.App.4th 1467, 123 Cal.Rptr.3d 462 (2011), the Medi-Cal beneficiary, filed an action against two physicians and their medical group and a hospital for medical malpractice. He alleged that their substandard care caused him to become a quadriplegic. The beneficiary established that his overall damages were over $29,000,000. This figure included $27,700,000 for the present value of future care, $250,000 for general damages, Civ.C , and $1,100,000 in past medical expenses. The past medical expenses were paid by the Medi-Cal program. The Department filed a notice of lien in Branson s medical malpractice action for the amount expended by the State of California for benefits provided... under the Medi-Cal program. Branson obtained a partial settlement of his action from the two physicians and their medical group for $2,000,000. The Medi-Cal had paid $600,000 and demanded $440,000, which the plaintiff paid. In its standard form letter, the Department stated that, [d]ue to the possibility of additional settlements, this reimbursement amount will only be considered as partial satisfaction of the Medi-Cal lien. The following year, Branson settled with the remaining defendants for $4,800,000. His total settlements were $6,800,000. The Department had paid an additional $500,000 in benefits for his medical care and a demand for an additional $370,000. Including the first settlement, Medi-Cal expended $1,125,000 in benefits and demanded a total of $810,000 to satisfy its lien. In short, although the Medi-Cal beneficiary recovered in settlement only 23% of his overall damages ($6,800,000 of $29,000,000), the Department demanded payment of 73% of its damages ($810,000 of $1,125,000). Using the Bolanos-Lima-Lopez formula, Branson calculated his reimbursement obligation as $263,000 (23.4 percent of $1,125,000). After further reductions to account for attorneys fees and costs, Branson calculated that he owed $189,000 to the Department and, thus, he overpaid by $250,000. Branson moved the trial court for an order determining the Department s lien and to order a refund of the overpayment. The trial court agreed with the calculations but ruled that Welfare and Institutions Code section gave it jurisdiction to order a refund of an overpayment. The appellate court rejected the Department s interpretation the Section limited a trial court to making only findings, with no power to issue orders. Branson held that the plain language of section , subdivision (c) gives the court jurisdiction to order the Department to make a refund.... To settle such a dispute, the court must have the power to enforce its finding as to the appropriate reimbursement amount. Branson, 193 Cal.App.4th at 1476, 123 Cal.Rptr.3d at 468. The state has no legitimate interest in the Department s retention of beneficiary overpayments to which it is not entitled. We do not attribute any such intent to the Legislature, and we cannot countenance subsidizing the Medi Cal program in this manner, at the expense of injured beneficiaries. Branson, 193 Cal.App.4th

17 at 1477, 123 Cal.Rptr.3d at 469. The Department s position would undermine the public policies of encouraging settlement and efficient reimbursement of Medi-Cal liens. If beneficiaries are foreclosed from obtaining refunds for overpayments, they will be unlikely to voluntarily make reimbursements based on settlements with fewer than all the defendants, pending the final resolution of third party lawsuits. Branson, 193 Cal.App.4th at 1477, 123 Cal.Rptr.3d at 469. Surely, subdivision (c) authorizes the court to order a beneficiary to reimburse the Department for reasonable value of a Medi Cal lien, and the statute shows no reason the authority does not apply equally to the refund of an overpayment under circumstances such as those here. Branson, 193 Cal.App.4th at 1477, 123 Cal.Rptr.3d at 468. Branson noted the irony of the Department s position: Had the court determined Branson owed further reimbursement to the Department, we doubt it would argue section , subdivision (c) deprives the court of jurisdiction to order his compliance. Branson, 193 Cal.App.4th at 1477 n.5, 123 Cal.Rptr.3d at 468 n.5. Branson also explained that the trial court has inherent power to order the Department to issue a refund of an overpayment. The power to enforce their decrees is necessarily incident to the jurisdiction of courts. Without such power, a decree would, in many cases, be useless. All courts have this power, and must necessarily have it; otherwise they could not protect themselves from insult, or enforce obedience to their process. Without it, they would be utterly powerless. Branson, supra at n. 4, quoting Security T. & S. Bk. v. S. P. R.R. Co., 6 Cal.App.2d 585, 589, 45 P.2d 268 (1935); see also C.C.P. 128(a)(4) (codification of inherent power). Branson rejected the Department s alternative argument that the plaintiff-beneficiary s $440,000 payment was a negotiated settlement that constituted a waiver of his right to later dispute that amount. [T]he Department sent Branson an initial reimbursement demand, with the understanding there would be an updated lien amount when his litigation was finally resolved. Given the parties understanding of the fluid nature of the matter, his payment does not constitute an agreement it was not subject to later adjustment. We reject the Department s view that the fluidity pertained only if Branson owed it additional reimbursement. Waiver is the intentional relinquishment of a known right... and the record does not indicate waiver. The Department s Effort to Avoid Branson The Department has reacted to Branson by trying to divide its lien into multiple smaller liens. The Department treats a beneficiary s receipt of benefits for an injury as a claim. If there is a partial settlement, the Department will close that claim and, if any further Medi-Cal benefits are paid, will treat those benefits as a new claim. The Department thus tries to evade Branson with clever bookkeeping. Plaintiff s counsel should take into account Branson and the Department s position and determine which method best maximizes the plaintiff s recovery. Depending on the facts, it is possible for the Department s bookkeeping to work in favor of the injured beneficiary. Lien or Reimbursement Reduction for Attorneys Fees? The Department now takes the position that, if a plaintiff-beneficiary seeks determination of the amount of the lien under the Ahlborn-Lima methodology, then he is not entitled to reduction for attorneys fees and

18 litigation costs. As the Department reads the statutes, (1) the plaintiff-beneficiary is entitled to a twenty-five percent reduction to account for attorneys fees, and a reduction for a portion of litigation costs, under Welfare & Institutions section ; (2) Ahlborn is cited in Section The Department concludes that, if the beneficiary wants the Ahlborn-Lima calculation, it does not have to contribute to any of the litigation expenses. At least two trial courts have accepted this argument, even though it contradicts the Common Fund Doctrine. In re Reade s Estate, 31 Cal.2d 669, , 191 P.2d 745, 746 (1948) ( a plaintiff who has succeeded in protecting, preserving or increasing a fund for the benefit of himself and others may be awarded compensation from the fund for the services of his attorney. This is to compel those for whose benefit the action or proceeding was taken to bear their share of the expenses of the litigation; and this rule is equitable and just. ). This issue is currently pending on appeal in the Fourth District. Watch for Aguilera v. Loma Linda University Medical Center.

19 The Roadmap to Medicare Set Aside Freedom Presented by Clayton Starnes The Plaintiffs Resource Medicare Secondary Payer Statute The MSP statute at 42 U.S.C. 1395y(b)(2)(A) states: Payment under this subchapter may not be made with respect to any item or service to the extent that (ii) payment has been made, or can reasonably be expected to be made under a workmen s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance. (emphasis added) Historical Overview Liability MSA s U.S.C. 1395y(b)(2)(A) Medicare is secondary payer when payment has been made under a W/C law or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault ins st MSA done in W/C case C.F.R addresses when to consider Medicare s future interest in a W/C settlement when the client might rely on Medicare to cover any future-related care. (Nothing about liability settlements) 2003-May 11, 2011 CMS publishes memo s on how to consider and protect Medicare s future interest in W/C settlements (no memos address liability settlements) 2007 Defense carrier reporting obligation (Does not require an MSA) Nowhere in the new mandatory insurance reporting regulations is protecting Medicare s future exposure or a Medicare Set-Aside mentioned. May 25, 2011 CMS Regional Coordinator Sally Stalcup issues letter stating 1980 statute requires us to consider Medicare s future interest in liability cases when there is a recovery for future meds (but doesn t address how)

20 16 CMS Memos for WC MSAs that address: Determining Medicare s future exposure When Medicare will review an MSA determination How to administer an MSA How to fund an MSA lump sum or structured annuity All WC CMS memos can be found at: of Benefits and Recovery/Workers Compensation Medicare Set Aside Arrangements/WCMSA Memorandums/Memorandums.html Medicare Set Asides Workers Compensation/Longshore The rules are black and white Liability/Jones Act The rules are grey Directions from CMS on Liability MSA s: Here is complete list of directions from CMS on considering Medicare s future interest in a Liability case: May 25, 2011: CMS/Medicare Dallas Regional Office memo that is not to be considered a CMS official statement of policy. Says Medicare s future interest needs to be considered when there is a recovery for future care. September 29, 2011: CMS/Medicare Memo stating Medicare s future interest is satisfied when treating physician states no future related treatment and Rx is required.... In other words, not much